Confidence in Affordable Multifamily Strong at IBSx
Why more developers are discovering the benefits of affordable housing development.
At the 2021 NAHB International Builders’ Show virtual experience, multifamily industry experts discussed why affordable housing is becoming more popular and easier to build for developers and investors.
Plenty of potential
During the breakout session titled, “New Opportunities in Affordable Multifamily Housing Development,” Robert Landis, a Housing Credit Certified Professional with CAHEC, said that, while the onset of the pandemic last year led some developers to adopt a wait-and-see approach, it also prompted some investors who may have ignored affordable housing in the past to begin considering it as a viable option.
Developers can explore different options within the construction and design phase to maximize an affordable project, said Michelle Boyd, program director for the Housing Lab at the Terner Center for Housing Innovation in California, during “Multifamily Markets and Projects that Make Attainable Living Profitable.” Those options include modular construction, variable layouts like co-living and micro units, and energy-efficient components that can provide monthly operating cost savings.
Speaking of cost …
The experts agreed that building affordable housing and generating a profit is no easy task, but said they expect obtaining financing for affordable multifamily to become easier in the future.
Naturally occurring affordable housing is attainable, said Inherent founder Timothy Swanson but, it requires “solving for better approaches that can bring the costs down.”
Boyd pointed to several ways to lower upfront costs: low-income housing tax credits and other abatements; single-source capital; and vertical integration of development to control risk. In some cases, tech companies and foundations have stepped in to provide a portion of capital as a grant or a low-interest loan for projects. This can provide another option to reduce risk.
It’s not one-size-fits-all
Not all markets can accommodate this product type at the right price points. Experts cited some of the scenarios that could make affordable housing more difficult to integrate. Patricia Watts is a co-founder & senior partner at Greenlight Communities and its affiliates, Deco Communities and Starpointe Communities. According to Watts, coastal markets are too expensive for delivering attainable housing for rent due to the costly nature of such areas.
Such areas, Boyd added, would benefit from incentives that would reduce the regulatory burden and make it beneficial for developers to build affordable housing in these markets. Swanson agreed that incentives could provide the momentum that’s needed to push investors toward affordable product.
Landis warned new investors who are seeking funding for their affordable projects, that programs are very competitive, especially if you’re a new player. There are boxes to check and points to be earned for experience, meaning newcomers won’t be able to access to all funding avenues immediately.
Housing Credit Certified Professional Michael Ellis, whose company Kittle Property Group is based in Indianapolis, said new developers will have to learn as they go and likely partner with a seasoned investor to use their experience as a basis for qualification.
Affordable housing still has a negative association in the single-family suburbs and in some cities. “The industry has worked very hard to overcome that perception,” said Landis.
Affordable developers have had to overcome NIMBYism to fit their properties into higher-income neighborhoods. The key is developing high-quality buildings and educating people about the product. Developers need to sell the value of affordable housing to city councils and neighborhood groups.
Development and financing barriers are challenges that can be overcome. Watts suggested some specific ways to overcome these obstacles, such as designing from the ground up for construction efficiency, working with trade partners during design and keeping construction in-house.
Regulatory burdens, too, can be controlled. Innovative policy changes are essential to managing this challenge. New regulations should address streamlining the approval and financing processes, mandating zoning shifts at the state level and providing government-owned land for developers to build more affordable housing.