A housing policy tool is gaining momentum that could stimulate lots of mixed-income homes for a relatively small investment. Will partisan ideology stand in the way of its spread?
Apr. 28, 2026 – Since Montgomery County, Maryland created a revolving loan fund for housing production in 2021, a wave of cities and states have followed. From Massachusetts to Michigan, New York to Utah, policymakers view these funds as a simple, high-impact, and relatively cheap way to stimulate the development of new homes.
The pitch gives itself: A one-time contribution to such a fund can be leveraged many times over, and recycled from project to project, generating new homes for a much more modest per-unit investment than just about any other housing program.
These funds, which primarily help produce mixed-income and middle-income homes, are an indication of policymakers’ growing interest in addressing the broader housing shortage, not just the housing needs of the lowest-income Americans. They demonstrate a growing willingness on the part of local and state governments to intervene in housing markets, as well as a growing recognition that the affordable housing crisis will not be solved without private capital contributing significantly.
Though revolving loan funds for housing production have attracted bipartisan support in some places, ideological crosscurrents have at times been an obstacle. 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. But if this movement continues to grow, it could challenge long held assumptions about housing development economics and housing politics.
How revolving funds work
Restrictive zoning is an oft-cited culprit for America’s housing crisis. While zoning does play a significant role in the overall shortage of homes, it doesn’t account for the many housing projects across the country that are fully approved but stalled due to financing constraints.
A common stumbling block for these projects is known as “subordinate construction financing.” It’s usually about 15-30 percent of the total capital stack — the mixture of funding sources developers piece together — that banks won’t finance through traditional loans. Potential equity partners, meanwhile, often demand exceedingly high rates of return that many projects aren’t able to deliver, especially now that rental prices are cooling in most markets.
Multifamily housing units under construction were down 12 percent nationwide in December 2025 from a year prior, and were more than 30 percent below their 2023 peak. “The fact that projects are not able to generate those levels of returns right now is one of the reasons that project starts have already fallen off a cliff all around the country,” said Paul Williams, executive director of the Center for Public Enterprise, the leading advocacy group for revolving fund programs.
Revolving loan funds can fill that financing gap and keep housing production going through a down cycle in the housing market. These funds provide the missing 15-30 percent of the capital stack through loans or equity at low interest rates or rates of return. With that last, difficult-to-access piece of financing in place, languishing projects can finally break ground.
“We don’t control how the banks do it, but we can put up money at low cost to try to spur development ourselves,” said New York state Senator Rachel May, a Democrat, who sponsored the legislation creating the state’s $100 million Housing Acceleration Fund last year.
For state housing finance agencies, and even for larger municipal housing authorities, these funds represent a logical extension of their existing capacities. Since the 1980s, every state has created a housing finance agency to manage the distribution of Low-Income Housing Tax Credits (LIHTC), the primary source of subsidies for affordable housing. These agencies also administer other federal and state loans for housing, which cumulatively help fund about 20% of all new apartments constructed in the U.S.
Housing finance agencies already have the know-how to evaluate projects and distribute funds. What most of them don’t have, yet, is their own source of capital to lend to or invest in housing projects.
“There’s an interest that people have in trying to play up the fact that this is game changing in some way, but I actually don’t think that’s the key thing about it,” Williams said. “What’s interesting about it is that you don’t really have to do anything at all. You’re just funding more deals.”
A little goes a long way
A relatively small amount of money injected into these funds can generate a lot of housing. Because the government’s commitment to any given project is only a fraction of the total development cost, each dollar the government contributes can be leveraged five- or ten-fold by other investors and lenders.
In fact, governments don’t necessarily need to dedicate their own capital to these funds. They can instead issue bonds to capitalize their funds and use ongoing loan interest payments from projects to cover the bond interest. That’s how Montgomery County, Maryland capitalized its $100 million fund. Michigan and Utah used excess capital from existing state sources. In New York state, the government’s initial $100 million contribution was subsequently matched by an additional $115 million from private lenders.
The loan terms these funds offer typically last three to five years, enough time for the building to be constructed and leased up. When the loan comes due, that money revolves back into the fund and can be used for the next project.
“What’s attractive about this is it’s one-time,” Williams said. “You fill the bucket one time, and the capital revolves for a long period.”
While many states and cities have affordable housing trust funds, the speed with which capital cycles through the system makes these funds unique. The focus on mixed-income rental housing also differs from many other government-backed housing finance instruments, which tend to be focused on either low-income housing or homeownership.
