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Housing Trust Funds: The Basics

Long before the creation of the federal Housing Trust Fund program, housing trust funds have been a good tool for states or localities looking to provide a stable source of revenue reserved solely for affordable homes. According to a 2016 report from the Center for Community Change, there are over 700 housing trust funds in the United States, administered at the city, county, regional and statewide levels, and distributing over $1 billion a year. The large majority of the activity is at the state level with 79 percent of the $1.28 billion in trust fund money in FY2015 administered by state programs.

Because they are created at the state or local level, program activities and eligibility requirements vary from place to place in response to local needs and priorities. Housing trust funds can be used effectively in most communities because states or localities can control exactly how the funds are spent and they do not come with federal restrictions.

The impetus for establishing a housing trust fund varies. In many communities, the creation of housing trust funds results from persistent advocacy campaigns by low-income housing advocates and practitioners who seek to make more funds available to address the housing needs of the lowest-income families with the most severe housing cost burdens. In other areas, such as the state of Florida, housing trust funds have been advanced by a broader coalition of interest groups, including low-income advocates, Realtors and homebuilders.

Why create a housing trust fund?

Housing trust funds help solve three major problems. First, they can provide a dependable source of revenue for the production, preservation or rehabilitation of rental and owned homes, as well as related support services and infrastructure needs. Second, they come without federal restrictions and can be tailored to efficiently meet particular local needs, some of which may be ineligible for funding through other programs or in need of additional resources. Third, they can be used to leverage other funds to help close the gap between the cost of production and available funds to support affordable housing.

While housing trust funds can be tailored to meet the needs of communities with a variety of housing conditions, they can be a particularly effective policy in high- and rising-cost housing markets. Certain types of dedicated funding sources for housing trust funds—notably, real estate transfer taxeslinkage fees and document recording fees—generate more revenue for affordable housing when there is an uptick in housing market activity and when homes prices increase. For this reason, housing trust funds that rely on these or other similar funding sources can help communities harness the power of hot housing markets to raise funds for affordable homes.

Dedicated housing trust funds

Housing trust funds can be funded in a variety of different ways. Those associated with a dedicated funding source (i.e., a stable source of revenue that will continue to provide resources on an ongoing basis without the need for annual appropriations) are known as dedicated housing trust funds. Such funds represent a stable and effective way of ensuring consistent long-term financing for affordable housing needs in a community. However, even dedicated sources can experience variability. Many sources of housing trust funds are tied to real estate taxes, fees and revenues from other economic activity.  An economic downturn may reduce these revenues and thus the funding of the dedicated housing trust funds.

It is also possible that these funds could be diverted for non-housing purposes through the political process. By definition, housing trust funds with dedicated funding sources are not subject to the annual appropriations process, but there is no guarantee that housing trust fund revenues are protected from diversion for non-housing purposes. For example, in 2009, portions of the Florida, Arizona and Illinois state housing trust fund revenues—all raised from dedicated sources—were redirected to non-housing purposes as a way to relieve state funding shortfalls. The Florida state housing trust fund (previously one of the largest trust funds in the nation) experienced a significant decline in revenues in 2009 because the state legislature diverted almost $531 million from the housing trust fund to general revenue.

Housing trust funds dependent on appropriations

Housing trust funds can also be funded through direct appropriations or other sources of revenue that are not dedicated on an ongoing basis.  These funds can be less predictable than dedicated housing trust funds because they are subject to the annual appropriations process, which is affected by the overall political and economic context. While these programs do not benefit from the reliable funding conferred by a dedicated source, they still play an important role in addressing local housing needs. The can also be used to pave the way for dedicated funding at some point in the future (as in the case of Washington, D.C.).

Protecting housing trust funds

In many cases, advocacy efforts have prevented housing trust fund dollars from being redirected to non-housing purposes. During the June 2009 budget session, for example, the Ohio State Senate made several attempts to reduce the state housing trust fund cap to $40 million, down from $53 million to free up funds for non-housing purposes. In the fall of 2009, further legislative action was taken to try to transfer $30 million from the housing trust fund over a two-year period to balance the state budget. Through a successful campaign organized by a broad coalition of housing advocates in Ohio, in partnership with allies in the state legislature, the legislative action failed and housing trust fund revenues will remain dedicated to meet the state’s affordable housing goals.

