How Public/Private Partnerships Increase the Stock of Affordable Housing

person A.J. Johnson today 04/14/2023

Some of the most successful affordable housing projects in the United States are the result of public/private partnerships. An integrated approach to affordable housing leads to the most thriving developments.

This "integrated approach" amplifies the connective role that housing plays in a community. Housing is a building block of a community’s infrastructure, a factor in public safety, a component of the healthcare continuum, a driver of employment, a solution to addressing climate change, and a bridge to economic mobility.

While affordable housing is generally defined as housing on which the occupant is paying no more than 30 percent of income for housing costs, such housing must also be decent, safe, and located in proximity to adequate employment and transportation options.

In addition to the major affordable housing programs (Section 42, Section 8, public housing), we should not overlook the Department of Housing & Urban Development (HUD) Community Planning & Development (CPD) programs, as well as state and local programs.

CPD programs form a strong secondary group of housing options for affordable housing developers and include:

  • Community Development Block Grant (CDBG): The CDBG program provides funding to states, cities, and counties, principally for low and moderate-income persons. Housing-related eligible activities include the acquisition of real property, clearance/demolition, infrastructure, rehabilitation, conversion, and in limited circumstances, new housing construction.
  • HOME Investment Partnerships (HOME): HOME is a flexible funding program designed specifically to meet the affordable housing needs of low-income renters and homebuyers/owners. Eligible activities include costs associated with housing acquisition, new construction, and rehabilitation as well as tenant-based rental assistance. HOME funds are often used in conjunction with the Low-Income Housing Tax Credit (LIHTC) Program,
  • Housing Trust Fund (HTF): The HTF program provides grants to states to develop and preserve affordable housing - primarily rental housing for extremely low-income households. Eligible activities include housing acquisition, new construction, and rehabilitation, along with operating subsidies to ensure the long-term financial stability of assisted projects.
  • Section 108 Loan Guarantee (Section 108): This program enables CDBG grantees to leverage the annual CDBG grant and can be used for a number of housing activities, including housing rehabilitation, acquisition, site preparation, and, under limited circumstances, new construction.

How Can These Funds Be Accessed?

With the exception of Section 108 funds, annual CPD programs provide grants on a formula basis to qualifying jurisdictions. Private owners and landlords have no access to these funds - except through the qualifying jurisdictions.

State and local governments must develop and submit a Consolidated Plan every three to five years. As part of this plan, jurisdictions are required to (1) conduct an evaluation of its housing market and needs; (2) identify public policies at the local jurisdiction level that serve as barriers to affordable housing and identify the strategy to remove or ease the negative impact of such policies; and (3) comply with the affirmatively furthering fair housing mandate that sets out a framework for CPD grantees to take meaningful actions to overcome historic patterns of segregation.

Partnerships in CPD-Funded Housing Development

Annual CPD programs often serve as key components in development deals; for example, gap financing, commitment letters to secure private financing, or "last-in" dollars to finalize deal closings.

The key role of local government is to foster cooperation between public agencies and the private sector. To effectively layer the multiple funding sources often required in affordable housing developments, local administrators must understand the regulatory, eligibility, and reporting requirements of each source, as well as their operational limits. Unfortunately, many local officials do not possess this level of understanding and it falls on private sector actors to educate the locality about how the programs can work together.

Following is a discussion of some of the financing tools that can be funded through the annual CPD programs.

Bridge Loans (CDBG, HOME, HTF, §108)

Certain private funders (e.g., LIHTC investors) may be able to offer better terms if their contribution to a project is delayed significantly (the "time/value" of money). By offering low-cost "bridge" loans, government agencies can help developers access these improved terms by covering development costs during the delay period.

Bridge loans are CPD eligible but uncommon given the lengthy affordability restrictions associated with HOME and HTF, in particular.

Capital Subsidies (CDBG, HOME, HTF, §108)

Capital subsidies refer to grants and long-term forgivable or low-cost/cash flow loans that may be used as permanent sources in a development project. By reducing the amount of conventional financing required by a project, these subsidies can reduce project costs beyond the actual dollar amount contributed to the project. CPD funds may also be used to refinance existing mortgages in order to reduce interest payments in existing developments.

For LIHTC developments, federal grants may cause a reduction in the project’s eligible basis, which can result in a decrease in overall funding available for the project. For this reason, many communities provide federal subsidies to LIHTC projects in the form of low-cost loans - which are includable in eligible basis.

Operating Subsidies (HTF)

For projects that serve the lowest-income households, where rents are insufficient to cover operating expenses and debt service, government-provided operating subsidies can boost that revenue, thus increasing the project’s ability to leverage conventional financing. This may take the form of annual payments to affordable housing owners for the ongoing operation of a housing development serving extremely low-income households. The concept is similar to the public housing operating subsidy program.

