Strategies from the Housing Supply Accelerator Playbook
4 Ways to Use State Funding for Local Housing Supply
As federal funding programs are changed, reduced, or curtailed, localities are increasingly looking to states to supplement their finance efforts to produce, preserve, and improve the housing supply.
Here are four ways to use state funding for local housing action, plus a look at two states that are creating even more opportunities for financing.
State Funding Support for Local Housing Efforts
1. Housing Trust Funds
Leveraging state-level housing trust funds is one way to allocate resources for the production and preservation of housing at the local level. The state determines how funds are administered, permissible uses, and funding sources of the trust fund. Funding from the housing trust fund can address various local housing needs, aligned with state regulations.
2. Housing Tax Credits
States can institute a program mirroring the federal Low-Income Housing Tax Credit (LIHTC) to stimulate private investment in attainable housing. This initiative offers non-refundable state tax credits to investors involved in housing projects, thereby incentivizing their support for the development of attainable housing. It is also helpful to engage state offices, such as your state housing finance agency, regarding the allocation of federal Low Income Housing Tax Credits, since these agencies play a critical role in allocating credits through the Qualified Allocation Plan.
3. Grant Programs
States can establish dedicated grant programs aimed at preserving, rehabilitating, and constructing new housing units. These initiatives provide targeted financial support to address the critical relationship between housing, infrastructure, and development.
An increasing number of states are also providing capacity-building and technical assistance grants for zoning reform. In some cases, these grants can provide additional fiscal support for housing and housing-supportive infrastructure.
Some states are also supporting housing supply through new grants aimed at supporting the development sector workforce needs, promoting modular housing, subsidizing housing development, and targeting infrastructure funding. It is important to engage with state officials to identify sources of potential funding and to ensure state leaders understand your housing plan.
4. State Allocation of HUD Block Grants
States play a crucial role in managing federal housing funds, including three significant HUD Block grants: Home Investment Partnerships (HOME), Community Development Block Grants (CDBG), and Emergency Solutions Grants (ESG).
Eligible localities can seek access to these block grant funds through their state. In some cases, states distribute funds to localities using a predetermined formula.
Strategies in Action: State of Virginia
The state of Virginia established the Virginia Housing Innovative Demonstrations Program in 2019 to invest in innovative housing solutions, including advanced factory-built housing.
Through internally generated funds, Virginia Housing established this grant program aimed at fostering partnerships between manufacturers, developers, and local jurisdictions to encourage the acceptance of advanced factory-built homes and other housing innovations within zoning regulations.
This encompasses next-generation modular and manufactured homes, which offer benefits such as improved quality, reduced construction time and costs, and decreased environmental impact. With high demand for affordable starter homes, particularly in underserved communities, Virginia Housing prioritizes expanding the inventory of affordable housing options.
Virginia Housing has also supported other advances in housing production, including accessory dwelling units (ADUs) and 3D concrete printing. By providing grants and resources, Virginia Housing's Innovative Demonstrations Program promotes innovative housing solutions and access to homeownership and wealth building in historically marginalized communities.
Strategies in Action: State of Delaware
The Delaware State Housing Authority (DSHA) implemented construction financing strategies to address disparities in affordable housing development across the state. DSHA allocated $5 million to establish the Area of Opportunity Land Bank Program. This initiative aims to provide affordable housing developers with "the gift of time" and resources to navigate the competitive real estate market in areas of economic promise.
Due to the competitive nature of LIHTC funding, the Area of Opportunity Land Bank Program was specifically designed to help developers secure site control while they work to resolve development challenges and secure the necessary funding that often impedes affordable housing development in these areas of the state.
These tried and true financial strategies have been leveraged as innovative ways to secure funding and resources for localities looking to advance housing reform efforts. Planners should reach out to their state housing finance office, an often invaluable resource that can support communities in finding and accessing both state and federal housing assistance, to explore these opportunities and more.
Housing Supply Accelerator Playbook
Finance your local housing supply
Learn more about strategies and tips for financing housing supply in your community in the Housing Supply Accelerator Playbook.