The discovery of what specific policy mechanisms can be used to finance affordable housing is extremely helpful. Different ‘types’ of mechanisms are available in the shaping of affordable housing – with ‘types’ being broadly direct, fiscal and monetary.
The specific financial mechanisms that affordable finance are now put forward. We consider direct regulation such as shaping by acts and legislation; and monetary types such as the influence of bonds
Direct Regulation in Affordable Housing
With regards to the more technical mechanisms at play in affordable housing, the underlying economic-legal instruments that direct the sector are important. For instance, new build or renovation in the affordable housing sector may have to satisfy federal regulations in banking. There may be rules in bank lending for affordable housing that help prevent low-income neighbourhoods from being labelled as less desirable for investment – and thus not invested in. As such, direct regulation can incentivize banks to reinvest back into the communities to whom they make their deposits.
Changes in regulation can generate economic circumstances to strengthen the financial viability of affordable housing. For instance, as horizontal zoning, regulatory circumstances can be provided to change the viability of affordable housing provision. Under direct regulation, local governments have responsibilities to shape the design of buildings, the uses of buildings within certain areas, and the design in terms of height and bulk, and the impact on the street.
Vertical regulatory changes are referred to as ‘up-zoning’ and the development process can ‘up-zone’ a building or a lot to create a greater developable parcel. Government administrations can often up-zone or down-zone, and that affects whether a developer may come to a community to build on a particular site. Larger buildings are more profitable than smaller buildings if there are more units per lot area. Interestingly some city administrations have facilitated the up-zoning of many districts in exchange for inclusionary affordable housing units.
Bonds in Affordable Housing
Government-backed lending of money can be considered a monetary type of finance mechanism that can stimulate affordable housing development. The raising of finance via lending to project districts on the basis of future claw-back in taxes is the basis of Tax-Increment Financing (TIF). TIF money can be instrumental in gaining match-funding grants from a central government designated renewal program that incorporates affordable housing development. Moreover, TIF can be used as a major funding mechanism for dealing with local ‘blight’ in the property (re)development process.
Other monetary type bond mechanisms can be introduced or used to leverage finance against future uplift of taxes. An example being Infrastructure Financing Districts (IFD) that do not have a necessity to focus on blight and redevelopment. IFDs have a limited set of purposes and there is a requirement for a certain percentage of the property owners affected to approve development. This generates some difficulties for city administrations, as there are always multiple property owners.
In some special cases a specific authority, such as a Port Authority, can have their own IFD if they control all of their own property. As a result, these specific special authorities (e.g. port authority) can create ground leases and control a large amount of land, and often ‘prime’ land (e.g. waterfront land for port authorities). In this special case of an IFD, the special (e.g. port) authority designated to have an IFD does not need to get property owner votes, because they are the property owner. Arguably, in this case of a single special authority (e.g. port rather than local government authority), the use of IFDs to finance affordable housing development is weak, particularly if the priority will be to pay off initial bonds related to infrastructure rather than incentivizing affordable housing.
With a reduction in fiscal approaches by direct government grants. We can argue that a more contemporary approach to Affordable Housing development will be the use of direct regulation such as zoning, and monetary instruments such as bonds.