Many affordable housing developments suddenly have deep holes in their construction budgets. That’s because of higher interest rates for loans and lower prices for low-income housing tax credits (LIHTCs) – developers can’t borrow as much money as they used to and their tax credits aren’t worth as much.
Housing trust funds are one of the few funding sources left that make up the difference – if they can keep their funding, or even increase the resources they provide.
“It’s imperative for states to at least maintain their commitment to affordable housing,” says Michael Anderson, director of the Housing Trust Fund Projects at the Center for Community Change, based in Portland, Ore.
Fortunately, there are now more trust funds actively contributing to affordable housing projects than ever before.
New housing trust funds
Currently, 47 states have housing trust funds – and a few states have more than one. That’s up from just 42 states that had housing trust funds before the Great Recession.
Five new states created housing trust funds in recent years: North Dakota, in 2011; Alabama, Virginia, and Colorado, in 2012; and South Dakota, in 2013. Some of these states, such as Virginia used National Mortgage Settlement Funds, provided in the aftermath of the housing crash, to establish their new trust funds.
Housing advocates have been able to convince state and local officials to put real capital into affordable housing. That shows that housing can be a winning issue, even in conservative jurisdictions. “Some of the biggest state wins happened in states with conservative legislatures,” says Anderson. “We are winning campaigns in South Dakota.”
Local governments can also play an important role. The vast majority of housing trust funds are run by small jurisdictions, such as towns, cities, and counties. There are now 770 housing trust funds in the U.S., but only 58 of those are run by state governments.
The same election that brought Donald Trump to the White House included some good news for housing advocates farther down the ballot. Out of 39 ballot initiatives to bring new funding to affordable housing, voters passed 32, often with more than 60% of the vote.
For example, Rhode Island recently passed a ballot initiative to issue a $50 million housing bond. “Voters have always been ahead of elected officials, but I don’t think we’ve seen anything before that was this overwhelming,” says Anderson.
Getting funding to the trust funds
After years of trouble in state budgets, many are only now in a position to put money into their housing trust funds. “Most states are on a much better footing budgetarily than they were,” says Anderson.
During the housing crash, many states suffered through extreme budget problems. Even housing trust funds that had a dedicated source of funding, like title transfer taxes, had problems. During the housing crash, there were fewer real estate transactions.
“Jurisdictions that fund housing trust funds through recording and transfer taxes, like DC and Maryland, may have seen drop-offs during and after the crash,” says Andrea Ponsor, executive vice president for policy at Stewards of Affordable Housing for the Future, based in Washington, D.C. Often, state legislators also took funding out of trust funds to solve problems in their general budgets.
Washington, D.C., recently allocated another $82 million to its Housing Production Trust Fund. “This gets the fund back above pre-recession levels,” says Ponsor. The renewed funding comes from appropriations from city government, in addition to funding from deed transfer taxes.
There are still four states that have never put any money into their state housing trust funds: Alabama, California, Idaho, and Rhode Island. It’s no mystery why Alabama has struggled to fund its trust fund. It’s one of very few states that are still struggling with a major budget crisis. “You can guess where housing trust funds are in the pecking order,” says Anderson.
California also faces a simple challenge to fund its trust fund. The state legislature needs much more than a simple majority to pass any measure into law that spends money. “The requirement for a two-thirds majority is a powerful thing,” says Anderson. Even with this challenge, California legislators are still trying, and they passed a bill to fund the trust fund out of committee earlier this month.
Some states are going even further. Oregon is considering modifying its state mortgage interest deduction to no longer include vacation homes. The extra income would be used to address the housing needs of the very lowest income households. The state legislature in Oregon is also working on a housing bond initiative passed in the last session.
Arizona, is adding another $2 million a year, almost doubling the size of its housing trust fund. The state's trust fund has traditionally been funded by Arizona's unclaimed property fund. In addition, the new initiative includes money saved in a restructuring of the state’s financing agency.
These funds are one of the few places developers in trouble have let to turn, with federal housing programs now on the chopping block.
The Trump administration’s proposed budget, released last week, would wipe out the HOME program, which is the largest federal block grant to state and local governments designed exclusively to create affordable housing for low-income households. HOME, which once had $1.9 billion in federal funding to distribute, had just $950 million in 2016.
“It’s about half the size it was,” says Jennifer Schwartz, assistant director for tax policy and advocacy for the National Council of State Housing Agencies. The president’s proposed budget would also kill the $3 billion Community Development Block Grant program.
These programs might survive the budget battles ahead, but they're certainly unlikely to grow to help more affordable housing projects that need it this year. That makes the few other sources of funding more important than ever.
“State trust funds are extremely pivotal,” says Schwartz.
-By Bendix Anderson
Produced by Hanley Wood Strategic Marketing Services, sponsored by PNC Real Estate.
PNC Real Estate is not responsible for the accuracy of the statements herein.