“There’s an estimated $2.3 trillion in unrealized capital gains sitting with investors,” says KeyBank’s Rob Likes. “Even if a fraction of that were directed into opportunity zones it could make a huge difference for affordable housing.”

CLEVELAND—Let’s call it a start. Two initiatives, one in California and one national, have paved the way—it is hoped—for the development of more affordable and workforce housing. California recently expanded its two-year old multifamily Mixed-Income Loan Program, designed to spur affordable housing and address the so-called “missing middle.”

On the national stage, the creation of opportunity zones is generating a buzz for revitalizing downtrodden locales. As KeyBank’s Rob Likes tells GlobeSt.com, “The initial projections indicate that the California program will create between 750 and 1125 new affordable units each year, with a priority and preference given to those projects targeting residents with a mix of incomes between 30% and 120% AMI.” The upper range of that spread—81% and up—is generally considered workforce.

Likes, who is national manager of KeyBank’s Community Development Lending and Investment Group, is hopeful that other states will follow California’s lead, but they’ll have to be as innovative as the Golden State, which “created an income stream by adding a $75 fee to the recording of any real estate documents. They’re projecting that this fee will generate $40 million this initial year to help fund those new units.”

Not all opportunity zones are equal.  Some might be a little more of a challenge, given that without market demand for new development, the associated tax benefits become more of a subsidy rather than a return enhancement.  KeyBank’s own Chris Terlizzi expressed his concerns at the recent GlobeSt.com Philadelphia event. And while there’s need for caution, Likes, weighing the pros and cons, comes out largely on the side of the former. “The program is very new, and the projected benefits are just that, projected,” he says. “Until we get further along it will be difficult to determine the value added. However, we do think that, with such high demand for quality affordable housing, the legislation will be great for renters as well as for investors.”

Unlike the LIHTC program, he adds that there’s no cap on opportunity zone investment. Those caps have acted true to their name and limited the amount of affordable development in this country.

“The inventory is nowhere close to what needs to get done,” he states. “There’s an estimated $2.3 trillion in unrealized capital gains sitting with investors across the country. Even if a fraction of that were directed into opportunity zones, it could make a huge difference for affordable housing. While there’s concern over gentrification, we’re ultimately hopeful.”

Other good news comes in some recent initiatives from Freddie Mac and Fannie Mae, says Likes, who characterizes KeyBank’s 2018 affordable pipeline at a record-busting $2.5 billion, with this year at least keeping pace. “Both Freddie and Fannie have been really good at innovation for affordable-housing capital creation,” he explains. Their structured vehicles–particularly Freddie’s recently enhanced  MultiAsset Commitment structure–more than ever “include multi-priced assets and streamlined processes. They ensure that more affordable housing is preserved and stays affordable versus going market rate.”

The problems of all segments of affordable housing won’t be solved overnight, Likes states, adding that KeyBank is committed to “investment balance sheet and permanent loan programs that are designed to help create and preserve affordable housing.”

Nevertheless: “Demand continues to far exceed supply across the entire country, from downtown urban markets to the most tertiary and rural markets, and from coast to coast,” he says. But Likes adds: “Lending and investment will continue to grow in this critical sector. Other states and locales can learn from such initiatives as those in California. It’s a good start.”