Tax-exempt private activity bonds are a hugely important source of financing for housing development in New York City. The state and city housing agencies issue bonds and use the proceeds from the sales to make loans to developers to build housing. As developers make payments on their loans back to the housing agencies, the latter repay the bondholders.
But this seemingly straightforward financing system is complicated by a variety of federal and state regulations. On the federal side there is an annual cap on the total volume of tax-exempt private activity bonds that can be issued in each state (the “volume cap”), as well as affordability requirements attached to the use of these bonds to finance housing. State law regulates how the “volume cap” will be allocated among economic development and housing agencies, among others, up and down the state.
You can watch an explainer video that we have made about Private Activity Bonds here:
Over 49,000 units of affordable housing were financed using tax-exempt private activity bonds in New York City between 2005 and 2013. It is a critical resource for the development of affordable housing in our city, yet one that remains a bit of a mystery for many in the development community.
CHPC embarked on a research project to shed light on the inner workings of tax-exempt private activity bond financing in order to help policymakers understand better what has often been an obscure -if crucial- source of funding for housing.
CHPC’s study Pump Up The Volume took the first deep look at the use of tax-exempt private activity bonds and proposed a series of recommendations to improve the allocation of bonds to support housing development.