© 2019 Fannie Mae. Trademarks of Fannie Mae. 6.14.2019 1 of 6

Multifamily Market Commentary – June 2019

State and Local Programs Help Increase Affordable Supply

As the affordable housing crisis has deepened, many state and local governments have started to address the need for 

affordable housing through the creation of programs focused around public assets such as government-owned land or funds, 

or through local regulation of development. These programs often exchange these public assets for long-term rent

restrictions. While they take many forms, they all help to incrementally increase the supply of affordable rentals.

Number of Inclusionary Housing 

Programs Growing

Inclusionary housing refers to programs or 

policies that require or incentivize the 

creation of affordable housing when new 

development occurs, including impact or 

linkage fees that generate revenue for 

affordable housing. 

Recent survey data from the non-profit 

Grounded Solutions Network shows that 

the number of programs has been growing. 

While there have been programs as far back 

as 1979, over 75 percent of the programs 

which provided data have been developed 

since 2000. In fact, many jurisdictions have 

more than one program - San Diego has 

four different inclusionary housing 

programs.

Long-Term Affordability 

According to the paper Inclusionary Housing in the United States: Prevalence, Impact, and Practices released in 

September 2017 by the Lincoln Institute of Land Policy, state and local governments require that the new supply developed 

with these programs remain affordable long-term. Approximately 90 percent of all programs participating reported 

affordability terms of at least 30 years. 

Most Programs Serve Low Income Renters 

Many state and local programs served renters at 

multiple income levels within a single jurisdiction. 

However, the majority of programs with a single 

level of affordability limited the rent-restricted 

units to low income renters, or those renters 

earning up to 80 percent of area median income 

(AMI) for their city. 

Based on 298 state and local programs serving 

renters, just under 165 programs served renters 

earning up to 80 percent of AMI for their city.

Another 51 served renters who earn over 100 

percent of the median income for their city.

Cumulative Number of Inclusionary Housing Programs 

Adopted by Year

0

50

100

150

200

250

300

350

400

19791982198419861988199019921994199619982000200220042006200820102012201420162018

All*

Source: Grounded Solutions Network 

* Includes programs with an unknown year of adoption

Maximum Income Level by Rental Program 

0

20

40

60

80

100

120

Multiple

Tiers

50-60% 61-80% 81-100% 101-150% 151-240%

Maximum Percentage of Area Median Income 

Source: Grounded Solutions Network 
© 2019 Fannie Mae. Trademarks of Fannie Mae. 6.14.2019 2 of 6

Land Use Regulation Can Affect Supply 

Most local jurisdictions have regulations governing development of new residential housing. These regulations can mandate 

the minimum number of square feet for an apartment, limit the height of an apartment building, or limit the number of 

apartments which can be included in a new property in a given neighborhood. Other land use regulations can dictate 

building design, such as the amount of open space in a property, or even the type of material permissible for a building 

façade. These land use regulations can increase development cost making it more expensive to build new apartments.

Development Incentives Increase Affordable Supply

Recognizing this, many local government agencies are starting to provide incentives to developers to include affordable 

units in new, primarily market rate, properties. Incentives can include density bonuses or other zoning variances, an 

expedited permitting process, and fee reductions. Other incentives include relaxed development standards such as reducing 

or eliminating parking requirements, or reducing open space requirements around buildings, such as balcony or terrace 

space. 

Relaxed Land Use Rules Offset Costs

As shown in the chart above, the two awards used most often to incentivize development of new affordable supply in market 

rate developments involve land use regulation. About 350 jurisdictions provide a density bonus. This is, by far, the incentive 

used most frequently to create new affordable supply by state and local governments. Density bonuses permit developers to 

build more units on the same amount of land. In turn, this allows developers to offset the cost of providing a share of new 

apartments with a restriction on rent to keep them affordable. Other zoning variances are also fairly popular and are 

awarded by about 125 jurisdictions, which also helps reduce the cost of construction.

Tax Abatement Offsets Cost

Another financial incentive state and local governments use to encourage developers to include affordable rentals in new 

market rate developments is tax abatement. Seattle’s Multifamily Tax Exemption (MFTE) program provides a 100 percent 

tax exemption lasting 10 to 12 years for buildings that set aside 20 percent of homes as income-restricted for a range of lowand moderate-income households. According to the city of Seattle, between 1998 and May 2018, the MFTE program created 

approximately 4,000 rent-restricted homes in more than 190 apartment buildings.

