Most affordable housing in the U.S. is built by private developers. In this context, affordable housing refers to for-sale or rental housing with cost caps that make it accessible to moderate-and low-income households. Often, these caps result in prices below what would be financially viable based on development costs. To incentivize private developers to build affordable housing, the public sector must subsidize those costs.

There are many different subsidy programs in the U.S. for affordable housing. The largest, the Low-Income Housing Tax Credit, subsidizes approximately 40–70% of the total development cost for rental housing, and caps the rents in the project to rents that are affordable to households earning 60% of the Area Median Income (AMI). Other federal subsidies for affordable housing include the HOME Investment Partnerships Program, Rental Assistance Demonstration Program, and USDA Section 515 Rural Rental Housing Loans, among others.

However, these federal incentives for affordability are limited, antiquated, overly competitive, and vulnerable to changing politics. State and local governments have stepped in with many of their own subsidies. These subsidies include direct grants and loans for specific projects, subsidized land, and abatements or exemptions on the property taxes that developments need to pay. This State and Local Housing Action Plan tool primarily focuses on property tax incentives, providing a framework for localities to compare the potential costs and benefits of subsidy programs, examining not only types of tax subsidies localities can provide but also the cost, “public return,” and, ultimately, the efficiency of those subsidies (i.e., units created or preserved and other public policy priorities served). We highlight examples of leading programs across the country, explaining the underwriting that makes them viable, and the tradeoffs considered in crafting them. We share a preliminary flexible underwriting model (the “Underwriting Model”) that can be used by the public and private sector as they consider implementing or using programs, and propose a much more robust, data-rich, open-source, and usable model to be built.