Originally published on Forbes Business Councils by Seth Gellis, President of CPP.

With the continued urgent need for more affordable housing across the country, industry experts and academics are looking for solutions, whether they involve preserving existing communities nationwide or creating additional units where they are needed most.

According to a recent study by the National Low Income Housing Coalition, there is a shortage of 7.3 million available affordable rental homes for the lowest-income renters in the U.S. While it’s a complex issue, one overlooked path to financing is the option to increase the use of private activity bonds (PABs), which pair with 4% low-income housing tax credits (LIHTCs).

Private Activity Bonds And Volume Cap

Volume cap, a “use it or lose it” resource provided by the federal government to the states based on a per capita formula, allows tax-exempt financing to be issued for affordable housing at a lower interest rate. The lower interest rates offset the lower net operating income that debt is sized from as a tool to help keep project sources and uses in balance. This ensures a greater level of capitalization, reducing the need for other sources and increasing the funding available for construction activity.

This important resource is allocated and awarded by state finance agencies, some of which unfortunately do not use all the resources made available to them. This means that if a state agency has unused volume cap and a deal is unable to make it through the funding cycle for that state in a timely manner, the resource and accompanying economic and social benefits are lost for good.

So, what can affordable housing professionals and organizations do to ensure the volume cap does not go to waste or to use it in the most efficient manner possible?

One solution is to work with local bond issuers and agencies that support them.

Benefits Of Working With A Local Issuer

Local bond issuers play a major role in identifying the projects most impactful for their community and often can reduce the overburdened load that housing agency staff must deal with.

1. Efficiency And Speed Of Execution

At my company, we find that an average deal may take nine months to close, plus an additional year to complete the development or preservation of the property (with a few more months of time tagged on for an IRS Form 8609 to be issued). We consider that a quick turnaround. But when entities do not use a local issuer for the deal, the acquisition or renovation timeline can extend for an additional one and a half to two years—sometimes making the deal untenable.

2. Accelerated Capital Investment Into Communities—When and Where They Need It

Across the U.S., many affordable properties are in immediate need of preservation; and many of these deals use LIHTC as a part of their financing. Completing these deals as quickly as possible is integral to reducing the loss of affordable units and preserving options for communities.

According to a 2024 report from Harvard’s Joint Center for Housing Studies (JCHS), there was a loss of 2.1 million units with rents below the maximum amount affordable for the lowest income group since 2012. While creating new affordable housing units is a part of the solution, new construction alone won’t be able to keep up with the need, especially if communities are losing more units than are being created.

I’ve found that when local leaders, community advocates, developers, lenders and agencies can work together, it creates efficiencies and the strongest outcomes in affordable housing development and preservation. Communities should have a say in their local housing choices. Local leaders and community advocates have the best understanding of residents’ needs and where and how to invest, and good developers will listen.

3. Autonomy And Control

Working with local issuers increases the ability for local jurisdictions to control the terms and circumstances that preservation or new development must follow in addition to minimum state provided standards. When deals and terms are localized, it creates the largest impact for the community. Specific benefits may include:

• The community is empowered to decide the priorities they wish to address. Developers should foster dialogue with local housing advocates and community leaders to discuss and outline their wish list. Unsurprisingly, the goals are often the same.

• Related improvement projects (e.g., street, sewer, LEED), social service requirements, crime prevention programs, prevailing wage, are benefits that are, by and large, staying within their community (should they choose). This autonomy also relieves pressure on developers by having an equal partner in the myriad decisions.

• Locals control within the development what is done, where it’s done and who does it within the community. For example, they may have checklists or requirements (e.g., Section 3 that requires a local workforce) that directly benefit the local community and economy.

Best Practices For Working With Local Issuers

Affordable housing developers looking to finance their deals may have the opportunity to work with a local issuer to get the deal done. I recommend you keep these best practices in mind:

1. Prioritizing Organization

Just like when working with any financial partner, organization is paramount. As a developer, that means having the deal structure solidified, financial documents in place and a single point of contact for the local issuer identified. The more streamlined you can make the process, the better.

2. Taking Time To Understand The Local Community

Developers likely understand that one of the key benefits of working with a local issuer is the ability to help impact the local community in specific ways. But, for that impact to be felt in the biggest way, developers must take the time to truly understand the local community and its needs.

3. Having Early Conversations

Developers need to reach out early in the process to understand if the issuer has sufficient volume cap, and what their processes may be. Creating a relationship early makes the processing, organization and understanding of their needs much easier.

Ultimately, the ability to work with local agencies carries many benefits and can make developers and investors nimbler in their work solving the nation’s affordable housing crisis.