Montgomery County’s first revolving loan fund project, the Laureate, a 268-unit building completed in 2023, is widely seen as the prototype for this policy. When the project’s initial developers struggled to find financing for the $121 million project, the county’s Housing Opportunities Commission stepped in and offered a $14.3 million low-interest interest loan. That funding was combined with a $99 million FHA-HFA Risk Share Loan — a mortgage taken out by the county and backed by the federal government — and equity contributions from private developers.
In exchange for the low-interest financing, the county’s housing authority became the project’s majority owner. It also required that 30 percent of units in the project be offered at below market rates, most of which are reserved for residents making 50% of the area median income. The Housing Opportunities Commission’s five-year loan is expected to be paid back later this year, said Ken Silverman, vice president of government affairs for the agency.
In 2024, the county broke ground on its second revolving loan fund project, Hillandale Gateway. The 463-unit, 54-percent affordable development was supported by a $35 million loan from the fund. Its third project, the Sage, a 413-unit, 30 percent affordable building supported by another $35 million loan from the fund, is expected to break ground in May.
All of these projects have complex capital stacks. They rely on other sources of non-market capital, like the Montgomery County Green Bank, that other jurisdictions may not have access to. Still, a county developing and taking majority ownership of 1,144 homes, 454 of them offered at below market rates, in just a few years is a significant feat. The final proof of concept will be whether the county can turn around the loan repayment from the Laureate later this year to help develop more housing.
“We have a pipeline of a pretty significant and growing number of projects,” Silverman said, “including a number where property owners have come and said, ‘Hey, we have this project that we can’t get private funding for. Would you like to take it over?’”
A growing movement
As Montgomery County’s model garnered greater attention in the housing world and in national media, it looked like an idea that met the moment. The housing crisis was worsening virtually everywhere, and even middle-class people found themselves squeezed. As the YIMBY and “abundance” movements spread, policymakers have become increasingly open to interventions to increase the overall housing supply — especially if they come with a low price tag.
The recent rise in inflation and the downturn in housing construction made revolving loan funds still more appealing. When private developers stop building because rent growth has flattened out, it doesn’t mean demand for new housing has gone away. These funds are a means of “smoothing the housing investment cycle,” Williams has argued, producing homes even when the economic conditions for developers appear unfavorable.
“The housing market is very boom or bust,” Silverman said. “By having this government fund running and pushing housing production all the time, we can help to level that out a little bit.”
That’s an appealing premise for a growing list of states and cities. In the past four years New York, Utah, Massachusetts, Michigan and Oregon have established such funds, as have Atlanta, Boston, Chicago, and Chattanooga, Tennessee. Three more states, Kentucky, Virginia, and Arizona, are currently deliberating similar programs.
Williams and the Center for Public Enterprise have been a major force behind the spread of revolving loan funds around the country. Williams worked with Montgomery County on its program and has advised most of the other cities and states that have created them since. “It’s kind of taken off. It has a life of its own now,” Williams said. “We’re hearing about people trying to do programs that weren’t even talking to us.”
Early results from beyond Montgomery County are mostly promising. Massachusetts’ Momentum Fund, established in 2024, quickly became over-subscribed. Within a year, the fund had 33 projects totaling 7,000 new units in its pipeline. The $400 million in equity those projects requested far exceed the $50 million in the fund’s initial capitalization. So far, the fund has committed funding to two projects, one of them in concert with Boston’s revolving loan fund, representing 262 homes.
New York’s Housing Acceleration Fund, run out of the state’s department of Housing and Community Renewal, is expected to announce its first tranche of projects in June. State officials say developer interest is high. “I remember asking the head of Housing and Community Renewal how much we should put into this fund. What would be the demand?” May said. “She couldn’t identify a limit.”
Utah’s revolving loan fund, however, has been a disappointment. The fund, capitalized with $300 million, requires 60 percent of homes in projects it supports to be “attainable” for-sale homes, which typically sell for under $450,000. So far, the fund has only lent $13.8 million to support two projects totaling 154 units. That’s a “smaller scope than we’d hoped,” said Brittany Griffin, policy and communications deputy for the Utah State Treasurer.
The policy appears to be a victim of its own convoluted design, which emerged from a 2024 housing package created by the majority-Republican state legislature focused on “free market solutions.” Unlike peer programs, this fund relies on banks as an intermediary. The fund sells certificates of deposit to banks which they must use to offer low-interest loans to housing developers.
