How Workforce Housing Is Financed

Workforce housing is mostly financed without the tool that pays for most affordable apartments. The Low-Income Housing Tax Credit (LIHTC) is limited to households at or below 60% of area median income (AMI) for most units, and 80% at the very top. Homes for households earning roughly 80% to 120% of AMI have to be paid for another way. In practice, that means an ordinary mortgage and private investment, plus a patchwork of smaller tools.

Those tools do one of two things. Some bring in cheaper money. Others lower what a project costs to build or run. No single tool closes the gap, so projects that reach this income band usually layer several.

Why the Tax Credit Stops Short

The LIHTC raises money by letting a developer sell federal tax credits to investors. Their payment is equity that the project never has to repay, as our guide to how affordable housing gets financed explains. Three features of the law keep it out of the workforce band:

• Income ceilings. Under Section 42 of the tax code, a credit unit serves households at or below 50% or 60% of AMI. Income averaging, added in 2018, lets an owner designate individual units as high as 80% of AMI, but only if lower-income units pull the building’s average to 60% or less.
• Credits follow low-income units. A building earns credits only on the share of its units that are income- and rent-restricted under the program. A unit rented to a household at 100% of AMI earns none.
• State scoring. The law tells states to give preference to projects serving the lowest-income tenants when they award competitive credits.

Public Law 119-21, enacted in 2025, enlarged the program. It raised state credit allocations by 12% starting in 2026 and made it easier for bond-financed buildings to qualify. It did not raise the income ceilings.

Other federal subsidies follow the same pattern. Most stop at 80% of AMI, the federal definition of “low income.” In a March 2026 report, the Congressional Research Service (CRS) listed a handful of active federal programs that reach higher, such as the Capital Magnet Fund, which can serve households up to 120% of AMI.

The 21st Century ROAD to Housing Act (Public Law 119-101), which became law in July 2026, made modest changes. It lets homeownership assistance under the HOME program reach families at up to 100% of AMI. It authorizes a pilot grant program, subject to appropriations, to convert vacant and abandoned commercial or industrial buildings into housing for households at up to 120% of AMI, provided most units are affordable at 60%. It also directs the Government Accountability Office to study middle-income housing and recommend a federal definition of “workforce housing” within a year. It did not change the tax credit’s income ceilings.

The Gap in the Middle

A lender sizes an apartment loan by the income the building produces after operating costs. Rents set for households at 100% of AMI are higher than tax credit rents, so they support a bigger loan. But in many markets they are still too low to cover the cost of new construction and give private investors the return they require.

The Terner Center for Housing Innovation at UC Berkeley tested this in 2024 using model apartment projects in three California regions. When it set rents at levels affordable to households at 100% of AMI, the projects became financially infeasible. High construction costs and interest rates were already straining market-rate projects, and restricting rents widened the shortfall.

Money that covers the difference between a project’s cost and what its rents can finance is called gap financing. The full set of sources a project assembles is its capital stack.

The Workforce Financing Toolkit

Tools That Bring In Cheaper Money

State workforce programs

Some states have created programs specifically for the band above federal limits. They take different forms:

• Grants. The Delaware Workforce Housing Program offers investors grants of up to 20% of qualified capital investment above a minimum threshold in homes for households at or below 100% of AMI. Units using low-income housing tax credits are not eligible, and grants depend on state appropriations.
• Subsidy alongside agency loans. MassHousing, the Massachusetts housing finance agency, reports investing more than $100 million in a workforce housing fund. It offers up to $100,000 of subsidy per deed-restricted workforce unit, with rents affordable to households below 120% of AMI.
• State tax credits. Colorado enacted a middle-income housing tax credit pilot in 2024 for rental housing serving households between 80% and 120% of AMI, or up to 140% in rural resort areas. As enacted, the law authorizes up to $5 million in credits for each of 2025 and 2026 and up to $10 million a year from 2027 to 2029. Owners must keep the housing middle-income for 15 years.

Congress has considered a federal equivalent. CRS’s March 2026 report lists several introduced bills, including the Workforce Housing Tax Credit Act, which proposed a credit for rental units at up to 100% of AMI. That bill was introduced in both chambers in December 2023 and did not advance beyond committee. Another on the list, the Working Families Housing Tax Credit Act, was introduced in the House in January 2025.

Local housing trust funds

A housing trust fund is a public account that receives dedicated revenue, such as real estate transfer taxes or developer fees, and lends or grants it to housing projects. The National Low Income Housing Coalition counts at least 861 city, county and state funds. Its 2025 survey report found that state and local funds took in about $1.6 billion in fiscal year 2024.

Local officials decide who the money serves. Somerville, Massachusetts, for example, reserves 10% of its trust fund for households between 81% and 100% of AMI and sets aside larger shares for lower incomes, according to the Housing Solutions Lab at NYU’s Furman Center.

Employer contributions

Employers that cannot hire or keep staff sometimes put their own money or land into housing. This is the supply side of employer-assisted housing. In 2019, Brookings researchers noted that Facebook, Google and Microsoft, along with the Chan Zuckerberg Initiative, a philanthropy, had pledged contributions ranging from $500 million to $1 billion toward middle-income housing in their home regions. FHFA’s 2026 definitions for workforce loans also recognize corporate-sponsored housing funds as a source of financing. See our guide to employer-assisted housing.

