The Number of Insecure Renters to Increase

Will the affordable housing sector hit a roadblock anytime soon? Bank of America Merrill Lynch's Maria Berry discussed the challenges in the industry and how changes in the tax system will impact the sector.
Maria Barry, Bank of America Merrill Lynch
Maria Barry, Bank of America Merrill Lynch

Affordable housing emerged as a predominant challenge in this year’s multifamily investment market. The shortage of low-income housing affects nearly every community in the U.S. The demand-supply imbalance  continues to widen the country’s affordability gap. 

Maria Barry, community development executive at Bank of America Merrill Lynch, discussed with Multi-Housing News what fuels the need for affordable housing and the latest trends in the industry. 

Tell us about the Bank of America Merrill Lynch’s Community Development Banking.

Barry: At Bank of America Merrill Lynch, we have the capacity to deploy capital and deliver integrated debt and equity solutions to developers and owner/operators of affordable housing across the country. We provide debt and equity to finance community development. This includes housing for families, veterans, seniors and those in need of supportive services, such as the formerly homeless.

What can you tell us about the national outlook on affordable housing?

Barry: In terms of the national outlook, there is continued high demand for affordable housing, but fewer resources. According to projections from Enterprise Community Partners and the Joint Center for Housing Studies, even if rent growth matches income growth, the number of housing insecure renters is expected to increase by about 1.3 million households over the next decade—an increase of over 10 percent.

What are the trends that shape the affordable housing sector?

Barry: One of the major trends for the industry is the continuous need for affordable housing. Preservation is of continuous importance for residents and the industry overall. There is a growing focus on healthy housing options, sustainability and the emphasis of employment opportunities in community development. Also, the trend of growing mixed-incoming housing developments and workforce projects continues to be seen in the industry.

Though still insufficient, the affordable housing stock has recorded a remarkable growth since 2010. What factors triggered this?

Barry: First and foremost, there has been a continual need. The growth of urban areas and metropolitan cities has driven the need for affordable housing across the country. According to the Enterprise study, more than one in four families who rent their homes—11.4 million renter households in total—are “housing insecure,” meaning they pay more than half of their monthly income on housing. Additionally, the number of housing insecure renters in the U.S. has increased by over 30 percent in the past decade. Finally, lower interest rates and access to capital also contributed to a growth in affordable housing.

How is public housing reshaping itself through Multifamily Accelerated Processing and the improved HUD structure?

Barry: Many public housing authorities have taken advantage of HUD’s Rental Assistance Demonstration (RAD) program to secure a more stable source of subsidy through Section 8 contracts. This has also allowed for the infusion of private capital, both debt and equity, to address years, sometimes decades, of deferred maintenance. 

HUD has made a number of recent changes that benefit affordable transactions, including significantly reducing the mortgage insurance premium on affordable deals, rolling out a single underwriter model to streamline HUD processing, strengthening Low-Income Housing Tax Credit (LIHTC) expertise within HUD and relaxing the previous requirements around pay-in of LIHTC equity. All of these changes benefit RAD transactions. Bank of America Merrill Lynch provides FHA financing for multifamily affordable housing development and has experience in financing RAD deals with FHA.

What tax credits and reforms will revitalize communities and influence the affordable housing segment?

Barry: One example is the New Markets Tax Credit Program, which helps communities grow by supporting the creation of jobs and services in low-income communities. Additionally, the historic tax credit is instrumental in repurposing historic structures to bring them back on the tax rolls and preserve properties that are architecturally significant in our communities. It also creates jobs and revitalizes neighborhoods. As intended, the LIHTC will help finance affordable housing, however, tax reform may reduce tax credit values.

Image courtesy of Bank of America Merrill Lynch