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Key State Roles

There are a number of different ways in which states can help expand the supply of affordable homes. Among other roles, states can:

1. Serve as educators and conveners to encourage necessary state and local action
2. Create enforceable "rights" to support the development of affordable homes in areas where they are needed
3. Require localities to develop affordable housing plans
4. Offer incentives to developers to encourage the development of affordable homes
5. Offer incentives to municipalities to promote the development of affordable homes
6. Enact enabling legislation to authorize and encourage needed local action
7. Expand the financial resources available for affordable housing
8. Strengthen policies for allocating existing resources

A brief summary of each role, along with supporting examples, may be found by clicking the links above or simply reading on.

To find examples in your area without learning about state roles, go to the Clickable Map of examples by state.



1. Serve as educators and conveners to encourage necessary state and local action

States have many formal powers that can be brought to bear to expand the availability of affordable homes, including the power to pass legislation that influences local land decisions and the power to develop and fund state affordable housing programs. In addition to these more formal roles, however, states can play a critical informal role in educating the public about the importance of affordable homes and convening the necessary actors to develop a comprehensive housing strategy for the state and for regions within the state. An initial but important step is to convene the different state agencies that focus on affordable housing to ensure their policies are coordinated and mutually supportive. A good next step is to assemble a working group at the state level to develop a comprehensive state housing strategy. States also may wish to commission reports documenting the nature and extent of the housing challenges in the state as a means of galvanizing public and legislative attention and hold listening and educational sessions at the regional and local levels to present ideas, obtain feedback, and discuss coordination across municipalities within a region.

These coordinating activities may lead to a state housing plan that sets out a coordinated housing strategy and specific affordable housing goals against which progress can be measured. They also may help identify legislative changes needed at the state level as well as model policies for localities to consider to maximize opportunities for the development of affordable homes. Click here to view a profile of a comprehensive housing strategy prepared for the state of Arizona.


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2. Create enforceable "rights" to support the development of affordable homes in areas where they are needed


States can facilitate the construction of new affordable homes by creating "rights" to develop these homes in areas where they are needed. Typically, these rights are given "teeth" by the identification of an enforcement agency or state court that hears expedited appeals from developers whose proposals to build affordable homes have been denied. The enforcement agency has the authority to override local regulations in municipalities that fail to comply with state requirements, a process that is sometimes referred to as a builder's remedy. Individuals in need of affordable homes or advocacy groups that represent such individuals also could be granted standing to enforce these rights, but this is less common. In general, the burden of proof in these appeals is shifted to the municipality, which must justify the decision to deny approval.

Examples:
New Jersey Fair Housing Act -- In the mid-1970s and late '80s a series of New Jersey Supreme Court cases called the Mount Laurel decisions established the requirement that all municipalities "provide a realistic opportunity" for development of their share of low- and moderate-income housing. The state legislation passed to comply with Mount Laurel created the Council on Affordable Housing (COAH) to set each jurisdiction's "fair share" requirement and evaluate plans submitted to meet it. Municipalities that fail to submit and obtain COAH-certification for a plan to achieve their fair-share goal are susceptible to builder's remedy lawsuits filed by developers denied approval for the construction of affordable homes. Click here to leave this site and visit the COAH website.

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The State of New Hampshire recently passed a Workforce Housing Law intended to expedite the appeals process for developers of workforce housing whose proposals have been denied. The bill, SB 342, helps to codify a 1991 state Supreme Court Decision (Britton v. Town of Chester), in which the court ruled that municipalities must allow for "reasonable and realistic opportunities for the development of [their fair share of] workforce housing," including rental homes. The law directs local jurisdictions to assess their land use ordinances and, to the greatest extent possible, amend lot size and density requirements to provide opportunities for the development of workforce housing (defined here as for-sale housing affordable to a 4-person household earning up to 100 percent of area median income, or rental housing affordable to a 3-person household earning up to 60 percent of area median income).

