The Cost of Fragmentation
A Comparison of State Affordable Housing Finance Governance Systems
In the United States, financing affordable housing is more complex than it should be.
In order to finance and build affordable housing, developers need to assemble a capital stack composed of multiple different funding sources at the federal, state, and local levels.
These include Low-Income Housing Tax Credits (LIHTC) and tax-exempt bonds, as well as sources such as the HOME Investment Partnership and Community Development Block Grants (CDBG).
Sources can also include other state resources and philanthropic dollars.
These funding sources can be administered by separate agencies or departments, each with its own requirements and timelines.
This fragmented system can result in increased development costs, project delays, and added uncertainty for projects, all of which represent critical barriers to building affordable housing in high-cost, high-demand housing environments.
Each additional funding source that is involved in financing affordable housing in California extends the start-of-construction timeline by an average of four months.
And each additional public funding source results in an average cost increase of
$20,460 per source, per unit.
Navigating this maze of financing is one of the greatest hurdles affordable housing developers face. Fortunately, many states are tackling the problem of fragmentation in affordable housing finance head-on.
We analyzed state affordable housing finance systems across the country to identify elements of effective governance. We conducted an in-depth examination of seven states to identify the challenges fragmentation creates and the practices that can lead to more effective governance.
Our Findings
National Landscape Scan
This section examines how states structure the governance of their affordable housing finance systems and the implications for accessing key subsidy programs. Across the nation, we find that most states consolidate multiple funding streams within their Housing Finance Agency (HFA), though the degree of centralization and independence varies.
Our Findings
78%
78%
of states have their Housing Finance Agency overseeing at least three of the main affordable housing finance resources
2.5
2.5
entities on average administer affordable housing resources in most states
In “HFA-predominant” states, the housing finance agency manages the Low-Income Housing Tax Credits, along with at least two other resources, typically the HOME Investment Partnerships program and the National Housing Trust Fund. Two additional programs—the Community Development Block Grant and volume-capped tax-exempt bonds—are often overseen by separate entities, since both finance a broader range of activities beyond housing.
Governance Typology by State
Governance Typology by State
The map below groups states into different typologies based on how their affordable housing finance system is organized. In most states the Housing Finance Agency allocates tax credits and multiple other resources.
Housing Finance Agency role:
Sources: The National Council of State Housing Agencies, State HFA Factbook: 2023 NCSHA Annual Survey Results, and HUD’s Low-Income Housing Tax Credit Database
While the most prevalent model consolidates affordable housing resources within the state HFA, there are many successful variations—some centered on a single HFA, others built around alternative systems designed to streamline resources. We identified seven of these cases below.
Case Studies
Learning from the governance structures of different states
This section describes key features of the seven case study states, highlighting innovative aspects of each states’ approach to how they govern their affordable housing finance systems.
Summary of Findings
Solutions and Recommendations
The case study states vary in how centralized and streamlined their housing finance systems are. States like Massachusetts, Minnesota, North Carolina, and Oregon have adopted “one stop shop” processes, such as unified applications, consolidated RFPs, and standardized documents that simplify applications and reduce inefficiencies. Recent reforms in Massachusetts, New York, and Oregon also demonstrate how reorganizations can clarify responsibilities and strengthen coordination.
At the same time, stakeholders stressed that fragmentation slows down and complicates development. When different agencies control separate funding sources, mismatched application cycles create uncertainty, often forcing developers to secure temporary financing they may not ultimately use. These delays drive up carrying costs and expose projects to escalating construction expenses. Developers also face duplicative or conflicting program requirements, adding unnecessary complexity and inefficiency to underwriting. Together, these dynamics increase costs, extend timelines, and make closing funding gaps significantly more difficult.
“States that have clarity as to what they’re doing [lead to] developers [knowing] what they’re doing, [producing] deals responsive to those priorities […] and [moving] them through the chute faster.”
Affordable Housing Stakeholder
From the interviews, stakeholders highlighted several practices that make housing finance systems more effective:
One-stop shop solutions
Unified applications or consolidated RFPs reduce uncertainty and streamline financing, though states must provide support for smaller and emerging developers to ensure equitable access.
Clear and consistent policy vision
Stable funding priorities allow developers to plan with confidence and deliver projects more efficiently.
Strong leadership and collaborative culture
Effective coordination often depends less on structure than on leadership. Leaders who foster collaboration, adapt to changing circumstances, and listen to feedback can bridge silos and improve system performance.
Consolidation with caution
While bringing functions under one roof can improve coordination and efficiency, consolidation is not a cure-all. Over-centralization can create risks if leadership is weak, while well-coordinated fragmented systems can still succeed. Done thoughtfully, consolidation can also lower barriers for underrepresented developers by simplifying access to resources.
Conclusion
To strengthen affordable housing finance systems, states should pursue reforms that simplify structures while also enhancing organizational capacity. Consolidating housing functions under a more unified governance model can reduce fragmentation, clarify responsibilities, and create a clearer statewide housing vision. At the same time, structural changes alone are not sufficient—states must also invest in leadership, staff expertise, and collaborative practices to ensure reforms translate into real-world efficiency.
Effective housing finance governance requires both integration and capacity. Consolidation can reduce duplication and improve coordination, but success ultimately depends on strong leadership and a culture of collaboration that empowers staff and partners. States that combine streamlined governance with skilled personnel and unified application processes will be best positioned to accelerate affordable housing delivery, lower costs, and maximize the impact of public resources.
Read Our Complete Analysis
Dive deeper into our detailed recommendations, comprehensive findings from our landscape scan and California study.