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The pros and cons of large scale small scale and scattered site development
In funding or developing dedicated affordable housing units, should localities focus on large-scale development or scattered-site development?
Large-scale development is typically less expensive to finance on a per-unit basis
Large-scale development is typically less expensive to finance than scattered-site or small multifamily development. Funding options include Low Income Housing Tax CreditA dollar-for-dollar tax reduction against federal tax liability, provided to developers based on the criteria set out in the states’ qualified allocations plan. It is the primary source of funding for increasing and preserving supply of affordable rental homes.s (LIHTC), mortgage financing, and bondLong-term loan or debt security issued by corporations or the government. Typical length of maturity is 10 years or more after being issued. financing, all of which can be relatively expensive (sometimes cost prohibitive) financing options for small multifamily and scattered-site development.
The LIHTC program is a common source of equity for affordable housing, but has high overhead costs. Many of the costs of using the tax credit (which include legal, accounting, and consulting fees) are fixed, regardless of the project size. On a per-unit basis, the cost of raising equity through LIHTCs is often prohibitive for both scattered-site and very small multifamily developments. LIHTCs are increasingly feasible for small multifamily developments as the number of units approaches 50, the threshold for large-scale development. In developments of more than 50 units, the large number of units allows the fixed overhead costs to be distributed over a larger number of units, reducing the impact on per-units costs.
Although scattered-site units or very small multifamily developments can be packaged into a single project for purposes of securing LIHTC financing in some states, in practice there are challenges to getting site control on several different buildings within a short period of time. Using short-term financing to purchase and hold properties until a package can be assembled can be risky.
Likewise, mortgage financing is easier to obtain for large-scale development than for scattered-site or small or very small multifamily development. Like the LIHTC, there are fixed costs associated with originating and underwriting a multifamily loan. These costs, which do not vary with the size of the loan, mean that many lenders focus on larger loans; as a result, financing for smaller properties is limited. Where available, it tends to have higher rates and fees than larger loans.
Financing options for non-owner-occupied 1-4 family developments often used in scattered-site development are particularly limited. Fannie Mae and Freddie Mac, the Federal Housing Enterprises, are the primary source of capital for these mortgages, but restrict their investment in non-owner-occupied single-family housing so financing is not universally available. The Enterprise CDFIs also have restrictions on the number of loans for single-family investor properties to the same owner, although they sometimes make exceptions for financially sound nonprofits. In some locations, community banks also offer financing for investor single-family housing.
Large-scale projects have the additional financing option of issuing a bond to borrow the money needed for development. This financing option is generally not available to scattered-site portfolios and small and very small multifamily developments because of the high fixed costs involved, unless several developments are bundled for financing purposes. Smaller localities, however, may not have the resources or land area available for to facilitate large-scale development projects without regional or state support.
Different types of development fit the existing character of different neighborhoods
Scattered-site development can offer a wide range of types of housing
Scattered-site development that includes single-family buildings offers an advantage in that it can expand the housing choices available to tenants to include duplexes and single-family homes with yards that offer more private space. In addition, if located in low-poverty neighborhoods, both scattered-site and small multifamily development can provide affordable opportunities for lower-income households to live in low-density, higher-income neighborhoods.
Scattered-site development can contribute to community revitalization
Tenant-based rental assistance can be an alternative to scattered-site development
 The term “scattered-site housing” does not have a universally agreed-upon definition. In practice, it is generally used to refer to housing that occupies multiple non-contiguous sites in buildings of up to about 20 units.
 What is considered large scale depends on the context. In New York City, a residential development is not considered to be large scale unless it contains more than 500 units.
 Anderson, Bendix, “Developers Help Fill Pressing Need with Scattered-Site Affordable Housing,” Multifamily Executive Magazine, 2017.
 See, for example, Deng, Lan (2005): The cost‐effectiveness of the low‐income housing taxcredit relative to vouchers: Evidence from six metropolitan areas, Housing Policy Debate, 16:3-4,469-511.