WASHINGTON (Reuters) – The U.S. Treasury said on Wednesday that it will allow state, local and tribal governments more flexibility to use COVID-19 rescue funds to boost the supply of affordable housing, including permission to issue direct long-term project loans.

The changes for the $350 billion State and Local Fiscal Relief Fund program are aimed at filling a financing gap for affordable housing projects, allowing them to be more easily developed, especially those that are eligible for the Treasury’s Low-Income Housing Tax Credit.

State, local and tribal governments can fully provide loan principal under the new guidance, provided projects meet certain criteria.

The Treasury also said it is expanding the range of uses of the funds for projects beyond those currently allowed under two major Department of Housing and Urban Development programs to additional federal programs from multiple agencies.

U.S. Deputy Treasury Secretary Wally Adeyemo said Treasury is making clear that state and local funds may be used to finance the development, repair and operation of any affordable rental housing unit that provides long-term affordability of 20 years or more to households at or below 65% of the local area’s median income level.

Treasury had previously called on states and municipalities to use more of their COVID-19 allocations to address a severe shortage of affordable housing, a driver of inflation..

But Adeyemo said that state and local housing agencies had asked for more flexibility and broader uses of the funds.

“The thing that I have seen more and more is that there are a number of affordable housing projects today that started during the pandemic that have become more expensive, and there’s a need for additional gap financing,” Adeyemo told reporters. “And that’s hard to find.”

Through March 31, over 600 communities had budgeted $12.9 billion from their state and local funding allocations to meet housing needs and lower housing costs, including $4.2 billion for affordable housing development and preservation.

(Reporting by David Lawder; editing by Richard Pullin)

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