How Affordable Housing Is Faring Amid Current Uncertainties

Graham Dozier of Regions Capital Markets examines current challenges, opportunities and solutions.

regions bank managing director on affordable housing
Graham Dozier

It’s an urgent need in cities large and small. Regardless of geographic region, local economic conditions, or the national economic picture, access to affordable housing is a consistent priority for individuals, families and communities working to build greater prosperity.

This means those of us who work on the business and financial sides of affordable housing must consistently assess the landscape and identify the best, most sustainable paths forward in helping meet the needs of the markets we serve.

Broadly speaking, supply is failing to keep up with affordably priced rental unit demand among Americans with lower incomes. With mortgage rates remaining higher for longer, homeownership goals have changed for many consumers. More people are remaining in the rental market for a longer duration, further impacting supply-and-demand dynamics.

While the need for affordable apartments remains high, occupancy within these apartment communities is holding steady and strong.

Despite that, operators active in the sector currently face some challenges.

  • Costs are rising. Consistent rumblings within the industry point to insurance rates being a significant cause of those costs. 
  • Rates are increasing for many operators due, in part, to the growing number of storms and weather events—whether hurricanes, fires, or other disasters—that in recent years have inflicted serious physical and monetary damage to properties.
  •  Construction costs are also elevated due to inflation.

Another ongoing challenge is addressing the concerns of people who do not want affordable housing communities developed next to their existing neighborhoods. Combined, these factors have made it harder for many deals and projects to be completed.

The upsides

The situation within the sector isn’t all bad, however. On a positive note, two current, interrelated trends are emerging.

The first is growing awareness surrounding the lack of affordable housing and its implications. More specifically, knowledge of the lack of supply has expanded beyond specific regions where the issue was concentrated and well known, and the problem has now become a nationwide concern. In becoming a countrywide issue, experts are hopeful the affordable housing arena will start to see more local, state and federal support via incentive programs for new construction projects.

The growing attention to the problem is also generating more interest in the sector from national, institutional-grade investors, developers and owners. With increased backing from these groups, some of the discrepancy between supply and demand will hopefully narrow.

On the finance side, interest rates today are holding steady at a 23-year high. At the Federal Reserve’s most recent meeting in March, rates were left as is with a possible rate cut now anticipated to potentially occur in summer, pending inflation data.

For those in the market and looking to either finance or refinance existing affordable rental communities, two loan sources remain top, available options. Fannie Mae and Freddie Mac continue to put support behind the sector, following their mission of ensuring liquidity for owners and operators and keeping existing units available to Americans who need them.

Both agencies offer loans for sustainable multifamily properties. These loans are accessible to borrowers who are optimizing energy and water efficiencies within their properties. Borrowers are encouraged to review all benefits and parameters with an approved agency lender partner and take advantage of these programs if they and their properties meet the requirements.

Fannie Mae and Freddie Mac also offer finance incentives to sponsors who agree to self-restrict some of their unit rents to certain income levels. Notably, there is a meaningful amount of traction with these incentive programs.

Of note, the FHFA also boosted both the Fannie Mae and Freddie Mac annual LIHTC investment caps at the start of 2024. Both agency caps increased from $850 million in 2023 to $1 billion in 2024. The government-sponsored enterprises also adjusted their LIHTC equity investment policies to guarantee they only support projects that will remain affordable for the entirety of the 30-year period of the program. These investment cap increases further enable the agencies to create and preserve affordable housing.

Beyond financing, owners and operators active in affordable housing should familiarize themselves with all available incentives at the local, state and federal levels surrounding the creation and preservation of affordable housing. Some states offer tax breaks in exchange for restricting a percentage of units to specific rental rates. Additionally, for LIHTC developments, certain costs such as impact and permit fees may also be waived in some instances.

So, whether sourcing financing for existing properties, or looking to develop new product, there are incentives available. An experienced financial professional can help you identify options that best meet your needs, not only today—but also as newer options evolve over time.

Graham Dozier is managing director of Regions Real Estate Capital Markets, a leading provider of affordable and workforce rental housing finance.

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