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State housing agencies and local governments are seeking to address the widening affordability gap through new public-private partnerships to build essential housing, according to Fitch Ratings in a new report.

Amid the broader affordability crisis lies a more distressing problem for middle-income earners, such as teachers, police officers, and health care workers, looking for a place to live.

“Despite earning between 80% and 120% of the area median income (AMI), these essential workers often find it challenging to afford housing near their places of employment due to high costs and a shortage of affordable options,” says senior director Karen Fitzgerald.

The public-private partnerships have been able to take advantage of low interest loans, tax incentives, subsidies, and land grants to make projects financially viable, according to Fitch Ratings.

As an example, the report cites the issuance of approximately $10 billion in tax-exempt bonds since 2019 to finance the development of around 45 workforce housing projects throughout California. The bonds have been primarily issued by joint power authorities on behalf of local governments, such as cities, counties, or special districts, to finance the acquisition and conversion of market-rate apartments to income- and rent-restricted units for moderate- or middle-income households.

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