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California Offers $500 Million Gap Fund for Affordable Housing Development

Updated: Feb 2, 2022

Budget Story

SACRAMENTO – California’s plans to accelerate the economic recovery includes a gap fund of $500 million for the 2020-21 Infill Infrastructure Grant Program (IIG), which provides financial assistance for the infrastructure of affordable housing development. With the housing market highly impacted by COVID-19 on a state already facing a severe housing shortage, the program aims to stimulate affordable house constructions, while creating jobs in the industry.


On its 7th round since it started in 2008, IIG is part of the California Department of Housing and Community Development (HCD) and will award funds to qualifying infill projects or areas, chosen from a competitive process.


On May 12, 2021, HCD announced the initial release of $160 million, which will provide grants to for-profit or nonprofit developers, localities, or public agencies that offer affordable housing projects.


“[IIG] is unique in its nature because it provides funding for infrastructure that will serve

affordable housing,” said Aleksandra Djurasovic, HCD Specialist. “Most of our other programs are focused on housing, but this program is focused on the infrastructure that will serve affordable housing. And it's pretty wide in terms of what it can fund.”


Lack of infrastructure is one of the challenges for cities to build housing, according to HCD Director Gustavo Velasquez. IIG grants offer that, such as street improvements, parking

structures, sidewalks, new parks, water, and sewer. With these grants taking care of the

infrastructure for housing projects, the cost of new housing goes down for developers and local governments.


The grant also aims for environmental benefits with its density and transit proximity

requirements. The results are a reduction of sprawl, vehicle miles traveled, and greenhouse gas emissions.


“It's an important program because it’s tackling climate goals of the states,” said Djurasovic. “It responds to the need for denser communities, but are in proximity to local and Regional Transit and amenities.”


Last year, HCD authorized 60 projects for the IIG award, which was $279 million. Jurisdictions

in Northern California received 44% of the funds, compared to 56% of the rest of California. San Francisco alone was awarded four grants, totaling more than $50 million.


San Jose received more than $9 million from the IIG program in 2020. $3,577,755 went to fund the design, construction, and capital improvements of the Arya project, which will offer

affordable homes for low-income households. It will also fund sustainable transportation

infrastructure, reducing greenhouse gas emissions by an amount equivalent to taking 7,915 cars off the road for one year, according to Jeff Scott, public information manager of the San Jose Housing Department. Construction began in April of 2021 and is scheduled to complete by May 2023.


For the third-largest city in California, building affordable housing is a challenge due to the

extremely high cost of development and the little available land.


“Even with those substantial difficulties, grants like IIG help leverage city funds to make the

construction of affordable housing possible and help create strong communities that stem the tide of homelessness,” said Scott. “The Arya will provide 87 homes to extremely low-income to low-income households earning between 30%-60% of the area median income. It will also contribute to the city’s investments in bikeways, electric buses, and mass transit routes.”


Another project starting construction this year is from developer Little Tokyo Service Center

(LTSC), a non-profit social service organization and affordable housing developer in Los

Angeles. LTSC project will build 187 apartments for low-income individuals and families and

retail space in East Hollywood. Half of the units are reserved for the homeless. More than $6

million for the project was a grant from last year’s IIG.


The HCD final program guidelines published on May 12, 2021, grant funds infrastructure on

projects that supports higher density and mixed-income housing locations. To receive the

financial assistance, eligible projects must win points based on project readiness, affordability, housing density, access to transit, proximity to amenities, and consistency with regional plans, rated by points that totalize a maximum score of 250. Awards will be announced in early October 2021.


The Infill Infrastructure Grant Program is part of the governor’s budget for housing and

homelessness’ response to COVID-19, which exacerbated the housing shortage in California.

The initial budget for 2020-21 was for more than $8 billion for housing resources and $2 billion in homelessness resources. This amount was extended to $100 billion California Comeback Plan Governor Newsom announced on May 10, with $12 billion to undertake the homelessness crisis. The new proposal is possible thanks to the state’s staggering $75.7 billion budget surplus.

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