The sticking point appears to be those interest rates, which aren’t high enough to attract much demand from banks, Griffin said. A bill to lift the cap on interest rates and expand the range of eligible projects failed in the legislature earlier this year.
Challenges ahead
Williams advises policymakers to frame these programs as an apolitical, technical tweak within the existing housing finance bureaucracy. Despite some similarities to European-style “social housing,” including public ownership and cross-subsidizing affordable units with market-rate ones, he urges advocates to stay away from the polarizing term.
But as Utah’s experience demonstrates, politics has a way of leaking into policy.
In deep-red Wyoming, Republican state Senator Evie Brennan was hopeful that a revolving loan fund would get a warmer reception in the legislature than traditional affordable housing policies. “We really try to stay fiscally responsible with the money that we have,” Brennan said. “So, we made this a revolving door loan. It’s a $30 million, one-time ask of the legislature to put into something that could be ongoing.”
However, this year, the bill failed to achieve the two thirds majority it needed to advance due general budget hawkishness, Brennan said. “Every single bill with an appropriation on it is very scrutinized in the Wyoming legislature,” she said. “It just takes a lot more to get something passed that has a dollar amount attached to it.” Brennan is hopeful that increasing awareness of this supply-side tool, and continued pressure to act on the housing crisis, could allow a similar bill to pass in the future.
Washington state’s revolving loan fund has struggled to get off the ground for very different reasons. The majority-Democratic state legislature approved a Workforce Housing Accelerator Revolving Loan Fund in 2024 but has since then been unwilling to fund it.
Carl Schroeder, deputy director of government relations for the Washington Association of Cities, noted that in the state, “There is a feeling in some circles that workforce housing is more accessible to those who need it compared to very low-income housing. That has in the past been a barrier to significant investments in housing aimed at higher in the income spectrum.”
California may face similar obstacles connected to a bill, proposed this year, that would create a $500 million revolving loan fund to accelerate the development of residential high-rises in struggling big city downtowns. “There’s a lot of political tension in the housing community about whether the state should be providing financial resources to market-rate housing,” said Matt Lewis, a spokesperson for California YIMBY, an advocacy group supporting the bill.
But Lewis said opponents misunderstand how these funds work. “This money wouldn’t exist but for knowing that the market-rate housing would pay it back in full,” he said. “We’re creating a new pot.”
The power of finance
Revolving loan funds confound the conventional wisdom on affordable housing policy. Though these programs have the potential to produce some low-income homes, that’s not their primary purpose. Rather, they’re broadly focused on increasing supply.
In some cases, that might mean making projects originally envisioned as 100 percent affordable into mixed-income projects. Michigan’s fund, for instance, is focused on accelerating developments that were waiting for scarce LIHTC dollars by converting them into mixed-income projects. In other cases, when these funds are used for projects originally envisioned as predominantly market-rate, the development agreements require the project to include more affordable units than the previous plans.
What matters most, is building lots of housing, fast, Williams said. “If we want to get out of the housing shortage quickly, we have to make as many deals pencil as quickly as we can,” he said. “Everything that makes more deals pencil is good.”
Finance is an under-appreciated lever for making that happen, Williams contends. In a recent Center for Public Enterprise report, he argues that it was financial policy, as much as any other factor, that produced the last two big home-building booms in the 1960s and 1980s.
Revolving loan funds are part of a suite of policies that could usher in a new building boom, the report argues. 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, the report finds. (The number of homes for the investment could be significantly lower if the policy targeted more expensive markets.)
As the politics around housing rapidly shift, this kind of policy proposal could have legs. Republicans and Democrats in Washington have recently shown a greater willingness to work together on housing, as evidenced by the bipartisan Road to Housing Act currently working its way through Congress. And most Senators and House members probably like the sound of a federal “housing accelerator fund” better than a national “social housing program.”
It is not clear, however, that enough Republicans currently in Congress could stomach the government intervention that revolving loan funds represent. Nor it is clear that Williams’ “everything that makes more deals pencil is good” would prevail among enough Democrats.
For the foreseeable future, states and localities will be at the forefront of this movement. Many interested jurisdictions are looking to Montgomery County for guidance. Silverman tells them that they don’t necessarily need to start a new multi-million-dollar fund to get these sorts of mixed-income projects going. “If there’s a project that has great public benefit you can often do it alone,” using existing housing trust fund dollars, he said. “You could just do a pilot and try it out and have a proof of concept.”