Key Predictions for the Affordable Housing Market in 2021
In the third installment of our outlook series, experts discuss challenges and trends that will define the affordable housing market in the year ahead.
Despite significant efforts, the affordable housing crisis in the U.S. continued to deepen last year. Nationwide, there’s a shortage of more than 7 million affordable homes for the country’s more than 11 million extremely low-income families, according to the National Low-Income Housing Coalition.
Providing access to safe and affordable housing is essential to reducing economic inequalities, yet no state has adequate affordable housing supply for low-income renters, the same entity reported.
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“Housing creates access to community. Ownership can lead to savings and opportunity to build long-term wealth. Economic inequality will worsen if housing continues to be so unaffordable for so many people,” Jonathan Lawless, vice president of product development and affordable housing at Fannie Mae, told Multi-Housing News.
The health crisis has created even greater economic imbalances across the country. According to a recent Fannie Mae survey, 40 percent of current renters were heavily financially impacted by the pandemic. “America’s housing market has historically failed to serve lower-income residents and the pandemic has revealed that the safety nets we have in place are dangerously fragile,” pointed out Adrian Washington, CEO & founder of Neighborhood Development Co.
Understanding America’s housing crisis
The simplest solution to America’s housing crisis is delivering more supply. However, beyond obstacles—such as rising land costs, labor shortages and burdensome regulations—that make affordable housing development difficult, there are other, more fundamental issues standing in the way of a more affordable housing market.
“There’s no question that housing supply is a challenge, but it’s odd when you consider there are 17 million vacant properties in the country,” Lawless said. “We need to address the challenge of having the wrong supply in the wrong places,” he added.
A major issue is that most of the available homes are in places where there are no jobs that provide opportunities for growth and stability. Instead, workplaces are located in a few areas where housing has become highly unaffordable. Additionally, the available supply doesn’t fit the needs of today’s generation. “Homes were largely built to house the traditional two-parent, 2.3 kids and a dog. The households of America today look very different,” Lawless said.
Trends and challenges
Beyond the preexisting issues, the pandemic has created a two-fold problem for the affordable housing sector—it both exacerbated the need for affordable homes and slowed down new housing development.
“Material costs have increased, supply chain issues have created delays and COVID-19 has drastically impacted the reliability of labor, all of which are contributing to uncertainty in the ability to complete projects on time and on budget, and make it difficult to realistically underwrite,” said Joe Whalen, operations director & senior vice president at Lendlease.
The COVID-19 crisis also forced developers to reimagine the way homes are designed and revealed that there’s a need for quality affordable housing that addresses health, energy efficiency, comfort and community. It has become important to carefully plan and design everything, from ventilation systems to the layout of common spaces, or to create the opportunity for Wi-Fi to accommodate those who are working or home-schooling, Whalen noted.
Another major challenge for developers is putting together the funding stack and finalizing the closing. The year-end bill submitted last month sets the Low-Income Housing Tax Credit floor at 4 percent, which is set to help developers assemble the funding stacks more easily.
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“This set minimum could allow up to 25 percent additional capital to the stacks and help fund budget gaps on current deals, allow deals to become larger—effectively increasing unit counts—and, ultimately, increase the amount of capital that can be allocated by municipalities,” Whalen said.
Although it’s far from solving the affordability issue, it is certainly a step toward creating more affordable housing, and, eventually, alleviating the crisis. Whalen predicted that “2021 will be a big year for finalizing old deals that stalled during COVID-19 … and the year to regroup and restart the affordable program.”
President Joe Biden’s campaign platform called for spending $640 billion on housing programs in the next few years, including establishing a $100 billion Affordable Housing Fund to construct and upgrade affordable housing, increasing funding for the Housing Trust Fund Program by $20 billion and expanding the Low-Income Housing Tax Credit Program by $10 billion. It is still too soon to tell if and how all these plans will materialize.
What is more palpable is that the year ahead will add to the challenges that emerged and deepened during 2020. That is to say, the gap between supply and demand will continue to grow. “2021 will be tough—there’s no sugarcoating it. With hard work, creativity and the help of our public and private sector partners, we’ll push through and look forward to economic recovery as we head into 2022,” Washington concluded.