America’s housing supply shortage has contributed to affordability challenges for an increasing share of low- and moderate-income households. Much recent attention has rightly been paid to abundance-style policies, such as eliminating restrictive land-use regulations. But these reforms on their own are likely to solve rent burden for only the most moderately rent-burdened households in the near term. In this report, we argue that state and local housing strategies should combine abundance-style reforms with tools that reduce the cost of constructing and operating housing affordable for low- and moderate-income households: an abundance-plus-affordability approach. We offer key principles for how these tools can most efficiently promote housing production and preservation and then provide what we believe is the most comprehensive and up-to-date overview of the affordability incentives that state and local governments have put in place, outside of the better-understood Low Income Housing Tax Credit program (and its complements) and rental assistance.

Why This Matters

Without significant attention to strategies that pair abundance policies with additional financing, it will be difficult for many local housing markets to achieve affordability in a reasonable time frame for a large share of rent-burdened households. State and local policymakers can contribute innovative solutions to supplement the better-understood Low Income Housing Tax Credit and rental assistance programs, filling gaps in their market that make it easier to produce and preserve affordable housing that is affordable for low- and moderate-income households.

What We Found

We recommend four principles for state and local policymakers when designing and implementing programs targeted at financing and operating affordable housing for low- and moderate-income households, including resources for preferential permitting and zoning, using public land, providing low-cost debt and equity, and exempting or abating property taxes:

• Incentives for affordability can include middle-income housing. An increasing share of renters making between 60 and 120 percent of their area’s median income pay more than 30 percent of their incomes on rent. State and local financing tools have an opportunity to address the increasing needs of middle-income households with less direct subsidy. At the same time, state and local governments should remember that the largest rent burdens fall on households at the bottom of the income distribution, and they should not direct scarce subsidy dollars away from this group.
• Right-size the incentives. Making the programs an efficient use of taxpayer resources should target housing production or preservation that make rents affordable to low- and middle-income households, without adding large incremental investment returns for projects that would have happened without the subsidy.
• Make administration accessible and straightforward. Incentive programs should also be predictable, transparent, and user-friendly to attract sustained participation from real estate investors and developers.
• Set up programs that can expand. State and local programs should set up incentive programs to achieve scale in their own jurisdictions while mobilizing the amount of private capital that is needed to address affordable housing gaps.

How We Did It

This report provides an overview of state and local government programs to finance housing that is affordable for households with low and moderate incomes. We conducted qualitative research on these programs, using publicly available information and interviews with government officials who oversee the programs and market participants who have used them. We supplemented these takeaways with data from the American Community Survey and the Zillow Observed Rent Index.