Executive Summary
When the housing tax credit program began in the late 1980s, few anticipated it would reach today’s scale, facilitating more than sixty thousand new units of multifamily housing per year, approaching 20% of the nation’s annual multifamily starts.
The scale of the programs employed by housing agencies across the country has grown so much in the more than three decades of the tax credit’s existence that now, backlogs of projects applying to use the program have grown longer and longer in state after state. Because traditional federal resources like the Low-Income Housing Tax Credit (LIHTC), HOME, and tax-exempt bonds are increasingly oversubscribed, limiting the number of viable projects that can advance each year, many agencies have begun looking for strategies to move projects forward outside of the conventional financing toolkit.
Over the past few years, several state Housing Finance Agencies (HFAs) have converged around a new class of supply-focused investment tools to address today’s challenges: a nationwide housing supply shortage, and affordability challenges growing all across the income spectrum. MassHousing, New York State Homes and Community Renewal (HCR), and the Michigan State Housing Development Authority (MSHDA) have each launched revolving funds that provide small, subordinate and quickly recycling public investments to unlock stalled and backlogged developments.
Each program is structured slightly differently, ranging from subordinate construction debt to preferred equity at the permanent stage, but they each share a common goal: accelerate production by deploying quickly revolving subordinate investments, without relying on scarce federal subsidies. Together, these efforts demonstrate an opportunity for HFAs to grow their role in financing new construction and creating affordability in their housing markets.
This report analyzes the mechanics, early outcomes, and lessons learned from these emerging models and highlights opportunities for HFAs and federal policymakers to scale this approach nationwide.