Briefs 1 and 2 established the methodology behind the Nashville Summit and the seven structural barriers that cut across the housing, workforce and small business development ecosystems. This brief narrows the focus to those items that are specifically of interest for advocates of affordable housing, the barriers that surfaced specifically in the affordable housing dialogues and the solutions participants identified as most likely to move the needle.
Devin Thompson, Director, Health Equity and Impact
Key Takeaways
1
The affordable housing stock we already have is being lost faster than new units can replace it, which makes preservation as urgent as production. A strategy focused solely on new construction is guaranteed to not keep pace.
2
Local restrictions and organized neighborhood opposition do more to block affordable housing than any single funding shortfall. The path to overcoming these structural barriers require significant political will to reform zoning codes, provide incentives and redefine state vs local authority.
3
Lenders and regulators treat affordable housing’s credit risks with a similar lens as luxury apartments, which results in a mismatch that increases the cost of capital. Updating underwriting logic and building enterprise-level pre-development funds would expand the field without requiring new subsidy dollars.
Affordable Housing Specific Barriers
In addition to the cross-sector systemic failures, the housing dialogues identified specific barriers that are suffocating the production and preservation of affordable units:
1. Restrictive Local Regulations
Participants identified that local land use regulations are frequently weaponized to block affordable development. This goes beyond standard administrative bureaucracy and has resulted in the active restriction on the types of housing that can be built. The three major local regulatory barriers that surfaced in the dialogue groups were:
- Prohibition of Diversity: The dominance of restrictive single-family zoning is a persistent barrier, severely limiting the ability to create necessary density in the areas that need it most. This focus on single-family homes comes at the expense of diverse housing types like duplexes and multi-family units, which are often the most affordable options and allow for development without displacement. While some states like Oregon have moved to reform these codes, the legacy of restrictive zoning continues to hinder progress in most regions.
- The “Tunnel” Problem: Even when diverse housing types like Accessory Dwelling Units (ADUs) are technically allowed, specific (often nonsensical) rules are used to obstruct them. One participant recounted being forced to build a non-essential, enclosed breezeway to attach an ADU to a main house simply to meet a rigid definition of attachment in the local code. This regulatory hostility discourages flexible, multi-generational housing solutions.
- Resistance to Modern Methods: Policy resistance often prevents the adoption of cost-effective techniques, like modular housing, which offers a 20% cost savings over traditional construction. Antiquated views associating modular homes with manufactured housing (i.e., mobile homes) lead to a refusal to adopt model codes, effectively banning high-efficiency building types that could rapidly increase supply.
2. High Development Costs and Fees
Project viability is being crushed by exorbitant infrastructure and operational costs that extend far beyond the price of lumber. Some other costly expenditures that surfaced via the dialogue groups were as follows:
- Exorbitant Municipal Fees: High development costs are often a direct result of governmental policy and underinvestment. Utility activation fees, particularly for water and electricity, have become a massive burden. In Detroit, utility activation fees for a single infill house were cited as running between $60,000 and $70,000, a cost that developers argue makes scaling on vacant lots financially impossible. In Nashville, connecting a house to the water system rose from $8,000 to $20,000. These fees are layered on top of substantial pre-development costs, which creates a hurdle that is insurmountable for smaller developers in an unstable funding environment.
- Crushing Operational Costs: Existing affordable housing stock is under threat from drastic spikes in ongoing expenses. Insurance premiums have become a deal killer, with multiple participants citing increases in excess of $50,000 in a single year for their multi-family properties. In some Florida jurisdictions, homeowners’ insurance has doubled over the last four years. This is compounded by increasing property taxes, with Nashville participants having seen property taxes increase by 50% in four years due to rising appraisals. For low-income homeowners, this combination can push monthly payments from $800 to $1,400, creating a financial nightmare that puts them at risk of foreclosure.
- The Maintenance Crisis: Rising costs leave no room for reinvestment. Owners struggling with insurance and tax hikes and tenants struggling to pay rent cannot afford maintenance, leading to a cycle of disrepair. In Minnesota, one participant’s request for $250,000 to upgrade fire safety in a 35-year-old building was denied, with the government ultimately spending $300,000 to demolish the property instead.
