The effects of the sub-prime lending disaster are still being felt  as the stock market has been rocked in recent weeks and many families find themselves locked out of the mortgage market. As we highlighted  in the past, the subprime mortgage market was largely aimed at economically-strapped families trying to find some way to afford homes. For low-income renters who never had the money to even be in the game, rising rents have increasingly priced them out of their homes.
All of these problems show the severity of the affordable housing crunch. We noted  a few months ago just how expensive housing has become and that the increase in sprawl and suburbs has not solved the problem. For every dollar a working family saves on housing by moving farther from central urban areas, the Center for Housing Policy has found  that they must spend 77 cents more on increased transportation costs-- not much of an economic gain and a dynamic that just drives further environmental costs for our nation.
One major problem is that federal funds for housing are so skewed to helping upper-income home owners . The highest-earning 20% of families receive 82% of the benefits from the federal mortgage and real estate tax deductions, while the bottom 60% of families receive just 4% of those tax benefits. These tax benefits are worth almost four times what all other federal programs spend on subsidizing housing for lower-income renters and owners.
While a more equitable federal tax code would make a tremendous difference in making housing more affordable for low- and moderate-income families, there are also crucial steps states can take to provide and secure affordable housing for their citizens.
How Do States Get Money for Affordable Housing?
Money for affordable housing development can come from a variety of sources, including.
Federal Funds: Outside of the tax befits administered by the IRS, the primary source of direct federal funding for housing comes through the Department of Housing and Urban Development (HUD) , including Dedictated funds  to support family ownership and housing for the elderly and disabled, grants  to developers of nonprofit housing, Rental Assistance to low-income tenants, the largest program being Section 8 vouchers , Community Development Block Grants , and HOME Funds .
States often take advantage of these funds in designing local programs, but one popular federal program, the low income tax credit , is administered primarily at the state level, so states have even more of a role in making sure the funds really help to alleviate the housing crisis. In Oregon , for example, their Low-Income Housing Tax Credit Qualified Allocation Plan is administered by the IRS and local credit allocation agencies, such as the Oregon Housing and Communities Services. New York City's low income housing tax credit program funds projects that have at least 20 percent of apartments reserved for low-income households.
State Funds: States can fund affordable housing programs by dedicating funds from the general revenue or through dedicated tax streams, including:
- Commercial Linkage Strategies  which require developers of new construction to pay fees to support affordable housing and encourage smart growth. Boston's linkage program produced $45 million between 1986 and 2000. San Francisco raised $38 million in linkage funds between 1981 and 2000.
- Real Estate Transfer Taxes  on existing property to prevent speculation and fund affordable housing and community services. Florida raised over $1.6 billion in revenue in 2002-2003, with 14.8% of the funds dedicated to state and local affordable housing.
- In New York, a combination of developer fees, property taxes and hotel taxes help fund  its housing trust funds.
- And, in Kentucky , document recording fees are used to fund the states's housing trust fund.
Private Funds: The Community Reinvestment Act of 1977  requires commercial banks to help meet the credit needs of the communities in which they operate, including low and middle income neighborhoods. States have a critical role in oversight for the CRA by state-chartered banks to assure that investment under the CRA occurs and to help direct the funding to effectively serve the needs of their communities. For example, Texas alone oversees over $140 billion in assets  at state-chartered institutions, including community reinvestment requirements, through its Texas Department of Banking.
Community Development Financial Institutions (CDFI) are private sector institutions specifically dedicated to providing loans, investments, financial services and technical assistance to underserved communities; CDFIs have facilitated the construction of over 43,000 units  of affordable housing. The CDFI fund in the U.S. Department of Treasury awards grants to local CDFIs to help administer their programs, while states are increasingly working  with CDFIs to expand their work.
States Tax Subsidies for Affordable Housing
Many state programs fund housing indirectly through the tax system, a sometimes effective approach that also often risks abuse if not carefully monitored to make sure the tax breaks are really going to their intended purposes. Some examples include:
Low Income Tax Credits: The purpose of the low-income tax credit program is to stimulate private investment in affordable rental housing. The tax credits are allocated to the developers of apartment projects that are rented to low-income households. The tax credits are provided to states to allocate to eligible affordable housing projects administered by a state agency, usually a state housing finance agency. Developers then submit applications to the state authority and must assure  assure that a fixed percentage of homes built are affordable for families making less than 60 percent of the area median gross income. Developers typically sell their tax credits by entering into partnershpis with an investor, who can receive a tax shelter while the developer receives equity to finance the construction of affordable housing.
