Resource
Funding a local housing strategy
Steps to Building a Housing Strategy
Overview
Cities and states rely on a mix of federal, state, and local resources to support housing needs. Communities often need to tap all three levels of funding to build durable housing programs. Coordinating these sources, however, can pose challenges to localities. This page provides an introduction to these resources, highlighting the roles of federal and state funding sources before delving into local funding streams and financing tools.
Federal funding sources
Federal funding represents the largest share of resources available to support housing, amounting to billions of dollars across programs that cover rental assistance, housing development and preservation, and homelessness assistance. For an overview of the main federal funding sources for housing, visit the Lab’s landing page on federal programs. For a more comprehensive look at the suite of federal sources available to cities, visit our federal funding directory.
Regardless of a community’s size or wealth, federal funding plays a key role in providing access to critical housing resources. Yet despite the breadth of these programs, much of this funding is appropriated annually, meaning that support can fluctuate with federal government priorities. These funds are also tightly regulated, and local governments may not be able to use the funds flexibly. To support local leaders in understanding how federal funds for housing flow into their jurisdictions, and in partnership with local experts, the Lab mapped federal funding streams and uses in three cities and provided guidance on how cities can conduct their own analyses.
State funding sources
In addition to federal support, states have the power to establish their own funding streams and administer funds from several federal housing programs. The role of state funding sources is particularly important in smaller cities and counties that do not receive federal funds directly. At the same time, funding levels and priorities ultimately vary by state, and annual budget cycles may create uncertainty for some programs.
Learn more about state funding for affordable housing.
Local funding sources
Given the nationwide shortage of affordable housing, localities are increasingly exploring dedicated revenue streams and financing tools to plan, implement, and achieve the goals of their housing programs. While federal and state funding sources are often much larger, local funding streams are frequently much more flexible and can sustain housing programs in the event of potential shortfalls. These local funding sources can provide stable, predictable revenue and adapt to local contexts, allowing local governments to continue supporting their residents amid uncertainty at the federal or state level.
Housing trust funds
Housing trust funds (HTFs) are one of the most widely used tools for pooling and distributing revenue for affordable housing at the local and state levels. These funds are earmarked specifically for housing and insulated from the uncertainties of annual budget cycles, allowing jurisdictions to plan and sustain programs over the long term. Beyond stability, HTFs offer localities the flexibility to decide where these dollars have the greatest impact, whether by preserving existing affordable homes, supporting special populations, or targeting neighborhoods with acute housing shortages. Over 600 HTFs operate nationwide. Learn more about how ten different localities are putting these funds to work to drive affordable housing development and support critical housing programs.
HTFs are established by a statute or ordinance that defines their revenue sources, eligible uses, income limits, and award criteria. Most are administered by a housing department or housing finance agency, though many include a board composed of developers, nonprofits, lenders, and residents to promote transparency and accountability. Annual reporting requirements can track program outcomes, such as the number of homes created or households served, helping to justify continued funding and improve program design.
HTFs are primarily used to finance capital investments in affordable housing, though some jurisdictions structure their funds to support additional activities. In a 2025 national survey of 133 state and local HTFs, roughly 90 percent reported funding new construction, and about three-quarters supported acquisition and rehabilitation of multifamily housing. By contrast, only 15 percent provided project-based rental assistance and 22 percent offered tenant-based rental assistance, with rental support more commonly implemented at the city level than state or multi-jurisdictional programs. Local leaders must clearly define eligible uses based on funding scale and program objectives. On the development side, housing trust funds commonly deploy low-interest loans and grants to close financing gaps, along with other development incentives. For example, Austin, Texas, uses its housing trust fund to support affordable housing construction on city-owned land. On the direct assistance side, cities have used trust funds to provide down payment and security deposit assistance, as in the case of Somerville, Massachusetts.
A funding mechanism is critical to support these activities. The following sections explore the different local funding streams and financing tools that communities can use to establish an HTF and ensure it remains sustainable, flexible, and responsive to evolving housing needs.
Dedicated funding streams
Taxes and fees are among the most common ways that localities can generate revenue for HTFs. Communities can dedicate proceeds from real estate transfer taxes, document recording fees, developer impact fees, and other local charges to support affordable housing. Some localities also rely on excise taxes – such as those on hotel stays and short-term rentals – while others draw from broader tools like sales taxes, wheel taxes, or tax-increment financing revenues. In some cases, payments in lieu of taxes (PILOTs) may be negotiated with large institutions or developers to contribute to housing goals. Each of these mechanisms provides a pathway to establish a steady, locally controlled funding source for HTFs.
While taxes and fees can provide reliable, dedicated revenue, they also come with tradeoffs. On the one hand, they allow cities to generate ongoing funding without depending entirely on federal and state allocations. Taxes and fees can also be tailored to reflect local economic conditions and policy priorities. However, these sources can also face political resistance in some communities, require state-enabling authority, and fluctuate with broader market conditions or activity. Sales tax revenue, for example, may decline during economic downturns, and real estate transfer or development-related fees may also decrease when construction slows. Sales taxes and other flat fees are also regressive, requiring lower-income residents to spend a higher share of their income. Localities must carefully weigh these tradeoffs before pursuing new taxes or fees to fund affordable housing initiatives.
