The pandemic has exacerbated supply constraints already at the level of the affordable housing crisis. The multi-family asset class is notoriously difficult to develop for a number of reasons, but a recent report from Capital One and the Terner Center for Housing Innovation at the University of California at Berkeley found that the fragmentation of funding sources was one of the biggest challenges for developers of affordable housing. However, there are key measures that local governments can do to improve the efficiency of affordable housing finance sources, namely LIHTC.

To ease the financial burden, the report recommends that governments reduce fragmentation, align funding sources at the state level, and improve coordination between funding sources. “In the complexity of financing the Low Income Housing Tax Credit in the United States, we identify the following three key solutions for state and local governments to ensure that the LIHTC program operates as efficiently as possible, as the program has been one of the most successful programs to address affordable housing needs in this country, ”Desiree Francis, Community Finance Manager at Capital One and Terner Center team member, told

Reducing fragmentation requires government agencies at all levels, including federal and local governments, to consolidate their sources of funding. This will help both reduce inefficiencies and lower financing costs, according to Francis. “In states like Arizona and Texas, the HFAs administer public funds alongside tax credits,” she says. “In Illinois, the state Housing Development Authority (IHDA) administers tax credits and other soft sources (for example, HOME, the Illinois Affordable Housing Tax Credit, the Illinois Housing Trust Fund Program) and disburses these additional resources t require LIHTC applicants to choose which soft sources to pursue.

The Pennsylvania HFA takes a similar approach, but goes beyond initial funding to ensure the program has the same terms and conditions, program requirements, and monitoring processes across all sources. Rather than using third-party sources, the agency uses internal staff to manage compliance reviews.

Second, alignment of funding sources at the state level will require that requirements and timelines be aligned between different funding sources in order to remove the complexity of using multiple funding sources. “Some states have formalized coordination efforts through mechanisms to streamline the nomination and closure processes,” explains Francis. “For example, Minnesota created a Consolidated RFP to provide one-stop shopping by consolidating and coordinating multiple housing resources into a single application process. This made it possible to ensure better timing between the three State LIHTC sub-allocators. “

Finally, Capital One and Terner recommend that governments “broaden and deepen coordination between funding sources to maximize efficiency gains,” according to Francis. This would imply the requirement that each funding program be transparent about requirements and timeframes. “Some states are now convening task forces or interagency working groups to facilitate broader communication and coordination between funding entities,” explains Francis. “In Illinois, the Governor’s Housing Tax Force develops a comprehensive annual housing plan, making sure it includes targets for the number and type of housing units to be built, rehabilitated and preserved. Although it does not directly determine funding decisions, it has enabled all agencies to understand state priorities and to communicate and plan the housing needs of public and private funding entities.

Each of these steps aims to reduce the complexity of using multiple sources of funding. These solutions aim to both reduce the number of funding sources and eliminate the challenges of using multiple funding sources. “At a minimum, states and localities should strive to reduce the complexity resulting from different timelines, levels of transparency and requirements between various sources,” says Francis. “More states and locations could also take action to enforce and expand Pennsylvania HFA’s efforts to align terms and conditions, program requirements, and monitoring processes among multiple funding sources.