Financing Affordable and Supportive Housing

A funding gap is the result of a difference between resources for a housing project and costs, when costs exceed resources.

At its most basic, affordable housing is difficult to produce because the lower rental income results in fewer resources available to finance a project. In affordable housing, this is often referred to as the subsidy gap.

• There are a variety of funding subsidies and operational subsidies that can support affordable housing production and preservation. Development Cost, Tax Credit, and Financing Subsidies are the most common funding subsidies used to reduce the overall costs of developing and constructing housing. Operational Subsidies reduce expenses, such as utilities, or increase a project’s income, such as rent subsidies, to increase a residential building’s operating income.

Municipalities can play a role in filling the subsidy gap through providing funding and/or land for affordable housing. Key examples of this include donating land, establishing a Housing Trust Fund, or adopting the Community Preservation Act.

• Community Preservation Act - Adopted at the municipal level to create a local fund for affordable housing development and preservation activities (as well as open space and historic preservation activities) through a local property tax surcharge and state match.

• Donating Land - To provide critical public benefits, such as affordable housing, municipalities can sell, rent, or exchange public-owned property to a private entity. The intent of this strategy is not to sell sites to the highest bidder, but use public property as an opportunity to deliver a public benefit that may be difficult to otherwise obtain.

• Affordable Housing Trust – funds established by municipalities that collect funds from dedicated sources for local initiatives to create and preserve affordable housing.