3. Local Political Veto Power (NIMBYism)
Affordable housing projects are frequently blocked by intense local political opposition that leverages structural power to bypass broader planning and community goals. This veto power manifests through specific, often hyper-local mechanisms that prioritize individual neighbor resistance over neighborhood needs. This structural lockout is driven by several overlapping dynamics:
- Councilmanic Prerogative: In cities like Philadelphia, the local government structure grants individual council members “councilmanic prerogative,” effectively allowing them to act as a mini-mayor in their district. This unwritten but powerful rule allows a single politician to unilaterally veto affordable housing developments that do not align with their personal or political interests, bypassing broader city planning objectives. This power is so entrenched that when the mayoral administration attempted to pass an $800 million housing bond that included limits on the council’s say over development, the City Council refused to even entertain the conversation. This troubling dynamic plays out in many other jurisdictions as well. Participants from across the country cited instances where a council person stymied their affordable housing development. In one instance, a project was canceled simply because they disliked a consultant on the project.
- Political Gridlock: Infighting within the board of aldermen can create immense legislative gridlock, often falling along geographic and racial divides. Opposition is frequently raised based on perceived turf wars or the feeling that a neighborhood “got skipped [over],” making it challenging to advance any cohesive housing strategy.
- “Squeaky Wheel” Opposition and Negative Advocacy: Local opposition frequently mobilizes at the town hall level, where the loudest voice can often dominate. Developers report that too often only negative opposition shows up to planning meetings, while the beneficiaries of the project are often absent. This negative input is highly influential in overturning decisions made by planning commissions.
- Weaponized NIMBYism: NIMBY (Not In My Backyard) tactics often center on preserving “character” or greenspace over community needs. In a Denver redevelopment case involving a golf course, opposition focused on preserving acres of greenspace, though advocates were eventually able to shift the conversation toward affordable housing benefits. However, in other instances, opposition proves fatal. Despite a for-profit developer agreeing to a robust Community Benefits Agreement, including covering property tax increases for eight years, the plan was voted down in a city-wide ballot initiative in a campaign powered by NIMBYism and parochial concerns. Even when non-profits secure donated land, they face aggressive resistance when attempting to change zoning to allow for workforce housing.
- Secondary Consequences: This political hostility introduces paralysis and inflated costs. The environment of significant unease slows down project planning as political will evaporates. Successfully navigating zoning battles adds massive pre-development costs, severely impacting financial viability. Furthermore, local officials often engage in performative actions using language that frames housing beneficiaries as unworthy, which kills the political capital needed to move forward.
4. Institutional Knowledge and Complexity
Knowledge gaps are creating programmatic dead ends, particularly in communities that have been historically excluded from the financial system. Broadly, these barriers appear at the local level in a couple of ways:
- Gaps in Financial Fluency: Across historically disinvested communities, a lack of technical finance literacy among local leadership acts as a severe impediment to development. Because these communities have been systematically excluded from traditional capital markets, leaders often lack the procedural memory of complex housing or economic development finance. This creates a reliance on outside consultants and slows the decision-making process. Multiple participants mentioned that this dynamic is particularly acute in Native American communities, where leaders often operate under the assumption that housing is the sole domain of authorities rather than private markets. This is exacerbated by high turnover through term limits, meaning that once a leader is brought up to speed on financial concepts they leave office, forcing partners to restart the education process. Similarly, small nonprofits and faith-based groups often own land but lack the tools to monetize it, leaving valuable community assets underutilized.
- Tangled Title and Heir’s Property: In both urban centers and the rural Southeast, the Tangled Title/Heir’s Property dynamic (real assets with multiple owners through inheritance) is an insidious, invisible barrier wiping out generational wealth. Because legal ownership cannot be confirmed, families cannot access home equity loans and other tools to provide the necessary capital to pay for maintenance. This creates a cycle of disrepair, leading to the loss of their equity. This crisis is fueled by a profound lack of consumer education on how to legally protect property, turning what should be an asset into a liability that is eventually lost or demolished.
