Mixed-Income Communities Rise to the Occasion
A worsening housing shortage and high inflation are driving the demand for these communities.
Mixed-income housing offers a lot of social benefits by deconcentrating poverty, bridging divides between residents, and revitalizing neighborhoods. Often, developers will team up with a nonprofit to help lift up the neediest residents. But these projects also make a lot of economic sense, especially in the current environment in which residents at various income levels are struggling with higher rents and a lack of affordable options, and developers are facing their own financial challenges.
“Despite the (economic) volatility, demand is still strong,” said Carolee Fink, principal at MSquared, a New York City-based developer of mixed-income. “We still live in a country where more than half of renters spend more than half their income on shelter.”
The inclusion of a range of income levels provides options to the “missing middle,” those making too much to live in traditionally affordable housing, and those with too small of an income to live in market rate. “The mixed-income effort is one to get at the moderate- income bracket,” explained Tim Henkel, president at affordable housing developer Pennrose.
The pervasiveness of the housing crisis has motivated both an increase in density within new projects, and a heightened focus on appropriately allocating units to different income levels. Mixed-income properties are often located near transportation hubs, fortunately, walkable and accessible communities are increasingly popular with higher-income renters as well.
“When you look at what’s being developed in the U.S. today, you’ll see a picture of (units for renters making) 60 percent of the area median income, some for 80 percent, and a nice mixture of market rate,” said Pamela West, senior portfolio manager of Impact Investing at Nuveen Real Estate.
The higher rents on some units are also enabling impact investors and affordable housing developers to serve an affordable mission at a time when construction and financing costs have risen sharply.
“Having a portion of the units that are workforce affordable, (along with) low-income affordable does help the numbers for us,” said Deborah La Franchi, CEO of SDS Capital Group, an affordable housing investor and developer, and a principal at the American South Real Estate Fund, an impact fund. “(It’s) beneficial in having some higher-level rents in a time where the costs have been escalating on projects.”
Bigger and Taller
Last fall, the Biden Administration announced that its Housing Supply Action Plan would make it easier to build mixed-income housing that includes very low income-tenants by reforming the income guidelines for LIHTC. The LIHTC income averaging rule would allow projects to apply for LIHTCs based on the average income limitations for rent-restricted units rather than requiring a single income limitation.
Likewise, on the state and local level there is a more favorable attitudes towards zoning reform that would allow for taller residential buildings, which could accommodate a variety of income levels, and multi-family where only single families have been built. For example, to meet her goal of adding 80,000 new homes over the next decade, New York State Governor Kathy Hochul has proposed requiring all localities with rail stations run by the state to undertake a local rezoning or higher-density multifamily development within a half mile of the station unless they already meet the expected density level. The plan has met stiff opposition from local municipalities and Republic state lawmakers.
“The trend for sure is towards higher density,” something driven by, explained Tim Henkel, president at Pennrose. “We have historically seen a lot of objection to higher density in some suburban settings. Now, we’re looking at some suburban transit nodes as less suburban and more urban-tolerant.”
The preference for walkability and growth of renting by choice support are helping create demand for these projects among more well-off residents as well. “(These developments) provide a solution to accommodate heavy traffic flows and offer the local population an easy and accessible living location,” Ryan Von Weller, managing director of development at Wendover Housing Partners, told MHN.
In light of the sheer population growth of Central Florida, the firm’s base of operations, Wendover has taken to building communities that are either located close to current or planned public transportation nodes. Still, the firm recognizes that convenience and livability is not solely a matter of access to work, but to recreation as well. “It’s important to us that we’re providing residents with an enjoyable living experience with seamless access to jobs and recreation,” Von Weller added.
Widespread recognition of the demand for housing at all levels has eclipsed some of the opposition that these projects typically encounter. As seen in the New York case, however, there is still some NIMBYISM that developers must contend with. NRP Group Executive Vice President of Development Aaron Pechota has noticed difficulty building in the suburbs, where virtually anything related to multifamily is seen as a “dirty word,” and where development is a “long and challenging process—even up front.”
Sponsors say they deal with naysayers by forming relationships with residents and officials and educating them on the economic and social benefits of the communities. Pennrose uses a website that features frequently asked questions, employment opportunities and proposals for the future of a given mixed-income project. Von Weller’s approach to education is similar and takes care to show the contributions and value that a given mixed-income development will bring to its surroundings on both a physical level and interpersonal one.
“What people don’t realize is that these properties are designed and built with the same attention to detail as any market rate property is built,” said Von Weller.