Financing Affordable Rental Housing in the United States and Korea

Affordable rental housing has become a pressing issue in the United States, as the demand for such housing continues to outpace supply. The challenges facing the development of affordable housing are multifaceted, including increasing rent burdens, ageing existing housing stock, and gentrification. As neighbourhoods gentrify, prime real estate becomes more valuable, leading to competition among citizens for limited affordable options. This article will explore these challenges through five case studies, examining the development process and the various financial incentives used to build affordable housing. By understanding how different players can take advantage of available tools, we can gain insights into potential solutions for this critical issue.

One of the most significant challenges facing affordable rental housing is the increasing rent burden on low- and middle-income families. According to the Joint Center for Housing Studies of Harvard University, over 21 million renter households in the United States spend more than 30% of their income on rent, which is the federal guideline for affordability. This financial strain is particularly acute for those earning below the median income, who often find themselves struggling to cover basic living expenses. The problem is exacerbated by the fact that wages have not kept pace with rising rents, making it even more difficult for families to find and maintain affordable housing.

Another critical issue is the ageing of existing affordable housing. Many of these units were built decades ago and now require significant repairs and upgrades. The National Low Income Housing Coalition estimates that there is a shortage of 7.2 million rental homes that are affordable and available to extremely low-income renters. This shortage is due in part to the deterioration of existing affordable housing, which often lacks the necessary funding for maintenance and improvements. As a result, many of these units are no longer habitable or fail to meet modern safety and health standards.

Gentrification has also had a profound impact on the availability of affordable rental housing. As neighbourhoods become more desirable, real estate values soar, and developers often prioritize high-end housing projects that cater to wealthier residents. This trend displaces long-time residents who can no longer afford the rising rents, leading to a loss of affordable housing options. The competition for prime real estate further complicates the situation, as developers and investors vie for the most profitable locations. This often results in the conversion of affordable housing units into luxury apartments or condominiums, further reducing the supply of affordable options.

One of the most effective financial incentives for affordable housing development is the Low-Income Housing Tax Credit (LIHTC) program. Established in 1986, the LIHTC provides tax credits to developers who build or rehabilitate affordable rental housing. This program has been instrumental in creating and preserving affordable housing units across the country. For example, in the city of Austin, Texas, the LIHTC program has been used to develop several affordable housing projects, such as the Mueller Community. These projects not only provide affordable housing but also integrate community amenities and services to support residents.

Public-private partnerships (PPPs) have also emerged as a valuable tool for affordable housing development. These partnerships involve collaboration between government agencies and private developers to finance and build affordable housing projects. In New York City, the Mayor’s Office of Housing and Economic Development has partnered with private developers to create affordable housing units through initiatives like the Housing New York plan. These partnerships leverage public funding and private investment to build mixed-income housing developments that include a significant portion of affordable units.

Community land trusts (CLTs) offer another innovative approach to affordable housing development. CLTs are nonprofit organizations that acquire and hold land for the benefit of the community. They then lease the land to developers who build affordable rental housing units. In Burlington, Vermont, the Champlain Housing Trust has successfully used this model to develop and preserve affordable housing. By holding the land in trust, the organization ensures that the housing remains affordable in perpetuity, even as surrounding property values increase.

Inclusionary zoning is a policy tool that requires developers to include a certain percentage of affordable rental housing units in their projects. This approach has been implemented in several cities across the United States, including Montgomery County, Maryland. By mandating the inclusion of affordable units, inclusionary zoning helps to ensure that new developments contribute to the overall supply of affordable housing. This policy not only increases the availability of affordable options but also promotes mixed-income communities.

Federal grants and subsidies play a crucial role in supporting affordable housing development. Programs like the Community Development Block Grant (CDBG) and the HOME Investment Partnerships Program provide funding to local governments and nonprofit organizations to develop affordable rental housing projects. For example, the city of Seattle has used these federal programs to fund the development of affordable housing units in various neighbourhoods. These grants and subsidies help to bridge the funding gap, making it possible for developers to build and maintain affordable housing projects.

The development of affordable rental housing is a complex issue that requires a multifaceted approach. By examining the challenges of increasing rent burdens, aging housing stock, and gentrification, we can better understand the need for innovative solutions. The case studies presented in this article highlight the various financial incentives and development strategies that have been successful in creating and preserving affordable housing. Through continued collaboration between government agencies, private developers, and community organizations, we can work towards a future where affordable rental housing is accessible to all.

: Joint Center for Housing Studies of Harvard University

: National Low Income Housing Coalition

: City of Austin Affordable Housing Programs

: Housing New York Plan

: Champlain Housing Trust

: Montgomery County Inclusionary Zoning

: Community Development Block Grant (CDBG)

: HOME Investment Partnerships Program