The Mixed-Income Public Development Model provides new tools to address the housing crisis without drawing upon existing scarce resources. A well- executed mixed-income public development model can expand available housing resources beyond LIHTC, tax-exempt bonds, and vouchers to enable more production as those resources are often exhausted or inadequate to the increasingly complex tasks of the capital stack.

Almost all new affordable housing construction and rehabilitation across the country is currently built using the Low-Income Housing Tax Credit (LIHTC). By most standards, this tax credit program has been extremely successful, responsible for the construction or preservation of roughly 3.85 million affordable homes since its inception in 1986, but it remains oversubscribed.

Concurrently, states are increasingly reaching the limits of their tax-exempt Private Activity Bonds (PABs), with 31 states either oversubscribed or near their annual PAB cap. Each year, the federal government sets limits on the amount of PABs each state can issue on a per-capita basis, based on population. The advantage of a PAB is that the interest paid to any bondholder is exempt from federal income tax, meaning bondholders are willing to accept lower interest rates, in turn enabling reduced borrowing costs for loans made with bond proceeds. PABs regularly finance public facilities like schools and sewers, as well as student loans, but are also used for housing. Any project using 4 percent credits under the LIHTC program must have 50 percent of its costs financed through PABs, so having space under a state’s PAB cap is important for a well-functioning LIHTC program. To the extent that mixed-income public development can be
accomplished without tapping these scarce resources, state and local governments can better target those resources to the projects serving the deepest need.

Housing affordability is also routinely achieved through various voucher or rental subsidy programs. The largest program is the federal Housing Choice Voucher program, but many cities, such as Chicago and Washington D.C., also fund local rental subsidy programs. These programs typically ensure a household pays no more than 30 percent of their income toward rent, with the subsidy covering the difference between that amount and a payment standard tied to market rents. These programs are crucial to serving some of the lowest-income households in the country. While the mixed-income public development model does not deliver the same levels of affordability a voucher program provides, it also does not rely on the availability of vouchers for project feasibility. A key advantage of this model is that it can seamlessly layer on top of existing affordable housing production a particular community undertakes, ensuring affordable housing production continues stop when LIHTCs, tax-exempt bonds, or vouchers run out.

A mixed-income public development model should supplement existing affordable housing production, not compete for limited funds. In fact, this model can work well with a state’s existing LIHTC pipeline by providing an alternative path for qualified projects that did not receive LIHTC awards and could be reworked as mixed-income deals.