In October, the US Department of Transportation (DOT) released new guidance on how localities can use land and built structures originally purchased or enhanced with federal transit funds to support affordable housing development. DOT also provided new details on how residential projects near transit can leverage low-interest loans, guarantees, and lines of credit through the Transportation Infrastructure Finance and Innovation Act (TIFIA) and the Railroad Rehabilitation and Improvement Financing (RRIF) programs, which previously supported only transportation infrastructure projects.

Increasing development costs and the relatively slow return of transit ridership have impeded housing construction and threatened the financial stability of transportation agencies. These new federal initiatives could enable further housing construction near transit. Here, we provide some recommendations for local leaders to optimize their use of these programs.

New federal guidance to support housing near transit

Under the revised Interim Asset Disposition Guidance issued by DOT, assets acquired with federal assistance but no longer needed for their original purpose—such as land used for construction staging—can now be transferred at no cost to local governments, nonprofit organizations, or other third-party entities. The recipient must use these properties for transit-oriented developments, with at least 40 percent of housing units reserved for households with low or very low incomes. Previously, transit agencies seeking to transfer assets to other entities—including nonprofit housing agencies—for housing development had to pay back the federal monetary contribution, imposing a substantial cost on these potential projects.

DOT’s new rules related to TIFIA and RRIF allow transit-oriented development project sponsors to take advantage of much lower loan interest rates than available on the private market (4.66 percent compared with rates up to 13.6 percent on commercial loans as of this writing). Though the programs’ criteria are different (RRIF, for example, applies only to projects within a half-mile of a commuter rail or intercity rail station, while TIFIA can be used more broadly), both could reduce the cost of building housing near transit.

What sorts of underused land do transit agencies have available?

Transit agencies building large projects like light rail routes, elevated lines, or subways need to acquire substantial land holdings for construction staging. They use this land to store materials, mix concrete, and handle waste, among other needs.

Using public data, we identified all the construction staging land currently used by Los Angeles Metro for its project to extend the D Line subway. This project will include seven new stations and open between 2025 and 2027. Metro has received more than $3.7 billion in new federal capital investment grants to pay for site acquisition and project construction.

We estimate that, after project completion, about 925,000 square feet of land spread across 14 major staging sites will be made available. If developed at the same density as a new apartment tower under construction in downtown Los Angeles, that land could allow for more than 12,000 housing units. That’s roughly equivalent to the total annual multifamily housing permitting in the city over the past decade. Admittedly, the transit agency plans to use some of the construction land for station entrances, but entrances can be placed at the base of new development projects, as seen worldwide and in Los Angeles.

Similarly, the Chicago Transit Authority recently completed a major renovation of a bypass along its North Side rail line, again with substantial federal funding support (PDF). That project “left over” four lots (PDF) that have adequate room for hundreds of new housing units, if they are ultimately developed.

What additional steps can transit agencies, as well as federal, state, and local governments, take to ensure this initiative effectively produces new affordable housing?

New federal guidance related to asset disposition and the use of loan funds could be a game changer for transit agencies, given the underuse of their land assets. But for this guidance to be most effective, we recommend the following:

• Local governments ensure the zoning policies on land adjacent to stations align with the goal of maximizing density on those sites. Requiring eligible projects to undergo an onerous rezoning process to allow for more density creates obstacles to maximizing how many people can live in the areas adjacent to public transportation.
• State and local governments focus affordable housing subsidies on projects that are located on underused, transit-adjacent sites. States could target their distribution of Low-Income Housing Tax Credits to projects proposed for those sites, and cities could do the same when distributing assistance from their housing trust funds.
• DOT and transit agencies establish clear definitions of benefits when seeking to transfer assets to for-profit developers. DOT guidance allows for-profit developers to receive eligible assets if the “overall benefit of allowing the transfer is greater than the interest of the government in liquidation and return of the financial interest (PDF).” This calculation should be made transparently and within reasonable time frames.
• Transit agencies plan for spare property disposition at the start of new transit projects to ensure that planning for residential investments can begin as soon as possible. Proactive outreach to affordable housing developers should also be considered.
• DOT and transit agencies learn from similar policies to avoid predictable bottlenecks or barriers. For example, under Title V, which enables eligible organizations to use suitable federal properties to help people experiencing homelessness, properties may not be awarded until the recipient has all project financing in place, but lenders or investors may not provide the financing until the organization has site control, creating a cycle of red tape.

If used effectively, low-cost federal loans and no-cost land transfers can significantly increase the financial viability of affordable housing projects while encouraging more riders onto bus and rail services.