Affordable Housing Outlook: What Challenges Will 2024 Pose?
Industry experts touch on key issues and potential solutions for the affordable sector.
Defined by an amalgam of challenges—a global health crisis, record-high inflation, widespread unemployment, rising costs, as well as scarce and expensive debt—the past three years have brought the country’s affordable housing stock to an all-time low. Nationwide, the need for affordable housing is acute, so the urgency to guarantee access to low-cost and quality housing has become acute.
According to the National Low-Income Housing Coalition, renters in the U.S. face a shortage of 7.3 million affordable rental homes, resulting in only 33 affordable and available homes for every 100 extremely low-income households.
Scott Alter expects interest rates to remain high in the near future, but we may see some easing at some point in 2024. Image courtesy of Standard Communities
The pandemic exacerbated the already dire affordable housing crisis. Between 2019 and 2021, the shortage of available, affordable homes for low-income renters worsened by more than 500,000 units or 8 percent, according to the coalition’s latest annual report.
“There are still lingering effects from COVID-19,” said Scott Alter, co-founder & principal of Standard Communities. “Many renters faced financial hardships due to job losses or reduced income during the pandemic… Even as the economy recovers, some individuals and families continue to struggle financially, leading to ongoing challenges with rent payments,” he added.
Joining forces to solve lingering problems
With a portfolio of nearly 20,000 units across 16 states, Standard Communities is looking for viable solutions to add more affordable housing units and preserve the current stock. As of today, the developer has more than 1,400 units under construction.
Alter, just like most other players in the affordable housing arena, believes that public-private partnerships and other types of alliances are and will remain key in creating new housing options for vulnerable households, and protecting the nation’s affordable housing stock, particularly as the economic landscape remains challenging.
Village at Hyde Park, an affordable housing community located some 12 miles from Lake Forest Elementary School, which Ability Housing is converting to affordable housing. Image courtesy of Ability Housing
“It is through cross-sector collaborations that, collectively, we will be better able to create the housing each of us needs in our communities” said Shannon Nazworth, president & CEO of Ability Housing, a Florida-based developer that has four affordable properties underway.
The nonprofit frequently collaborates with local and national health-care partners to provide housing while ensuring residents have access to care, but they also joined forces with the education sector recently. Together with the Duval County Public Schools in Jacksonville, Fla., Ability Housing is transforming a closed school into housing. The vacant Lake Forest Elementary School at 901 Kennard St. will become a 180-unit garden-style community, with a quarter of the apartments reserved for DCPS personnel.
Community Preservation Partners, an owner and developer that has been serving the affordable housing industry since 2004, is also working alongside multiple partners to get its projects off the ground as tight financing conditions continue to have a huge impact on developers’ plans.
The unprecedented interest rate increases have pushed up the cost of debt for borrowers and lowered the loan-to-value and loan-to-cost, but most industry specialists expect to see some easing this year. However, construction costs, insurance and utility costs will continue to pose challenges for all industry players.
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“Nationally, interest rates and inflation will continue to impact the overall cost of creating more housing, as well as access to capital,” said Shannon Nazworth. Image courtesy of Ability Housing
While it is true that building affordable housing has always been difficult, today’s economic context is making it even harder for such developments to pencil out from a financial standpoint, so working alongside other entities from the very beginning of a new project is crucial.
“One challenge is meeting the increasing demand for quality affordable housing while facing increased building costs and too-little available capital for affordable housing,” David Cooper, president of Woda Cooper Cos., told Multi-Housing News. “Operating costs have increased faster than rents, pressuring operations and budgets.”
Cooper also noticed that the industry is still wrestling with supply chain issues in certain segments such as electrical components. Additionally, an ongoing challenge that has been keeping developers up at night in the past few years and continues to cause adjustments in project timelines is the lack of skilled labor, according to Carly Stevenson, executive vice president of property management with Avanath Capital Management.
