The Funding Gap
How do you fill the gap in funding for affordable housing? The amount of rent that low and moderate income households can afford to pay is often not enough to cover the full costs of owning and managing a rental property. This gap between the funding needed to develop and operate a property and the revenue available is called the Affordable Housing Funding Gap. To fill the gap, developers typically need help in the form of subsidy. The subsidy oftentimes comes from local, state, or federal government agencies; however, it can also come from other sources.
The subsidy can help cover the construction costs, rent, or operating costs. Help with construction costs reduces the amount a developer needs to borrow, and therefore reduces monthly financing costs. Rental help helps tenants pay the rent needed to cover costs. Operating subsidies reduce the rental income needed to keep the property financially afloat. Depending on the specifics of a project, it may need one, two, or all three kinds of help.
What types of subsidies are used to help fill the affordable housing funding gap?
Hard debt
Soft debt
Equity
Grants and other subsidies
Why do developers use so many sources of subsidies?
Developers generally use the fewest number of subsidy sources possible since each additional source of subsidy makes funding more complex. For example, each subsidy comes with its own set of legal restrictions. The truth is to reach the lowest income families with the greatest needs a developer may need to cobble together multiple subsidy sources to make the project financially feasible.
A project is not feasible unless it covers 100% of its funding gap, so every source of funding matters. A small local contribution can be the critical investment that makes the project work, allowing the project to proceed and the community to benefit from a large amount of federal subsidy that would otherwise flow into a different community.
In addition to all the more traditional approaches to funding low income housing, we also have more creative funding methods that guarantee the success of your project no matter how vast your affordable housing needs may be.
Get Involved
We don’t work for the community, we work WITH IT! Resolving the unaffordable housing crisis takes a strong team. No single agency, person or government can do it alone. Join in the effort!