Property Acquisition & Pre-Development Loans (CDBG, HOME, HTF, §108)**

These loans subsidize upfront costs. They work by providing low-cost or deferred payment loans for developers to cover early development costs before other long-term funding is available.

**Pre-development loans are not an eligible use for any of the CPD programs except for HOME Community Housing Development Organization (CHDO) funding. Such funding is not available for private developers or public agencies.

Rental Assistance (HOME)

Rental assistance makes units more affordable to a wider group of households, thus contributing to higher occupancy levels and faster lease-up; it may improve the reliability of rental payments; and in instances where the subsidized rent payment is higher than what the unit would generate without the subsidy, it increases rental revenue for the property.

Both project- and tenant-based rental assistance programs, such as Housing Choice Vouchers, are available through HUD’s Office of Public and Indian Housing and can complement CPD-funded assistance.

Although project-based rental assistance is not CPD-eligible, tenant-based assistance is HOME eligible.

Revolving Loans (CDBG, HOME, HTF, §108)

Revolving loans are repayable low-interest loans made to private developers. Repaid funds are then used to create a revolving loan fund that can be committed to different projects or developers. Revolving loans only require a government’s initial investment to be established, after which they become self-sustaining. Since they are not forgivable loans, they tend to give developers limited flexibility when used as pre-development funding.

LAYERED FUNDING STREAMS: OPTIONS TO LEVERAGE ANNUAL CPD FUNDING

Complex financing is typical in affordable housing deals. Successful developments often leverage annual CPD funds with other public and private sources.

Here are some of the most commonly used sources for development that may be paired with CPD funding:

Federal Home Loan Bank (FHLB) Affordable Housing Program (AHP)

The AHP is a competitive funding program for the production and preservation of affordable housing (both rental and homeownership), funded by the government-sponsored FHLB system. AHP funds can be either grants or low-interest loans and are often combined with LIHTC proceeds. Awards are made directly to the development team and do not go through a local government. However, localities often assist in shaping the resulting projects by collaborating with developers early in the process.

Historic Tax Credits (HTC)

HTCs provide capital funds for developers undertaking a substantial rehabilitation of a historic asset. Funds can be used to rehab historic residential buildings or adaptive reuse of other historic structures.

Housing Finance Agency (HFA) Risk Sharing - Section 542(C)

This state-administered program provides low-cost capital to spur the development of rental housing through risk-sharing arrangements between HUD and HFAs.

Investment Tax Credits (ITCs) and Other Energy Efficiency Funding

These are commonly referred to as "solar tax credits." ITCs and other funding mechanisms such as utility rebates, energy performance contracts, and Property Assessed Clean Energy (PACE) programs can be used as part of the funding stack for housing projects that commit to certain levels of energy efficiency and renewable energy generation. These financial incentives can provide a bonus benefit for LIHTC projects that are required to include energy conservation components by state allocation plans.

Low-Income Housing Tax Credit (LIHTC)

This is the big Kahuna of affordable rental housing programs. A huge percentage of affordable deals rely on the LIHTC as the lynchpin of feasibility. While the awards are made directly to developers, local governments often work with and lend their support to local developers to help shape the proposed project and make the applications more competitive.

New Markets Tax Credits (NMTCs)

Local organizations called Community Development Entities (CDEs) apply for NMTCs from the Community Development Financial Institution (CDFI) fund and invest the proceeds into public interest projects (including affordable housing construction) in qualified low-income communities.

Opportunity Zones (OZs)

OZs offer a tax incentive for people and corporations to invest in distressed communities across the country. Affordable housing development may be structured in a way to leverage these incentives when proposing housing in an OZ.

Tax-Exempt Bonds

These bonds are issued by state or local government agencies, often in conjunction with an award of low-income housing tax credits. Tax-exempt bonds function like loans that are contracted by governments and then passed along to developers. With tax-exempt bonds, the investor who purchases the loan is exempt from federal income taxes on the interest earned from that loan. This results in higher returns for the investor when compared to many taxable bonds. The terms of the loan for tax-exempt bonds are typically more favorable to the borrower than the terms of taxable loans. This is basically a low-interest mortgage loan, which results in the potential lowering of rents since debt service is less.

Developing Creative Affordable Housing Models

In addition to the traditional housing development models noted above, a creative approach to funding strategies and a broad perspective on how that funding may be obtained is required. Following are some potential affordable housing models that both developers and localities should consider as they move forward with the creation of new ways to develop this much-needed resource.

