How is Affordable Housing Created?
There are two types of affordable housing: (a) dedicated affordable housing for low- and moderate-income households and (b) market affordable housing. Dedicated affordable housing is housing that comes with legal restrictions that ensure the rents or home prices are affordable to people with qualifying incomes. Market affordable housing is housing that rents or sells at affordable levels without explicit government subsidies.
Localities will need ample supplies of both types to meet their residents’ housing needs. Click on the “Next” button to watch a video that the Local Housing Solutions team created to describe these two types of affordable housing and how they are created.
Watch a video that the Local Housing Solutions team created to describe these two types of affordable housing and how they are created.
We emphasize the two types of affordable housing to underscore the importance of focusing both on government action to create housing for low- and moderate-income households and a well-functioning private market producing an ample housing supply. We’ll focus more on the role of the private market and the overall housing supply later in this training, as it is important to understand how housing prices are affected by supply and demand.
Dedicated Affordable Housing is generally created by layering different government financing sources with debt supported by expected future rents. In other cases, a government requirement or incentive substitutes for or supplements direct government subsidies. In addition to ensuring financing, other actions are also needed.
The financial layers include federal tax credits, tax-exempt bonds and grant programs, state tax credits and grants, local funding through a housing trust fund, and charitable donations. These are only some of the many funding sources that are often compiled to support dedicated affordable housing.
The actions that support the development of dedicated affordable housing include development and implementation of policies by local officials, advocacy for those policies by stakeholders, and financing of the development by financial institutions. These are only some of the many actions needed to support the creation and preservation of dedicated affordable housing.
Market Affordable Housing developments are often older buildings that have become more affordable over time as newer development has come online and become preferred by renters or owners. Market Affordable Housing may also differ from higher-priced housing based on the location, quality, size, available amenities, and housing unit type, which often affect a property’s rent or sales price. The overall level of demand vis a vis supply also plays a role in determining whether private market units are affordable and to whom.