Pursuing preservation strategies
“In 2024, we anticipate the right approach to property management will be as critical as ever, offsetting the effects of elevated inflation and costs at the community level, ultimately enabling us to pursue additional much-needed affordable and workforce housing preservation opportunities,” said Carly Stevenson. Image courtesy of Avanath
And when new development is so expensive, protecting existing affordable housing stock seems to be twice as important as building. Recently, Avanath partnered with the Housing Authority of the City of Los Angeles in the acquisition of Baldwin Village, a 669-unit community in Los Angeles that was at risk of conversion to higher-income apartments, making it out of reach for many of its long-time residents.
“A California tax exemption for properties that serve tenants at 80 percent of AMI or lower ensured that rents will be kept affordable for low- and moderate-income tenants,” Stevenson said.
BRIDGE Housing—a company that also serves West Coast communities where the scale of the crisis seems to be worse than in any other U.S. region—is also pursuing more acquisitions to protect existing affordable housing stock and even converting market-rate communities to affordable properties by tapping into new sources of capital.
“In 2020, we became the first nonprofit developer in California to issue our own general obligation bonds, a $100 million offering underwritten by Morgan Stanley,” said Bridge Housing President & CEO Ken Lombard. “We also leveraged our strong financial position to close on a $250 million credit facility through a partnership with Morgan Stanley and National Equity Fund.”
But preserving affordable stock comes with its own share of challenges, even when investors and developers access publicly financed programs administered by the U.S. Department of Housing and Urban Development. According to the latest State of the Nation’s Housing Report from Harvard University’s Joint Center for Housing Studies, the annual funding for all types of subsidized housing fluctuates in accordance with Fannie Mae’s and Freddie Mac’s earnings, with allocations decreasing to only $382 million in 2023 after peaking at $740 million in 2022.
Rendering of Villages of New Augustine, a 92-unit affordable housing development in St. Augustine, Fla., that Ability Housing recently broke ground on. Financing for the $25 million project came from the state, as well as local and private sources. Image by Group 4 Design, courtesy of Ability Housing
New policies, programs to ease the crisis
With the housing crisis only worsening over the years, several programs and policies have been introduced to promote affordability in many parts of the country, particularly in the aftermath of the pandemic.
Most recently, California Governor Gavin Newsom signed the Affordable Housing on Faith Lands Act, also known as the “Yes in God’s Back Yard” bill. The new legislation allows affordable housing projects to be built on land owned by faith-based organizations and nonprofit colleges, bypassing environmental reviews and other steps in the approval process.
The availability of public subsidies to fund construction of affordable housing will be critical in 2024 and beyond, believes real estate development attorney CJ Higley. Image courtesy of Affirmed Housing
As California’s housing crisis continues to aggravate, any initiative supporting the development of new housing seems to be vital. This year in November, voters in the nine Bay Area counties will have the opportunity to pass a general obligation bond that will raise $10 billion to $20 billion to support affordable housing and homelessness solutions.
“The fate of this ballot measure will be a huge test of the voters’ willingness and ultimately the state’s ability to address the problem,” real estate development attorney CJ Higley, a partner with San Francisco-based law firm Farella Braun + Martel, told MHN.
On the other coast of the country, the Live Local Act was passed last year in Florida, taking direct aim at the “missing middle.” In 2023, the act appropriated $711 million for affordable and workforce housing, nearly double 2021’s investment, and marking the largest investment in housing in the state’s history. Also known as SB 102, the bill incentivizes housing development by raising tax credit limits, offering property tax abatements, easing zoning regulations, and banning rent control.
“While the cost issue will continue to be a problem for both market-rate and affordable housing development, the availability of public subsidies to fund construction of affordable housing will be critical in 2024 and beyond,” Higley noted.
Considering all of the above, it’s plausible to anticipate that the affordable housing sector will continue to grapple with the challenge of meeting growing demand while dealing with high construction costs and limited available capital. In this context, policy changes and the evolution of interest rates will likely have a huge impact on the industry’s growth.
