States Should Pursue New Revenue Options to Expand Access and Prevent Cuts to Affordable Housing and Homelessness Solutions

Increased and ongoing public investments by state and local governments play a critical role in ensuring that people and communities thrive, including by expanding access to stable, affordable housing and strengthening homelessness prevention and response services.

The United States has the resources and ingenuity to ensure that everyone, no matter their income or race, can afford and keep a home without compromising or forgoing other needs, like food, medical care, transportation, or child care. Yet despite the wide recognition across states and communities that too many people face unaffordable housing costs, states and localities are underinvesting in housing affordability solutions. And, with rising state budget pressures, including those stemming from the cuts in 2025’s harmful Republican reconciliation law and the possibility of additional federal budget cuts through the appropriations process, there is a risk that states and localities will continue to underinvest in or scale back their efforts to address housing affordability. But states can take a different path and secure additional revenue — a powerful, yet underutilized, tool for expanding housing security, bolstering economies, and advancing racial equity.

State and Local Revenue for Proven Solutions to Housing and Other Needs Are More Important Now Than Ever

An unprecedented number of people are struggling to keep a roof over their heads or are without a home at all.^[1] More than 21 million households pay half or more of their income for housing, sometimes even when working multiple jobs. About 70 percent of those households have incomes less than $30,000, and most of them are renters.^[2] Homelessness has also reached a record high, with over 771,000 people across the country residing in shelters or forced to sleep outside on a single night in 2024.

This is set to worsen as millions of families are likely to lose health care, food assistance, and housing assistance because of harmful federal funding cuts and policy changes, leaving them at a greater risk of housing insecurity and homelessness as they try to keep up with rising costs and meet all of their basic needs.

Explore revenue options for housing and homelessness solutions

Proven Solutions Are Inadequately and Unreliably Funded

For decades, policymakers have underfunded housing and homelessness programs and, partly as a result, housing has become less affordable.^[3]

No state has enough housing that is affordable to residents with extremely low incomes.^[4] Yet state governments spend very little on housing relative to other kinds of public investment. On average, states allocate less than 1 percent of their direct spending to housing and community development initiatives, like building more affordable housing and helping people with low incomes pay for rent.^[5] 

When states do fund affordable housing programs, they frequently rely on one-time funding from federal emergency funds or temporary state budget surpluses. For example, the American Recue Plan Act injected billions of dollars into state and local economies that many states leveraged for critical but temporary housing and income support during the COVID-19 pandemic, as well as capital investments in new affordable housing, but those federal emergency resources have expired. ^[6]

One-time funding can be well-suited to cover upfront costs for new construction and rehabilitation and resources including one-time emergency rent relief like the Emergency Rental Assistance Program. Many of these investments have meaningfully increased the supply of affordable housing and likely prevented eviction during the pandemic. However, using one-time or temporary funds to support ongoing programs like rental assistance, supportive housing, and homelessness prevention creates funding cliffs. Programs like rental assistance and operating assistance require ongoing or long-term investment to make housing accessible to people with the lowest incomes.

For example, California’s Homekey Program was created during the pandemic to provide grants to local public entities to buy and convert properties like hotels, motels, and vacant apartment buildings, and created 15,000 units of interim and permanent, supportive housing for people experiencing or at-risk of homelessness. The program also included up to five years of funding to pay for ongoing operating costs for the new projects.^[7] However, many housing providers report that developments lack sustainable funding for long-term operating costs to ensure the properties’ maintenance and affordability are adequately maintained over time. If funding is not sustained, households are at increased risk of poor living conditions, evictions, or even homelessness when temporary dollars run out.^[8]

At the federal level, lawmakers have severely underfunded the programs that are most critical for families, including rental assistance and public housing. As a result, only 1 in 4 eligible households receive help.^[9] On top of that, the Trump Administration has proposed deep cuts to federal housing and homelessness programs that more than 10 million people now use to help pay the rent each month, while backing punitive, anti-homeless laws that are ineffective, costly, racially discriminatory, and take resources away from effective solutions.^[10]

For policymakers who want to tackle housing affordability, there are proven solutions to invest in, including rental assistance, eviction prevention, emergency funds and legal supports, robust supportive services, affordable housing development and preservation, and tenant legal protections. (See Figure 1.) These solutions work together to stabilize families; reduce the risk of overburdening emergency services, like emergency rooms and shelters; strengthen local economies; and create more equitable communities.^[11] Increased and sustained funding can help states bring these solutions and outcomes to scale, and ensure people who need help affording housing — including those most at risk of homelessness or eviction — get the help they need.