Community Land Trusts (CLTs)

A CLT is an affordable homeownership or rental housing model in which a single entity, typically a non-profit or quasi-governmental organization (such as a PHA) maintains ownership of the land when a household (or developer) purchases that home that is on the land. The developer or homeowner pays a nominal amount to the CLT on a monthly or annual basis to lease the land. Long-term affordability is created by removing the cost of the land from the value of the development and by entering into long-term agreements that require the maintenance of affordability. Funding sources for the establishment of CLTs include CDBG, HOME, and HTF.

Employer-Assisted Housing (EAH) Programs

Development of EAH projects typically involve the subsidy of housing costs for employees who live in proximity to the workplace. Government agencies may offer incentives, such as dollar-for-dollar match of funds, encouraging the implementation of such programs, and maximizing the impact of the programs.

Land Banks

Land banks are quasi-public entities that acquire, manage, repurpose, and sell vacant or abandoned real estate. While not a financial mechanism in the strict sense, land banking can translate into significantly less expensive development of housing due to lower acquisition costs. For example, in Richmond, VA, the Richmond Land Bank (a program of the Maggie Walker Community Land Trust) receives vacant or tax-delinquent property from the City of Richmond and then transfers those properties to affordable housing developers. Similar land banks can be found across the United States.

Social Impact Bonds

This is a public-private partnership in which a government entity issues bonds that are purchased by investors. The funds provided by the investors are for projects that are expected to have a positive social impact and are repaid by the government when that impact is achieved. These bonds are often used for new or rehabbed affordable housing and supportive housing units. This type of partnership will often include metrics that go beyond the delivery of physical units, such as populations to be served, specific communities to be invested in, and employment opportunities generated.

Project Profiles

The following project profiles demonstrate how communities layer various funding sources, including CPD programs, and employ creative models into planning and developing their own affordable housing.

Avondale Trace           -           High Point, NC

  • The City of High Point used $650,000 of Section 108 funds as leverage to obtain $10.4 million in private capital in order to build this 72-unit affordable housing complex.
  • The use of the §108 funds enabled the city to preserve its HOME funds, which were originally used to secure the 9% LIHTC for the project.
  • §108 funding must follow similar rules to the CDBG program, which includes restrictions on the construction of new rental housing.
  • After paying for site acquisition and improvements using, in part, the Section 108 funds, the city conveyed the property to the owner of the project.
  • Other funding sources include -
    • NCHFA Rental Production Loan;
    • NCHFA Workforce Housing Loan; and
    • A conventional first mortgage loan.
  • Both the rental program loan and the §108 loan are structured as "soft debt" for the project.
  • The development includes a clubhouse, playground, and picnic area.
  • Residents earn between 40% and 60% of the area median income.

Erin Park       -           Eastpointe, MI

  • This project is an example of how deed-restricted homeownership provides an affordable housing option in an area of single-family homes and duplexes, where a multifamily structure would not have blended with the neighborhood.
  • To increase homeownership opportunities, a "lease-purchase" program has been implemented.
  • The project has 52 two- and three-bedroom units in one and two-story buildings.
  • 18 of the units have Project-Based Vouchers provided by the Michigan State Housing Development Authority. There are also eight Section 811 units.
  • The total development cost was $16 million with some of the gap financing provided by a $560,506 allocation of HOME funds.
  • Incomes range from 30% to 80% of AMGI, but most residents are below the 60% income level.
  • Residents enter into 15-year lease-to-purchase contracts. In year 13, the owner will begin discussions with residents giving them the option to purchase their units. At the end of the compliance period, residents will have the option to purchase the units at an affordable price.
  • Residents who do not wish to purchase may remain as renters and when they move out, the unit will be sold for affordable homeownership.

Brewster Woods at the Cape   -           Cape Cod, MA

The development is located on a formerly vacant lot in Cape Cod and is targeted at those who work in the community but cannot afford to live there, such as teachers, service workers, and healthcare workers. This is a common problem in resort communities.

  • The project will have seven project-based vouchers (there are 29 total units) to serve households below 30% of AMI in addition to three Section 811 supportive housing units.
  • With a total development cost of $12 million, multiple funding layers were required, including local, state, and federal funding.
    • A $1.68 million Massworks grant funded site clearing and infrastructure - roads, sidewalks, and utilities;
    • The local building fees were waived, and the permitting process, which is normally very difficult for multifamily housing, was expedited by the state, which allows for more flexible zoning rules;
    • $2.4 million loan from the Massachusetts Housing Partnership;
    • $1 million in Affordable Housing Trust Funds from MassHousing;
    • $450,000 loan from the Community Economic Development Assistance Corporation;
    • $550,000 in Brewster Community Preservation Act money; and
    • $800,000 in local and state HOME funding ($250,000 from the local HOME Consortium and $550,000 from the state’s Department of Housing & Community Development HOME funds.

