How Can Grantees Create Incentives for Potential Partners to Construct/Rehabilitate Affordable Housing in the OZs?
If the grantee has identified potential development opportunities for HOME- or HTF-assisted housing in the OZ, it can draw from several incentives to help entice potential investors.
Preference in Scoring Competitive Proposals
Many grantees operate a competitive funding process using a standard application or Requests for Proposals (RFPs) process that outlines the specific competitive scoring criteria used to select projects for funding. The grantee could incentivize the use of OZ funding by giving preference or additional competitive points to projects in the OZs that leverage OZ equity investments. The leveraging of OZ funds helps the grantee stretch its available funding in the development of additional affordable units.
Incentivizing OZ Equity Investments
The grantee could give preference or additional competitive points to projects in the OZs that leverage OZ equity investments.
Seek Site-Specific Proposals and Offer HOME or HTF Funds as Enticement
Grantees with designated OZs within their service area might identify specific sites for affordable housing and may want to market the site(s) and availability of HOME or HTF funds. This approach should align with the grantee’s comprehensive strategy for the area and any future investments such as planned infrastructure upgrades or the overlay of other program investments such as homeowner rehabilitation, economic development funding, or a focus of local services such as code enforcement or community policing.
These efforts might be as targeted as HOME/HTF as gap financing to affordable housing developers in the OZ or issuing site-specific RFPs for key parcels in the OZ.
Encourage and Facilitate Development in the OZ
The grantee may want to collaborate with other governmental officials to make development in the OZ easier. This might include waiving development-related fees, fast-tracking reviews and approvals, providing a tax deferral periods for new investments within the OZ, or coordinating funding to address development gaps.
Many state and local jurisdictions offer incentives to promote local affordable housing development goals. These can be targeted to the OZ as well, and might include:
- Exceptions on minimum parking requirements for housing in the OZ,
- High-density bonuses, whereby the jurisdiction waives any existing density restrictions (units per acre) for affordable housing developments,
- Streamline proposed development project reviews by offering preliminary feedback early in the process, and providing assistance in demystifying or streamlining the review and approval processes,
- Tax incentives to encourage re-investment within the OZ target areas. Tax incentives might include waiving a portion of the tax liability on the affordable housing development for a period of time,
- Waiving or reducing some of the standard fees charged for development, such as tap fees that cover the cost of connecting to public water/sewer lines, or fees for permits and inspections.
Public Sector Supports
Grantees can bolster OZ investments by engaging other officials in the jurisdiction to develop a package of public sector supports, such as waiving of fees or requirements (such as parking requirements), offering high-density bonuses, or tax deferments.
Address Concerns of OZ Investors
In the process of discussing possible partnerships with OZ investors, the grantee will want to listen to the investors’ concerns, and may want to identify and address any concerns potential investors have related to investing in affordable housing in the OZ.
Investors typically want to minimize their risks. The inclusion of HOME/HTF into the financial package of a project results in lower private debt for the project and helps to ensure more sustainable project financing. The risk of including restricted rent units within a planned development can be offset with the investment of HOME/HTF funding.
- HUD Notice CPD-20-06 provides very general guidance on using HUD's CPD funds in Opportunity Zones. Issued June 2020.