5. Inflexible Unit Targeting
The current subsidy models are creating a paradox where units sit empty despite high demand. Participants criticized the rigid use of Area Median Income (AMI) targets, noting that they often exclude the most vulnerable populations (those at 30% AMI and below) in favor of the “missing middle” (those that make 80% to 120% of their area’s AMI). We heard participants break this challenge down into two broad categories:
- The Vacancy Paradox: The misalignment between Coordinated Entry Systems and specific unit eligibility rules results in a logistical failure where vacant affordable units remain unoccupied because the applicant at the top of the waitlist does not match the precise funding criteria assigned to that unit. This issue is an unintended consequence of overlapping policy decisions, with the result being providers that are punished financially for having empty units, which in turn can make the government reluctant to provide further support.
- The Compliance Dilemma: This rigidity extends to tenant stability as well. One example involving the Neighborhood Stabilization Program (NSP) was raised in relation to an organization that faced a crisis when two tenants received raises that pushed their income just 6% over the limit. The organization was forced into an impossible choice: fall out of compliance and risk their funding or evict stable, paying tenants from their housing. This demonstrates how unforgiving policy mandates can actively disrupt household stability, punishing tenants for the very economic success the system claims to want.
6. Lack of Specialized Pre-Development Capital
The riskiest money is unsurprisingly the hardest to find. Developers struggle to access pre-development financing, the very capital needed to get a project going. Without consistent, large-scale, enterprise-level funding to mitigate this early-stage risk, many potential projects die before they ever reach the permit office. These gaps limit nonprofit developers in the following ways:
- The Cost of Entry: Pre-development costs can escalate quickly, potentially reaching millions of dollars before a developer even breaks ground. These are soft costs like initial architectural and engineering plans, permitting fees and professional costs/legal fees tied to environmental impact assessments that must be paid upfront. If a deal falls through due to rising costs or political shifts, this money is often lost entirely, making potential investors extremely hesitant to commit early and leaving many nonprofit developers one failed development away from insolvency.
- The Funding Gap: There is a critical shortage of the soft monies needed to make projects viable. In Louisville, for example, funding requests to the government for this specific stage totaled over $70 million, while only $12.5 million was available. This massive gap acts as a gatekeeping mechanism, ensuring that only the most well-capitalized developers can afford to play, while smaller, community-based nonprofits can be effectively locked out of leading development in their own neighborhoods.
- The Scale Problem: Small organizations are often trapped by their own size. Built for incremental change, they lack the upfront capital required to hire the specialized staff needed to secure larger, complex financing. This creates a vicious cycle where they cannot grow because they cannot access capital and they cannot access capital because they haven’t grown. Furthermore, money is often more expensive for these organizations, with one participant noting that funds given to a CDFI for pre-development work often come with higher costs than if secured elsewhere, penalizing the very institutions designed to help solve this gap in service to the market.
Affordable Housing Specific Solutions
Develop Permanent Affordability Models
Innovative tenure models and financial structures are needed to allow residents to build equity while ensuring properties remain affordable for future generations, effectively decoupling housing from the speculative market. Participants identified several distinct pathways to ensure properties remain affordable for generations:
- Establish Community Land Trusts (CLTs) and Land Bank Partnerships: Nonprofits acquire land and hold it in a trust by using 99-year ground leases to keep the property affordable in perpetuity. This separates the cost of the land from the building. Partnering these trusts with land banks allows for the efficient transfer of property. One innovative approach involves homeowners deeding their land to the trust in exchange for funds to make repairs, allowing them to stay in their homes while the trust provides long-term housing affordability.
- Scale Shared Equity and Cooperative Ownership Programs: Traditional subsidized homeownership can’t be the only model of wealth building. In shared equity programs, a homebuyer might take a reduced mortgage (i.e., 74% loan-to-value) while a fund covers the rest. When they sell the property, they split the appreciation with the fund. This puts cash in the seller’s pocket and recycles money back into the program.
- Launch Renter Equity Pathways: Not everyone can buy a home, which unnecessarily locks many communities out of wealth creation. Rent-to-own structures and programs take a portion of on-time rent payments and put it into a savings account for the tenant, sometimes even offering equity in the building’s future sale. Organizations should also engage large rental portfolio owners about their exit strategies to encourage them to transfer assets into non-speculative, affordable ownership rather than using market-rate conversion tactics.
- Prioritize Economic Viability: We cannot rely solely on complex, expensive subsidies like the Low-Income Housing Tax Credit (LIHTC). Models should aim for a mixed city approach where fees on market-rate units cross-subsidize affordable ones. This creates resilience against economic downturns.