Lincoln Place -           Rutland, VT

Lincoln Place is an example of increasing affordable housing supply through the development of public property. The development was originally a school, which was abandoned and deteriorating. This historic structure now provides 19 units of affordable housing. Historic tax credits were obtained, which enabled the developer (Housing Trust of Rutland) to preserve elements of the former school. The Rutland Housing Authority provides project-based vouchers and the development also used Housing Trust Fund money, HOME funds, and CDBG.

Westview Village        -           Ventura, CA

These 286 affordable units were developed with a mix of funding, including CDBG, and are part of a RAD conversion. The property serves seniors, individuals, and families, including "entry-level" households.

Westview Village replaced the city’s oldest public housing development which was built in the 1950s. It was co-developed by the Housing Authority of the City of San Buenaventura and BRIDGE Housing Corporation. 34 single family homes are provided for "entry-level" families that will be deed restricted. The old public housing project had 180 units, so this new deal actually adds 106 units to the affordable housing stock.

The RAD program guarantees a return to the property for those displaced by the construction. Of the resident households that were temporarily displaced, 79 have already opted to move back to the property once construction has been completed. The remaining households are either choosing to remain in the public housing complexes to which they were relocated, purchasing their own homes, or accepting tenant-based rental assistance.

The total development costs are estimated to be $192 million of which $960,111 are HOME funds and $5,335,055 in CDBG funds.

The Connection Between Affordable Housing & the Community

Affordable housing is not just bricks and sticks - it is the point at which all community sectors come together and the backbone of our neighborhoods. The development of affordable housing impacts every element of a community’s development, from infrastructure to economic mobility. Let’s review some of the key elements of any community development program and see how affordable housing impacts those elements.

Infrastructure

Affordable housing contributes to communities in important ways, both as a physical asset and a form of economic activity. Affordable housing development is often accompanied by infrastructure improvements that affect the larger community in positive ways. Among these benefits are improving neighborhood walkability and accessibility by updating sidewalks and streetscapes, increasing the availability of green and open spaces, and bringing transportation hubs and economic investment to areas with traditionally low investment or declining neighborhoods. Environmental advocates, chambers of commerce, and transportation planners often support affordable housing development by understanding its value as a conduit for improved infrastructure.

Public Safety

A lack of decent, affordable housing can have wide-ranging impacts on the security of a community as a whole and the safety of its most vulnerable members. The availability of affordable housing may correlate to a reduction in crime. Eliminating barriers to housing for persons with correctional backgrounds can lead to reduced recidivism, which is why proper development of criminal screening procedures is so important. Housing chronically homeless individuals leads to reduced incarceration and reliance on emergency medical care, with substantial monetary savings to local taxpayers.

Healthcare

Housing has long been recognized as one of the social determinants of health and well-being. Housing stability and affordability, the quality of one’s home, and neighborhood characteristics such as walkability, safety, and environmental quality all impact the overall health of residents. When people have increased access to medical services, rather than having to rely on emergency room care as is often the case with people experiencing homelessness, healthcare costs decrease for both the individual and the healthcare system. It is becoming increasingly common for affordable housing developments, particularly for seniors and more vulnerable populations, to include a healthcare component such as a clinic.

Workforce Housing

Partnering with large neighborhood or area employers to develop workforce housing can be very successful if local employers are brought into the effort. Convincing local employers to participate is possible since it is in the best interest of the employers to have available affordable housing. Two critical elements are important to employers:

  1. Workers need a place to live. When that place is affordable, connected to amenities, safe, and close to their workplace, workers tend to have higher job satisfaction and employers have better retention.
  2. The availability of affordable housing near places of employment can boost recruitment efforts and attract more talent as the available worker pool increases. Shorter commutes can also mean more predictability and reliability for employers and employees alike.

Amazon has already figured this out with their "Amazon Housing Equity Fund." Amazon provides low-rate loans, grants, and partnerships to local governments and nonprofit agencies. The fund is providing more than $2 billion in below-market loans and grants to preserve and create more than 20.000 affordable homes for individuals and families earning moderate to low incomes in communities where the company has a large presence.

Climate Resilience

Housing and transportation are huge contributors to the total domestic carbon footprint affecting U.S. households. The federal government incentivizes affordable housing developers to incorporate green, energy efficiency attributes into new communities. The energy efficiency upgrades also reduce costs of heating and cooling, increasing long-term affordability for residents. Modern designs also provide for better stormwater management, structural improvements, and updated emergency systems.

Economic Mobility

Safe, stable, affordable housing - whether rented or owned - improves long-term outcomes for low-income children in educational attainment, family stability, and future earnings.

