Utter the phrase “affordable housing” and an old civic ghost rises: cheap, neglected government buildings where poverty and decay concentrate. That picture hasn’t matched reality for a long time.

In the modern sense, “affordable housing” is not a building type at all, but rather an administrative definition. To qualify, “affordable housing” must allow renters of a specific income to pay less than 30% of their income on rent plus utilities. In Eugene, the target income is typically 60% of the Area Median Income or less.

It’s usually built by private developers and is often indistinguishable from market-rate apartments next door, except for one respect: it’s routinely more expensive to produce.

That is largely because of how we chose to pay for it. In a characteristically American move, we outsourced the mission to the market, hoping it would build mixed-income housing, set aside a slice of units at below-market rents, and use the tax credits to offset the losses. Subsidy, in other words, would be provided as a tax write-off, not a government check.

But the developer this system imagined never arrived. Instead, nonprofits with zero tax obligations became the dominant builders of 100% affordable housing projects; exactly the builder least able to use tax credits. So, the subsidy had to be converted: sold to banks and insurers with large tax bills, routed through middleman, priced, documented, monitored, lawyered and audited into submission.

The result is the paradox: the housing we call “affordable” costs more to produce than comparable market-rate housing. Why does it need a subsidy? Why do we deliver it this way, and how do we stop the system from inflating the price of its own solution?

Why does affordable housing need subsidy?

We’ve chosen that all housing must meet a floor of quality set by building and health regulation, for good reason. But this same floor also means that “what renters with… low incomes can afford to pay… does not cover the development and operating costs”, according to the National Low Income Housing Coalition.
Affordable housing thus depends on subsidies to fill the gap. Without them, most projects wouldn’t “pencil”; balancing construction and ongoing maintenance costs with rental revenue.

Moreover, costs have historically risen faster than income. Because regulated rents track income, not expenses, they can’t freely be raised like in market-rate housing, so the shortfall widens year by year.

Subsidies are therefore necessary to reconcile housing standards, rising ongoing costs, and limited tenant incomes.

Shifting to the Low Income Housing Tax Credit (LIHTC)

The modern subsidy regime arrived in the mid-80s with the LIHTC under the Reagan administration, shifting away from vouchers and further distancing the government from direct involvement.

Christina Bollo, an Assistant Professor in UO’s Department of Architecture and Design, says another goal “was trying to create mixed income housing” — a reaction to an earlier era of federally built public housing that concentrated poverty in specific parts of cities with harsh social consequences.

Bollo also said the LIHTC was “set up for the small family investor… to alleviate their tax liability by including housing that was affordable (in their developments).” The idea was small developers would dedicate a certain portion of their developments as “affordable housing” at a loss, then use the tax credit on the whole complex to recover it.

In practice, LIHTC’s intended users never materialized. “As a result, nonprofits were created to build 100% affordable housing buildings,” Bollo said. But nonprofits were structurally mismatched with the delivery mechanism: a tax credit is only valuable to someone with taxes to pay after all.

This mismatch drives the defining feature of LIHTC: syndication. Developers discovered they can monetize tax credits by selling them to third-party investors who have large, predictable tax obligations, like insurance providers and banks.

Syndicators emerged to broker the deal between nonprofits and these “investors,” collecting fees along the way.

The adaptation was effective. GAO reported the LIHTC “has financed about 2.9 million rental units,” with surveyed syndicators playing a role in “75 percent… (between) 2005–2014.”

The Paradox: Affordable Housing is more expensive than market-rate

On sheer unit count, LIHTC delivered. But turning credits into cash requires a small cast of syndicators, investors, and lawyers, each skimming a fee. The leakage means LIHTC is “rarely sufficient to close the gap between the costs of development and the rents that would be affordable to households with low to moderate incomes,” UC Berkeley’s Terner Center notes. So, projects are forced to layer additional city, state, and federal programs to break even.

Stacked funding means stacked gatekeepers; every pot of money brings its own rules, paperwork, and deadlines — rarely aligned — demanding round after round of review and underwriting. Changes to satisfy one source can also ripple into another, triggering more reviews and approvals.

This is where “soft costs” exact their toll: through rework that breeds delay and the steady drip of unending billable hours of lawyers, accountants, and consultants.

As a result, affordable housing carries a premium. While the end result may be comparable to market-rate housing, the gauntlet developers must pass through to get subsidies paradoxically makes “affordable housing” far costlier to build than its market-rate counterpart.

Bollo says for Eugene specifically, another factor to consider is that “sometimes in order to amortize all of these soft costs, (affordable housing) buildings are bigger… (and) taller than market rate buildings.” These denser buildings are usually more expensive to build, which further elevates the affordable housing premium.

Potential Solutions

The modern affordable-housing system’s prices didn’t swell because builders were uniquely wasteful or the government inefficient, but because we’ve built a financing maze that treats complexity as necessary for accountability. Thus the most credible solutions are the ones that simplify.

To start, we ought to cultivate the developer ecosystem LIHTC was designed for: small scale for-profit developers producing mixed-income housing where the cross-subsidy is internal and the credit functions as an incentive rather than a commodity that must be sold.

Second, government has to coordinate deliberately, not piecemeal. The most practical reform is creating a state or local “aggregator” that combines potential funding sources and their requirements. This would allow developers to interact with one set of requirements sourced from one agency, rather than a myriad of agencies pulling in different directions. Bollo says Seattle is a good example, where “agencies are in communication, so… they’ll work together to figure out how to leverage (different sources) for projects.”

Third, a more concerted effort should be made, either by developers or local governments, towards “land banking:” the acquisition of sites ahead of construction. Due to long predevelopment timelines, land price inflation plays a big part in project feasibility, often eroding it as time goes on. Land banking can stabilize the cost base and reduce exposure to escalating land costs while a project awaits allocations or approvals.

Affordable housing will always depend on subsidies because we’ve chosen minimum living conditions that the market cannot provide at a price low-income households can pay. Subsidies, however, are not a stable foundation. They rise and fall with recessions, legislative priorities and the political winds that decide what counts as “essential” this year.

If public support is the lifeline, we shouldn’t braid it through a thicket of intermediaries, duplicative reviews, and professional fees that grow with every funding layer. The opportunity isn’t to wish away subsidy, but to make each dollar go further by lowering the price of using it.

1937-1960s: Government Building – Congress allocates funds to local public housing agencies to build and operate low-rent housing.

1949-1960s: Urban Renewal – Congress provides additional funding to local authorities for slum clearance and urban redevelopment.

1960s-1973: Subsidized Private Building – Congress steps back from direct government construction and instead subsidizes private development with cheap loans at below-market interest rates.

1973-1986: Subsidizing Renters – Congress pivots from subsidizing builders to subsidizing renters, helping them afford private market units through Section 8 vouchers.

1986-present: Tax Credit Subsidy – Congress shifts focus from direct to indirect subsidy, using tax incentives like the LIHTC to attract private investment into affordable housing.

1990s-present: Subsidy Layering – As it became clear the LIHTC isn’t enough, federal and local governments passed additional gap-filling subsidies, creating the modern affordable housing finance stack.