Rental development
Federal funding for rental housing development
Increasing the supply of dedicated affordable rental housing is a central component of many localities’ housing strategy. While state and local funds are an important development resource, they go further and serve lower-income households if used to leverage federal development subsidies.
The largest federal resource for the development of affordable rental housing is the Low Income Housing Tax Credit (LIHTC), administered by state and local housing finance agencies. The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of Agriculture (USDA) administer other rental housing development resources.
Targeted income levels. Federal funds for rental housing development usually target households earning below 60-65 percent of the area median income (AMI), and many programs have even lower limits. For example, LIHTC-funded rental properties typically serve households earning below 60 percent of AMI, although recent flexibilities allow properties to serve households earning up to 80 percent of AMI so long as the average income is at or below 60 percent of AMI. While jurisdictions may generally choose to set lower limits, localities that want to develop rental housing for higher-earning households will likely need local funds. One notable exception is the Capital Magnet Fund, which localities can use to build rental housing for households earning up to 120 percent AMI. However, these funds can only be awarded to Community Development Financial Institutions (CDFIs) and nonprofits.
Using State and Local Fiscal Recovery Funds (SLFRF) before they expire. SLFRF may support the development of affordable rental housing but must be obligated by the end of 2024 and expended by the end of 2026. Jurisdictions wishing to access SLFRF funds for rental housing development should consider how to use this temporary resource promptly. For example, SLFRF could support pre-development work in the early stages of a project while other federal sources support construction. Alternatively, jurisdictions can prioritize SLFRF for projects that are far enough along to meet expenditure deadlines, such as previously authorized projects experiencing cost overruns.
For more information on this topic, see these briefs on Below-Market Financing for Affordable Housing Development, Capital Subsidies for Building Affordable Housing,and the Low Income Housing Tax Credit.