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The Treasury Department has announced new guidance aimed at boosting the ability of state, local, and tribal governments to use American Rescue Plan funds for affordable housing.

Officials say the new actions increase flexibility to use State and Local Fiscal Recovery Funds (SLFRF) to fully finance long-term affordable housing loans and expand presumptively eligible affordable housing uses to further maximize the availability of SLFRF funds for affordable housing.

“Treasury’s announcement will quickly unlock significant amounts of financing, encourage states and cities to invest additional funds, and establish new sources of long-term capital for affordable construction around the country,” said Stockton Williams, executive director of the National Council of State Housing Agencies (NCSHA), in a statement. “We are grateful to the Biden-Harris administration for this significant action in its continuing efforts to address the housing affordability crisis.”

Increasing the ability to use SLFRF funds to finance affordable housing has been a priority for advocates. The $1.9 trillion American Rescue Plan Act included $350 billion of state and local aid. While these funds can be used pretty flexibly, they could not be used optimally for affordable housing, including with the low-income housing tax credit (LIHTC).

“The new guidance, which is effective immediately, allows states and localities to use recovery funds to make long-term loans to affordable housing developments, as long as units are targeted to tenants earning 65% of the area median income or lower for a minimum of 20 years,” reported NCSHA.

In addition, Treasury has also clarified that affordable housing projects are presumptively eligible if a project meets certain core requirements of the National Housing Trust Fund, HOME, LIHTC, public housing capital fund, Section 202, Section 811, project-based rental assistance, Multifamily Preservation & Revitalization Program, and affordable housing projects provided by a tribal government if they would be eligible for funding under the Indian Housing Block Grant, the Indian Community Development Block Grant program, or the Bureau of Indian Affairs Housing Improvement Program.

The requirements of these federal housing programs that must be met for presumptive eligibility have been clarified to include four core requirements—resident income restrictions, affordability period and related covenant requirements for assisted units, tenant protections, and housing quality standards.

For more details, read the Treasury announcement and a how-to guide to use SLFRF for affordable housing.