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Revenue Options to Fund Affordable Housing and Homelessness Solutions

States have a range of options to secure new, ongoing revenue. Some options are tied directly to the housing market while other revenue streams may not be, such as income taxes, corporate and business taxes, sales taxes on goods and services, and more.

In some cases, revenue-raisers can be earmarked in whole or in part for housing programs; for example, several state and local jurisdictions have recently established sales tax increases where revenue is dedicated at least in part to affordable housing and homelessness programs. (See “Sales Tax.“)

Some states direct housing-related revenue-raising policies, like real estate transfer taxes, to housing investments. Importantly, in addition to assessing housing-related revenue options based on the amount and stability of revenue generated, states and localities should consider the impact of different housing-related revenue options — and the investments they would fund — on housing supply and affordability. For example, some revenue options (impact fees, demolition taxes, and document recording fees) may deter development depending on their design. Others (taxes on vacant properties, short-term rentals, and land values) could help encourage owners to make more housing available.

Some revenue options to fund housing and homelessness solutions include:

• Real estate transfer taxes tax the sale of properties and can include both residential and commercial properties. There are several major design considerations to ensure real estate transfer taxes are imposed fairly.^[12] Notably, policymakers should design real estate transfer taxes so that properties are progressively taxed at higher rates the more expensive they are.

  • So-called “mansion taxes” are a type of progressive real estate transfer tax with a higher tax rate on the sale of very high-value properties. They can generate substantial state revenue to expand access to affordable housing. If every state taxed the top 10 percent, 5 percent, and 1 percent of home sales using a tiered structure with increasing rates of 2 percent, 3 percent, and 4 percent respectively, they could generate a potential revenue total of $8.7 billion annually.^[13] Progressive real estate transfer taxes make tax systems fairer. They ensure that wealthy property owners, who often receive a windfall of profits from property sales and typically pay a smaller share of their income to state and local taxes due to regressive income tax systems, contribute more to community needs, like housing.

    At least 16 states dedicate revenue from real estate transfer taxes to affordable housing, and it is one of the most common revenue sources for state housing trust funds. ^[14] A few states and a handful of local governments earmark revenue from mansion taxes to address housing affordability, including Vermont, Connecticut, and New Jersey.^[15] Recently, Maine also enacted a mansion tax on properties worth over $1 million, with some of the revenue supporting housing programs, including affordable housing development and rental assistance. And Rhode Island increased its real estate transfer tax rate, which will generate about $19 million per year for the state, and be dedicated to homelessness and affordable housing initiatives.^[16]

• Progressive property taxes are designed so that people who own high-value property are taxed at a higher rate than people who own lower-value property, ensuring that wealthy homeowners contribute their fair share to public investments, including affordable housing. Property taxes fall disproportionately on lower-income households, consuming a larger percentage of their income than wealthier households. Households with low incomes are also more likely to be renters than homeowners, and landlords pass a portion of the property tax on a rental property to renters in the form of higher rent.^[17]

  But there are ways to make property taxes fairer and create a more stable revenue stream. States can explore a tiered-rate system that applies lower tax rates to lower-value properties and higher rates to more expensive properties; tax renter-occupied buildings based on the value of individual units (rather than the entire building) to prevent over-assessing properties with low-income renters and passing down costs to them; improve the assessment process to accurately reflect the value of properties; tax vacant properties and second homes at a higher rate than residential properties with targeted exemptions (see “Vacancy Taxes”); and implement a circuit breaker tax credit that includes both renters and homeowners, which refunds households with low incomes if their property tax bill exceeds a certain share of their income.^[18] Instead of following current trends toward broad property tax cuts, which threaten state and local revenue and fail to support people struggling the most with housing hardship, states can design fairer property taxes that make housing affordable while preserving local resources.^[19]

  Many states would likely require a constitutional amendment to be able to move toward a more progressive property tax system due to a series of long-standing limits on local taxing authority, which are ripe for reexamination.^[20] Nonetheless, a few places have adopted promising reforms. Montana recently revised its property tax, adopting tiered rates for residential properties based on their value and increasing property taxes on vacation homes.^[21] Washington, D.C. adopted a modest increase in property taxes on the highest-value properties and vacant properties.^[22] Rhode Island imposed a property tax surcharge on vacation homes valued at more than $1 million that are unoccupied for most of the year (also see “Vacancy Taxes”). And in Utah, while property tax rates themselves are not progressive, owners of second homes and vacant properties are effectively taxed more than residential homeowners, who receive a significant exemption.^[23]

