Streamlining funding for affordable housing development

A new study from UC Berkeley’s Terner Center for Housing Innovation underscores need for funding for affordable housing.

A new Capital One-sponsored report from the Terner Center for Housing Innovation at the University of California Berkeley released today finds that while the Low-Income Housing Tax Credit (LIHTC) program continues to be a vital source of funding for affordable housing communities in the United States, development requires a growing number of funding sources in order to maintain rent levels suitable for households with low to moderate incomes. The report, titled, "The Complexity of Financing Low Income Housing Tax Credit Development in the United States," highlights the challenges associated with fragmentation of financing and offers solutions to streamline current practices, saving money and speeding time to move in dates.

Development costs are rising nationally across market-rate and affordable housing construction. Previous Terner Center research has documented that it has become more expensive to build LIHTC-funded affordable housing; California, for example, saw a 13% increase in development costs from 2016 to 2019. The erosion of federal programs has left a gap in financing, requiring that developers seek out other sources of funding.

The average number of layered funding sources doubled from two in 2000 to four in 2017 among "9 percent credits" in California, with many developments requiring significantly more. The resulting complex capital stacks create formidable barriers to execution, including incongruous requirements and timelines, and increased inefficiencies and costs.

To address these challenges, the Terner Center identified three ways to reduce administrative burdens, streamline funding, and ultimately, ensure that the LIHTC program works as effectively as possible.

  1. Reduce fragmentation where possible: Consolidating different funding streams within a single agency at each level of government, beginning at the federal level and extending to lower levels of government, can reduce the inefficiencies and higher costs associated with multiple providers.
  2. Where multiple funding sources persist, better align them at the state level and clarify requirements: The federal government can encourage states to align requirements and deadlines across funding platforms by offering resources and technical assistance to help states adopt strategies that reduce funding complexity. Some states, including Minnesota and Massachusetts, have formalized coordination efforts through mechanisms to streamline application and closing processes.
  3. Broaden and deepen coordination among funding sources to maximize efficiency gains: States should require transparency in requirements and alignment of calendars across funding programs, while also encouraging synchronization of financing sources. 

"It is critical for stakeholders across all levels of government to push for streamlined processes, reduced costs, and efficient execution in the funding of affordable housing production," said Carol Galante, Faculty Director of the Terner Center. "We cannot afford to waste precious time and money given the urgent housing needs we face."

Desiree Francis, Head of Community Finance at Capital One, added, "To make headway on the affordable housing crisis, we look at the processes and practices for financing affordable housing to drive efficiency, reduce costs and remove barriers. Capital One is committed to working with industry stakeholders to identify and design solutions that create more affordable housing to strengthen communities and advance socioeconomic mobility across the country."

For more information, access the full report: The Complexity of Financing Low Income Housing Tax Credit Development in the United States


Capital One provided the Terner Center for Housing Innovation at the University of California Berkeley with data from 11 syndicators, including development costs and some information on development characteristics (e.g., number of units, city and/or ZIP code). Nine syndicators also provided information on the number of permanent debt sources used. 

The Terner Center merged these data with records in HUD’s LIHTC property database, which includes information such as credit type (e.g., 4%, 9%, or both), allocation amount, and project type (e.g., new construction, acquisition/rehabilitation, or both). The matched data includes a sample of 3,029 affordable developments across all 50 states that began construction between 2000 and 2018. In addition, the Terner Center scraped data from 2019 9% tax credit applications for California, Georgia, Ohio and Virginia. 

To supplement the quantitative analysis, the researchers completed interviews with 30 stakeholders, including affordable housing developers, consultants, staff at State Housing Finance Agencies, LIHTC syndicators, lawyers, and national industry group leaders. Interviews included questions about a) the challenges of building a capital stack, b) the inefficiencies and costs associated with the complexity of financing a LIHTC deal, and c) the policies and practices that different states use to streamline the funding process as well as lessons learned from the implementation of these approaches.

About Capital One

Capital One Financial Corporation is a financial holding company whose subsidiaries, which include Capital One, N.A., and Capital One Bank (USA), N.A., had $305.4 billion in deposits and $421.6 billion in total assets as of December 31, 2020. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has branches located primarily in New York, Louisiana, Texas, Maryland, Virginia, New Jersey and the District of Columbia. A Fortune 500 company, Capital One trades on the New York Stock Exchange under the symbol "COF" and is included in the S&P 100 index.

About the Terner Center for Housing Innovation at the University of California Berkeley

The Terner Center for Housing Innovation at the University of California, Berkeley provides timely analysis and data-driven research to support policy and innovation for policymakers, practitioners, and advocates in addressing with urgency the multiple, layered crises of housing affordability, entrenched inequities, and climate change. The stated mission of the Terner Center is to formulate bold strategies to house families from all walks of life in vibrant, sustainable, and affordable homes and communities.

Capital One Community Finance

Together, with organizations in the affordable housing industry, Capital One is working to build inclusive, thriving, resident-centered communities that catalyze opportunity and promote well-being.

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