Tax-exempt bonds

Bonds whose interest is exempt from federal income tax let a project borrow at a lower rate. Two versions matter.

The first is the private activity bond for rental housing, described in our entry on tax-exempt multifamily housing bonds. Federal law requires at least 20% of units for households at or below 50% of AMI, or 40% at or below 60%. It sets no income limit on the rest. A bond-financed building can therefore mix a low-income share with market-rate or workforce units, though only the low-income units earn 4% tax credits.

The second is ownership by a government entity. In California, joint powers authorities (JPAs) have issued governmental bonds to buy existing apartment buildings and restrict rents. A 2022 brief by SPUR and the Terner Center found that these deals typically set one-third of units each at 80%, 100% and 120% of AMI. The bonds fall outside the federal volume cap on private activity bonds, and the buildings come off the property tax rolls. By mid-2022, more than 40 deals covering at least 13,800 units had been approved. The brief also recorded concerns: rents that may sit close to market levels, high transaction fees, aggressive borrowing, and lost property tax revenue.

Income averaging

Income averaging is the one way to bring tax credit equity to the lower edge of the workforce band. A building might pair units at 80% of AMI with units at 40% so that the average stays at 60%. See mixed-income housing and income averaging.

GSE and FHA lending

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that buy apartment loans. Their regulator, FHFA, caps each company’s multifamily lending at $88 billion for 2026 but exempts workforce housing loans. To qualify, the loan agreement must preserve affordability for at least 10 years or the loan term. FHFA’s affordability thresholds are 80% of AMI in standard markets, and 100% or 120% in markets it designates as cost-burdened or very cost-burdened.

The Federal Housing Administration moved in the same direction. According to CRS, a January 2026 mortgagee letter set more favorable terms under its Section 221(d)(4) multifamily mortgage insurance program for projects with at least half their units targeted to households earning up to 120% of AMI. Public Law 119-101 later raised the per-unit dollar limits on FHA-insured apartment loans.

Both improve loan terms. Neither provides subsidy.

Tools That Lower Costs

Public land

Governments, school districts and transit agencies own land they can sell or lease at a discount in exchange for recorded affordability. That is the idea behind public land for housing. MassHousing’s workforce program, for example, lists the use of state-owned land among its strategies.

Tax abatements and PILOTs

Property taxes are a major operating cost for an apartment building. A tax abatement or exemption cuts that cost, which leaves more income to repay debt. A payment in lieu of taxes (PILOT) replaces the tax bill with a smaller negotiated payment.

Florida’s Live Local Act is one example aimed at this band. It exempts 75% of the assessed value of qualifying units in newly built apartment projects that serve households between 80% and 120% of AMI. Qualifying units for households at or below 80% are fully exempt.

In the Terner Center’s 2024 modeling, a property tax exemption had the largest effect on feasibility of any change tested. The cost is forgone revenue for schools and local services.

Tax increment financing

Tax increment financing (TIF) sets aside the growth in property tax revenue within a district to pay for improvements there. Cities can direct part of that revenue to housing. Portland, Oregon, has dedicated 45% of TIF district revenue to affordable housing since 2015, according to the Housing Solutions Lab. The main criticism is that TIF diverts money from schools and other services.

Density bonuses

A density bonus lets a developer build more units than zoning allows in exchange for restricted units. Extra units spread land and fixed costs across more rent. The Terner Center modeled a mixed project with one-third of units held at 100% of AMI. It found that a 50% density increase and a property tax exemption were the most powerful of the changes it layered together. Mandatory versions are covered in inclusionary zoning explained.

How the Layers Add Up

Suppose a new apartment costs $300,000 to build, including $40,000 for land. Rent affordable at 100% of AMI leaves $12,000 a year after operating costs, which include $3,000 in property taxes. The lender requires a debt service coverage ratio of 1.25, and each $1,000 of net income supports about $11,000 of mortgage. All of these numbers are invented for illustration.

With no help, an investor would have to put in $168,000 to earn about $2,400 a year after mortgage payments, a return of roughly 1.4%. With all three tools, the investor puts in $45,000 to earn about $3,000 a year, or roughly 6.7%. Layering can turn a project no investor would fund into one that might attract capital. It also takes three separate public decisions, each with its own rules and timeline.

The Debate Over Subsidizing the Middle

Not everyone agrees that public money should go to this band. CRS reports that about 28% of households between 80% and 120% of AMI had housing problems in 2023, a lower rate than among low-income households. It also notes that only about one in four eligible households receives federal rental assistance. Brookings researchers argued in 2019 that middle-income families should not need subsidies in well-functioning housing markets, and that localities should first make it easier to build.

Supporters respond that workers above 80% of AMI are shut out of existing programs yet priced out near their jobs. Many workforce tools also rely on private capital or forgone taxes, not the appropriations that fund low-income programs, though forgone taxes are still a public cost.

The Bottom Line

Workforce housing sits above the reach of the tax credit and below what the market builds without help. It gets financed by stacking modest tools: state grants and credits, trust fund loans, cheaper debt, discounted land, property tax relief, added density and sometimes employer money. Judging any one deal means asking how deep the rent discount is, how long it lasts, and what the public gave up to get it.