Treasury Announces New Steps to Increase Affordable Housing Supply
The U.S. Department of the Treasury recently announced new guidance to increase the ability of state, local, and tribal governments to use American Rescue Plan (ARP) funds to boost the supply of affordable housing in their communities.
The context: The updated Treasury guidance follows a commitment in the Biden administration’s Housing Supply Action Plan to leverage American Rescue Plan funds for investments in affordable housing as part of a broader effort to increase the nation’s housing supply and lower housing costs.
Treasury has previously encouraged governments to dedicate a portion of the $350 billion available to them under the State and Local Fiscal Recovery Funds (SLFRF) toward the development, repair, and operation of affordable housing units. Treasury data shows that through March 31, 2022, over 600 state and local governments had budgeted $12.9 billion in SLFRF funds to meet housing needs and lower housing-related costs, including $4.2 billion for affordable housing development and preservation.
One level deeper: Treasury’s guidance expands the category of presumptively eligible uses. Initially, the program was designed to allow for flexibility in the use of funds for affordable housing, identifying uses consistent with two major HUD programs as presumptively eligible under SLFRF. The recent guidance expands that list to include an expanded range of federal programs from multiple agencies, permitting more options for how states and local governments can presumptively use funds for affordable housing.
Affordable housing projects under the “public health and negative economic impacts” (PH-NEI) eligible use category are presumptively eligible if the projects meet four core requirements of the following: National Housing Trust Fund, HOME Investment Partnerships Program, Low Income Housing Tax Credit (LIHTC), Public Housing Capital Fund, HUD Section 202 Supportive Housing for the Elderly, HUD Section 811 Supportive Housing for Persons with Disabilities, HUD Section 8 Project-Based Rental Assistance, USDA multifamily preservation, Indian Housing Block Grant program, Indian Community Development Block Grant program, or Bureau of Indian Affairs Housing Improvement Program.
The four core requirements include resident income restrictions, affordability and related covenant requirements, tenant protections, and housing quality standards. The guidance also clarifies that the Treasury Department will presume that SLFRF funds used for affordable rental housing under the PH-NEI use category are eligible if the units funded serve households at or less than 65 percent of area median income (AMI) for a period of 20 years or greater.
Governments can now use SLFRF to fully finance long-term affordable housing loans, including the principal of such loans, subject to certain requirements. The loans must have maturity and affordability requirements of 20 years or longer and must fund units serving tenants with income less than or equal to 65 percent of AMI. Additionally, the project owner must repay any loaned funds if the property becomes noncompliant, and in the context of a LIHTC project must waive the right to request a qualified contract. The guidance clarifies that repayment of long-term loans can be reinvested into future affordable housing uses.