Housing Trust Funds Increase Affordable Housing for Lowest-Income Households

The development and preservation of affordable housing units often require funding from multiple sources. One potential funding source for affordable housing developments for the lowest-income households is the National Housing Trust Fund.

Since 2016, the National Housing Trust Fund (HTF) has provided grants for states to finance affordable housing production for preserving, constructing or operating the supply of affordable rental housing for very low-income and extremely low-income (ELI) households. HTF was the first new housing resource aimed at rental housing for ELI households since 1974, according to the National Low Income Housing Coalition (NLIHC).

There remains a shortage of rental homes available to the lowest-income households, making the need to preserve and increase the supply of rental units critical. In 2023, there was a shortage of nearly 7.3 million rental homes that were affordable and available to people with the lowest incomes, according to NLIHC.

While there are statutory requirements around how money from the funds is used—because the states receive money from HTF in the form of a block grant—the states have flexibility on how best to use HTF grants.

Formula For National Housing Trust Fund
Established under the Housing and Economic Recovery Act of 2008, the HTF program is overseen by the Department of Housing and Urban Development’s (HUD’s) Office of Affordable Housing Programs within the Office of Community Planning and Development. The funds are financed through fees paid by two government-sponsored enterprises (the Enterprises), Fannie Mae and Freddie Mac, on new mortgage guarantees that they make. Contributions to the HTF are based on an up-front fee of 4.2 basis points (0.042 percent) on the annual purchase of new mortgage guarantees made by the Enterprises.

“The funding allocated by the Enterprises for the HTF will help produce, preserve and operate homes affordable to people with the lowest incomes, including families, seniors, people with disabilities and others,” says NLIHC President and Chief Operating Officer Diane Yentel.

Because the amount transferred by the Federal Housing Finance Agency to HUD for the program is based on the previous year’s required financial filings by the Enterprises, the amount varies from year to year. For example, in February 2024, the Federal Housing Finance Agency (FHFA) announced that it would transfer $196 million to HUD for the HTF for fiscal year 2024, a decrease—due to the decline in the national housing market—from the $354 million transferred for the 2023 fiscal year. 

State and District of Columbia Distribution
During the second quarter of the calendar year, HUD announces the amount of state allocations. HTF funds are awarded as block grants to states, the District of Columbia and territories. Grant money must be used to build, preserve, rehabilitate and operate rental housing for ELI households – those with income either less than 30 percent of the area median income (AMI) or lower than the federal poverty line, according to HUD.

How the funds are distributed to the states is based on a statutory formula, though, by law, each state is allocated a minimum of $3 million annually. The formula is based on four factors that consider renter household needs only. Those factors include “a state’s relative shortage of rental housing available to ELI families; a state’s relative shortage of rental housing available to very low-income families; the relative number of ELI renter households living in substandard, overcrowded or unaffordable units in a particular state; and the relative number of very low-income renter households living in substandard, overcrowded or unaffordable units in a particular state,” according to the U.S. Government Accountability Office’s 2023 report on HUD’s oversight of the HTF.

Seventy-five percent of the value of the formula goes to two factors that reflect the needs of ELI renters. The other two factors relate to the renter needs of those with incomes between 31 and 50 percent of AMI, referred to as very low-income renter households.

The total amounts distributed by HUD to the states may differ from the total allocation announced by FHFA due to reasons such as money being added back from the previous year if a state fails to meet the previous year’s fund commitment or expenditure requirement before the deadline.

State HTF Programs
States award funds during the second half of the year. A state may choose to administer its program or select a state-designated entity to administer HTF funds on its behalf.

To ensure that this program helps those with the greatest needs, 100 percent of funds must be used for extremely low-income families. States must use at least 80 percent of each annual grant for rental housing. A state may choose to award up to ten percent of its annual HTF allocation to homeowner activities, though to date no state has done so, according to NLIHC. All HTF-assisted rental housing must also meet a 30-year affordability period.

HUD maintains a list of state agencies and state-designated entities that are HTF Grantees. Those points of contact are available on the HUD Exchange.

Since 2016, when the first $174 million of HTF dollars were allocated to states, HTF allocations grew to $219 million in 2017, $267 million in 2018, $248 million in 2019, $323 million in 2020, $690 million in 2021 and $740 million in 2022. HTF dollars dipped to $382 million in 2023, and $196 million in 2024.

How each state uses the block grants from the HTF varies.

Online Resources for the Housing Trust Fund 
The National Low Income Housing Coalition website provides state-specific information, such as annual allocations and contact information for the state-designated entity. 

The group’s website also provides a basic overview of the program and gives interested parties more information on how to advocate for continued government support of the program. Stakeholders can also directly access NLIHC’s advocate guide.  

HUD’s National Housing Trust Fund Fact Sheet is a high-level snapshot of what the National HTF is, the statutory background and links to program rules.  

The agency also provides additional resources to its community partners on its website, HUD Exchange. The Exchange has links to policy guidance, limits and allocation information and HTF-related reports.  

HUD also publishes monthly HTF reports, including reports on HTF national production, open activities, vacant units, deadline compliance status and grant-specific commitment and disbursement summaries.  

The Federal Finance Housing Agency announces annually the total dollar amount to be transferred to HUD for the HTF. That amount is based on data filed with the Securities and Exchange Commission.  

Fannie Mae’s 10-K SEC filing indicates that the 2023 HTF assessment from Fannie Mae is $101 million for 2024. Freddie Mac’s 10-K filing indicates that its assessment is $95 million for 2024. 

The 2008 Housing and Economic Recovery Act (HERA) outlined how funds should be allocated to the state, District of Columbia and the U.S. Territories, and was formalized by HUD regulations, which can be found in the Code of Federal Regulations: 

• Formula Allocation; 
• Formula Factors; and 
• Minimum Allocations. 

In 2023, the United States Government Accountability Office (GAO) published a report on the HTF. The report provides an in-depth overview of the program, including a timeline and recommendations to HUD on strengthening the program.