• Vacancy taxes target residential and commercial properties that sit unoccupied for extended periods of time, either raising revenue or incentivizing owners to rent or sell unused properties.^[24] Well-designed vacancy taxes may include exemptions for individual homeowners, such as owners experiencing financial hardship, who have a disability, or whose home requires rebuilding after a natural disaster. This encourages wealthy property owners and corporate landlords that own multiple rental units to maintain and fill units instead of keeping them vacant or contribute to community needs by paying a vacancy tax, without penalizing individual homeowners who are already experiencing hardship.

  Washington D.C.’s vacancy tax (in effect since 2011) taxes vacant and blighted properties at a rate that is at least five times higher than occupied properties.^[25] Rhode Island recently passed a version of a vacancy tax in the form of a property tax surcharge on homes valued at more than $1 million that are unoccupied for most of the year (also see “Real Estate Transfer Taxes”).^[26] The city council in Atlanta approved a “blight tax” that increased the property tax on unoccupied and neglected properties while exempting occupied properties, to ensure that residents are not displaced.^[27] Berkeley successfully enacted a voter approved “Empty Homes Tax,” allowing proceeds to be deposited to the city’s housing trust.^[28] Some cities, including Denver, Honolulu, San Francisco, and New York City have considered vacancy taxes to address housing shortages.^[29]

• Document recording fees are levied when a legal document is officially filed for public record, including those associated with real estate transactions, deeds, mortgages, and power of attorney. They are usually collected at the county level, though in some cases revenue is remitted in whole or in part to the state. Several states dedicate revenue from recording fees to affordable housing and homelessness assistance. In Nebraska, revenue from recording fees are deposited to a homeless shelter assistance fund, development fund, and the state’s affordable housing trust fund.^[30] California imposes recording fees on real estate documents to increase the supply of affordable housing.^[31] Ohio allocates 50 percent of the fees collected to the state’s housing trust fund for homelessness and affordable housing services, which has generated between $43 million to $73 million per fiscal year between 2005 and 2019.^[32]

• Demolition taxes are imposed when property owners tear down residential buildings, which can discourage tearing down affordable housing units or create a revenue source to offset potential losses of demolished affordable housing. Policymakers can design demolition taxes fairly by including exemptions for lower-income owners who must demolish their home due to hardships and developers constructing affordable housing for lower-income renters or homebuyers. A demolition tax is particularly effective in wealthier areas; conversely, it may discourage efforts to revitalize and reinvest in distressed communities. However, policymakers can consider including a demolition tax on commercial properties as well, such as buildings torn down to be replaced with luxury real estate, to help fund affordable housing. Three wealthy cities in Illinois — Highland Park, Lake Forest, and Evanston — have enacted a demolition tax as a source of revenue for their city’s affordable housing trust funds and other housing initiatives.^[33] In Highland Park, the tax raised more than $3 million for the city’s housing trust fund in its first decade.^[34] The city council in Montgomery County, Maryland, (a high-income suburb of D.C.) has considered establishing a demolition tax on single-family homes to help fund affordable housing development.^[35]

• Developer fees (also known as linkage or impact fees) are imposed on developers, typically prior to issuing a permit for a new project. Revenue from developer fees is often used to fund other capital investments and expansion of public infrastructure to meet increased needs and offset impacts created by new development projects. They can be designed to create various incentives and disincentives: for example, scaling the fee based on factors like location and development type to ensure that higher-impact projects pay a larger fee, or waiving or reducing fees for affordable housing development.

  Some states and localities direct revenue from developer fees to fund affordable housing projects. For example, Pennsylvania levies an impact fee on developers that produce gas from unconventional gas wells, including large natural gas companies. Some of this revenue is dedicated to a state-wide housing affordability fund and some is allocated to localities impacted by drilling activity, including for addressing affordable housing needs.^[36] Pennsylvania collected between $146 million and over $278 million annually in impact fees from developers between 2012 and 2022, generating over $2.7 billion in a decade.^[37] New Jersey funds affordable housing development through developer fees as well, which apply to new development, excluding new housing units.^[38] Denver’s impact fee is one source of funding for its dedicated affordable housing fund that waives payment for residential developments that are required to meet an affordable housing requirement.^[39]

