The National Housing Trust Fund and Its Impact to Date

HERA granted authority to the director of the Federal Housing Finance Agency (FHFA) to suspend contributions to the HTF and CMF if deemed to jeopardize the financial stability of GSEs, lead to undercapitalization, or impede the GSEs’ ability to rebuild and retain capital reserves.

A few months after HERA was signed into law, FHFA, under then-Director James B. Lockhart III, put the GSEs into conservatorship and suspended payments to both the HTF and CMF. That suspension continued under Acting FHFA Director Ed DeMarco and was not lifted until 2014 after FHFA Director Mel Watt was appointed by President Obama and confirmed by the U.S. Senate. As a result, the GSEs did not begin setting aside contributions for the HTF until 2015 and the Department of Housing and Urban Development’s (HUD) first grant allocations were not made until 2016. Since then, the GSEs have made allocation payments of $4.9 billion to the HTF and CMF.

Allocation of Funds and Program Requirements

GSE contributions to the HTF are transferred to HUD once a year and then allocated as grants to all 50 states, the District of Columbia, and Puerto Rico according to a set formula.^[i] This formula considers several factors including the severity of the state’s shortage of affordable housing, the prevalence of substandard housing, and the severity of renter cost burdens. Some states and the District of Columbia receive a minimum allocation of $3 million.

HTF grantees must create allocation plans, included in the Consolidated Plan and Annual Action Plan that all recipients of HUD block grants must submit. These allocation plans outline how grantees plan to distribute HTF funding (e.g., award criteria, any specific populations prioritized, and plans to subgrant funding). The plans must also detail the state’s priority housing needs and performance goals.

The HTF is primarily focused on affordable rental housing, requiring that a minimum of 80% of its funding be used to support rental housing and a maximum of 10% on homeownership. Eligible grant expenses include the acquisition, construction, or rehabilitation of affordable housing units, with a requirement to maintain affordability for 10 to 30 years depending on the housing type (rental or homeownership) and the amount of assistance.

HTF grants come with specific commitment and expenditure guidelines. Once the grant agreement has been executed, the state has two years to commit its funding and five years to fully disperse the grant. This timeline is similar to the guidelines for other federal grant programs focused on housing supply. For example, the HOME Investment Partnerships Program, a HUD formula-based block grant program which aims to create affordable housing for low-income households, has the same commitment and expenditure requirements. However, HOME’s commitment requirement has been suspended since 2017.

As of early 2024, HUD had allocated a total of $3 billion for the HTF program. Although contributions to the fund generally increased over the first seven years, FY2023 and FY2024 saw sharp declines in funding levels due to significant shifts in the housing market that negatively impacted the GSEs’ revenue.

The formula that determines the overall allocation amounts can lead to dramatically different funding levels depending on a state’s size and the extent of their affordable housing shortage. Between 2016 and 2023, five states received nearly 39% of HTF allocations, accounting for about $1.2 billion in funding.

Impacts of the HTF To-Date

According to HUD, the HTF has yielded the following results^[ii]

• Number of Units: While the annual completion of units has been steadily increasing, only 5,349 units have been completed using HTF funds.
• Cost: On average, an HTF unit costs $111,813 ($131,972 for new construction, $85,171 for rehabilitation, and $87,031 for acquisition).
• Use of Funding: About 57% of funded units have been newly constructed, 42% have been rehabilitated, and less than 1% have been acquired. Although up to 10% of HTF funding can be used for homebuyer projects, no homebuyer projects have been completed with HTF funding.

HTF support is often combined with private and other government funding so that a project can “pencil out” financially. Despite criticisms of duplication and overlap, the HTF has been used as an important source of gap funding to enable the construction of new affordable housing units that would have otherwise not been built.

Future of the HTF

Modeled after state housing trust funds, the HTF was intentionally insulated from the appropriations process and its political pressures. However, the future of the HTF remains uncertain due to its inconsistent funding levels and the impact of external housing market forces impacting the GSEs’ revenue. Additionally, the decisions made by the presidentially appointed FHFA director will play a significant role in shaping its trajectory.

Several programmatic and process-related deficiencies have also opened the HTF up to criticism. Following a request from Republican members of Congress, a GAO study identified numerous weaknesses in HUD’s oversight of the HTF. The study cited HUD’s failure to successfully communicate program requirements to grantees, its inability to identify reporting errors among grantees, and limitations on its own ability to provide accurate data about the program. In response, the GAO issued recommendations to address each identified weakness. However, despite HUD’s agreement with the recommendations, none have been implemented. The Biden administration’s annual budget request for HUD outlined several of its own proposals to improve the HTF, namely eliminating its two-year commitment requirement and better aligning environmental review requirements with other HUD programs.

Less than a decade into the funding of the HTF, the program has created thousands of new affordable housing units for the nation’s lowest income households with the potential to generate thousands more in the years ahead. However, the program’s future is likely to remain uncertain as we enter the 2024 elections and beyond.

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[i] The Commonwealth of the Northern Mariana Islands, Guam, U.S. Virgin Islands, and American Samoa are also eligible for funding through a different formula.

[ii] It should be noted that these numbers are self-reported by HTF grantees.