Create or Expand Dedicated Housing Trust Funds

Dec 2015

Housing trust funds are separate funds established by states or localities to provide a source of revenue reserved solely for affordable homes. 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 may be associated with a dedicated funding source – i.e., a stable source of revenue, such as a tax increment stream, that will continue to provide resources on an ongoing basis without the need for annual appropriations decisions. Some communities maintain local accounts that are reserved for affordable housing but are either not connected to a dedicated revenue source or that are annually supplemented with other sources.

Two potential stable sources for housing trust funds are pooled tax increment, especially from housing TIF districts and tax levies which are available to Housing and Redevelopment Authorities. The Cities of Chaska and Minneapolis generate pooled tax increment to provide annual contributions to housing trust funds. Hennepin County HRA uses its annual tax levy for a housing trust fund.

In the summer of 2017, the Minnesota Legislature included provisions that encourage local communities to establish housing trust funds in a bill that passed during the 2017 legislative session.  This legislation allows local governments to establish a housing trust fund or to participate in a joint powers agreement to establish a regional housing trust fund. Learn more about these provisions.

What problems do housing trust funds solve?

Housing trust funds help solve three major problems. First, they 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 may be structured to operate without federal restrictions and so 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 and help provide “gap financing” to make up the difference between what an affordable housing project costs and the federal funds available to support it.

Where are these policies most applicable?

Housing trust funds can be used successfully in any community; however, they are most productive when sources and allowable uses are tailored to reflect local conditions.In many communities, housing trust funds result from persistent advocacy campaigns by low-income housing advocates and practitioners who seek to target funds to the lowest income families with the most severe housing cost burdens. In the state of Minnesota many cities and counties team up with Minnesota Housing Finance Agency to distribute housing trust fund dollars. Rather than each municipality having its own set of rules and guidelines for receiving trust fund money, Minnesota Housing uses its “common applications” to streamline the approval process.

Communities interested in developing comprehensive and effective housing strategies should consider how a housing trust fund fits into the overall array of housing programs and policies available in the community. In this connection, it is important to note that housing trust funds using only state and local funds, or with local funds distinguished from federal funds, do not come with federal restrictions that constrain the use of most of the subsidy dollars available for housing at the state and local levels. The beauty of a housing trust fund is that the jurisdiction can control exactly how the funds are spent.

Where have housing trust funds been used?

Red Wing, Minnesota, has created a housing trust fund.

The Kingsley Commons in Minneapolis were developed with the help of Hennepin County’s Affordable Housing Incentive Fund program.

Development, Finance Tools, Housing Counts Policy Toolbox, Housing Policy
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