Decoding Housing Finance Agencies

State housing finance agencies play a pivotal role in affordable-housing development, yet many advocacy organizations don't know how to gain leverage in influencing these increasingly powerful bodies.

Circles of Influence

These four characteristics of HFAs correspond to four circles of influence on their activities. Figure 1 illustrates the circles of influence, ranked from the inside out according to what drives HFA daily decision-making. HFAs are first and foremost accountable to their board of directors, bondholders, and bond- and credit-rating agencies for financing decisions based on their risk-averse nature. Whereas the board directly approves project financing, concerns of how bondholders and rating agencies will perceive project risk influence HFA decisions more indirectly. A key motivation is preserving the agency’s reputation and ratings among these central interests. The second circle of influence is the HFA’s production partners — the developers and lenders who partner with HFAs on a project basis to construct and finance affordable housing. HFAs are reliant on these parties to meet their mission. As a former NJHMFA staff person stated, “the agency is also very good about listening to developers…that are doing the housing, and trying to be responsive to what is working or what is not working or where they should be shifting their program.” In the third circle of influence are the political interests, or the governor and the legislature, who intervene on a less frequent basis to issue new mandates to the agencies and chart progress. They do not have much say over an HFA’s day-to-day operations and decisions, since it is usually structured as a self-sufficient quasi-governmental entity. Of these two, the governor seems to have greater sway over HFA activities. In fact, there is a history of legislative distrust of HFAs. In New Jersey, for example, an Assembly task force was formed in 1993 to examine NJHMFA operations in an attempt to exercise greater legislative control over agency affairs, resulting in general recommendations on improving the agency’s effectiveness. In Illinois, according to one advocate, some legislators seem to “feel like they don’t really know what they [IHDA] do with their money” and “don’t want more money going to IHDA if [they] don’t know what they’re doing with it.” Finally, HFAs can be influenced by demands of the low-income housing advocacy community. Advocates historically have felt ignored by HFAs. According to one IHDA staff person, however, IHDA’s relationship with advocacy groups “…probably has improved pretty dramatically” over the past few years.

Increasing Advocacy Effectiveness

There is a clear disconnect between those from whom HFAs take their daily marching orders, and those who could best keep them accountable to their public purpose. The blame rests with both HFAs, which sometimes fail to seek advocate input, and with nonprofit developers and advocates, who often choose to keep an arms-length distance from HFA programs and operations. While there may be some legitimate reasons for this failure to engage, bridging the gap is critical to the future direction of state housing policy and programs. A new movement has emerged emphasizing the forging of new alliances through multi-interest housing campaigns (MIHCs). The first group, Housing Minnesota, formed in 1998. Today, at least 12 states have a functioning MIHC, with membership ranging from 35 to almost 300 organizations and institutions. Within these groups, mission-driven advocates have joined with more influential production-oriented (e.g., developers, real-estate professionals, financial institutions) and politically motivated (e.g., state legislators, current and former governors, former HFA directors) interests to move a unified agenda on housing. These combinations of influences seem to improve interest-group success in pressuring states and their HFAs to do more to meet affordable-housing needs. This includes passing a broad range of legislation to develop new housing programs and expanding state resources for housing. While MIHCs do not target HFAs per se, as they are usually more focused on legislative solutions, their ideas often encourage (or force) HFA innovation. In Illinois, a political turning point came when advocates were able to gain the support of housing interests that would have historically been opposed to their efforts. According to one IHDA staffer, when such opposition “disappeared,” and former opponents were no longer “using whatever legislative tactics that can be used to stall or delay legislation,” state political will for housing innovation increased. This motivated Illinois’ governor and legislature to implement a comprehensive planning process forcing IHDA to broaden its focus toward a wider array of state housing needs.

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Corianne Payton Scally
Corianne Payton Scally is a principal research associate at the Urban Institute. She was formerly a senior research associate in the Metropolitan Housing and Communities Policy Center at the Urban Institute, and associate professor and director of the graduate Urban and Regional Planning Program at the University at Albany, State University of New York.

1 COMMENT

  1. It was exciting to read Prof. Scally’s balanced and informative article about Housing Finance Agencies, which are often a mystery to housing advocates and other housing-related nonprofits. We are fortunate in VT to have a progressive HFA that got the state’s multi-interest housing campaign off the ground in partnership with many other state housing agencies and affordable housing coalition members. The VT HFA also reached out to form a partnership with NeighborWorks America when five VT nonprofits were chartered by NWA, and have invested considerably in VT’s NeighborWorks network in order to enhance successful homeownership and mortgage borrowing among HFA and other homebuyers. It takes a lot of creativity on the part of an HFA director, and flexibility within the affordable housing community to leverage HFAs’ resources, but the opportunities are extensive and Scally shines a nice light on the possibilities.

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