The mechanisms highlighted in supporting affordable housing finance and funding only serve to demonstrate financial forces that shape the market. Often it is the process of development by affordable housing providers that select and implement the appropriate mix or ‘blend’ of finance mechanisms, and in various different degree or ‘weight’. As such, it is worth highlighting here the process of affordable housing development, to demonstrate that the blend and weight of finance will be one of the developer choices – the other ensuring that the development is realized beyond the financial choices. A concern of the overall affordable housing development process is making sure that all the typical planning issues and permits are dealt with first (Type 1 – Direct Mechanism). Following this priority may be on submitting an application for tax credits and grants if they are available (Type 2 – Fiscal Mechanism).
A selection of financing partners would be next in the process, with the first one as an equity investor – the institution that is actually going to buy the tax credits, the debt part of the finance is then sought. Often, local cities and counties will also put and control targeted dollars in the project, attached to a number of programme funds that are made available at the central-state-regional level (Type 2 – Fiscal Mechanism). Developers will then start to bring together other sources of financing – local government loan financing, such city bonds (Type 3 – Monetary Mechanism). Once this is in place and the equity is confirmed, then the affordable housing developer (or partnership) can obtain an interim construction loan and start to lever in the permanent debt from mainstream financial sources such as high street banks (Type 3 – Monetary Mechanism).
During the development process, different mechanisms will be blended in the finance mix – further, the weighting of importance for each mechanism is also of interest to the affordable housing developer. To put some weighting into this blend that occurs during the process over time, affordable housing development finance operates over several ‘tiered’ finance generating levels. Here it is put forward to consider the financing of affordable housing development as a three-tier finance generating system (See Table X)
Table X: Affordable Housing Finance ‘Weighted Tier’ Mechanism Group and Principles
| ‘Weighted Tier’ Mechanism Group | Key Principles |
| 1. Federal-State-Regional | Tax Credits |
| Infrastructure Financing Districts | |
| Tax Increment Finance | |
| Transit Orientated Development | |
| 2. County-City-Neighborhood-Point | Property Taxes |
| Inclusionary Housing Fees and Levies | |
| Inclusionary Zones | |
| Inclusionary Housing Ordinances | |
| Impact Fees | |
| Housing Trust Funds | |
| 3. Private-Charity-Donations | Philanthropic Donations |
| Voluntary Donations | |
| Charity Donations | |
| Private Syndicates | |
| Private Finance and Funding | |
| Mission Funders | |
| Crowd Funding | |
| Not For Profits |
Source: Author
At the first tier, federal-state-regional finance is generated, and devolved to the city and sub-city scale via government programs. A significant weight provided in this could be from a tax credit system, that encourages commercial lending in the affordable housing sector. Other first tier finance generating level could be such as the Infrastructure Financing Districts (IFD) that operate as value capture instruments such as Tax Increment Finance (TIF) districts. At tier 1 federal-state-region finance generating level, state-led regional grants can also encourage Transit Orientated Development (TOD) affordable housing located at key transport hubs.
Second tier finance generating levels are those highly powered within city and county jurisdictions for affordable housing development. City financing from tax extraction are via instruments such as special property taxes, and affordable housing incentivized finance via inclusionary housing fees and levies, plus inclusionary zones that encourage cross-subsidization of finance for affordable units. Exaction in this second city tier, includes the use of impact fees on developers that contribute to public costs occurring due to development such as further affordable housing pressure. At this city extraction and exaction second tier, funds can be pooled by the city administration, such as in the form of a Housing Trust Fund in the example of affordable housing development.
The third tier of finance generating for affordable housing development involves private and charitable funds that can often be in the form of single organizational payments or in syndicate. Donations are not necessarily from government shaping type mechanisms (direct, fiscal or monetary types) but will provide further finance options for affordable housing developments. Donations in this way may in some instances provide a way that no-one individual affordable (or more specifically not-for profit) housing developer could finance. More philanthropic contributions from several charitable trusts that often provide gap financing and seed-corn money for mission-based projects to be realized.
With the continued roll back of state funding available alternative private-charity-donation based ‘tiers’ could be ever more weighted to drive affordable house development. Especially given the rise of crowd sourcing and the potential of crowd funding mission-based projects such as affordable housing developments. That is not to say that the most significant weight of affordable housing development finance generation, by tier one federal-state-regional power, is not to be dismissed. Particularly by those that wish to see a fair housing allocation system, based on the greater public good and not just unfettered private market forces and charity alone.