This law finally gives "teeth" to the court ruling. In cases where a proposed workforce development is denied or receives approval subject to conditions that threaten the project's economic viability, the developer may appeal the denial or conditional approval in court. What's new is that the court is now required to hold a hearing on the merits of the case within 6 months from when the appeal is filed, or to appoint an impartial party to do so. Successful appellants may be awarded a "builder's remedy," in which the court's ruling supersedes local regulations. The developer and municipality must then work together to establish an appropriate solution. See a side-by-side explanation of the statute [PDF], or click here to leave this site and read an article about the statute.

See also:
-- Massachusetts Comprehensive Permit Law (40B), which grants developers of affordable homes access to an expedited appeals process if their applications are rejected by communities that have failed to meet minimum affordable housing goals set by the State. Learn more about Chapter 40B.

-- Rhode Island Low- and Moderate-Income Housing Act (Title 45), which allows developers of affordable housing to apply for a single comprehensive permit from the locality instead of applying with multiple boards. An expedited appeals process is available of the application is denied. Click here to leave this site and view the act.

-- Connecticut Affordable Housing Appeals Procedure, which requires municipalities that have rejected the appealing developer's application to build affordable housing to prove that the rejection was "necessary to protect substantial public interests in health, safety...and such public interests clearly outweigh the need for affordable housing." Click here to leave this site and view the statute.

-- Illinois Affordable Housing Planning and Appeal Act, which requires municipalities to submit specific plans for increasing the supply of affordable housing, and establishes a state-level housing appeals board to hear appeals from developers that have been denied permits to build affordable housing in communities that have not met their targets. Click here to leave this site and learn more.


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3. Require localities to develop affordable housing plans

Some states require municipalities to undertake planning processes intended to help identify opportunities for the development of affordable homes and improve local effectiveness in the delivery of those homes. The resulting "housing element" or plan may be incorporated into a regularly-updated comprehensive plan that provides a framework for future development and guides local land use decisions.

Example:
California "Housing Element" -- California state law requires all municipalities to prepare and submit a "housing element" for review by the Department of Housing and Community Development (HCD), as part of a long-term comprehensive planning process that is not otherwise subject to substantial state review. The housing element must include a housing needs analysis and site inventory, identification of government constraints on the development of new homes and an action plan for achieving the local housing goals set by regional councils of governments. HCD certifies local plans as compliant and, in theory, may challenge a non-complying municipality in court to prevent the issuance of building permits until adoption of a legally valid housing element.

See also:
-- Florida Growth Management and Land Development Regulation Act, which requires municipalities to include in their comprehensive plans a housing element that details goals, objectives and programs for meeting current and projected housing needs.

-- Washington Growth Management Act, which requires localities to develop and implement comprehensive plans that address a variety of topics, including affordable housing, sprawl reduction, transportation, and urban growth. Click here to leave this site and learn more about the act.


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4. Offer incentives to developers to encourage the development of affordable homes

While incentive programs are more common at the local level, some states have established programs to provide financial incentives to developers who build affordable homes. In some cases, state funding acts as a direct incentive offered to developers to encourage new construction. (See, for example, the Connecticut example below). In other cases, the state incentive program is delivered indirectly through requirements that municipalities make specified benefits available to eligible affordable housing developments. (See, for example, the California example below.)

Example:
California Density Bonuses -- California's density bonus law (SB 1818) requires cities and counties to relax applicable zoning standards (including parking requirements) and grant density bonuses of up to 35 percent for developers who include a modest share of affordable housing in market-rate projects. Cities and counties are also required to adopt an ordinance stating how they intend to comply with the legislation. Click here to view the California Housing Law Project's page on SB 1818.


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5. Offer incentives to municipalities to promote the development of affordable homes

Rather than providing incentives directly to developers, some states offer incentives to municipalities that facilitate the development of affordable homes. Incentives may come in the form of direct awards of financial assistance, access to low-interest loans, or other forms.