Bottom Line: Developers (both for-profit and non-profit) and operators of affordable housing should take a hard look at the possible public options that are available to assist in making housing development and operations more feasible. As noted in this article, there are various financing tools that can be assisted using HUD’s Community Planning & Development Programs. HUD-funded annual CPD programs provide critical financing options to increase the supply of new affordable housing. These programs are certainly worth a look by those in the business of creating and managing affordable housing.

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Historic Housing Expansion in Reconciliation Act

Since being signed into law on July 4, I have read the "One Big Beautiful Bill twice, in an effort to determine its impact on housing - especially affordable housing. What follows is my take on the impact of the bill on affordable housing in the United States. The "One Big Beautiful Bill Reconciliation Act marks the most significant expansion of affordable housing programs in over twenty years, permanently transforming the Low-Income Housing Tax Credit program and delivering the largest housing investment in its 39-year history. Signed into law by President Trump on July 4, 2025, the legislation will fund an estimated 1.22 million additional affordable rental homes over the next decade through improved tax credit provisions and streamlined financing methods. This expansion comes at a critical time when the nation faces a serious affordable housing shortage, with the changes taking effect on January 1, 2026, and offering unprecedented long-term stability for developers and investors. 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The bill s path through Congress highlighted strong partisan divides, with Democrats consistently opposing the legislation despite backing many of its housing provisions. The reconciliation process allowed Republicans to bypass the Senate filibuster, making it possible to pass the bill with a simple majority. The legislation includes provisions from 11 House committees and 10 Senate committees, showing its wide-ranging scope across federal policy areas. Beyond housing, the act makes the 2017 Tax Cuts and Jobs Act individual tax rates permanent, eliminates taxes on tips and overtime pay, raises the state and local tax deduction cap to $40,000 for earners under $500,000, and allocates $350 billion for border security. However, these benefits come with significant cuts to Medicaid and SNAP programs, creating a complex policy landscape that impacts housing affordability in conflicting ways. Transformative LIHTC program enhancements The legislation provides the most significant Low-Income Housing Tax Credit expansion since the program started in 1986. The main feature is a permanent 12% increase in 9% LIHTC allocations, raising the per-capita allocation from $3.00 to about $3.36 beginning in 2026. Although this percentage increase appears small, it results in an extra $132 million per year in tax credit authority across the country, with proportional increases for the eight states, D.C., and four territories that get small-state minimum allocations. The second major LIHTC change permanently lowers the private activity bond financing threshold from 50% to 25% of total project costs for 4% credit deals. This change fundamentally shifts the economics of affordable housing development by making projects eligible for non-competitive 4% credits with much less bond financing. 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Broader affordable housing provisions and opportunity zones Beyond LIHTC, the legislation includes several other housing-related provisions that expand development incentives and homeownership opportunities. The act makes the Opportunity Zones program permanent with enhanced incentives, allowing investors to defer taxation of capital gains from qualified opportunity zone investments until December 31, 2033, and providing a 10% basis increase for investments held five or more years. The legislation requires that 33% of newly designated opportunity zones be in rural areas, with automatic qualification for rural and tribal regions. This geographic focus addresses previous criticisms that opportunity zones mainly benefited already-developing urban areas while overlooking rural communities that could gain the most from investment incentives. 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Lowering private activity bond requirements from 50% to 25% for 4% LIHTC deals will shift significant development activity from the competitive 9% credit market to the non-competitive 4% market. This change provides developers with greater certainty and faster project timelines, as 4% credits don t need the lengthy competitive allocation process that characterizes 9% credits. State housing finance agencies will need to modify their allocation strategies to handle increased demand while overseeing their private activity bond capacity. States with oversubscribed multifamily bond programs will benefit most from the 25% threshold reduction, as more projects will become feasible with lower bond financing requirements. The ongoing 12% increase in 9% LIHTC allocations will strengthen states ability to fund competitive projects, potentially lowering the oversubscription ratios that make 9% credits highly competitive. However, the effectiveness of these changes depends largely on the availability of gap financing sources, since LIHTC generally covers only 60-70% of development costs. This could become a critical issue since the Administration s 2026 budget proposal calls for the elimination of the HOME and CDBG programs. Construction capacity and workforce availability pose significant challenges to implementation. The U.S. construction industry faces major labor shortages, and the possibility of adding over one million new housing units could strain existing resources. Material costs might also increase due to new tariffs announced by the administration, potentially reducing some of the financial advantages of the increased tax credit provisions. Stakeholder reactions reveal sharp divisions The housing provisions have received enthusiastic support from industry groups despite opposition to the broader legislation. 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Executive Director Kim Johnson stated that "while LIHTC is an important program, LIHTC units are rarely affordable enough for households with the lowest incomes, who will be most affected by safety net reductions. The National Housing Conference praised the legislation, with President David Dworkin calling the housing provisions "the most consequential and positive housing legislation in decades. This highlights the industry s focus on production capacity rather than broader affordability issues. Implementation timeline and administrative challenges The legislation s housing provisions take effect on January 1, 2026, with state housing agencies already preparing for implementation. States will receive their enhanced LIHTC allocations starting with the 2026 allocation year, requiring updates to Qualified Allocation Plans and application processes to handle the increased volume. 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The success of these provisions ultimately depends on effective implementation, sufficient construction capacity, and the availability of additional financing sources. The legislation sets the framework for significant increases in housing production, but turning this potential into actual affordable housing units will require coordinated efforts from federal agencies, state housing finance agencies, and private sector developers. For housing policy analysts and practitioners, the legislation presents both significant opportunities and notable challenges. The permanence of key provisions offers stability for long-term planning, while the scale of potential production increases demands substantial capacity building and system adaptation. The coming years will reveal whether this historic expansion leads to meaningful progress on America s affordable housing crisis.

