Financing Affordable Housing Through Opportunity Funds

This Essay considers how the Opportunity Zones law could be amended to promote affordable housing development, and it evaluates whether policymakers should adopt such amendments. This Essay identifies several legal and practical barriers to the use of Opportunity Funds to finance affordable housing development, including through twinning with the LIHTC. These barriers include: substantial improvement rules that present barriers to affordable housing rehabilitation; basis rules that present barriers to new construction deals with low debt-to-equity ratios; strict timing rules that may not align with the realities of affordable housing construction; limits on nonqualified financial property holdings that may foreclose common affordable housing development structures; and differences in the identity and motivations of the investors who typically participate in Opportunity Zones deals versus LIHTC deals. Many—but not all—of these barriers could be reduced through statutory amendments. But should Congress adopt these reforms? This Essay argues that to the extent affordable housing development is being driven by the LIHTC, the practice of LIHTC-OZ twinning is an inefficient waste of government subsidies. Since it is unclear whether the potentially larger pool of Opportunity Zones investors will increase the affordable housing supply under such circumstances, policymakers considering reforms to increase LIHTC-OZ twinning should proceed with caution.