Higher labor and material costs and rising interest rates, amid limited public funding and tax incentives are some of the pressure points raised by 156 affordable housing professionals who attended the U.S. Housing Community and Development Conference earlier this month. Those strains are forcing them to seek out more creative financing.

"Projects frequently involve intricate capital stacks, relying on multiple funding sources, expanded subsidies, and facing ongoing scarcity of equity. In response, developers have shown that same openness for opportunity by seeking out alternative funding mechanisms, such as donor-advised funds, CDFIs, and back-to-back bond sales," said Andrew Warren, head of community development lending at TD Bank. 

Rising operating costs are also forcing tradeoffs such as reduced resident services, deferred maintenance and staffing changes for the majority of respondents. 

Planned projects have been delayed, resized or cancelled within the past six months due to financial or cost pressures for 77% of respondents. More than half said their projects significantly rely on public subsidies and gap funding to move forward. 

Most recently, the Senate passed a housing bill that is aimed at cooling prices, partly because of a lack of affordable housing. 

Builders are navigating rising material costs since President Donald Trump announced tariffs last year, but the concern has come up again as inflation ticks up from the war in Iran.

Last week, the U.S. The Department of Housing and Development published a proposal that would support multi-story, manufactured housing construction by providing greater flexibility. 

"America needs more housing, and manufactured housing is part of the solution," said Secretary Scott Turner in a press release. 

TD survey respondents also saw opportunities in middle income housing as a way to address the affordability crisis. 

"Compared to low-income housing, which often depends heavily on constrained public subsidy funding and complex structures, middle-income projects offer greater flexibility to structure deals, attract private capital, and make the economics work in today's environment while still maintaining affordability," said Warren. 

Warren also sees strategies such as single-room occupancies and dormitory-style housing are regaining traction. 

Respondents of the survey were also split about the ways AI will impact the mortgage industry. Compliance and reporting, financing and underwriting, development and construction planning are the main places where they saw the most possible impact. 

"It's more the low complexity tasks to the moderate complexity tasks where you're seeing AI being leveraged," said John Geertsema, managing principal at Capco.

TD bank group's AI team already launched an AI product that completes mortgage loan applications, which they say shaves off hours of paperwork. Streamlining or even automating some of these processes could be one way to lower costs.