USDA Proposes Mandatory Market Studies for Section 538 Projects

The U.S. Department of Agriculture s Rural Housing Service (RHS) is tightening requirements for project feasibility under its Section 538 Guaranteed Rural Rental Housing Program (GRRHP). In a newly proposed rule, RHS will require all applicants seeking loan guarantees for new construction to submit a formal market study as part of a complete application. This may sound like a bureaucratic tweak, but it has real implications for lenders, developers, and rural communities. What s the Section 538 Program? Section 538 is the USDA s flagship loan guarantee program for rural multifamily housing. It backs up to 90% of loans made by private lenders for the construction or rehab of rental housing serving low- and moderate-income households in USDA-defined rural areas. It s a public-private partnership model that has delivered thousands of affordable units to small towns that are often overlooked. What s Changing and Why? Up to now, the rules under 7 CFR part 3565 have encouraged applicants to "demonstrate market feasibility, but have not required any specific documentation to prove it. Some lenders submitted comprehensive market studies; others relied on summaries, broker letters, or hastily compiled spreadsheets. That inconsistency is what the USDA wants to eliminate. Under the proposed rule, all new construction applications must include a comprehensive market study. This will: Ensure projects are built in markets with demonstrated need; Avoid oversaturation and risk to the existing affordable housing stock; Align USDA requirements with industry norms (e.g., LIHTC, HUD programs); Improve efficiency and uniformity in loan guarantee underwriting. What s a Market Study, Exactly? A professional market study typically includes: A demographic and economic profile of the market area; Rent comparables and absorption trends; An analysis of supply and demand for affordable units; Impact projections on existing housing stock; Supportable rent and unit mix recommendations. In short, it s the backbone of a smart housing investment and USDA wants it in every file. Who s Affected? Lenders & Developers: Must budget time and cost for a market study before the USDA will consider a loan guarantee for new construction. Property Managers: May see less risk of oversupplied markets hurting occupancy. USDA & Taxpayers: Benefit from better quality control and reduced risk of supporting white elephants in underserved areas. Comments Wanted Speak Now or Forever Hold Your Feasibility USDA is inviting public comments through August 30, 2025 (60 days from publication). Visit regulations.gov and search Docket No. RHS-24-MFH-0024 or RIN 0575-AD42. If you have a stake in affordable rural housing, this is your shot to weigh in. Bottom Line Requiring a market study isn t red tape it s a reality check. The move helps ensure scarce affordable housing dollars are spent where demand is real and sustainable. For lenders and developers, it s one more hoop, but also a safeguard. For rural communities, it s a sign that USDA wants housing investments to be grounded in facts, not optimism. Smart growth starts with smart data. This rule aims to make sure rural housing does just that. For more updates on affordable housing policy and compliance, stay connected with A. J. Johnson Consulting Services.