Reform Zoning and Land Use Regulations
Advocate for legislative and policy reforms to increase housing supply and unlock development potential by removing artificial legal barriers that restrict housing density and types. Increasing housing diversity at the local level could be impacted by implementing any of these reforms:
- Advocate for State-Level Intervention and Incentives: Local resistance often stalls progress but provides an opportunity for state governments to show leadership in support of the common good. States should have the authority to approve projects that meet specific parameters even if local boards object. Federal and state governments should also use financial incentives to encourage cities to update their zoning laws voluntarily.
- Implement Form-Based Zoning and Density Bonuses: Cities should shift from unit-based zoning to form-based zoning. This allows developers to place multiple units, such as three townhomes, on a land footprint that used to hold a single house. These density bonuses should be tied to affordability requirements to ensure the new supply serves the entire community.
- Legalize Diverse Housing Types: Outdated ordinances block essential housing options. Codes must be streamlined to allow for the creation of more Accessory Dwelling Units (ADUs) and multigenerational housing developments. Legislation could allow property owners to sell ADUs separately from the main house to create individual wealth and increase tax revenue. Cities should also identify micro-plots eligible for tiny homes. However, design standards should remain in place to prevent the construction of low-quality structures that reduce the perceived value of a neighborhood.
- Leverage Community Benefits Agreements (CBAs): Zoning flexibility creates value for developers. Given this, the community should also be able to share in those financial returns. Formalize the use of Community Benefits Agreements (CBAs) where zoning changes for large developments are exchanged for binding commitments to build affordable units and hire local workers.
CASE STUDY: Builder's Remedy
Problem
The primary barrier to affordable housing in many high-opportunity communities is often of a regulatory nature rather than a financial one. Local zoning codes create ecosystems where fully funded projects fail during permitting.
Voluntary compliance with state mandates resulted in plans that satisfied administrative requirements but, without firm consequences for failure to implement the plans, did not lead to actual production. Developers lacked recourse when viable projects were denied based on local character or density preferences.
Solution
State-level zoning preemption, often called the Builder’s Remedy, shifts the approval authority from local to state government under specific conditions. The state establishes an objective housing target and, if a municipality fails to meet that target, it loses the ability to enforce its zoning codes against qualifying affordable housing projects.
This flips the burden from developer to municipality, making the default stance to build the needed housing. Instead of a developer requesting a variance, the municipality needs to prove that a project presents a specific, quantifiable health or safety risk. Without that proof, the project proceeds “by right.”
Implementation
In all cases, implementation relies on a “trigger” mechanism that activates the remedy when a town falls out of compliance.
In California, the Housing Accountability Act states that if a city fails to get its eight-year Housing Element plan certified by the state on time, the Builder’s Remedy activates. Developers can file preliminary applications for projects of roughly any density, provided 20% of their units are classifiable as affordable.
Under Massachusetts’ Chapter 40B, developers apply for a single “Comprehensive Permit” that overrides local zoning in towns where less than 10% of housing is affordable. If the local board denies the permit, the developer appeals to a specific State Housing Appeals Committee, which historically rules in favor of housing production.
Impact
The impact appears in both direct unit production and the behavioral modification of local governments. Some examples of Builder’s Remedy’s quantitative impact include:
- In Massachusetts, Chapter 40B is linked to the production of approximately 77,000 housing units that likely would not have been built under standard zoning.
- In California, the prospect of the Builder’s Remedy drives compliance, with the risk of losing control over local development leading to hundreds of jurisdictions accelerating their re-zoning efforts. Santa Monica processed more units in a single year than in the prior decade.
- In New Jersey, the judicial version of this remedy (the Mount Laurel doctrine) required over 340 municipalities to adopt fair share plans, integrating low-income families into high-opportunity school districts.
Lessons
Success depends on enforcement mechanisms rather than voluntary targets. Different states have chosen different frameworks of enforcement that fit their broader regulatory schema.
Illinois passed a similar law, the Affordable Housing Planning and Appeal Act (AHPAA), but included few penalties for non-compliance and no streamlined appeals process. Consequently, developers rarely use the tool, with exclusionary suburbs having little incentive to change behavior. In contrast, California’s law allows developers to “freeze” their zoning rights upon filing a preliminary application, creating an immediate incentive for towns to remain compliant.
