Real Estate Quarterly: Funding Solutions

As the need for affordable housing continues to define L.A.’s housing landscape, developers must navigate the complexities of building these communities.

The execution of these projects is currently being shaped by creative financing packages as well as growing private-sector interest.

Between 2018 and 2024, just 10% of new rental housing units built and certified for occupancy in Los Angeles County were affordable to low-income households, according to August data from USC’s Neighborhood Data for Social Change. Even so, the number of affordable units being delivered per year is increasing, with 4,397 units completed in 2024, compared to 1,597 in 2021 and 491 in 2018.

Despite this uptick, the need is still tremendous. Based on the Regional Housing Needs Assessment, NDSC estimates a shortfall of more than 578,000 rental units in Los Angeles County for households making less than 50% of the county’s area median income.

While nonprofit developers and public sector funding have long dominated the affordable housing creation space – and make no mistake, they still do – for-profit firms and private capital are increasingly shaking up the market. And despite shared goals, developers’ financing strategies significantly affect projects’ costs and timelines. 

In interviews with nonprofit and for-profit developers alike, there seems to be a consensus that Los Angeles projects built using low-income housing tax credits (LIHTC) typically range from around $700,000 to $900,000 per unit. This is the result of many factors, including lengthier timelines for securing this funding, the need for additional funding sources, prevailing wage requirements and much more.

Additionally, with LIHTC, the lower the income level a development seeks to serve – like residents earning less than 50% AMI versus up to 80% AMI – the more complicated the project can become, said Lisa Gutierrez, director of affordable housing at U.S. Bank.

“Deeply affordable developments … will have multiple layers of financing sources that are coming from state, local and regional levels,” Gutierrez said. “Those capital stacks look much different than a workforce housing development.”

With every additional financing source comes specific requirements and conditions that developers must incorporate into their project, she added.  

In the L.A. market alone, U.S. Bank has done about $4.3 billion in affordable housing finance – $1.7 billion through LIHTC and $2.6 billion through affordable housing debt. This translates to about 270 deals and more than 22,000 units financed, working with both nonprofit and for-profit builders.

Within the last decade, Gutierrez said the need for private capital to get involved in affordable housing finance has become “much more crucial.”

“Public sources are finite,” she said. “We can’t solely rely on that (if we want) to be able to produce as many units as possible.”

Westwood-based SDS Capital is one…