3 Reasons Affordable Housing Is Destined to Thrive

Richard Lara

While the pandemic had a negative impact on many areas of commercial real estate, it only heightened the need for affordable housing.

In fact, while the retail and hospitality sectors suffered and are still struggling to recover, the multifamily and affordable housing sectors outperformed most sectors throughout the pandemic. 

One reason for this is that general contractors were deemed essential workers due to the existing housing crisis, which was worsened by COVID-19. We believe that the affordable sector as a whole is positioned for a bright future once the pandemic is behind us. Here are three reasons why:

Demand for affordable projects is increasing

The need for affordable housing has grown in recent years thanks to rising home prices and an overall housing shortage, and the COVID-19 pandemic has exacerbated that need immensely. As many lost their jobs and the economy moved into a recession, the number of people who qualify for affordable housing increased, driving demand.

While construction companies like ours were able to remain operable during the pandemic, many general contractors were challenged to complete jobs due to a “wait-and-see” attitude among developers, and general uncertainty in the industry. Now that the pandemic is receding, there is pent-up demand for affordable housing that needs to be met.

As affordable housing developers step away from the sidelines and back onto the playing field, the economy improves and hesitancy among affordable stakeholders diminishes, projects are ramping up again, and demand for affordable housing will follow suit. Municipalities across the country will also increasingly seek out private development and construction companies to help fulfill the rising demand for affordable housing during this time of economic uncertainty, which will continue to drive affordable development nationwide.

Affordable housing has always been a strong performer

Investors consider affordable housing a stable investment, as the sector has historically performed well both in times of economic uncertainty and in times of economic growth.

The main reasons for this are that housing is a necessity and supply consistently outstrips demand. In addition, occupancy rates at affordable housing communities tend to be high and turnover low, which boosts rental income for investors and makes for a more stable environment for residents.

The stability of affordable housing lends itself to innovative specializations. In more recent years, there has been a growing shift among developers towards for-sale affordable housing due to the housing crisis throughout the country. This delivers homeownership opportunities for seniors and low-income families, who otherwise might never have been able to purchase a house.

We believe developing for-sale affordable properties will become increasingly popular in the coming months and years ahead, as developers, municipalities and the general population recognize it as a viable alternative to renting. We also see it as another way to strengthen the performance of this sector moving forward.

Contractors are finding creative solutions to supply shortages

Sourcing construction materials during the pandemic became increasingly difficult, especially from overseas providers, due to port and customs delays that the pandemic created. Additionally, we continue to see a shortage in supplies such as lumber and cement, which has ultimately increased the prices of these materials. With the ability to source materials seriously hampered, projects may become delayed or pushed over budget due to the spike in costs. In fact, the rise in construction materials has been one of the biggest challenges that developers are facing—not just in the affordable housing sector but in general.

Fortunately, general contractors are becoming more innovative and proactive about accessing construction materials. By conducting thorough pre-development planning with a contractor, developers can identify from the start the materials that are essential and materials that can be replaced with lower-cost options.

While the pandemic set many commercial real estate sectors back, the affordable housing sector has remained strong. The demand for this type of housing is increasing, the sector has always performed well and access to materials is improving, so we believe affordable housing is positioned for solid growth well into the future.

Richard Lara is founder & president of RAAM Construction Inc., a general building construction firm specializing in multifamily and historic preservation projects throughout California. More information is available at www.raamconstruction.com