Property Tax Incentives: After years of abuse of its housing tax breaks, New York's legislature just passed a bill to overhaul a key property tax incentive for building developers. Previously, under the so-called 421-a tax program, developers received a 10-25 year exemption from the increase in property taxes that resulted from their work. It was modified in the 1980's to require building some lower-priced units to receive the tax break, but most of the lost tax revenue led to few affordable housing units. The state legislature's newly passed bill expanded the number of neighborhoods where developers would have to build lower-priced units to get the tax break and required that at least 20 percent of the units in most rental buildings receiving the tax credit would have to be affordable to people making an average of no more than 90 percent of median income for the area.
Employer Assisted Housing: The Illinois Affordable Housing Tax Credit Program provides employers tax credits on income tax liability for every dollar in cash, land or property donated for affordable housing creation or invested in Employer-Assisted housing (EAH). Programs that are eligible for the credit include down payment assistance, reduced interest mortgages, individual development accounts and rental subsideies to help employees find and finance homes near where they work. Maryland  introduced a similar bill this year, but it failed to make it out fo the senate. Maryland does have a "Live Near Your Work  " program that gives a minimum $3000 to home buyers moving to designated neighborhoods to encourage empolyees to buy homes near their workplace.
Renters Tax Credit: Much like homeowners receive tax credits on their mortgage payments, renters' tax credits provide tax relief to people who rent, rather than own, their homes. In Maryland , renters receive a tax credit if they qualify based on income, age or disability. California suspended their renters credit from 1993-1997 but reinstated the credit in 1998, which returns almost $250 million a year to tenants.
Direct Government Funding for Housing
While smart tax policy can help, more direct government funding for new and more affordable housing is often the best solution, including:
Affordable Housing Trust Funds: Housing Trust Funds  (HTF) are established by cities, counties and states and dedicate sources of revenue to support affordable housing and are usually created by legislation or ordinance. They provide a stable and steady source of funding for affordable housing so that developers know they have a dependable source of funding to support projects.
Projects under an HTF can include  creation and maintenance of affordable housing, helping homebuyers with counseling, down payment and mortgage assistance and interest subsidies, subsidizing rental housing, and creating and improving homeless shelters. The Center for Community Change lists four key components for a successful Housing Trust Fund, including whether they truly benefit very low-income households, whether they are administered by a dedicated agency or department, whether they fund a variety of programs from new construction to community land trust to help for first time homeowners, and whether they have a dedicated revenue stream.
A recent report  shows the success of the Housing Trust Funds. For example, Washington State's  HTF was increased to $121 million in 2006 and supports the construction, acquisition or rehabilitation of over 4,500 units every two years. creating rental and homeownership opportunities in every region of the state for people with incomes below 80 percent of the average median income. In Iowa , the State Housing Trust Fund grants 60 percent of the funds to the Local Housing Trust Fund program to provide grants for communities, counties and organizations to create a local housing trust fund. The remaining 40 percent of the state funds go to the Project-Based Housing program that aids the development and rehabilitation of single-family and multifamily housing. The Iowa Finance Authority administers both programs and provides technical assistance to housing-related organizations.
Public Housing: Public housing  was established to allow low-income families, elderly citizens, and person with disabilities to live in decent and safe rental housing. While intended to provide decent housing, public housing complexes sometimes suffered  from high crime and social stigma. Using mixed-used development, where housing is available for several income levels, helps to overcome this problem. In Tacoma, WA , a new mixed income development replaced a public housing complex that was notorious for high crime rates. The Tacoma program is a Hope VI development program, which is administered by HUD and aims to convert distressed public housing into mixed-income communities that still serve poor residents but also provide market-rate homes for sale. The Tacoma project was funded by a mixture of federal Hope VI grant, Washington State Housing Trust Fund and private funds generated from the sale of low income tax credits.
