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Goal: Increase the Availability of Affordable Homes
Role: Generate Capital

Resources Available at the Federal Level

While funding levels have fluctuated in recent years, the federal government remains the largest source of funding for affordable housing, with most housing subsidies going to help renters. (By contrast, most federal tax breaks for housing go to homeowners.) This page describes some of the major funding streams available through the federal government for the preservation, development, and operation of affordable homes for renters and owners. The U.S. Department of Housing and Urban Development (HUD) administers most of the housing programs discussed below, although the U.S. Department of Agriculture (USDA) and Internal Revenue Service (IRS) also play important roles.

Selected programs are organized into three main categories: Supply-side resources, which lower the cost of preserving, creating, and operating housing units so that they are affordable to low- or moderate-income households, demand-side subsidies that help low- or moderate-income households pay for units that they select in their local housing market, and a third section - addressed first - which describes HUD block grants that may be used flexibly to address either supply or demand, or both.
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HUD Block Grants (HOME, CDBG, and HOPWA)

Supply-side resources
Low-Income Housing Tax Credit
Neighborhood Stabilization Program
Project-Based Assistance
Public Housing
National Housing Trust Fund
Section 515

Demand-side resources
First-time Homebuyer Tax Credit
Housing Choice Vouchers
Mortgage Interest Deduction
Section 502


HUD Block Grants: HOME, CDBG, and HOPWA

The following block grant programs provide flexible resources that help to fund affordable housing and related activities, including economic development and neighborhood revitalization. HUD uses a formula to allocate funds for each program to large cities and urban counties, as well as to states, which distribute the federal grant funds to jurisdictions that do not receive money directly. (HOPWA sets aside a limited amount of funding to be awarded on a competitive basis, as well). To be eligible for these and other grant programs, jurisdictions are required to submit a "Consolidated Plan" that details the local housing needs of low- and moderate-income residents, as well as proposed strategies and local resources that may be brought to bear to meet those needs.

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Supply-side Resources

Low Income Housing Tax Credit
The largest source of federal funding for new development of affordable rental homes is actually provided not by HUD but through the Low-Income Housing Tax Credit (LIHTC) administered by the Internal Revenue Service as part of the tax code. The LIHTC provides a dollar-for-dollar reduction in federal income tax liability up to the maximum value of the credit (see below), which is typically passed on to investors in exchange for up-front capital used to cover development or acquisition and rehab costs. According to HUD, more than 1.6 million units of housing financed through the Low-Income Housing Tax Credit had been placed in service as of 2006. Unlike public housing and properties that receive project-based assistance, discussed below, families that live in tax credit units are expected to pay a flat rent irrespective of their incomes.

There are two types of Low-Income Housing Tax Credits: 9 percent and 4 percent credits, which provide a credit of approximately nine percent or approximately four percent per year of the qualified basis of an eligible property for ten years. In most states, competition for 9 percent credits has traditionally been very heavy; however, the economic downturn has limited the market for tax credits and has hurt developers' existing and proposed projects. Four percent credits, by contrast, are awarded automatically to qualifying projects, and more could be done to draw down these credits. Learn more about the 4 percent Low-Income Housing Tax Credit.

Neighborhood Stabilization Program
To help states and localities stabilize neighborhoods impacted by the foreclosure crisis, Congress has funded a new program known was the Neighborhood Stabilization Program (NSP). The initial round of NSP funding, known as NSP1, was authorized by the Housing and Economic Recovery Act (HERA) of 2008. NSP1 provided $3.92 billion in grants to states and selected localities based on a formula that allocated more funding to communities that had been greatly impacted by foreclosures. Eligible activities include:
  • Establishment of financing mechanisms to facilitate the purchase and redevelopment of foreclosed homes;
  • Direct purchase and rehabilitation of abandoned and foreclosed homes for resale, rent, or redevelopment;
  • Establishment of land banks for foreclosed homes; and
  • Demolition of blighted structures.
In 2009, the American Recovery and Reinvestment Act (ARRA), established two additional rounds of NSP funding, known as NSP2 and NSP-TA. NSP2 provides $1.93 billion in competitive grants to states, localities, and non-profit organizations, while NSP-TA provides $50 million on a competitive basis to organizations that provide technical assistance to NSP grantees.