Example:
HOMEConnecticut is a voluntary program that promotes smart development patterns by offering incentives to towns that plan for and create higher density, mixed-income housing opportunities in strategic locations. Towns considering the HOMEConnecticut program may receive a "no strings attached" state-funded planning grant to help determine if they need additional housing options and plan for what those options should be.
 
Participating municipalities then define "Incentive Housing Zones" based on the results of the planning process. These overlay zones must achieve a minimum density level, as specified in program regulations (equivalent to 6 single-family units, 10 townhouse or duplex units, or 20 multifamily units per acre), and at least 20 percent of homes in IHZs must be affordable to families earning at or below 80 percent of area median income. In exchange, municiaplities receive $2,000 per unit allowed in the zone when the IHZ is created, and an additional $2,000 per unit upon issuance of a building permit.

While communities have broad latitude to determine where IHZs should be located, in general they work best near the central business district or other job centers or near transit stops -- areas that can accomodate additional density and provide a range of transportation opportunities for new residents.

Typical incentive grants average $50,000 per municipality, allowing towns to make modest iinfrastructure and public works improvements to accomodate additional residents. Because density allowances are greater and affordability requirements are relatively modest, developers can generally recoup the costs of providing 1 in 5 homes at lower cost. State or federal subsidies may be used in tandem with HOMEConnecticut to provide deeper affordability.
 
Click here to leave this site and learn more about HOMEConnecticut, or click here [PDF] to read testimony about the program presented before the Senate Committee on Banking, Housing, and Urban Affairs.

See also:
-- Massachusetts Chapters 40R and 40S -- Through Chapter 40R, Massachusetts offers financial incentives to municipalities that identify "smart growth zoning districts" (SGZDs), within which (a) residential development may occur at higher densities than would otherwise be allowed, and (b) 20 percent of homes are affordable to low- and moderate-income families. In exchange, municipalities receive a one-time cash "incentive payment" when the district is approved, additional "density bonus payments" for each housing unit issued a building permit and priority consideration for disbursement of state discretionary funds. Chapter 40S provides additional resources to reimburse the cost of educating children who live in SGZDs.


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6. Enact enabling legislation to authorize and encourage needed local action

State control over municipal activity falls along a spectrum: at one end, states that actively enforce the "Dillon Rule" allow municipalities only the powers that are explicitly granted to them by the state legislature (in addition to those that are considered essential for the municipality to function). At the other end of the spectrum, Home Rule states give municipalities the authority to govern their own internal affairs (subject only to the restrictions and limitations specified in the state constitution or any state statute). In practice, most states adopt some hybrid of these two approaches, making it essential that states provide appropriate enabling legislation to authorize needed local action to expand opportunities for the development of affordable homes.

Well-designed enabling legislation: (a) ensures that state law does not pose a barrier to the enactment of important local tools for promoting affordable housing, such as tax abatements, tax increment financing, and inclusionary zoning; (b) reduces the likelihood that the policies that localities adopt will be vulnerable to court challenge; and (c) helps to reduce the learning curve for municipalities by specifying one or more sound program variants for their consideration.

Example:
New Hampshire Community Revitalization Tax Relief Incentive -- State legislation gives municipalities the authority to grant temporary tax abatements to property owners who substantially rehabilitate buildings located in a village center or downtown district. Click here to leave this site and view the legislation.

See also:
-- Tennessee Tax Increment Financing (TIF) Enabling Legislation authorizes local housing authorities to acquire properties in blighted areas and establish TIF districts to promote redevelopment. The state also has a sales tax revenue TIF program that can be used to finance tourism-related public facilities such as stadiums and convention centers.

-- Virginia Inclusionary Zoning (IZ) Enabling Legislation -- Fairfax County, VA adopted one of the country's earliest inclusionary zoning policies, but it was struck down by state courts in part because the state had not explicitly granted local authority to adopt an IZ ordinance. In 1989, the Virginia code was amended to address this objection, specifically allowing local jurisdictions to pass IZ ordinances.

