The pandemic exacerbated already crisis-level supply constraints in affordable housing. The multifamily asset class is notoriously challenging to develop for a number of reasons, but a recent report from Capital One and the Terner Center for Housing Innovation at the University of California Berkeley found that fragmented funding sources was among the biggest challenges for affordable housing developers. However, there are key moves that local governments can do to enhance the effectiveness of affordable housing funding sources, namely LIHTC.

To ease the financing burden, the report recommends governments reduce fragmentation, align funding sources at the state level and enhance coordination among funding sources. "In The Complexity of Financing Low-Income Housing Tax Credit Housing in the United States, we identify the following three key solutions for state and local governments to ensure that the LIHTC program works as effectively as possible since the program has been one of the most successful program to address affordable housing needs in this country," Desiree Francis, head of community finance at Capital One and a member of the Terner Center team," tells GlobeSt.com.

Reducing fragmentation requires that government agencies at every level—including both federal and local governments—consolidate funding sources. This will help to both reduce inefficiencies as well as lower the costs of funding, according to Francis. "In states such as Arizona and Texas, HFAs administer some soft funds alongside tax credits," she says. "In Illinois, the state's Housing Development Authority (IHDA) administers tax credits and other soft sources (e.g., HOME, the Illinois Affordable Housing Tax Credit, Illinois' Housing Trust Fund Program), and disburses these additional resources in a manner that doesn't require LIHTC applicants to choose which soft sources to pursue."