Breaking down the biggest chunk of state housing dollars

Lawmakers parked a record $400 million in the Housing Trust Fund this year. Here’s how the program works to finance affordable homes.

By: - May 9, 2023 4:30 am
A low angle photo of an unfinished four-story apartment building, showing exposed plywood and other lumber

(Dan Reynolds Photography via Getty Images)

Central to the package of housing legislation that state lawmakers passed in Olympia this year is a record investment in the Housing Trust Fund, the largest individual pot of state money that is available to help get more people into affordable homes. 

Lawmakers raised the amount of money going to the trust fund to $400 million, a roughly 40% increase over the last budget cycle and more than double the amount that they provided for the account in some recent years. It’s an investment that advocates say is long overdue but still not enough, given the growing need for housing for people at the lowest income levels. 

The bucket of money can be used for a variety of projects, such as building multi-family rental housing or offering help to first-time homebuyers.

“The Housing Trust Fund is absolutely critical,” said Michele Thomas, director of policy and advocacy at the Washington Low Income Housing Alliance. “There’s really no deeply affordable homes to extremely low income people that are built in Washington state without it.”

What is the Housing Trust Fund?

The Legislature created the state’s Housing Trust Fund in 1986 as a way to fund more affordable housing projects and to establish a “continuously renewable resource” to assist low-income people in meeting basic housing needs. 

Lawmakers allocate money to the fund every two years, and the Department of Commerce distributes the money in the form of loans or grants. Interest rates for the loans range from zero to 3%, according to state law. 

Money from the fund can only go to local governments, local housing authorities, certain organizations providing behavioral health services, nonprofit community or neighborhood-based organizations, tribes, and nonprofit housing assistance organizations. 

Corina Grigoras, assistant director for Commerce’s housing division, said most of the funding ends up going to nonprofit organizations. 

Since its creation, the fund has invested about $1.5 billion in affordable housing and built about 60,000 units, Grigoras said.

What kinds of projects are funded?

Rules for the fund limit how it can be used.

It must go to projects where housing is the main focus, such as assisted living facilities, multi-family rental housing or homes for low-income buyers. Funding from the trust fund can be used for a number of activities, such as new construction, rent subsidies or down payment assistance for first-time homebuyers. 

At least 30% of the projects funded every two years must be located in rural areas. 

The projects have to benefit households with less than 80% of the area median income, though Grigoras said at least half of projects that receive funding are for very low-income people who have less than 30% of the area median income.

Patience Malaba, executive director of the Housing Development Consortium of Seattle-King County, said the trust fund has added benefits because of the jobs and tax revenue created by the construction it helps pays for.

“It’s really supporting not just the housing production, but our economy overall,” she said.

Projects that receive funding are required to stay in service and affordable for at least 40 years after they’re built.

More than $163 million of the money allocated this year goes to the pool for competitive grants and loans. Another $100 million is set aside for permanent supportive housing for people with health and behavioral health challenges, and $25 million is for housing people with developmental disabilities.

The budget also sets aside $40 million for homeownership programs for first-time homeowners and $25 million for preserving existing projects and continuing their affordability. 

More than $40 million of the remaining funding is split among specific projects listed in this year’s capital budget, including affordable housing in Leavenworth, Spokane, Chehalis, Seattle and others. 

Grigoras said it’s difficult to say how many total units will be built using the funding allocated this year because not every project uses an equal amount of Housing Trust Fund dollars, but said it likely costs about $100,000 to build one unit.

How do projects get money from the trust fund?

In a typical year, applications for the competitive funding open by July and are due by September. Final decisions often come out toward the end of the year, Grigoras said. 

The Department of Commerce uses a number of criteria for determining which projects get funded.

Grigoras said Commerce breaks up applications into three categories: King County projects, rural projects and other urban projects, such as in Everett or Spokane. 

Within those three categories, the department assigns scores based on criteria in state law, provisions in the budget, the project’s readiness and other factors. From there, they rank the projects and choose who gets funding accordingly. 

In 2021, the department funded 40 projects out of the 99 that applied for traditional Housing Trust Fund awards. 

“We could never in any year fund everything that comes in,” Grigoras said. 

Grigoras said the department estimates there are about $800 million worth of projects currently waiting to apply for trust fund money.

Projects selected to receive trust fund dollars also rely on funding from other sources, including local and federal programs. 

No one source can fund an entire project, explained Thomas, with the Low Income Housing Alliance. But, she added, the Housing Trust Fund is a “critical” source of capital when it comes to ensuring the finances work for projects that are accessible for low-income residents.

Grigoras said the amount of a project that is funded by the trust fund often varies by area. In King County, for example, much of the funding for a project comes from other local sources, such as a local housing levy, but a project in a smaller county may require a larger portion of funding to come from the Housing Trust Fund.

What more is needed to fund affordable housing?

Legislators’ beefier investment in the fund this year is one that advocates say will only go so far. 

“Even though the Housing Trust Fund is such an instrumental tool, it is over-subscribed and under-resourced,” Malaba said. 

One way advocates are looking to increase investments in the fund is through a permanent revenue source, but a push to get that done this session, through an increased real estate excise tax, failed. 

“We need more,” Thomas said. She also cautioned that if lawmakers don’t keep up the higher level of support for the trust fund, it could create problems down the road., “We’ll go even further backwards in filling the gap of available and affordable homes.”

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Laurel Demkovich
Laurel Demkovich

Laurel joined States Newsroom in 2023 after almost three years as a statehouse reporter for the Spokesman-Review. She covers state government, the Legislature and all other Olympia news.