-- Pennsylvania Act 137 € This enabling legislation authorizes counties to increase document recording fees to raise additional funds for affordable housing. Click here to learn more about Act 137.


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7. Expand the financial resources available for affordable housing

Lack of money is often one of the largest obstacles to the development of new affordable homes. States can help address this shortfall by generating new resources. Among other strategies, states have generated new funds for affordable homes through housing trust funds, bond issues for affordable homes, and increased use of the 4 percent tax credit. Sometimes, funds are distributed directly to developers by the appropriate state agency. In other cases, the funds are distributed indirectly through allocations to municipalities.

Example:
Florida William E. Sadowski Affordable Housing Act -- With this Act, the Florida Legislature increased the state's real estate transfer tax and dedicated a portion of the revenue to a new housing trust fund. The fund is administered by the state's housing finance agency, which distributes 69 percent of the revenue to municipalities according to population-based formula and retains the balance to address statewide housing issues.

See also:
-- California Proposition 46 -- California voters approved this proposition to issue more than $2 billion in general obligation bonds in order to fund numerous affordable housing programs. The bulk of the proceeds are allocated to multifamily housing programs, in particular through low-interest loans used to finance construction of new rental homes. Click here to leave this site and learn more.

-- Illinois Affordable Housing Tax Credit Program -- For every dollar that corporations and individuals contribute to approved affordable housing developments or invest in employer-assisted housing programs, they receive a 50-cent tax credit on state income tax liability.

4 Percent Tax Credits -- In addition to creating or expanding state funding streams for affordable housing, states may wish to consider policies to increase the amount of federal funding they receive for affordable homes. One underutilized federal source of funding is the 4 percent low-income housing tax credit, which is available for any qualified rental housing development funded with tax-exempt private-activity bonds. While 4 percent credits generally need to be supplemented with other resources to complete the financing package for affordable homes € one of the principal reasons they are underutilized € states that do not take maximum advantage of 4 percent credits leave millions in federal dollars on the table.

State strategies for expanding utilization of 4 percent tax credits include: (a) specifically reserving a portion of private activity bond cap for multifamily housing, as they do in Arkansas, Kentucky, Maine and New Hampshire; (b) increasing the amount of private activity bond cap allocated to rental housing (this is the only use of bond cap that allows states to claim the 4 percent tax credits); (c) helping to package smaller projects together in a single bond issue, as they do in Ohio, to spread out high origination costs among more properties; and (d) actively soliciting applications for tax-exempt financing that qualifies for the 4 percent credits.


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8. Strengthen policies for allocating existing resources

One of the major roles that states play in the nation's affordable housing system is to administer Low-Income Housing Tax Credits, HUD block grants (HOME and CDBG), and other federal resources (such as Section 8 vouchers). The state agencies that administer federal housing programs have considerable discretion in determining how to prioritize allocation of program benefits. Low-income housing tax credits, for example, are made available through the Internal Revenue Service but administered at the state level, with projects selected on the basis of whether they meet objectives specified in the state's Qualified Allocation Plan. Similarly, states can distribute their allocation of HOME and CDBG funds among a variety of approved activities as detailed in their HUD-approved Consolidated Plans. By reviewing their policies for allocating funds within each program € and across all the programs to ensure they are well-coordinated € states can maximize the utility of these resources and ensure special consideration for activities that address identified housing challenges and shortfalls.

In most states, significant numbers of federally assisted housing developments are reaching the end of their required affordability periods, placing these valuable affordable housing opportunities in jeopardy. To address this issue, 46 states prioritize the preservation of existing affordable homes in their Qualified Allocation Plans for Low-Income Housing Tax Credits (LIHTCs), either by setting aside a segment of 9 percent LIHTCs for preservation or by awarding additional points for preservation-related projects. A smaller number of states have made a major push to use 4 percent LIHTCs for preservation by reserving multifamily bond cap (under the state's allocation of private activity bond cap) for preservation.


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