• Lodging or short-term rental taxes charge guests staying in temporary rental properties including houses, apartments, hotels, and other short-term rentals (like Airbnb rentals). They can raise significant revenue in high tourism states and localities that attract higher-income visitors, rather than from long-term residents. When dedicated to housing, the revenue from lodging taxes can help offset the housing pressures for residents caused when homes are converted into short-term rentals generally for non-residents. For example, Colorado recently enacted a law permitting counties to increase their lodging tax from 2 percent to 6 percent pending voter approval to be dedicated to several different public needs, including housing for tourism workers.^[40]

• Reforming mortgage interest deductions (MID) is a way for states that conform to federal tax law to reinvest revenue where it is most needed, including toward affordable housing.

  • Eliminating MID for second homes. Mortgage interest deductions disproportionately provide tax breaks to high-income homeowners by deducting interest on their home loans, including second homes, lowering the amount they pay in federal and state taxes. Thirty states and D.C. have a state version of the MID.^[41] These tax breaks are available for people who itemize deductions on their tax return and have a mortgage on a qualified home, including a second home. Because wealthy households pay higher income tax rates and are more likely both to own homes and to have enough deductions to itemize, they receive the largest benefits from mortgage interest deductions. Low- and middle-income families receive little to no benefit, as most do not itemize deductions and many do not own their homes.^[42] Fairer ways to structure policies could include repealing or reducing mortgage interest deductions, limiting deductions to primary residences, and providing deductions only on second homes rented out as affordable housing in favor of investments that increase first-time homeownership and reduce housing insecurity. State policymakers in both California and Oregon have considered eliminating mortgage interest deductions on second homes.^[43]
  • Reducing the mortgage interest deduction cap and converting it to a credit. Federally, the MID allows homeowners who itemize their deductions to subtract interest paid on mortgage debt up to $750,000 from their income, which benefits wealthy households who have enough deductions to itemize. States that have an MID could make it more equitable by reducing the $750,000 cap on the amount of mortgage debt that is covered or by capping the amount of interest homeowners can claim. For example, North Carolina applies a cap of $20,000 to the combined mortgage interest and property taxes that can be deducted each year.^[44] Another way to make this policy fairer would be to convert the deduction (which provides a greater benefit to higher-income households in higher tax brackets) to a credit that would shift benefits to middle- and lower-income homeowners.

• Unclaimed property can generate revenue when a state or local government agency sells assets to the public that have been legally transferred to the government after remaining unclaimed by the owner for a certain time period. Unclaimed property can include both tangible and intangible property, like contents of a safe deposit boxes, abandoned buildings, unpaid wages, security deposits, insurance benefits, old savings accounts, stock dividends, and other assets. Most states hold onto property or the proceeds from a public auction indefinitely until an owner makes a claim to recover it. Each year, states might hold millions, or even billions, of dollars in unclaimed assets. At least one state, Arizona, dedicates some of the proceeds from the sale of unclaimed property to fund affordable housing assistance through the state’s housing trust fund, which collected $10 to $20 million annually before it was capped.^[45]

• Cap-and-trade (also called cap-and-invest) programs require certain industries to either limit the amount of climate pollution they release or buy permits to exceed limits. They can be a meaningful tool to raise revenue and reduce pollution, especially when investments are targeted to people and communities disproportionately exposed to climate risks and polluting industries, which tend to be people in low-income communities and communities of color.^[46] These inequities are a result of discriminatory housing, investment, and environmental policies that have limited opportunity and harmed health in many low-income communities and communities of color.^[47] Investing cap-and-trade funds in energy efficient and climate-resilient affordable housing simultaneously supports housing and climate goals while correcting decades of underinvestment and environmental damage in impacted communities.^[48] Thirteen states currently have a cap-and-trade program, including California and Virginia, which earmark funds to improve access to affordable and sustainable housing.^[49]

• Land value taxes (LVTs) tax the assessed value of a piece of land separately from any building on the land. Land value can be influenced by locational factors like proximity to public services, transportation systems, investments in public infrastructure, and development potential. They ensure that wealthy individuals and investors, who are more likely than people with lower incomes to inherit or buy land in a “high-value location,” such as a well-resourced neighborhood or downtown, contribute their fair share to funding community needs. Unlike property taxes, LVTs do not include the value of any building on the land, so owners are not taxed more for new construction or building improvements. This means that a person possessing an empty plot of land would pay the same amount as an owner of a neighboring apartment building. As a result, LVTs financially incentivize owners to build on empty land, which could help increase the supply of housing in addition to raising revenue. Land value taxes can be difficult to implement because of state taxation laws and administration challenges, but several states and localities have considered or signaled interest, including California, New York, and Minnesota.^[50]

