California’s Fragmented Affordable Housing Finance System Adds Costs and Delays

As California faces a housing affordability crisis, a new report from UC Berkeley’s Terner Center for Housing Innovation reveals that the state’s complex and fragmented affordable housing finance system is significantly increasing development costs and delaying urgently needed construction.

In their April 21, 2025 commentary, “Reducing the Complexity in California’s Affordable Housing Finance System,” authors Carolina Reid and Tiffany Tran present a detailed analysis of 699 Low-Income Housing Tax Credit (LIHTC) applications submitted between 2020 and 2023.

Their findings offer a sobering view of a system that forces affordable housing developers to piece together multiple layers of local, state, and federal financing—a process that adds both time and cost to each project.

“At a time when policymakers are looking for ways to reduce the costs of development,” the authors write, “one way to do this is to reduce the complexity of the affordable housing finance system.” Their analysis shows that each additional public funding source increases total development costs by approximately $20,460 per unit and adds an average of four months to the time it takes to begin construction.

Nearly all new construction LIHTC projects in California require more than just tax credits to pencil out. According to the Terner Center’s analysis, 92 percent of projects between 2020 and 2023 relied on at least one additional public funding source, and 76 percent included two or more. One-third of all projects drew on at least two different state-level funding programs.

This reliance on multiple subsidies is particularly acute for developments serving vulnerable populations.

“Developments serving people with special needs, including supportive housing for people experiencing homelessness, tend to layer in more public funding sources than senior or family buildings,” the report states.

These projects averaged more than three additional funding sources, in part due to the deeper subsidies needed to reach extremely low-income tenants.

This financial “stacking” process is not only burdensome but often duplicative, requiring developers to navigate different rules, timelines, and compliance standards for each source. The authors note that projects often include funding from sources like Community Development Block Grants, HOME dollars, local bond measures, and regional housing initiatives.

One of the most striking findings in the Terner Center’s report is how much time this complexity adds to the housing pipeline.

Projects that rely only on tax credits wait roughly three months between application and award. But once a project includes additional public funding, that timeline stretches significantly.

“When a project incorporates an additional public funding source, it will take, on average, over 10 months between the earliest recorded date associated with seeking that funding and their LIHTC awarded date,” the authors explain. For projects with three to five public funding sources, the average timeline is closer to two years.

Moreover, even after a state funding award is received, developers must often wait an additional 12 months to receive their tax credit award—resulting in long gaps where funding cannot be leveraged and projects are stuck in limbo.

The report finds that the system is so backlogged that 27 percent of awarded projects had to reapply at least once.

The financial impact of these delays is significant. “Each additional public funding source is associated with $20,460 higher per-unit total development costs, on average,” Reid and Tran write.

These higher costs are driven both by direct administrative burdens—such as staffing, legal, and compliance costs—and indirect costs such as holding fees on predevelopment loans, interest rate hikes, inflation, and rising construction prices.

“Compiling sufficient public funding to build affordable housing is particularly onerous in California,” the report notes, “requiring that developers navigate multiple agencies and departments at both the state and local level.”

The burden grows heavier when considering the need to secure approval from local governments, public housing authorities, and regional agencies—often with overlapping but uncoordinated requirements.

To better understand how project characteristics affect funding complexity, the researchers conducted regression analyses controlling for factors like location, building type, infill density, prevailing wage, and structured parking. Even after controlling for these variables, the findings held: each additional public source still added an average of four months and nearly $21,000 per unit in added costs.

The report comes as Governor Gavin Newsom pushes for a reorganization of California’s housing infrastructure. His administration has proposed consolidating housing planning and financing functions into a new California Housing and Homelessness Agency (CHHA), which would absorb most state housing and civil rights programs currently spread across multiple departments.

According to the Terner Center, this consolidation is a step in the right direction, but it doesn’t go far enough.

“The agencies that award tax credits—the California Tax Credit Allocation Committee (TCAC) and California Debt Limit Allocation Committee (CDLAC)—remain outside of the proposed Housing Development and Finance Committee,” the report points out.

Since the average delay between a state funding award and a tax credit award is about 12 months, excluding these two agencies from consolidation undercuts the reform’s effectiveness.

“Bringing LIHTC into the new structure would help to ensure that all of the state’s affordable housing resources and policy priorities are aligned,” the report recommends, noting that other states like Illinois, Pennsylvania, and Minnesota have already adopted similar consolidated systems.

Beyond agency consolidation, the Terner Center highlights additional strategies to reduce fragmentation. One recommendation is for California to adopt a universal application and set of standardized legal documents across state and local funding programs—similar to systems implemented in Massachusetts.

“These standardized documents have cut costs, especially for projects with multiple funding sources,” the authors note.

The report also urges state agencies to reconsider scoring preferences that prioritize projects leveraging local funding.

While well-intentioned, these rules can pressure developers to seek out unnecessary and duplicative local contributions just to remain competitive, exacerbating delays and adding complexity.

“Funding fragmentation is not the only, or even the largest, driver of the state’s high housing development costs,” Reid and Tran acknowledge. “But it is the one squarely within the ability of the public sector to address.”

The report concludes with a call to action: streamline the process, reduce duplication, and align funding mechanisms to accelerate affordable housing development. “This analysis reveals that fragmentation in California’s affordable housing financing system creates significant inefficiencies,” the authors write. “When we account for differences across LIHTC projects, we estimate that each additional public funding source adds an average of four months to the development timeline and $20,460 to per-unit total development costs.”

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Affordable Housing California Carolina Reid Community Development Block Grants Governor Gavin Newsom Housing Crisis Terner Center Tiffany Tran