Can revolving loan funds revolutionize housing financing?

In a piece for Remapping Debate, Benjamin Schneider assesses the potential of revolving loan funds to unlock a new housing boom. 

The concept began with Montgomery County, Maryland in 2021, when the county created a revolving loan fund for housing production that policymakers have come to view as "a simple, high-impact, and relatively cheap way to stimulate the development of new homes."

According to Schneider, the idea is attractive to many city leaders, but has faced some political opposition from both sides of the spectrum. "In blue states, housing advocates and politicians can be wary of housing programs that aren’t directly focused on deeply affordable homes. In red states, any kind of government spending on or involvement in housing can still be a tough sell."

Revolving loan funds can help developers overcome the financing constraints that freeze many fully approved housing projects in place by bridging a key financial gap that prevents many projects from breaking ground. "For state housing finance agencies, and even for larger municipal housing authorities, these funds represent a logical extension of their existing capacities."

Schneider notes that governments can even issue bonds to capitalize revolving loan funds without putting up any of their own capital, like Montgomery County did. The county developed and took majority ownership of 1,144 homes, with 454 of them at below market rates, since it started its fund. 

According to a report from the Center for Public Enterprise, "If the federal government authorized a $2 billion, one-time expenditure to provide matching seed money for these funds, that capital could support the creation of 30,000 additional homes per year, assuming a per-unit construction cost of $400,000."