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Simplifying Affordable Housing Funding

September 29, 2021

Building rendering

Affordable housing developers like Preservation of Affordable Housing know all too well how complex and fragmented the financing system is for building new affordable housing or upgrading older structures to keep them affordable. Every new development needs multiple funding sources and typically includes support from federal, state and local government agencies along with funding from private lenders and investors. This complexity adds to the cost and time it takes to bring affordable housing to the communities and the residents who desperately need it. That’s why innovative approaches to streamlining affordable housing funding are sorely needed.

The Terner Center for Housing Innovation at UC Berkeley has been a leader in examining the challenges posed by the current affordable housing financing system as well as possible solutions.   A recent Terner publication:  The Complexity of Financing Low-Income Housing Tax Credit Housing in the United States (available here) notes that developments using the federal Low-Income Housing Tax Credit Program (LIHTC) - the primary affordable housing funding program -  typically also need supplemental funding through an increasingly varied set of gap funding sources that come with requirements, application processes, and funding cycles that can be at odds with each other.

Terner’s report pointed to an innovation in Massachusetts that successfully speeds time to closing and reduces transaction costs -  MassDocs, the consolidated subordinate loan closing system for affordable rental projects developed by four state housing agencies. As the former General Counsel of the Massachusetts Housing Partnership (MHP), I worked closely with my state government colleagues to develop the MassDocs single set of closing documents that are used for a variety of state and local gap filler loans. Prior to MassDocs, each loan would have its own set of documents and individual attorney. But under MassDocs, a single attorney represents all of the public sources of “soft” financing and  consolidated loan documents automatically generated through a web-based system make the process more efficient and gets projects to closing quicker and with reduced transaction costs.

One of the most successful features of MassDocs is that it drives coordination between state and local funders. Over 90 Massachusetts cities and towns have joined Mass Docs either directly or through a consortium. With a behind-the-scenes “Global Participation Agreement” local funders only need to join MassDocs once and can then use it for all of their gap filler rental financing going forward. Local funders have the same priority as the state funders (typically a shared second position) and thus have an equal seat at the table in the event any problems arise. Coordinating the funding needed from multiple levels of government agencies is critical in order to move affordable developments ahead in a timely fashion.

The Terner report makes a number of other recommendations to mitigate the inefficiencies associated with affordable housing financing complexity and the development community and government officials should take a look at all of them, including ways to reduce fragmentation, better align funding streams, create one-stop-shopping, and align deadlines and program requirements.

It’s a challenge for busy government officials to take the time to look at more efficient alternatives to administering government programs, but it’s well worth the time and effort to do so – both because we owe it to the taxpayers who fund them and because it will bring critically needed services like affordable housing to our communities much faster.

Better communication and cooperation between the development community, government officials and all others involved in the funding of affordable housing is needed as we all need to contribute to the solutions. Improved funding processes are critical but there are many other areas related to affordable housing development where some seemingly small fixes would greatly improve the process. POAH has identified a number of opportunities for administrative actions that could be taken at the federal level immediately. 

MassDocs happened because four state agencies took the time to “build a better mousetrap” and other states  would do well to think about ways they can reduce bureaucratic redundancies to put shovels in the ground sooner.

With hundreds of thousands of families and seniors on waiting lists for an affordable apartment, we don’t have too much time to waste.