Section 8 Housing Vouchers: Funded largely by
the federal government,
Section 8 
housing vouchers provide housing assistance in the form of
direct payment to private landlords and are
locally  by Public Housing Agencies (PHAs). Under
the Section 8 program, a family that is issued a
housing voucher is responsible for finding a suitable housing
unit where the owner agress to rent under the program. Not
surprisingly, section 8 voucher holders can be subjected to
discrimination by landlords not wanting to rent to people who
receive public assistance. Several
have prohibited "source of income"
Jersey  , who recognized the right to be free from
source of income discrimination in obtaining accomodation as a
How States can Create Affordable Housing WITHOUT Spending Money
In many situations, the affordable housing shortgage can be helped simply by changing zoning laws. As we highlighted  in the past, state and local regulations can shape the housing market in a big way by giving developers exemptions from zoning restrictions in exchange for providing affordable units as part of the development. Such inclusionary zoning  and higher density and mixed- use  zoning can help alleviate the housing shortage without needing large outlays of public money.
Inclusionary zoning policies can be  mandatory or voluntary. While mandatory programs face more opposition from builders, they have produced far more affordable units. In California , of the 107 jurisdications employing inclusionary zoning, 101 are mandatory. The six voluntary programs have created very little affordable housing, whereas the 15 top producing jurisdications have produced over 16,000 units of affordable housing through mandatory requirements.
Inclusionary zoning can be promoted in a number of ways :
A Density Bonus where a developer is allowed to construct a certain percentage or number of units above the traditional zoning designation. For example, if a development would normally be restricted to 100 units under regular zoning laws, a plan might allow 115 units to be built as long as 10 of them were affordable.
An Expedited Permit Process might allow faster approval of a development in exchange for affordable housing commitments.
Fee Waivers might waive impact and permit fees for some or all units where affordable units are included in the project.
Montogmery County, MD is the
example of inclusionary zoning. Passed in
1974, the program requires developers to set aside 12.5 to 15
percent of housing constructed for affordable units. The
program uses a series of incentives, jncluding density bonuses
to developers. In Washington, D.C.,
inclusionary zoning ordinances
produced 11,000 affordable units.
Coordinating State and Local Municipal Policies
The complexity of zoning laws and the stigma behind public housing require that state and local municipaliteis work together to increase the stock of affordable housing. A statewide plan may not be the most effective tool to deal with different needs and characteristics of communities across the state. Instead, states can give local municipalities incentives to create affordable housing plans that are best suited for local needs.
Housing Appeals: Housing appeals statutes make it easier to build affordable housing in communities that have little to no affordable housing. By providing a minimum percentage of affordable housing in their projects, builders are able to take part in a more streamlined permitting process and can appeal local zoning board permit denials through a state housing appeals board.
In Illinois, the Affordable Housing Planning and Appeal Act  requires that communities with less than 10 percent affordable housing adopt an Affordable Housing Plan and also creates a State Housing Appeals Board to review developers' appeals of local government denials of permits for affordable housing developments. The Affordable Housing Plan requires either:
- 1) a minimum of 15 percent of all new development or redevelopment must be affordable
- 2) increase in overall percentage of affordable housing by three percentage points, or
- 3) increase in overall percentage of affordable housing to 10 percent of the total housing stock.
The Act has been successful in encouraging even communities that met the 10 percent affordability requirement to increase  their stock, in some cases up to 20 percent affordable housing.
Financial Incentive for Municipalities to Create High Density Zones: Massachusetts has taken the commitment to affordable housing one step farther passed a series of regulations, 40R, 40S and 40B , that encourage the creation of high density, smart growth, affordable housing. 40 R  grants municipalities financial rewards for adopting special zoning districts for the construction of multifamily housing and single-family housing on small lots. 40B  allows local Zoning Boards of Appeals to approve affordable housing developments under flexible rules if at least 20-25% of the units have long-term affordability restrictions. 40S provides education funds to communities creating smart growth zones through Chapter 40R. As of March 2007 , 10 communities had approved districts under 40R, which would result in 3000 units of housing and another 8 communities have applied for the designation.
Connecticut just passed budget implementer sections 38-50  that allows for the creation of an Incentive Housing Zone around transit or an existing center and provides municipalities with financial rewards for establishing such zones and additional money per unit constructed within the zone. The Incentive Housing Zones would allow developers who provide 20 percent affordable units to receive a minimum of 25 percent density bonus and have minimum overall density requirements.
What these programs make clear is that there are no shortage of programs that have been proven to increase the stock of affordable housing. What is needed is the political will and the recognition that there is an alternative to the casino of subprime mortgages, namely more reasonable support for families struggling to pay for decent housing for their families.