Issues to consider in developing a housing trust fund

The real innovation and benefit of housing trust funds is the matching of a dedicated and reliable funding source with specific housing needs in the community. In some communities, policymakers and advocates may face significant opposition to dedicating a certain revenue stream for affordable housing, particularly in the face of competing priorities. While identifying a dedicated funding stream is clearly more desirable, some communities have found that initial awards of discretionary appropriations or general obligation bonds can be useful as a starting point for capitalizing a housing trust fund and building momentum for the eventual transfer to a dedicated funding source.

Housing trust funds are most productive when funding sources are tailored to reflect local conditions. Areas with an active real estate market, for example, may consider funding a housing trust fund through real estate transfer taxes or a modest document recording fee that generates a small amount of income with each home sale.  Areas with weaker housing markets but robust tourism may consider hotel/motel taxes as a revenue source.

When designing a housing trust, many decisions need to be made, including decisions regarding:

  • Eligible applicants and activities
  • Requirements related to income eligibility and long-term affordability
  • Whether awards are issued as grants, loans or both
  • Whether a portion of the fund is set aside to achieve special purposes, such as providing housing in targeted areas or serving the lowest-income households

These questions are not unique to housing trust funds. For example, similar questions arise with respect to the use of proceeds from housing bond issues, in-lieu fees and tax increment financing. Because communities have considerable flexibility over the use of these locally generated revenue sources, it is important to consider how funds can be used to augment the generally larger federal revenue sources available for affordable housing and advance a comprehensive housing strategy.

One of the biggest challenges involved in creating city and county housing trust funds is finding a significant and reliable source of funding, especially in states that place restrictions on the use of potential funding sources. As a legal matter, states generally have considerable flexibility in selecting revenue sources for housing trust funds (A minority of states are prohibited by state law from establishing a dedicated funding stream or using a particular type of dedicated funding source. Georgia’s constitution, for example, specifies that “all money collected from taxes, fees and assessments for State purposes…shall be paid into the General Fund of the State Treasury and shall be appropriated therefrom,” prohibiting the state from dedicating public revenue for any purpose). Many localities also have broad authority to establish dedicated funding streams, though in some states localities are constrained by state regulation of local taxing and bonding authority and by other limitations on their ability to tap and use specific revenue streams.

Key Resources

Housing Trust Fund Project of the Center for Community Change

The most comprehensive source of information on state and local housing trust funds, the Housing Trust Fund Project offers an array of resources ranging from “A Workbook for Creating a Housing Trust Fund” to case studies of trust funds throughout the country. The Housing Trust Fund Project also periodically publishes reports based on surveys of housing trust programs at the municipal, county and state levels.

PolicyLink’s Equitable Development Toolkit

This online resource provides information on an array of strategies, including housing trust funds, and is intended to provide guidance to advocates interested in advancing social and economic equity.

CFED Assets & Opportunity Scorecard for Housing Trust Funds

The Corporation for Enterprise Development (CFED) produces this annual online scorecard to rank state housing trust funds based on funding and stewardship criteria. The scorecard is accompanied by a resource guide.

That Status of State Housing Trust Funds.
2013. By Mary Brooks. Frazier Park, CA: Center for Community Change.

Opening Doors to Homes for All: The 2016 Housing Trust Fund Survey Report.
2016. Washington, DC: Center for Community Change.

Housing Trust Fund Resource Guide: 2009-2010 Assets & Opportunity Scorecard.
2009.  Washington, DC:  The Corporation for Enterprise Development (CFED).

Long-Term Affordable Housing Strategies in Hot Housing Markets.
2008. By Jesse Mintz-Roth. Washington, DC: NeighborWorks America and Cambridge, MA: Harvard Joint Center for Housing Studies.

State Housing Trust Funds: Meeting Local Affordable Housing Needs.
2005. By Carolina Reid. Community Investments. Federal Reserve Bank of San Francisco.

Florida’s Housing Trust Fund: Addressing the State’s Affordable Housing Needs.
2004. By Kristin Larsen. Journal of Land Use 19(2): 525-535.

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