Affordable Housing Is a National Math Problem
Financing the development and preservation of low-income units is a challenge in today's dynamic marketplace, so private organizations are taking matters into their hands.
Rafael Cestero, President & CEO, Community Preservation Corp. Image courtesy of Community Preservation Corp.
Affordable housing is not an issue only for large coastal metros such as San Francisco or New York City. The need for low-income units is widespread. Second-tier markets are struggling with affordability issues, while affordable housing projects in rural areas are almost absent.
“The politics of development have become more complicated. At the same time there’s an affordability crisis, people fear overbuilding, they fear overcrowding, there’s this stress on transportation, on schools. All of these things are linked together and need to be thought of as one package,“ Community Preservation Corp. President & CEO Rafael Cestero told Multi-Housing News.
Government contribution needed
Apart from a long list of regulatory challenges that developers frequently face, such as land use approval or building codes, the most important barrier they need to overcome is funding. Private capital is not enough to sustain the affordable housing sector.
“We have a federal government that has for many years been absent, largely, from the affordable housing business. It’s a math problem because if you’re building rental housing and you want to keep your rents low, and you have rising land and rising building costs, you need government intervention in the form of subsidy in order to help underwrite those projects,” Cestero said.
(Read: NY Launches $20B Affordable Housing Initiative)
Large metros such as New York City pump billions of dollars from tax revenue into affordable housing initiatives, but few—if any—cities can afford to do that. Insufficient funding deepens the supply-demand gap. “There are statistics out there that suggest that there are as many as 11 million renters in this country who are paying more than 50 percent of their income in rent,” Cestero added.
Hands-on approach
In February, CPC launched a subsidiary that focuses on the agency lending business. CPC Mortgage Co. was first introduced at CREF in San Diego. The newly created firm provides a suite of Freddie Mac, Fannie Mae and Federal Housing Administration products for the acquisition, refinancing, rehabilitation and construction of multifamily properties. One of the main goals of CPC Mortgage Co. is to diversify revenue for CPC.
This year, CPC was involved in the acquisition of a 515-unit portfolio in South Bronx for $100 million, in partnership with NCV Capital Partners, Mount Hope Housing Co. and Lemor Development Group. CPC and Amalgamated Bank provided financing for the project, which is part of Mayor Bill de Blasio’s New York housing plan—Housing New York 2.0—to produce 300,000 affordable units by 2026.