0 50 100 150 200 250 300 350 400

No Incentives

Other

Concessions

Direct Public Subsidy/TIF

Tax Relief/Abatement

Expedited Permitting

Fee Reduction/Waiver

Other Zoning Variance

Density Bonus

Number of Awards for Developers in Inclusionary Housing Programs by Type

Source: Grounded Solutions Network
© 2019 Fannie Mae. Trademarks of Fannie Mae. 6.14.2019 3 of 6

Public Financing Also Increases Affordable Supply

State and local governments also have organizations which finance affordable housing for working renters. Community 

Development Funding Institutions (CDFIs), land banks, community development corporations, and community land trusts 

are some of the local institutions that provide financing for all types of affordable housing.

Dedicated Housing Trust Funds

State and City Housing Trust Funds (HTFs) have also begun to emerge as an important source of funding for affordable 

housing for working renters. According to the Community Change Housing Trust Fund Project, HTFs are distinct funds 

established by city, county, or state governments that receive ongoing dedicated sources of public revenue to support the 

preservation and production of affordable housing. In many cases, the funds do not have to go through an appropriation or 

budgeting process, making them a more reliable source of funding.

Regional Housing Trust Funds Growing

The number of HTFs has been growing. According to the 

Housing Trust Fund Project, there are about 800 city, 

county, and state HTFs operating in 48 states. These HTFs 

provide over $2.5 billion in funds annually to support 

affordable housing supply, including rentals.

Generally, the financing is provided in exchange for 

maintaining the property’s affordability. For instance, 

virtually all city HTFs have long-term affordability 

requirements. According to the Community Change HTF 

project, virtually all the city HTFs surveyed attached 

affordability requirements to funding rental properties 

ranging anywhere from 15 years to in perpetuity.

Trust Funds Help Working Renters

These funds can be particularly helpful in developing and preserving housing for workers who need affordable rentals but 

earn too much to live in housing subsidized by Low Income Housing Tax Credits (LIHTC) and properties subsidized with 

Project-based Section 8. For 

example, the city of 

Albuquerque has an entire 

trust fund dedicated to 

workforce housing aptlynamed the “Workforce 

Housing Trust Fund.”

Housing Trust Funds 

Support New Apartments

As shown in the adjacent 

chart, HTFs support a variety 

of activities related to the 

construction of new affordable 

apartments, including funds 

for predevelopment activities. 

Approximately 120 HTFs are 

funding new construction and 

more than 60 support predevelopment activities.

0

100

200

300

400

500

600

700

800

Cumulative Number of Housing Trust Funds 1985 - 2018

Source: The 2016 Housing Trust Fund Survey Report, Center 

for Community Change

Number of Housing Trust Funds by Multifamily Activity

0 20 40 60 80 100 120

Project based rental assistance

Emergency rental assistance

Community land trusts/banking

Tenant rental assistance

Transit-Oriented Development

Various energy efficiency

Predevelopment activities

Match for other public Funds

Preservation for multifamily

Acquisition

New Construction

Source: The 2016 Housing Trust Fund Survey Report, Center for Community Change; excludes nonmultifamily programs
© 2019 Fannie Mae. Trademarks of Fannie Mae. 6.14.2019 4 of 6

Trust Funds Also Help Lowest Income Working Renters

HTF have flexibility and serve a wide variety of working renters. In 2001, the Charlotte, North Carolina City Council 

established an HTF to provide financing for affordable housing. Since that time, the Housing Trust Fund has financed 5,509 

new and rehabilitated affordable housing units. According to the city, of that total, 2,874 were for people earning less than 

30 percent of AMI, making Charlotte more affordable for pre-school teachers, health-care aides, and workers in hospitality, 

retail and emergency services.

Public Land Can Decrease Supply Costs

While the cost of land can be volatile, as seen 

in the chart to the right, the cost of buying 

land has risen on average since the end of the 

Great Recession. At the end of Q4 2018, the 

cost of a parcel of land had risen by just under 

25 percent. This adds to the cost of building 

new apartments, making new apartments less 

affordable. 

