How Can Municipalities Deal with the Lack of Affordable Housing?

Affordability has been stretched thin across the United States as inflation, rising rates and limited housing stock have driven residential property values out of the price ranges of many buyers. According to data from the Zillow Home Value Index, home values in popular migrant destinations like Arizona, Nevada and Texas have increased 40-55% since 2020.1 Many markets once considered relatively affordable are now faced with the same supply and affordability issues experienced in higher-tax states. Many businesses have also felt the squeeze and with the shift toward remote or hybrid work, some major corporations have relocated from expensive regions like Silicon Valley to areas with lower corporate tax rates and better affordability. In our view, states and localities need to aggressively address housing affordability or current and future economic development prospects could stall. Below, we look at some ways municipalities are tackling this complex issue.

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Putting federal funding to work

Many municipalities have leveraged the HOME Investment Partnerships (HOME) Program to help fund housing. Established in 1990, the program is currently the largest federal housing initiative of its kind and has provided billions of dollars to aid state and local municipalities with housing.2 Units generated through the HOME program are marketed to very low and low-income residents that report 30%-80% of area median income (AMI).3 During 2022, HOME projects helped create over 15,000 units of housing. This year, the program awarded $5.6 billion to states, counties, local governments and US territories, $1.5 billion of which has been directed toward producing affordable housing.4

The 2021 American Rescue Plan Act (ARPA) has also aided housing efforts. The ARPA directed $350 billion in funding to state and local governments,5 much of which has been allocated toward affordable housing and workforce development. According to the National League of Cities’ Local Government ARPA Investment Tracker, an estimated 10.9% of the $51.4 billion tracked across 332 metro areas has been devoted to housing, including homelessness, affordable housing and rental assistance purposes.6 An example of ARPA funds in action comes from Salt Lake County, Utah, which earlier this year set aside $25 million to fund the restoration or construction of 1,500 affordable housing units by the end of 2026.7 While local governments have used ARPA funds as a tool to provide needed relief and opportunity for residents, we believe the affordability issue calls for much more funding than what federal programs currently provide.

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