Financing Affordable Housing: Insights from Tyson Dirksen

Affordable housing financing is one of the most complex aspects of real estate development. It involves combining multiple sources of capital, timing subsidy awards carefully, and structuring debt and equity so the project remains viable and sustainable. Tools like construction loans for affordable housing and the federal Low-Income Housing Tax Credit (LIHTC) are essential for success. In Idaho, these financing strategies for developers require experience, strategic planning, and a deep understanding of local incentives.

Construction Loans and Debt Strategies for Affordable Housing

When I approach a project, I first evaluate construction and permanent debt. Most developments start with a construction loan that later converts to a permanent loan. Restricted rents in affordable housing limit the permitted debt service, so developers must carefully structure financing. In Idaho, the Idaho Housing and Finance Association (IHFA) provides short-term financing for land acquisition, infrastructure, and construction. These funds serve as a crucial bridge during early development (IHFA, 2025).

Using LIHTC and Equity to Fill the Gap

Equity financing often comes from selling tax credits, with the federal Low-Income Housing Tax Credit (LIHTC) as the primary mechanism. LIHTC provides upfront capital that reduces the debt burden and ensures financial feasibility (Generis Online, 2025). Even with debt and equity, projects can face funding gaps. Developers rely on HOME funds, Community Development Block Grants (CDBG), local government contributions, or philanthropic support to fill these gaps. For example, CDBG funds helped finance infrastructure for an affordable housing project in Mountain Home, Idaho (Idaho Commerce, 2025).

Financing Strategies for Developers: Bonds and Local Incentives

Tax-exempt bonds can lower the cost of capital in some jurisdictions. Local incentives, such as fee waivers, property tax abatements, or reduced land costs, can make or break a project’s feasibility (IHFA, 2025). Layering these financial tools into a cohesive strategy is essential for any successful affordable housing development.

From Feasibility Studies to Funding Commitments

A detailed feasibility study and pro-forma estimate development costs—land, hard and soft costs, fees, and reserves—along with projected revenues, operating expenses, and the financing plan. Timing is critical when applying for LIHTC, HOME funds, or other subsidies. Missing a cycle can derail even the most carefully prepared project (IHFA, 2025). After applications, developers secure commitments from equity investors, construction lenders, and landowners before moving to approvals and closing.

Managing Construction, Lease-Up, and Compliance

Construction oversight is crucial. Developers monitor budgets, change orders, and timelines closely. Affordable housing projects often face stricter scrutiny than market-rate developments. After construction, units must be leased to income-qualified tenants, and permanent financing is finalized (IHFA, 2025). Regulatory compliance continues, with tenant income verification, rent limits, and affordability periods. A strong management plan—and sometimes a third-party compliance manager—helps prevent costly mistakes.

Key Risks in Affordable Housing Financing

Every project carries risk. Rising construction costs or interest rates can squeeze tight margins, and Idaho lacks a large state trust fund to cover gaps (Idaho Capital Sun, 2025). Delays in subsidies, slow lease-up, and regulatory compliance challenges can threaten a project. Planning an exit strategy is vital. Affordable housing is usually held long-term, and any plan to convert units to market-rate must comply with original subsidy rules.

Making a Lasting Impact in Real Estate Development

Developing affordable housing requires financial skill, regulatory knowledge, and practical experience. When approached strategically, these projects are financially viable and transform communities by providing quality housing where it’s most needed.

For more information, interviews, or investment insights:
Tyson Dirksen
Founder, Evolve Development Group
Email: info@evolve-us.com
Website: evolve-us.com | tysondirksen.com
LinkedIn: linkedin.com/in/tyson-dirksen-a543827/