Affordable Housing Relies More On State And Local Funding

Affordable housing financing is becoming increasingly local.

As rising construction costs, elevated interest rates, and persistent housing shortages strain project economics, cities and states are stepping in with larger subsidies, tax incentives, and funding programs to keep affordable developments moving forward, per Bisnow.

The shift comes as federal housing policy appears headed in a different direction. While local governments are expanding investment commitments, the Trump administration has emphasized deregulation and proposed significant reductions to federal housing spending, creating a new dynamic for developers assembling affordable housing capital stacks.

Local Subsidies Replace Federal Funding Streams

The growing difficulty of getting affordable multifamily projects to pencil has sparked more aggressive action at the local level. Developers point to an increase in municipal tax abatements and pilots (payment in lieu of taxes agreements) as make-or-break resources in deals that otherwise face daunting capital gaps. As JPMorgan Chase’s Brett Macleod noted at the summit, capital stacks for affordable projects are increasingly reliant on city and county funds as federal dollars pull back.

Cities and States Embrace Various Incentives

Recent moves by local governments demonstrate the diversity and scale of new interventions. For example, New York City’s latest housing plan calls for $22B over five years to add and preserve 400,000 housing units. Alexandria, Virginia, recently granted a 25-year tax abatement to help convert a vacant office building into 377 affordable apartments. According to the Center on Budget and Policy Priorities, at least 34 states and Washington, D.C., have enacted or expanded affordable housing programs in their latest budgets, with 27 funding capital grants, reduced-cost loans, tax credits, and state housing trust funds.

Federal Cuts and Deregulation Reshape the Landscape

The shift to local funding has been accelerated by federal retrenchment. The Trump administration’s proposed 2027 budget would reduce HUD funding by 13%, slicing $10.7B and eliminating key programs like community development block grants—a primary funding source for low-income housing. At the same time, federal policy is focusing more on deregulation, such as rolling back green building requirements and rules addressing housing segregation. Industry advocates argue that while deregulation helps, it cannot replace hard subsidy dollars.

Why It Matters

The rebalancing of affordable housing responsibility has major implications for CRE operators and capital providers. Developers must navigate a patchwork of local incentives that can make or break deals, while market participants can expect heightened variance in affordability outcomes depending on municipal political will and fiscal capacity. According to the Center on Budget and Policy Priorities, this local-centric approach is unprecedented in scope, highlighting both the urgency of the affordability crisis and the consequences of federal withdrawal.

What’s Next

CRE professionals should watch closely as more municipalities pilot new financing models, from long-term tax abatements to state housing trust fund injections. The outcome of upcoming budget cycles—especially if federal reductions persist—will likely determine how effectively cities and states can keep affordable supply pipelines moving. Success or failure in these efforts could define investment theses and site selection strategies across the US affordable housing sector for years to come.