Given limited state and federal funds for affordable housing, locally generated revenues play a crucial role in meeting community housing needs and creating inclusive communities. Local funds give localities the freedom to tailor housing activities and eligibility requirements to local needs and priorities. They are often used for a wide range of activities related to creating and preserving mixed-income communities, including affordable rental housing preservation, new home construction, property acquisition loans, homelessness prevention and building operation costs.
Local funding for affordable housing is often generated by a dedicated revenue source and is allocated through a housing trust fund. Some housing trust funds also rely on annual budget appropriations that vary year to year.
Compared to annual appropriations, dedicated funding sources are less threatened by political processes, but they too can be instable. For example, a fund that relies on revenue from a real estate transfer tax will be susceptible to fluctuations in housing market activity. Combining annual appropriations with funding from one or more dedicated revenue sources is the most effective way to generate a reliable stream of funding for local, affordable housing.
In the context of static and declining state and federal housing resources, local funding helps fill an important gap. Local funding sources also leverage other housing investments, often several times over. For example, the city of Seattle has found that it leverages three dollars for every dollar it invests in affordable housing development, using revenue from its property tax levy. For developers seeking competitive state and federal sources of funding, such as low-income housing tax credits, evidence of local funding support is often crucial to a successful application.
According to 2013 research by the Center for Community Progress, local housing trust funds can be found in 73 cities, spanning 27 states, as well as hundreds more in Massachusetts and New Jersey, where state laws create strong incentives for local adoption.
Funding sources vary widely from jurisdiction to jurisdiction and are most successful when they are structured to take into account local economic conditions. For example, a community with an active real estate market may be able to raise significant housing funds through a developer fee or real estate transfer tax. A community with a high rate of tourism may benefit more from a hotel/motel tax allocated toward housing. Communities experiencing a decline in their real estate market may find document recording fees for births and marriages to be a stable funding source.
Local revenues can be particularly important in smaller, wealthier communities that do not receive federal housing block grants.