RD to Implement HOTMA Income and Certification Rules on July 1, 2025

Although HUD has postponed implementation of HOTMA for its Multifamily Housing Programs until January 1, 2026, the USDA Rural Housing Service (RHS) Office of Multifamily Housing has announced that the Housing Opportunity Through Modernization Act (HOTMA) will take effect on July 1, 2025, bringing significant changes to income calculation rules for multifamily housing programs. Key Implementation Details To accommodate the federally mandated HOTMA requirements, Rural Development published comprehensive updates to Chapter 6 of Handbook 2-3560 on June 13, 2025. All multifamily housing tenant certifications effective on or after July 1, 2025, must comply with the new HOTMA requirements. Recognizing the challenges of the transition period, Rural Development has announced a six-month grace period. Between July 1, 2025, and January 1, 2026, the agency will not penalize multifamily housing owners for HOTMA-related tenant file errors discovered during supervisory reviews. Legislative Background HOTMA was signed into law on July 29, 2016, directing the Department of Housing and Urban Development (HUD) to modernize income calculation rules established initially under the Housing Act of 1937. After years of development, HUD published the Final Rule on February 14, 2023, updating critical regulations found in 24 CFR Part 5, Subpart A, Sections 5.609 and 5.611. The HOTMA changes specifically affecting the RHS Multifamily Housing portfolio are contained in 24 CFR 5.609(a) and (b) and 24 CFR 5.611, which standardize income calculation methods across federal housing programs. Notable Policy Changes Unborn Child Consideration One of the most significant changes involves how unborn children are counted for household eligibility purposes. Under the new rules, pregnant women will be considered as part of two-person households for income qualification purposes, aligning Rural Development policies with other affordable housing programs, including HUD and the Low-Income Housing Tax Credit (LIHTC) programs. However, the household will not receive the $480 dependent deduction until after the child is born, maintaining consistency in benefit distribution timing. Updated Certification Forms Rural Development has released an updated Form RD 3560-8 Tenant Certification, which was initially published on December 6, 2024, and revised on April 18, 2025. The form is available on the eForms Website for immediate use. The previous version of the form has been renumbered as RD 3560-8A and should be used for all tenant certifications effective before July 1, 2025. Implementation Timeline The HOTMA implementation has experienced some delays. Originally scheduled to take effect on January 1, 2025, the Rural Housing Service announced on October 3, 2024, that implementation would be postponed to July 1, 2025, to allow additional time for property owners and managers to prepare. Rural Development initially implemented HOTMA through an unnumbered letter dated August 19, 2024, which outlined the overview and projected timeline for implementation. Industry Impact The HOTMA changes represent the most significant update to federal housing income calculation rules in decades, affecting thousands of multifamily housing properties across rural America. Property owners and managers have been working to update their systems and train staff on the new requirements. The six-month penalty-free transition period demonstrates Rural Development s commitment to supporting property owners through this complex regulatory change while ensuring long-term compliance with federal requirements. Moving Forward Multifamily housing stakeholders are encouraged to review the updated Chapter 6 of Handbook 2-3560 and ensure their staff is adequately trained on the new HOTMA requirements. Property owners should also verify they have access to the updated Form RD 3560-8 and understand the timing requirements for its use. For ongoing updates and additional resources, stakeholders can subscribe to USDA Rural Development updates through the GovDelivery subscriber page. The implementation of HOTMA represents a significant step toward modernizing and standardizing income calculation methods across federal housing programs, ultimately improving consistency and fairness in affordable housing administration.

HUD’s Proposed Rule to Eliminate Affirmative Fair Housing Marketing Plans: A Critical Analysis

