California’s housing affordability challenge is often described in superlatives. The state has housing costs among the nation’s highest, the largest number of people experiencing homelessness, and the most severe shortage of affordable homes.
While recent efforts to streamline and upzone homes have gained headlines, less often addressed is a structural problem at the heart of this crisis: our antiquated approach to financing affordable housing.
Most cities and counties lack the funding and technical capacity to address systemic affordable housing shortages. The state is too large to easily design for the diverse realities of local markets. Additionally, the scarcity of public funding too often results in an overreliance on highly competitive Low-Income Housing Tax Credits – and leaves private-sector resources on the table.
That is why the Bay Area, Los Angeles, and San Diego have launched new regional housing finance agencies, or RHFAs. These entities – Bay Area Housing Finance Authority, or BAHFA, Los Angeles County Affordable Housing Solutions Agency, or LACAHSA, and the San Diego Regional Housing Finance Authority, or SD-RHFA – are pioneering a new model for public finance in California, enabled by state legislation.
With the mission to create thriving places that allow all residents to live affordably, these agencies are building financial engines at the regional level to unlock stalled pipelines, experiment with new housing typologies, and, in partnership with new and existing housing development partners, scale solutions.
A regional approach
Housing markets are regional by nature. Workers commute across city and county lines. Employers draw talent from wide geographies. Residents seek homes within regional networks of jobs, schools and transit. Yet many public financing tools remain tied to city or county jurisdictions, leaving local governments to compete for scarce dollars rather than coordinate for larger impact.
Regional housing finance agencies provide a “just-right” scale: They are local enough to understand market realities and political dynamics, but large enough to raise and deploy capital effectively.
And these entities are not simply lenders. They are systems engineers for housing production and preservation, able to innovate in ways typical city housing departments cannot. They are designing loan funds to aggregate demand across jurisdictions and reduce concentration risks, leveraging new forms of public debt, integrating technology to modernize public-sector operations, and providing technical assistance to jurisdictions that are too small or underfunded to have the staffing needed to accelerate affordable housing solutions.
What allows regional housing finance agencies to have an impact at scale is their broad taxing authority – LACAHSA receives approximately $385 million each year from a countywide sales tax – and their ability to harness private markets, creating a multiplier effect for their investments.
Through various policy iterations, California’s regional housing finance agencies have been created with key characteristics in mind:
- Revenue authority: RHFAs can generate dedicated housing revenues through regional taxation, treating affordable housing as public infrastructure that merits broad and sustained public funding.
- Scale: They can aggregate demand and capital across multiple jurisdictions, providing risk mitigation through geographic diversification and making them attractive to large institutional investors who prefer to invest at the large fund level over individual development projects.
- Flexibility: They can design new financing tools, such as bridge loans, credit enhancements, welfare tax exemptions, guarantees and revolving funds, that local housing departments typically cannot; and they can disperse those funds to meet a variety of housing needs that are specific to a given region, such as production, acquisition or rent relief.
- Catalytic role: They can act as financial intermediaries and innovation hubs, bringing philanthropy, impact investors and the private sector into financing housing as public infrastructure at scale.
Filling market gaps
The purpose of regional housing finance agencies is to augment capital, creating new funds that complement existing funds and fill gaps.
Consider the current bottleneck in the Low-Income Housing Tax Credit program, the primary driver of affordable housing finance. In the Bay Area, there are more than 40,000 units of entitled affordable housing waiting for subsidy or low-cost public financing. In Los Angeles County, more than 75% of proposed projects never receive tax credit equity, leaving critical housing capacity stranded.
Even as expanded credits hopefully open up the pipeline, they will continue to have long timelines, high transaction costs and ongoing bottlenecks. The tax credit is a critical tool, but it is not sufficient to produce the scale and innovations needed to solve our housing affordability problems.
What we need now are capital sources that focus on spurring innovation, efficiencies and cost reduction. Given rising levels of unaffordability, we need to expand our tools to address the full spectrum of needs – from extremely low-income households that have the most acute needs to middle-income households that are poorly served by both the market and existing public subsidies.
Without public-sector capacity to quickly deploy funding to a range of innovative housing models and income levels, more people will be left cost-burdened. This is where regional housing finance agencies come in.
California’s RHFAs draw lessons from both history and current pilots. New York’s regional financing efforts in the 1970s helped to stabilize entire boroughs by aligning public and private capital at scale. Montgomery County, Maryland is innovating on mixed-income housing that enables funds to go further. Internationally, cities like Paris, Vienna and Singapore leverage low-cost public financing or publicly managed private savings to affordably house between a quarter and over three quarters of their residents, not only one or two percent as we do in California. Other sectors, like public investments in climate financing, might also provide useful lessons for housing markets.
Regional housing finance agencies offer a unique opportunity to experiment with financing strategies at a systems level — from revolving loan funds to pooled credit enhancements, or from preservation finance to new construction typologies — all the while ensuring that long-term affordability and community benefit remain central.
Why we need partners
The success of regional housing finance depends on broad public-private collaboration. Philanthropy, impact investors, and senior lenders each have a role to play:
- Philanthropy can provide early, risk-tolerant capital to seed and pilot new lending approaches that can be scaled by regional housing finance agencies. For example, the Chan Zuckerberg Initiative, or CZI, played a key role in supporting the research, incubation and launch of BAHFA and LACAHSA.
CZI invested seed capital in BAHFA’s new mixed-income financing program, which will serve as a one-stop shop combining a suite of financing tools – such as tax-exempt debt and property tax incentives – to unlock projects that add affordability and transform BAHFA into a self-sustaining public lender that reinvests earnings back into local communities. (Editor’s note: CZI has since pivoted its strategy to focus on science and biomedical research.) - Impact investors can co-invest alongside public dollars, helping to scale loan funds and directly invest into housing projects. A regional “impact fund for housing” could pool investments across each metropolitan area’s many cities, creating a pipeline of deals with measurable social returns.
- Senior lenders can step into transactions with greater confidence once philanthropic and public partners have absorbed early risks. This layered approach reduces costs of capital and accelerates timelines.
This approach is already underway in Los Angeles. Leveraging its newly won public revenues, the city’s LACAHSA is about to launch a social bond that is projected to help finance more than 1,500 new and preserved homes in LA County. The power to leverage public dollars at an efficient scale at the regional level can catalyze innovation and provide immediate impact. It can also mitigate against fluctuating markets and changes in state and federal budgets.
Building the future we want
The nation’s housing affordability crisis will not be solved by incrementalism or private markets alone. It requires new structures, new partnerships and new systems that match the scale of the challenge. Regional housing finance agencies should be part of that innovation toolbox. These civic innovations can foster public commitment and local capacity for scalable housing solutions.
Let’s build systems where every region is an engine for housing innovation — and every young family, worker, senior and child has a place to call home.
Andrew Fremier is the Executive Director of the Metropolitan Transportation Commission (MTC), the Association of Bay Area Governments (ABAG), as well as the Bay Area Housing Finance Authority (BAHFA).
Ryan Johnson is the Interim CEO of the Los Angeles County Affordable Housing Solutions Agency.
Cody Petterson is a Board Trustee for San Diego Unified School District and Chair of the San Diego Regional Housing Finance Agency Board.
Guest posts on ImpactAlpha represent the opinions of their authors and do not necessarily reflect the views of ImpactAlpha.
Disclosure: Chan Zuckerberg Initiative earlier supported ImpactAlpha’s affordable housing coverage.