Success in Massachusetts and Connecticut relies on the clear 10% affordable threshold. This standard reduces debate about whether the remedy applies and gives developers the confidence to invest in pre-development.
While these laws trigger political opposition, they often turn towns into rational actors. When faced with the loss of control, municipalities frequently rezone voluntarily to meet targets.
Proactively Resolve Tangled Title Issues
Implement policy and provide legal aid to address and resolve complex tangled title issues that wipe out generational wealth and prevent the deterioration of existing housing stock. Preventing the loss of existing housing stock requires a focused effort on these legal and protective measures:
- Establish Legal Aid and Estate Planning Infrastructure: Tangled titles often stem from a lack of clear ownership succession plans. Cities should pair tax sale interventions with mandatory estate planning support to resolve ambiguous ownership issues and keep them from recurring. Nonprofits could run legal aid clinics to help families navigate these complex legal waters. Additionally, organizations should develop processes to inform buyers of their legal options at the time of closing to prevent future title issues.
- Implement Circuit Breaker Tax Programs: Tax-related foreclosures are a primary driver of lost generational wealth. States should implement circuit breaker programs that tie property taxes to income once a homeowner meets a certain threshold. Maryland provides a successful model for this through the use of tax policy as a direct mechanism for housing preservation.
- Build Real Estate Infrastructure in Tribal Communities: In many parts of Indian Country, basic real estate statutes do not exist. Solving this conundrum requires building an entire housing industry system from scratch, including creating policies for quick, accurate appraisals to bypass the Bureau of Indian Affairs’ administrative bottlenecks. It also requires intensive education for tribal leaders and members on the fundamentals of mortgages and debt leverage.
- Revitalize Rehabilitation Financing: Tangled titles frequently lead to physical deterioration of properties because owners cannot access capital for repairs. Solutions must include breathing new life into rehabilitation loan products like Section 203(k) or Title I programs. These tools are essential for acquiring and stabilizing distressed properties once title issues are resolved.
Expedite Approvals and Slash Soft Costs
Soft costs and bureaucratic delays pile up and can eventually kill project viability. Because there are many smaller items that compound, fixing this problem will need to be multi-faceted, combining fee reductions with process speed improvements to drastically lower the barrier to entry for mission-driven developments. Reducing execution risks for mission-driven projects involves these specific administrative shifts:
- Establish a Dedicated Affordable Housing Track: Create a separate lane for mission-driven projects. Local housing authorities should manage this track, prioritizing affordable deals over market-rate ones. This incentivizes developers to build affordable units because the path is clearer and faster.
- Mandate Expedited Approvals: Housing developers live by the adage, “Time is money,” which is true when every delay leads to another month of loan payments without rental income coming in. During a recent DC-based development, a $50 million project stalled for 12 months and incurred $1.5 million in additional interest payments, necessitating an additional grant from the local housing finance authority to keep the project alive. To mitigate this, cities should enforce a 30-day rule for taking action on planning permits as has been implemented in multiple jurisdictions across the country. Some cities use a priority letter from the local Housing Authority to trigger this fast lane, while others put all affordable housing in this expedited queue. This would slash holding costs that otherwise bleed development budgets and lead to additional gap financing needs.
- Impose Fee Caps and Reductions: Development fees are often arbitrary and exorbitant. For instance, in Nashville, a utility hookup can cost $20,000. In Detroit, it can run upwards of $40,000. These costs kill project viability before construction even starts. Cities must enforce reasonable caps on these expenses or waive them entirely for affordable housing projects to ensure they get built.
- Absorb Infrastructure Costs: Cities frequently demand affordable housing but refuse to pay for the infrastructure it requires. Instead of passing the burden of futureproofing utilities to nonprofit developers, municipalities should absorb, or significantly subsidize, these costs. This recognizes that the developer is delivering a public benefit and should not be penalized for municipal underinvestment.
- Implement Master Blueprints: For housing types like ADUs or tiny homes, cities should pre-approve design standards. If a developer uses a master blueprint, they should be able to skip the lengthy design review.