For the latest on foreclosure prevention and neighborhood stabilization initiatives, visit our sister site at www.Foreclosure-Response.org.

Project-Based Assistance for Privately-Owned Assisted Housing - Section 8, Section 202, Section 811
Privately-owned assisted housing serves families in similar economic circumstances as those in public housing, but is generally owned and administered by private owners, rather than public housing agencies.
There is also a separate program, called project-based vouchers, that involves the conversion of tenant-based Section 8 housing vouchers into project-based subsidies to reduce the costs of specific housing developments for a specified period of time, such as five or ten years. This program continues to operate, at the discretion of local public housing agencies and subject to various statutory limits. Among other things, it can be used to allow a modest portion of a low-income housing tax credit development to serve extremely-low-income families.
View the National Low Income Housing Coalition's 2009 Advocates' Guide chapter on Project-Based Rental Assistance to learn more.

Public Housing
Public housing is housing provided by the government, usually through specially created local public housing agencies that build and/or own and operate affordable housing developments. In general, residents of public housing pay 30 percent of their monthly income for rent, and waiting lists to get into a unit can be long. The federal government no longer funds the development of new public housing, but existing developments continue to receive HUD subsidies through two funding streams: the Operating Fund, which helps to cover the gap between residents' rent payments and the costs of operating the building, and the Capital Fund, which can be used for modernization and major repair needs. As of 2009 there were approximately 1.1 million units of public housing. View the National Center for Budget and Policy Priorities' Introduction to Public Housing to learn more.

National Housing Trust Fund
The National Housing Trust Fund (NHTF) was authorized by Congress in 2008, and is intended to provide a dedicated source of funding for the preservation and production of new homes for extremely low-income families. (Ten percent of funds may be used for activities that support first-time homebuyers, including demand-side activities such as downpayment and closing cost assistance.) The NHTF was initially slated to be funded with a share of Freddie Mac and Fannie Mae's new business; however, recent developments in the secondary market have left advocates looking for new funding sources. As of this writing, the NHTF has not yet been funded, although the Administration's Fiscal Year 2010 budget proposed allocating $1 billion to the Fund. Visit the National Housing Trust Fund campaign website to learn more.

Section 515 - The Section 515 program, administered by the U.S. Department of Agriculture's Rural Development (RD) arm, provides direct low-cost mortgages for property owners to develop rental housing that is affordable to the lowest income rural residents. The USDA also administers a number of other loan and guarantee programs that can be used to support affordable housing. Learn more about programs available through the USDA.


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Demand-side Resources

First-time Homebuyer Tax Credit
In late 2008, the federal government began providing support to first-time homebuyers in the form of a $7,500 tax credit authorized in the Housing and Economic Recovery Act of 2008. The tax credit was increased to $8,000 as part of the American Recovery and Reinvestment Act of 2009, and HUD subsequently announced that qualified borrowers could immediately apply the $8,000 towards their downpayment and closing costs. In addition, several states and localities have also established comparable first-time homebuyer tax credit or bridge loan programs. In November 2009, legislation was passed that extended the tax credit through April 2010. The legislation also created a $6,500 credit for eligible homeowners buying a new primary residence.

Housing Choice Vouchers
Housing Choice Vouchers (formerly known as Section 8 vouchers or tenant-based housing vouchers) allow families to locate units of their choice - generally in the private market - and use the voucher to make up the difference between what they can afford and the actual rent charged by private landlords (up to a specified rent ceiling). The voucher program is the single-largest federal housing subsidy program today for low-income families. As of 2009, roughly 2 million families in the United States have housing vouchers.

Mortgage Interest Deduction
A number of different government subsidies are designed to reduce the costs of owning a home. The largest is the federal income tax deduction for mortgage interest, which allows homeowners to deduct the amount of interest paid on their mortgage when they file their taxes. To obtain the benefits of the mortgage interest deduction, families have to make enough money to justify itemizing their deductions on their tax returns (as opposed to taking the standard deduction). For this reason, many working homeowners do not receive the benefit of the deduction.

Section 502
Administered by the U.S. Department of Agriculture's Rural Development (RD) arm, the Section 502 program provides two types of programs: 30-year loans to help low-income households purchase homes in rural areas and/or build, repair, renovate, and relocate a home; as well as loan guarantees for loans made by approved lenders. Learn more about housing programs available through the USDA.


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