Financing and Funding

Local policies alone are often not sufficient to bring land and home prices within reach for many residents. Developing income-restricted housing usually requires a variety of funding sources and complex deal-making. It is important to understand how housing is funded, and how to use local public financing tools to facilitate private development as well as to leverage state, county, regional, and nonprofit financial resources.

This guide is designed to help you better understand the basics of how affordable housing is financed, and is broken out into the following sections:

1. Types of Funding

2. First Steps

3. Special Strategies

4. Rental Assistance Programs

5. Local Assistance

How is affordable housing funded?

Most affordable housing developments require financial support from federal, state and/or local public sources, and the funds generally come with restrictions and requirements. In addition, financing options vary depending on the type of housing (rental or ownership) and the characteristics (e.g., income, household size, disability status) of the households a program or project is designed to assist.

A community can reduce project costs and the need for public funds by providing non-cash assistance in the form of zoning that supports affordable housing, donated land or buildings and fee waivers.

The restrictions that come with public funding vary by program. When a project uses multiple funding sources, meshing the various rules can be complicated. Common restrictions include:

  • income limits on tenants or buyers of affordable units at initial occupancy or purchase
  • limits on the prices or rents charged for affordable units
  • a requirement that the units be maintained as affordable housing for a minimum period of time (often at least 30 years in Massachusetts) through a legally binding deed restriction or other agreement
  • a requirement that the rental and ownership units be marketed in a way that affirmatively furthers fair housing and limits the use of local preferences
  • limits on how projects are bid
  • certification of project expenses
  • a requirement for ongoing monitoring of projects to assure compliance with requirements

Some funding sources may also require serving a specific population such as homeless or at-risk households, veterans, or elderly households.