- Advocate for Public Good Pricing: Advocates must use data to show that excessive fees prohibit infill development and worsen the affordability crisis. The argument is simple: the city should not overcharge developers who are solving the city’s housing problem.
Create State and Local Funding Mechanisms
Promote local policies that support the creation of new financial tools to diversify the funding base and reduce development costs. This will reduce dependency on volatile federal grants and provide a predictable, locally sourced funding stream. To diversify the capital stack, advocates pointed to these state and neighborhood-level mechanisms:
- Mobilize Local Capital: Cities and counties should utilize municipal bonding, or sales taxes, to create dedicated Local Housing Trust Funds. Minnesota, for example, implemented a metro sales tax where 75% of the proceeds go to preservation and development programs. Communities should also explore creating Public Community Development Banks (PCDBs). These institutions can fill gaps that government agencies cannot by administering Social Impact Investment Funds dedicated to pre-development and infrastructure efforts.
- Establish Agile Acquisition Funds: Nonprofit developers need liquidity to move as fast as private equity. We must create agile acquisition funds capitalized through local resources, banks and social impact investors. This allows nonprofits to acquire properties before they are lost to the speculative market.
- Innovate State Tax Credits and Revenue Streams: States should create their own cash tax credits to establish diverse funding streams. For example, the Oregon Affordable Housing Tax Credit allows banks to reduce the interest rate of a loan by 3-4%, passing the savings to residents as lower rents. Advocates should also push to redirect specific revenue streams, such as tourism dollars or real estate documentary taxes, directly into housing trust funds rather than letting them be swept into a municipality’s general funds.
- Engage Community Investors: Move away from reliance on external subsidies by generating capital directly from neighbors. Community Investment Trusts and crowdfunding models allow residents to invest small amounts (e.g., $10-$150) in local assets. This fosters local ownership and offers a meaningful return to shareholders. Nonprofits can also restructure debt by allowing individuals to lend funds at low interest rates instead of asking for donations, appealing to high net-worth individuals seeking to make real social impact.
- Develop Secondary Markets: CDFI’s scale, margins and impact rely on their liquidity. Developing a secondary market for locally originated micro-business loans allows CDFIs to sell these loans and free up capital to lend again. This reduces the pressure of holding every loan on the balance sheet and speeds up the velocity of money in the community.
Utilize Modular/Manufactured Housing and Vertical Integration
Developers can make strategic procurement choices to reduce their developmental costs, such as making use of modern construction techniques and internalizing broadly applicable cost centers that are currently contracted. These solutions would reduce construction time and costs, making projects feasible without the need for subsidies. To lower the cost per square foot, organizations should consider these strategies:
- Apply Factory Principles to Construction: Nonprofits and developers must embrace modular and manufactured housing to dramatically lower costs and speed up production. This approach would offer significant savings over stick-built homes and can cut construction time by half (e.g., assembling a home on-site in two weeks versus months). It requires actively countering the stigma associated with manufactured housing by emphasizing that modern units are anchored to foundations and indistinguishable from traditional builds. Innovations like 3D printing and container homes should also be leveraged for their energy and construction efficiency.
- Vertical Integration for Cost Control: Organizations should consider qualifying as their own general contractor. This allows nonprofits to control pricing and avoid bidding out contracts, further reducing delays and increasing cost certainty, which is crucial when federal funding is involved. Nonprofits can also achieve efficiency by bringing consultant functions, such as property management and architectural services, in-house once production volume justifies the investment.
- Integrate Workforce Development: This model pairs well with workforce development programs. Organizations can better support community members to build houses in their own neighborhoods by training them to become future skilled tradespeople, effectively recirculating wealth locally. A powerful example comes from tribal communities using their own “force accounts” (internal workforce), which allowed them to drop building costs from $350 per square foot to $185 per square foot.
- Leverage Academic Partnerships: Nonprofits can reduce preliminary soft costs by engaging university partners to supply students for cost estimation and feasibility studies.
CASE STUDY: Oregon Affordable Housing Tax Credit
Problem
Despite the success of the 9% federal Low-Income Housing Tax Credit (LIHTC) in providing equity, developers in Oregon consistently faced a funding gap. High construction costs and local market rents meant that projects could not support the level of permanent debt that could be repaid through the apartments’ operations, even with the LIHTC subsidy. This left many viable affordable housing projects unable to move forward.