Introduction The Department of Housing and Urban Development (HUD) has proposed eliminating the requirement for Affirmative Fair Housing Marketing Plans (AFHMPs), a cornerstone of fair housing enforcement for decades. This proposed rule, published on June 3, 2025, represents a significant departure from established fair housing practices and raises serious concerns about the federal government s commitment to ensuring equal housing opportunities for all Americans. HUD s justification for this elimination rests on six primary arguments, each of which fails to withstand careful scrutiny and analysis. Background on Affirmative Fair Housing Marketing Plans AFHMPs have long served as essential tools in combating housing discrimination by requiring property owners and managers to actively market housing opportunities to groups that are least likely to apply. These plans ensure that information about available housing reaches all segments of the community, not just those who traditionally have had better access to housing information networks. Analysis of HUD s Justifications 1. Claims of Inconsistency with Fair Housing Act Authority HUD argues that its authority under the Fair Housing Act and Executive Order 11063 is limited to the "prevention of discrimination, claiming that AFHM regulations go beyond this scope by requiring outreach to minority communities through targeted publications and outlets. The agency characterizes this as impermissible "racial sorting. This argument fundamentally misunderstands both the nature of discrimination and the historical context of fair housing enforcement. Information disparities have long been one of the most prevalent and effective forms of housing discrimination. When certain groups systematically lack access to information about housing opportunities, the discriminatory effect is equivalent to being explicitly excluded. The failure to provide equal access to housing information is, in itself, a discriminatory act, not merely a neutral information gap. AFHMPs address this reality by ensuring that housing information reaches all communities, particularly those that have been historically excluded from traditional marketing channels. 2. Constitutional Challenges Under Equal Protection HUD contends that AFHM regulations violate the Equal Protection Clause by requiring applicants to favor some racial groups over others. This characterization is both inaccurate and misleading. AFHMPs do not create preferences or favor any particular group. Instead, they ensure equitable access to information by targeting outreach to communities that are "least likely to apply for specific housing opportunities. This principle applies regardless of the racial or ethnic composition of those communities. For instance, housing developments located in predominantly minority neighborhoods are required to conduct affirmative marketing in white communities since white residents would be least likely to apply for housing in those areas. The regulation is race-neutral in its application it focuses on reaching underrepresented groups regardless of their racial identity. This approach promotes inclusion rather than exclusion and advances the constitutional principle of equal protection under the law. 3. Delegation of Legislative Power Concerns HUD s third argument that the Fair Housing Act s authorization of AFHM regulations constitutes an unconstitutional delegation of legislative power represents perhaps the weakest aspect of their legal reasoning. Congress explicitly mandated that affirmative efforts be made to eliminate housing discrimination. As the administrative agency responsible for implementing congressional intent in this area, HUD possesses both the authority and the responsibility to determine the most effective means of carrying out this mandate. The development of specific regulatory mechanisms to achieve Congress s stated goals falls squarely within HUD s legitimate administrative authority and represents appropriate implementation of legislative intent rather than overreach. 4. The "Color Blind Policy Justification HUD frames its opposition to AFHMPs as part of a "color-blind policy approach, arguing that it is "immoral to treat racial groups differently and that the agency should not engage in "racial sorting. This argument mischaracterizes the function and operation of AFHMPs. These plans do not sort individuals by race or treat different racial groups unequally. Rather, they ensure that all groups have equal access to housing information by specifically reaching out to those who are least likely to receive such information through conventional marketing channels. Critically, AFHMPs require marketing to the general community in addition to targeted outreach. This comprehensive approach ensures broad access to housing information while addressing historical information disparities that have contributed to ongoing patterns of segregation. 5. Burden Reduction for Property Owners HUD argues that "innocent private actors should not bear the economic burden of preparing marketing plans unless they have actively engaged in discrimination. This position suggests that property owners should be exempt from fair housing obligations unless they can prove intentional discriminatory conduct. This reasoning effectively provides cover for property owners who prefer that certain groups remain unaware of housing opportunities. The "burden of creating inclusive marketing strategies is minimal compared to the societal cost of perpetuating information disparities that maintain segregated housing patterns. The characterization of comprehensive marketing as an undue burden ignores the fundamental principle that equal housing opportunity requires proactive effort, not merely passive non-discrimination. This represents a retreat to a "wink and nod approach to fair housing enforcement that falls far short of the Fair Housing Act s aspirational goals. 6. Prevention vs. Equal Outcomes HUD s final argument contends that AFHM regulations improperly focus on equalizing statistical outcomes rather than preventing discrimination. This argument creates a false dichotomy between prevention and opportunity creation. AFHMPs exist not to guarantee equal outcomes but to ensure equal opportunity by providing equal access to housing information. When information about housing opportunities is not equally available to all segments of the community, the opportunity for fair housing choice is compromised from the outset. True prevention of discrimination requires addressing the structural barriers that limit housing choices, including information disparities. The Broader Implications HUD s proposed elimination of AFHMP requirements represents a concerning retreat from decades of progress in fair housing enforcement. The proposal effectively returns to an era when discrimination, while technically prohibited, was facilitated through information control and selective marketing practices. The reality of housing markets is that access to information varies significantly across communities. Property owners and managers possess considerable discretion in how they market available units. Without regulatory requirements for inclusive outreach, there are few incentives to ensure that information reaches all potential applicants. Anyone with experience in affordable housing development and management understands that information flow can be deliberately targeted and shaped. This targeting can either expand housing opportunities for underserved communities or systematically exclude them. Marketing strategies can be designed to minimize applications from certain groups while maintaining technical compliance with non-discrimination requirements. Conclusion The six justifications offered by HUD for eliminating AFHMP requirements fail to provide compelling reasons for abandoning this critical fair housing tool. The arguments reflect a fundamental misunderstanding of how housing discrimination operates in practice and ignore the crucial role that information access plays in maintaining or dismantling segregated housing patterns. Rather than advancing fair housing goals, the proposed rule exacerbates existing disparities by removing a key mechanism for ensuring that all communities have equal access to housing information. The elimination of AFHMPs would represent a significant step backward in the ongoing effort to achieve the Fair Housing Act s vision of integrated communities and equal housing opportunities for all Americans. The current proposal suggests an agency leadership more committed to reducing the regulatory burden on property owners than to expanding housing opportunities for underserved communities. This represents a troubling departure from HUD s mission and responsibilities under federal fair housing law. Moving forward, policymakers, housing advocates, and community leaders must carefully consider whether this proposed rule serves the public interest or merely provides cover for practices that perpetuate housing segregation through more subtle but equally effective means.

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