Models for Scaling LACAHSA: Proven Finance Models for Maximizing Affordable Housing Production and Preservation

Deploying market-driven strategies that leverage new public funds with private investment and philanthropy could unlock $2.5 billion over a decade to accelerate the production and preservation of affordable housing in Los Angeles County, according to a study commissioned by the Los Angeles Business Council Institute and conducted by Ben Metcalf, managing director of the Terner Center, and Daniela Greville and Julijs Liepins, managing directors at Forsyth Street Advisors.

The study offers a roadmap for the Los Angeles County Affordable Housing Solutions Agency (LACAHSA) to attract new sources of private capital to maximize the impact of significant sales tax dollars generated each year by Measure A for affordable housing.

LACAHSA’s broad mandate, financial flexibility, and long-term funding stream create an unprecedented platform to drive the region’s housing production forward, according to the study. The proposed funding models, along with sweeping state reforms that streamline permitting for many new housing projects, could spur dramatic affordable housing growth to address the continued crisis.

“The combination of a new permanent public funding source and an agency charged with a central role in allocating and administering those funds will reshape affordable housing finance in one of the nation’s largest and neediest housing markets,” said the study, Scaling LACAHSA: Proven Models for Maximizing Affordable Housing Production and Preservation. “Successful efforts elsewhere show how creating pathways for programmatic investment from private and philanthropic sectors, coordinated with public
resources, can be transformative.”

LACAHSA is projected to receive about $383 million in annual Measure A funding. By law, it must pass most of this revenue to government authorities in the county’s 88 cities. The study focuses on leveraging the portion – starting at roughly $70 million a year – that LACAHSA will retain to create innovative affordable housing initiatives that augment – but don’t compete for – scarce state and federal subsidies.

As a public agency, LACAHSA is authorized to issue both tax-exempt municipal bonds and taxable bonds, giving it flexibility to lower financing costs while also appealing to a wider group of investors. Reviewing housing finance agency models from around the nation that successfully attracted private capital to jumpstart affordable housing construction and acquisition, the researchers recommend two strategies:

1. Access capital markets by issuing tax-exempt and taxable bonds; and
2. Access philanthropic and corporate capital by seeding an independent nonprofit investment fund.

LACAHSA could deploy the strategies in tandem – and quickly, since Measure A provides a credible foundation through immediate and reliable funding. The researchers estimate LACAHSA could issue $200 million in bonds a year, creating $2 billion in funding capacity over a decade, based on a model using moderate leverage.

Separately, seeding an impact fund with $5 million annually for 10 years could enable LACAHSA to leverage its cumulative $50 million commitment into more than $500 million by attracting philanthropic and mainstream institutional investment.

The LABCI study comes as LACAHSA has started collecting Measure A funds and deliberating allocation strategies, including bond issuance and seeding an investment fund. Among the agency’s top goals are to produce at least 9,000 and preserve at least 2,100 affordable housing units over the next five years.

LACAHSA establishes a new model in L.A. for affordable housing production at scale, from units financed by public tax credits to non-subsidized communities with both market-rate and income-restricted units. Reducing market risk for-profit developers and return-driven investors is the key to attracting new players.

A Closer Look at the Findings

The researchers analyzed five affordable housing bond-issuing programs and nine nonprofit investment funds from coast to coast. Among housing finance agencies that issue billions of dollars in bonds each year, the study cites the New York City Housing Development Corporation as a model of best practices.

Between 2020 and 2024, it issued $1.5 billion to $2.7 billion in bonds a year to finance 9,600 to 13,900 new or preserved affordable housing units annually. Thanks to prudent financial management and strong partnerships, the New York agency is self-funded and has grown its assets over 54 years to $28.5 billion.

Though new, LACAHSA starts with the advantage of a built-in revenue base, enabling it to potentially grow faster than other housing finance agencies, which accumulate assets only gradually as loans were paid off, the study said. That underlying financial strength also enhances LACAHSA’s ability to borrow by issuing bonds.

The researchers outlined three scenarios for LACAHSA to leverage the $70 million in annual funding it will directly manage. They recommend the agency follow a mid-range strategy that would yield $200 million a year in funding capacity by borrowing against its annual revenue and some future Measure A dollars.

The second finance strategy, an accelerator investment fund, illustrates how LACASHA could scale impact through a range of private capital sources. San Francisco offers a relevant model. In 2017, the City and County made a $10 million interest-free loan to seed the Housing Accelerator Fund (HAF), a nonprofit vehicle that drew additional support from philanthropies and mission-oriented investors. The Fund’s ability to speed up affordable housing finance later attracted market-oriented institutional investors. In less than a decade, HAF has invested $590 million in 56 projects to build or preserve nearly 3,000 units and has expanded to serve markets outside of San Francisco.

LACAHSA could establish a fund in partnership with an existing foundation or Community Development Financial Institution or form a new independent nonprofit to manage it, the study said. LACAHSA has signaled its interest in seeding a fund with $5 million annually for 10 years. Based solely on the dollar amount, the fund would have the potential to leverage half a billion dollars or more in additional investment from the private and philanthropic sectors over time.

The two models are likely to appeal not just to financial partners, but to both nonprofit and for-profit developers that have long sought alternatives to the complex and time-consuming system of using Low-Income Housing Tax Credits to finance affordable housing.

Market-driven financing initiatives represent just part of LACAHSA’s mandate. It will distribute the bulk of its Measure A funding – more than $250 million annually – to municipal governments, to complement or replace conventional affordable housing finance. LACAHSA will wear many hats, serving variously as a lender, investor, financial guarantor, asset manager, a regulator, technical assistance provider, and regional coordinator, including services for vulnerable renters and residents experiencing homelessness.

“The opportunity available to LACAHSA is extraordinary,” the study concludes, adding that its unique positioning as a permanently funded agency with the authority to carry out a broad mandate “sets the stage for these strategies to not only be successful across Los Angeles County, but to break new ground serving as a model for the rest of the country.”

Access the study