Solution
The Oregon Affordable Housing Tax Credit (OAHTC) is a state-level tax credit that functions as a powerful cost-of-debt reduction tool. It allows a conventional lender to provide a permanent loan at a significantly below-market interest rate (e.g., 2.5% instead of 6.5%). In exchange, the state gives the bank a tax credit for every dollar of interest income they give up. The bank loses nothing, but the housing project acquires a much cheaper loan. The program requires that 100% of the interest savings is passed on to the project, allowing for deeper rent reductions and long-term viability.
Implementation
The program integrates with equity subsidies like LIHTC to right size the debt payment so it can be serviced out of the project’s rental cash flow. OAHTC’s application is also integrated as one of the multiple options available to developers in the state’s Oregon Centralized Application (ORCA) system, reducing the burden of seeking it alongside other state support.
Impact
Since 1989, this tool has helped finance over 15,000 affordable homes and has been shown to be particularly effective in rural areas. For every $1 million in tax credits the state issues, it triggers roughly $25 million in private lending. For the families living in these homes, the interest savings often translate to rents that are $100 to $200 lower than the market rate.
Lessons
The OAHTC demonstrates that state-level interventions are most powerful when they are designed not to replace federal tools, but to amplify them. The key success factor is its alignment of incentives for lenders and developers. Its replicability is high for any state with a state income tax, offering a scalable model to address the debt gap that plagues affordable housing development nationwide.
Convert Underutilized Community Assets
Strategically identify and convert underutilized community assets, such as vacant schools, empty offices or defunct shopping centers, into new housing units. This would bypass costly land acquisition and lengthy greenfield development processes, rapidly increasing the housing supply. These solutions focus on transforming underused property into high-quality, in-community housing:
- Identify and Acquire Stranded Assets: As many cities have seen shifting land use strategies, new opportunities for housing development have been created in commercial and industrial neighborhoods. The strategy must go beyond big buildings towards including micro-plots for tiny homes and strategic site assembly in transitioning neighborhoods. Finding and rezoning adjacent, tax-delinquent properties would also allow developers to create more viable sites.
- Innovate the Capital Stack for Conversions: Converting a mall isn’t like building a house as the risks are different. Local leaders must structure funding in a way that derisks these complex projects. Nonprofits also need to consider repositioning their own underutilized offices to generate rental income, creating the internal liquidity needed to buy new property or pay down debt.
- Navigate Historic and Zoning Hurdles: While older buildings have character, historic designations often pile on costs that kill affordable projects. To mitigate this, advocates must also fight for zoning shifts that allow for residential growth. This often faces aggressive resistance, but it is the best way to unlock this underutilized supply. It would also allow for future commercial revitalization efforts to succeed due to the presence of in-community consumers.
Redefine Risk Logic in Financial Models
Financial models must recognize the lower risk associated with mission-driven affordable housing due to guaranteed demand and waiting lists. If the risks were more accurately modeled, it would make mission-driven projects economically viable with reduced subsidies. Participants identified solutions that broadly fell into three groups:
- Challenge Arbitrary Risk Classification: Regulators and banks currently treat affordable housing with the same skepticism applied to volatile commercial ventures. For instance, a speculative condo in Miami often carries the same risk profile as a Low-Income Housing Tax Credit (LIHTC) project in Buffalo. Equal risk logic limits the equity banks can commit due to “safety and soundness” concerns even when the commercial market is the actual source of instability.
- Recognize the Myth of Lease-Up Risk: Unlike a new shopping mall or luxury apartment block, affordable housing projects often come with a mile-long waiting list. The risk of the unit sitting empty is nearly non-existent. This guaranteed demand should logically translate into a significantly lower risk profile for lenders, allowing for better terms.
- Advocate for Regulatory Distinction: The industry needs a formal regulatory distinction that separates affordable housing construction financing from speculative commercial projects. Regulators should also acknowledge that investing in affordable housing creates stable, long-term returns that satisfy community reinvestment requirements rather than adding to a portfolio’s volatility.
Nashville Summit Series
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BRIEF 4: Barriers & Solutions for Small Business
BRIEF 5: Barriers & Solutions for Workforce Development
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