  Split-rate taxes can be designed with similar goals to LVTs. In a split-rate tax system, land is taxed at a different rate than any structures or improvement on it, with land typically taxed higher. Many cities in Pennsylvania have adopted a split-rate system, and legislation passed in Virginia to allow a few cities to shift to a split-rate tax, though none have done so yet.^[51] Others cities, like Detroit, have considered proposals.^[52] In California, there have been ongoing efforts to reform the state’s strict set of tax restrictions, known as Proposition 13, by establishing a “split roll” tax (different than a split-rate tax) that would tax properties differently based on use; for example, commercial and industrial properties would be taxed at a higher rate than homes.^[53]

• Housing bonds. States and localities have also turned to issuing general obligation or housing bonds to raise revenue. States and localities can sell bonds to investors to generate large upfront funds for projects with sizable startup costs, such as infrastructure and affordable housing construction or preservation. These bonds can provide a powerful tool for spurring new affordable housing or investing in other long-term goals. At the same time, bonding inherently carries at least some risks that state and local policymakers should weigh carefully so that they don’t rely on it solely or disproportionately to support their housing goals. For one, some states and localities may face legal or constitutional challenges in using bonds for anything other than one-time capital expenditures — primarily infrastructure projects such as roads and bridges, schools, water systems, housing developments, and hospitals. Without changes to state laws or constitutional amendments, states and localities could not use the funds for ongoing operating expenses related to such projects. And because bonds must be paid back to investors with interest, they can create long-term debt obligations that may limit government’s ability to spend on other critical ongoing programs and services. That said, states also have a range of safeguards available that can generally limit the severity of these risks, which can protect bonds as a tool to support a broader revenue strategy focused on ongoing investments for affordable housing and other needs.^[54]

• Sales tax. Several state and local jurisdictions have recently established sales tax increases where revenue is earmarked, at least in part, for affordable housing and homelessness programs. While increasing sales taxes can be more politically palatable and create ongoing revenue for important investments in programs like rental assistance; tenancy support services, like landlord mediation and legal aid; and affordable housing development and operations, policymakers should also carefully weigh drawbacks of sales taxes. Most prominently, they are steeply regressive. People with lower incomes use a larger share of their income (almost 90 percent) to meet basic needs, like groceries, health care, transportation, and shelter, compared to people with higher incomes.^[55] As a result, they also pay a greater share of their income in sales tax.^[56] For example, households with incomes in the bottom half of the income distribution (less than $70,000 in 2023) spent 13 percent of their income on sales tax, compared to about 5 percent for households with higher incomes.^[57] If pursuing a sales tax increase to bolster affordable housing, policymakers should strive to equally prioritize intentional policies to counter the regressive impact, like expanding exemptions for groceries and adopting targeted tax credits for workers and families. ^[58]

Recent Ballot Wins Signal Support for Housing Funding Measures

Recent elections included many notable wins for measures that raised new revenue for affordable housing and homelessness programs, signaling strong public support for prioritizing solutions to the affordable housing crisis even if it means raising taxes. For example, Minnesota lawmakers proposed a constitutional amendment to raise the state sales tax to create three dedicated funds focused on supporting housing stability, homeownership, and renter protections, and Rhode Island voters recently passed a statewide bond measure dedicating millions in funding to housing. ^[59] Voters in Los Angeles have repeatedly approved new revenue measures to fund affordable housing solutions, including Measure ULA (a mansion tax approved by voters in 2022) and Measure A (a half-cent sales tax approved by votes in 2024 to fund affordable housing, homelessness prevention and intervention, and tenant legal support).^[60]

New Revenue Can Help States Build Toward a Future Where Everyone Can Afford Housing

Raising revenue is a powerful tool states can use to fund housing solutions and create thriving, equitable communities. Investing in proven housing solutions can prevent and reduce homelessness, strengthen family well-being, improve broader health and education outcomes, and promote long-term economic prosperity.

As more people struggle to stay housed, states cannot afford to wait. With the federal government cutting and weakening already underfunded programs, states have an opportunity and face a real need to lead, demonstrating their commitment to being part of the solution to the housing crisis and building the momentum needed to press the federal government to do more.