Affordable housing crisis paints ‘bleak picture’ for developers

Affordable housing crisis paints 'bleak picture' for developers

Erica Velez considers herself lucky. A 31-year-old single mom in San Antonio, she’s been struggling to find a place to live since last June, when she fell behind on rent and bounced between sleeping on friends’ couches and in her car.

Then in November he got a call that brought tears to his eyes: A two-bedroom house in Mirasol Townhomes, a public housing development of townhouses and single-family homes, had just opened for $675 a month. Her previous monthly rent of $950 put a strain on her salary as a house cleaning service dispatcher. But now she could buy a house with the extra money for herself and her 8-year-old daughter, who plastered her new bedroom with pictures of favorite anime characters.

“There are a lot of people in San Antonio who are struggling to find housing,” Ms. Velez said. “It’s out of their price range.”

His experience echoes the broader challenges posed by an affordable housing shortage in the United States. Builders have been stymied since the pandemic by higher costs for materials and labour, stricter lending practices, rising interest rates and supply chain hiccups.

The uncertainty threatens to further slow down the process of building affordable homes. So many developments have been shelved or delayed that some experts expect a “production cliff” will be hit in a year or two, meaning fewer new homes are coming to market.

“When I started my career 30 years ago, the topic of affordable housing was usually limited to really low-income customers, industries and jobs,” said Albert Milo, president of the affordable housing division of Related Group, an urban developer. . “Now, it is totally different. Most of the areas in the country are talking about teachers, police officers, nurses, professionals who are struggling to find affordable housing for their income.”

In 2021, 160,000 affordable homes and apartments are projected to be produced nationwide, said Benson Roberts, president and chief executive of the National Association of Affordable Housing Lenders.

But industry setbacks have dimmed the chances that the country will make up for the affordable housing shortage. distanced more than 500,000 homes during the pandemicThat leaves a national shortfall of 7.3 million homes for extremely low-income renters, according to the National Low Income Housing Coalition.

“Just as the pandemic eviction moratoriums were coming to an end and resources were being depleted, the lowest-income renters entered a truly brutal housing market,” said Diane Yentel, president and chief executive of the Housing Coalition. “Rents are skyrocketing, costs across the board have risen with increased inflation, and they have little or no resources to pay.”

The cost of materials and labor remains very high. Developers are responding by cutting back, including using cheaper materials, setting higher income cutoffs and reducing the number of affordable apartments on projects that mix affordable and market-rate homes.

For affordable housing, builders and financiers mix together various sources of public and private funding. But piecing together the “capital stack” — the full financing package, which can include loans, tax credits and subsidies — has been more challenging.

Lenders are skeptical about investing after several medium-sized banks failed this year. Interest rates are climbing rapidly, which is driving up costs. Every quarter-point increase in the cost of a loan can add a million dollars to the cost of his development, said Jonathan Gertman, senior vice president at NRP Group, an affordable housing developer.

A key federal tool for financing these builders, the low-income housing tax credit program, has lost some of its value as interest rates have climbed, and loans issued by the Department of Housing and Urban Development for apartment buildings have declined. Quantity this year is half over, Even the operating expenses of existing buildings have increased, meaning the companies running them make less money, hindering their ability to invest in new projects.

“It’s the most difficult time in our 30 years in business, a very bleak picture,” said Rafael E. Sestero, chief executive of the Community Preservation Corporation, a nonprofit affordable housing financier in New York.

The overwhelming majority of affordable housing comes from private developers who tap public subsidies in conjunction with public agencies.

Late last year, NRP Group was trying to salvage a deal to build Los Arcos at Vida, an affordable project in San Antonio. The construction cost was originally $110,000 per unit in April 2021, but by December, interest rates had increased and the per-unit cost had risen to $151,000. NRP found itself $7.75 million short and in trouble, as most of its public funding was contingent on the deal closing that year.

“Our motto here is, time kills deals,” said Debra Guerrero, NRP’s senior vice president of strategic partnerships and government affairs. Fortunately, the NRP was able to close the gap through city bonds and federal funding and ground breaking.

Developers need to navigate the same city zoning rules and permitting processes that regulate all construction projects. Brookings Institution researcher and housing expert Jenny Schuetz said the industry needs reforms to zoning codes and more federal funding. He said that policies are simple, but the politics of making them a reality is challenging.

Local governments, including Montana and Massachusetts, have made rapid changes to zoning and permitting practices to speed up construction. Others invest in “soft money” – long-term loans with exceptionally low interest rates.

San Antonio, country’s poorest major city, has implemented policies to help low-income renters, including issuing a $150 million bond to support affordable housing construction and a strategic housing implementation plan, according to census data. Before the pandemic, the waiting list for public housing in San Antonio was about 35,000 families earning an average of $11,000 a year, said Ed Hinojosa Jr., president and chief executive officer of Opportunity Homes, the city’s housing authority. Today, it is 95,000.

“The need has never been greater than it is now,” Mr. Hinojosa said. “And the trends we’re seeing, it just continues to grow.”

In California, the state housing agency created an accelerator program to help cover some of the funding gap in the pandemic while the Legislature has Passed more than 100 laws since 2016 To loosen restrictive zoning. The mayor of Los Angeles, Karen Bass, vowed to cut red tape for affordable housing projects.

Florida, which has seen a massive influx of residents, passed the $710 million Live Local Act in March, a hybrid package of funding and zoning initiatives to catalyze affordable homebuilding and usurp some local power to block growth .

The need for such homes is critical, said Ryan Von Weller of Wendover Housing Partners, who advised legislators to fashion Live Local, especially in markets with a large workforce of hourly hospitality workers.

“You’ll never be able to get your head above water with this issue, but you have to do something,” he said. “Watching things slide downhill is not an option.”

Developers expect markets to eventually return to normal, making financing easier to obtain, and some have suggested that the cooling off of other real estate sectors, such as offices, will free up construction labor. But few see any hope that production will increase in a way that will close the supply gap anytime soon.

Perhaps the best case for optimism comes from a realization of the depth of the problem: The scale of the need has brought Republican and Democratic politicians together in a shared sense of a crisis, said Ms. Yentel, chair of the National Low Income Housing Coalition. Two bipartisan bills have been introduced in the House of Representatives to build or preserve 1.5 million affordable homes over the next decade.

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