Rising construction costs and ongoing challenges with housing affordability are pushing local and state governments across the United States to seek out new ways to finance affordable homes. With traditional funding models struggling to keep pace with demand, states are introducing innovative programs aimed at closing funding gaps and lowering risks for developers. In a new report, the Urban Land Institute looks at three of these initiatives.
One such program is the Tennessee Rural and Workforce Housing Tax Credit, established in 2024. This program complements the federal Low-Income Housing Tax Credit by providing a state-level tax credit to projects that already receive federal allocations. At least half of these state credits are reserved for developments in rural areas, a move intended to ensure that affordable housing is not limited to urban centers. The credits can be used against various state taxes and may be carried forward for up to 25 years, giving developers greater flexibility and financial certainty as they plan new projects.
Georgia has taken a robust approach by offering a full match to the federal LIHTC through its own state-level program. For every dollar of federal tax credit awarded, the state provides an equal amount in state tax credits, substantially enhancing the financial feasibility of affordable rental projects. This approach is particularly impactful in rural and lower-income areas, where market rents often fall short of covering development costs. The Peach State also makes strategic use of private activity bonds, which are tax-exempt and support affordable rental housing developments. The Georgia Department of Community Affairs oversees the allocation process, ensuring projects meet specific criteria, such as setting aside units for low- to moderate-income families.
Michigan has introduced a Housing Tax Increment Financing (TIF) program, administered by its Housing Development Authority agency. This program enables local Brownfield Redevelopment Authorities to capture future tax increments from housing developments and reinvest them into eligible project costs, including infrastructure improvements and financing gaps. The Housing TIF program is targeted at developments serving households earning up to 120 percent of the area median income, with a particular focus on the “missing middle” income bracket. By leveraging future tax revenues generated by increased property values, the program provides a sustainable funding mechanism that does not compromise current tax income.
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