Mixed-Income Seen as Key to Affordable Housing
Demand is stronger than ever, but financial challenges for developers are great.
Fewer than 10 percent of rental units are affordable to renter households earning 50 percent of median renter income, according to Freddie Mac. This is an indication that rental affordability continues to be a problem and that the supply of affordable housing is insufficient to meet current demand.
“The market is doing well―much better than typical market-rate developments,” said Albert Milo, president of Related Urban Development Group, the affordable housing division of Miami-based The Related Group. “However, there are a lot of challenges, due to people’s abilities to pay the rents long-term and what’s going to happen now as these moratoriums on rent collections and evictions start to expire. And COVID-19 is actually increasing the demand for affordable housing.”
According to Moody’s Analytics REIS, the national vacancy rate for the affordable housing sector was 2.4 percent in the second quarter of 2020 and is expected to remain flat through the end of the year. Construction of low-income housing was not impacted by COVID-19 delays because affordable housing construction was deemed essential due to the critical need.
Unlike the standalone low-income housing buildings of the past, however, affordable housing projects today are likely to be mixed-income to make the deal more feasible due to the broad range of incomes. They may even be part of a mixed-use community. One example by Habitat is 43 Green, a three-building transit-oriented development expected to break ground in Chicago in 2021.
“Mixed-income, mixed-use and transit-oriented development is the winning trifecta for the future of underserved neighborhoods across the country,” said Charlton Hamer, senior vice president at Habitat Affordable Group. “The formula works because it infuses neighborhoods with desperately needed resources that will fuel long-term growth.”
Sector Insights rotates among market rate/luxury housing, workforce housing, low-income housing, student housing, senior housing and mixed-use.