Housing developers use debt or equity to finance the construction or rehabilitation of housing. But low-income rents and sales prices cannot cover the costs of repaying market-rate financing...


The goal of below-market rate financing programs is to promote the development and preservation of affordable housing by reducing the costs of capital. Cost reductions can come from use of 0% loans with 55-year terms, rental subsidies, land donations, long-term ground leases and more. Local, state and federal agencies, as well as private parties and philanthropists, provide a variety of below-market financing options.

How does Below-Market Rate Financing Work?

When constructing units, housing developers usually secure conventional bank loans, and then pay the debt using the rent or sales dollars from future occupants (with the balance as profit). But low-income households often can’t afford rent or prices high enough to repay a conventional bank loan - so government agencies step in.

Government agencies establish housing goals as part of their financing programs, such as building apartments for seniors on fixed incomes, or building homes for low-income, working families. Affordable developers apply to these programs and receive loans, grants, or equity to cover construction costs in exchange for renting or selling the housing at affordable prices and per program goals.

Multiple types of finance programs exist, from simple, short-term loans provided by community-based organizations, to the most productive program now available – the Low-Income Housing Tax Credit program (LIHTC). Developers also use these funding programs for rehabilitation projects, which preserve existing housing.

How does San Francisco Finance Affordable Housing?

The Mayor’s Office of Housing and Community Development (MOHCD) and the Office of Community Investment and Infrastructure (OCII) are the City’s lead agencies for affordable housing financing. Working in partnership with the City’s affordable housing developers, their funding pipeline includes approximately 4,500 new units scheduled for production by 2020, as well as 3,500 units to be rehabilitated and preserved during that period.

The funding sources for MOHCD loans include:

  • Affordable housing fees under the Inclusionary Housing Program
  • Affordable housing fees under the Jobs-Linkage Program
  • General funds
  • Bond Financing (which requires voter approval)
  • Funding from the former San Francisco Redevelopment Agency
  • CDBG and HOME entitlement funding from HUD
  • Miscellaneous sources of funds

OCII funds come from tax increment financing (TIF). Read more about TIF in the sidebar.

When MOHCD and OCII pledge funds to projects, this attracts other state and federal investments, which usually include some combination of:

  • Low-Income Housing Tax Credits
  • Tax-Exempt bond financing
  • HUD 202 funding (senior housing)
  • HUD 811 funding (housing for disabled households)
  • State funding (multiple programs)
  • Project-based Section 8 rental subsidies (and other miscellaneous rental/operating subsidies)
  • Federal Home Loan Bank Affordable Housing Program

Target Groups

Affordable housing funding programs often restrict occupancy to certain populations. In San Francisco, City policies reflect extensive public input and pursue specific goals to address community needs. Target groups for San Francisco’s affordable housing programs include:

  • Low-income families and seniors
  • Veterans
  • The chronically homeless
  • People living with disabilities, including people living with HIV/AIDS, and mental health consumers

Converting Market-Rate Units to Affordable Units: the Small Sites Program

Rent control keeps a significant amount of San Francisco’s housing stock affordable, but under the State’s Ellis Act, such units are at-risk of conversion to market-rate if owners sell them to new buyers who convert them to tenancies-in-common. To protect residents living in these at-risk units, MOHCD launched its “Small Sites Program” in 2014. With below-market-rate funding from MOHCD, affordable developers can buy small buildings, make any necessary repairs, and keep them permanently affordable.



Mayor’s Office of Housing and Community Development (MOHCD) | MOHCD manages local funding programs, including issuing funds and monitoring program compliance. Office of Community Investment and Infrastructure (OCII) | The successor agency to the former San Francisco Redevelopment Agency, OCII implements SFRA’s contractual obligations, including affordable housing production. California Department of Housing and Community Development (HCD) | HCD manages California loan and grant programs for affordable housing. California State Treasurer | The Treasurer’s California Tax Credit Allocation Committee manages the allocation of state and federal tax credits for affordable housing. The California Debt Limit Allocation Committee manages tax-exempt bond financing for affordable housing. US Department of Housing and Urban Development (HUD) | HUD provides funding or grants for affordable housing developments. Grants include the Community Development Block Grant (CDBG), HOME Investment Partnerships program (HOME), and Housing Opportunities for Person with AIDS.