However, many state and local governments 

have publicly owned land in their possession 

that they can provide to developers to offset 

the cost of developing new affordable 

apartments. These publicly owned parcels can 

be sites owned by all sorts of government 

agencies, including the department of housing 

and public works, transit agencies, and even 

schools.

Cities Provide Public Land

According to the report Public Benefit from Publicly Owned Parcels released by Enterprise Community Partners in 2017, 

many state and local governments are adopting this approach. The report notes that Los Angeles launched a program to 

identify and make available surplus public land for affordable housing development. The city selected developers for 32 cityowned sites that are expected to result in an estimated 1,700 affordable units, including 800 units for chronically homeless 

individuals.

Fannie Mae Finances Rent Restricted Properties

Fannie Mae finances properties with rent restrictions apart from 

those produced by the LIHTC and Project-based Section 8 programs. 

In 2018, Fannie Mae financed an estimated $1.4 billion for 

properties with rent restrictions between 60 percent and 80 percent 

of AMI. As shown in the adjacent chart, this was in line with the $1.4 

billion that was financed in 2017.

Fannie Mae Increases New Supply

Fannie Mae’s Special Public Purpose lending product finances 

properties with third-party deed restrictions that fall outside of the 

LIHTC and project-based Section 8 programs. These include 

properties which add new affordable supply. For example, last year 

Fannie Mae provided $37 million of permanent financing on 188 

new apartment units in the East Main Apartments property located 

in Norton, MA, under the state’s 40B program. Construction was 

Note: Prices are per buildable unit, based on a trailing 12-month average 

Source: Real Capital Analytics 

Multifamily Development Site Land Prices

 $25

 $30

 $35

 $40

 $45

 $50

 $55

 $60

 $65

 $70

 $75

Thousands

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

2017 2018

Acquisition Volume ($Billions)

Fannie Mae Multifamily Acquisitions with 

Rent-Restrictions (60% - 80% of AMI)

Source: Fannie Mae
© 2019 Fannie Mae. Trademarks of Fannie Mae. 6.14.2019 5 of 6

completed in 2017, with 47 new apartments dedicated to low-income renters.

Other State and Local Programs

Fannie Mae has financed properties under many other state and local programs. In addition to loans issued under the 

Massachusetts 40B program, other loans have included New York City’s 421a Exemption program, which provides a tax 

abatement, and the Miami-Dade County Workforce Housing Development program, which provides density bonuses and 

other incentives for the development of workforce housing.

Market Rate Properties Nationwide Adding Affordable Supply

According to data from CoStar, there are just over 500 new properties under construction that consist of primarily market 

rate units, but they all have a share of units set aside to be affordable. This represents just under 10 percent of all multifamily 

properties under construction. These properties are located across the country, as shown in the map below.

Some metros have a high number of these projects. New York City and Los Angeles each have over 30 such projects under 

construction. Boston and San Francisco each have between 20 and 30 such projects.

Market-Rate Properties Under Construction with Some Percentage of 

Affordable Units

Source: CoStar. 

Excludes student, senior, and military housing properties. Excludes properties under construction in Alaska and Hawaii 
© 2019 Fannie Mae. Trademarks of Fannie Mae. 6.14.2019 6 of 6

State and Local Programs: A Clear Benefit for Affordable Housing

There is some concern that the growth in state and local programs may have a detrimental effect on rents for market rate 

apartments. The concern is that while units set aside in market rate developments to be rent-restricted will be affordable to 

low income renters, rents for market rate units will rise as developers seek to recoup costs on affordable units.

This could be the case in some metros with mandatory inclusionary housing and no offsetting incentives. However, many 

state and local governments offer incentives such as tax abatements, low-cost debt financing, free or reduced land, and 

density bonuses. In these cases, state and local government programs can be an effective tool for increasing the supply of 

affordable housing without too much disruption to local market dynamics.

Tanya Zahalak

Senior Multifamily Economist 

Multifamily Economics and Market Research

June 2019

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Multifamily Economics and Market Research 

Group (MRG) included in these materials should not be construed as indicating Fannie Mae's business prospects or 

expected results, are based on a number of assumptions, and are subject to change without notice. How this information 

affects Fannie Mae will depend on many factors. Although the MRG bases its opinions, analyses, estimates, forecasts and 

other views on information it considers reliable, it does not guarantee that the information provided in these materials is 

accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these 

views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published 

by the MRG represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie 

Mae or its management.