Interest earnings and unclaimed property funds can provide small but steady revenue streams to support affordable housing initiatives, particularly housing trust funds. Localities can capture interest from a range of sources, including real estate and title escrow accounts and local reserve funds.
Escrow accounts temporarily hold funds during property transactions and can earn interest while held in trust. States can require that this interest be pooled and transferred to an HTF to amplify their impact. Washington State’s housing trust fund, for instance, receives interest from pooled real estate escrow and broker trust accounts. Similarly, local governments may dedicate interest earned on stabilization, reserve funds for affordable housing, or earmark a portion of excess balances for HTF deposits. Some localities also allocate a share of proceeds from unclaimed or abandoned property – such as dormant bank accounts, uncashed checks, or insurance refunds – to support housing initiatives. Florida’s State Housing Initiatives Partnership (SHIP) uses unclaimed property transfers as secondary revenue streams.
These sources provide predictable, low-volatility funding that can stabilize HTFs. They can often be leveraged without new taxes or major budget reallocations, and usually require minimal administrative oversight once established. However, these funding streams are modest, and total revenue will often depend on account balances, interest rates, and other factors. Mandates on pooling interest from escrow accounts may also be difficult to enforce. Due to the size of these streams and their dependence on existing infrastructure, these sources are best suited to provide incremental support rather than large-scale funding for affordable housing.
Local governments can leverage publicly-owned assets to generate revenue for housing trust funds or other housing programs. This may include the sale or lease of publicly owned land and buildings, as well as the transfer of development rights.
Localities can dedicate proceeds from the sale or lease of public land to HTFs, revolving loan funds (RLFs), or specific housing projects. In some cases, these transactions can be structured to retain an ownership stake or require a certain number of affordable homes. Similarly, cities can require that proceeds from the sale of unused development rights, also known as “air rights,” be dedicated to affordable housing or deposited into HTFs.
These mechanisms can generate immediate capital for affordable housing efforts. However, they may also cede public control over affordability and land use without proper safeguards. To balance these considerations, local governments can explore policies like affordability covenants, reversion clauses, or shared equity arrangements to maintain public benefits over time while still allowing flexibility in land use.
Financing tools
Local governments can also issue bonds to seed an HTF or otherwise raise upfront capital for affordable housing production, preservation, and land acquisition. Bonds allow a city to borrow large sums at low interest rates and repay over time, spreading costs across future taxpayers or revenue streams. Bonds can work in tandem with a housing trust fund by setting aside a portion of the trust fund’s dedicated revenue to pay principal and interest on the bonds.
General obligation (GO) bonds are backed by the full faith and credit of the issuing government, meaning repayment is supported by general tax revenues such as property or sales taxes. Cities use GO bonds to fund large-scale public capital needs, including site acquisition, predevelopment, and the construction of new affordable homes. By contrast, private activity bonds (PABs) are issued by a public authority on behalf of a private or nonprofit developer and are repaid from project-level revenues. These bonds are most commonly paired with Low-Income Housing Tax Credits (LIHTC).
This financing approach is especially valuable for affordable housing, as it enables cities to undertake major capital projects without waiting for annual appropriations or budget cycles. Cities can also leverage HTF revenues to issue larger bond amounts upfront, accelerating production and preservation efforts. However, bonds introduce long-term fiscal obligations, and debt service payments can limit an HTF’s future budget flexibility, especially if revenues fluctuate or decline over time. Bonds often require voter approval as well, which may lengthen timelines or preclude their use outright.
A revolving loan fund (RLF) is a pool of capital designed to provide low-interest loans or gap financing for affordable housing development or acquisition. Unlike grants, the key feature of an RLF is that loan repayments return to the fund, creating a self-sustaining financing mechanism that can support multiple rounds of projects over time. These funds are typically capitalized using HTF dollars, bond proceeds, or other one-time revenue sources. Initial capitalization may also come from federal or state grants, philanthropic contributions, or public land sales.
RLFs provide financial assistance to nonprofits, developers, or community land trusts to cover a range of needs, including the acquisition of at-risk properties and predevelopment costs. Some RLFs may offer both short-term construction loans and long-term debt financing when funds fall short of project costs. As loans are repaid, both principal and, sometimes, interest are returned to the fund, allowing the capital to be reused for future affordable housing projects. Some programs that rely on these funds include San Francisco’s Housing Accelerator and the Resilient Housing for All Loan Fund in Washington, D.C. Several states are also establishing these funds on a larger scale.
A major advantage of revolving loan funds is their sustainability. By recycling capital through loan repayments, they can support multiple projects over time without continuous investment. However, this model depends on loans being repaid on a predictable timeline. When RLFs are used for acquisition, predevelopment, or construction, it is critical that financed projects have a clear and viable path to permanent financing so that short-term funds can be recaptured and redeployed. Securing initial capitalization can also be difficult, as RLFs often depend on limited, one-time revenue sources.
For more information on how localities are using revolving loan funds to finance affordable housing, read the Lab’s brief on public development.
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As every locality’s size, market, and growth pressures are different: it is helpful to consider a broad range of tools to create and preserve affordable housing. In addition to considering ways to raise revenue at the local level, localities should also consider a range of other housing policies that support the creation and preservation of dedicated affordable housing without requiring the collection of locally generated revenue. These policies include, among others, density bonuses, inclusionary requirements or incentives, and tax abatements.