How Can Municipalities Deal with the Lack of Affordable Housing?

Affordability has been stretched thin across the United States as inflation, rising rates and limited housing stock have driven residential property values out of the price ranges of many buyers. According to data from the Zillow Home Value Index, home values in popular migrant destinations like Arizona, Nevada and Texas have increased 40-55% since 2020.[i] Many markets once considered relatively affordable are now faced with the same supply and affordability issues experienced in higher-tax states. Many businesses have also felt the squeeze and with the shift toward remote or hybrid work, some major corporations have relocated from expensive regions like Silicon Valley to areas with lower corporate tax rates and better affordability. In our view, states and localities need to aggressively address housing affordability or current and future economic development prospects could stall. Below, we look at some ways municipalities are tackling this complex issue.

Putting federal funding to work

Many municipalities have leveraged the HOME Investment Partnerships (HOME) Program to help fund housing. Established in 1990, the program is currently the largest federal housing initiative of its kind and has provided billions of dollars to aid state and local municipalities with housing.[ii] Units generated through the HOME program are marketed to very low and low-income residents that report 30%-80% of area median income (AMI).[iii] During 2022, HOME projects helped create over 15,000 units of housing. This year, the program awarded $5.6 billion to states, counties, local governments and US territories, $1.5 billion of which has been directed toward producing affordable housing.[iv]

The 2021 American Rescue Plan Act (ARPA) has also aided housing efforts. The ARPA directed $350 billion in funding to state and local governments,[v] much of which has been allocated toward affordable housing and workforce development. According to the National League of Cities’ Local Government ARPA Investment Tracker, an estimated 10.9% of the $51.4 billion tracked across 332 metro areas has been devoted to housing, including homelessness, affordable housing and rental assistance purposes.[vi] An example of ARPA funds in action comes from Salt Lake County, Utah, which earlier this year set aside $25 million to fund the restoration or construction of 1,500 affordable housing units by the end of 2026.[vii] While local governments have used ARPA funds as a tool to provide needed relief and opportunity for residents, we believe the affordability issue calls for much more funding than what federal programs currently provide.

Workforce housing could be vital for local economies

As housing costs rise, many employees can no longer afford to live where they work. State and local governments like Massachusetts, Arkansas, San Antonio and many others are implementing programs to support workforce or middle-income housing for those who do not qualify for low-income housing, but cannot afford to live in proximity to their workplace. Massachusetts has established a workforce housing fund catering to those at 60%-120% of area median income (AMI),[viii] and San Antonio is offering zero-interest forgivable loans from $5,000-$10,000 for its city employees.[ix] Other local governments have begun incentivizing development agencies with tax-favorable packages to construct middle-income and workforce housing projects. These efforts have extended into the corporate world, with some companies seeking to create their own housing for employees. The benefits of more affordable housing stock extend beyond the workers, making it easier for companies to retain and recruit employees, and for municipalities to retain and attract new businesses. We believe more action at the state level will be necessary and may require federal intervention to help support local economies and foster future growth.

Working together to increase housing inventory

Los Angeles and California recently tackled a systemic problem not specific to the State of California: the chronic underbuilding of housing. California’s Department of Housing and Community Development estimates that 180,000 units need to be built annually to keep up with demand (including 80,000 affordable units), but has averaged less than 100,000 per year and has yet to surpass 20,000 new affordable units in a given year.[x] LA’s “Adaptive Reuse Ordinance” bill and California’s “Affordable Housing and High Road Jobs Act” will increase available supply by turning underutilized buildings into housing.[xi] In our view, tight-knit partnership between municipalities and states in which they reside is key to increasing housing inventory, and we expect to see more of it in the future.

Building for the future

With a lack of available housing supply, soaring rents, wage growth that has lagged productivity growth and sticky inflation, we believe municipalities need to take action to improve affordability. We feel municipalities would be serving their best interests by providing needed housing infrastructure for current and future generations. The lost growth and economic potential from the inability of residents, students and labor force participants to afford housing in certain areas of the country is simply too valuable to ignore, in our view.

While many municipalities with stronger financials have begun addressing the problem through a combination of funds from the HOME Investment Partnerships Program, federal funding and other grants, financially weaker and smaller localities may not have the same resources at their disposal. It will likely take federal intervention or expansion of existing programs to ensure all municipalities can capably deal with these widespread housing issues.


Joe Prestamer, Research Associate

Michelle Luu, Credit Research Intern

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[i] Zillow Home Value Index:




[v] US Department of the Treasury:

[vi] As of 16 August 2023. National League of Cities’ ARPA Investment Tracker:

[vii] Salt Lake City ARPA Affordable Housing:

[viii] MassHousing Fund:

[ix] San Antonio Loan Program:


[xi] Brookings CA Article:



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Loomis Sayles analysts are career professionals who offer deep knowledge and experience in a diversity of global asset classes and market sectors. These dedicated experts provide the insight essential to supporting our portfolio management teams across a wide range of investment strategies.

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