What’s Next in the Affordable Housing Fight
JLL's Angela Kelcher on some powerful strategies for creating and preserving these units.
The volatility of the market remains a significant challenge in the fight for affordable housing. The current state of the market in both the single-family and multi-housing sectors is plagued by supply constraints. In the single-family market, sellers are deferring their decision to sell out of their low interest rate mortgages, reducing the availability of existing home inventory. In 2022, only 42 percent of new and existing homes were affordable to families earning the U.S. median income, according to JLL Research. Builders’ sentiment has also dropped due to the impact of near-record-high mortgage rates, reducing their optimism about demand moving forward. These factors will influence would-be homebuyers to remain renters for longer.
Although new multi-housing supply already underway will hit the market, multi-housing construction activity fell sharply in August and will continue to weigh on the supply-demand imbalance long term. The high interest rate environment is exposing cracks in the housing market and muting transaction activity. Negative leverage, tighter credit terms, elevated construction costs, and rising operating costs, notably insurance and payroll, increase the difficulty of financing and maintaining affordable housing projects. Over time, increasing costs in the face of limited rent growth will mean some owners will make the difficult decision to delay capital improvements causing deterioration in property condition.
And the lowest income populations are impacted the most. According to JLL Research, 70 percent of the country’s extremely low-income renter households are severely cost-burdened, spending more than half of their income on housing. Although we continue to see job growth, inflationary pressures and rising costs can be detrimental to seniors on fixed incomes. These challenges highlight the urgent need to lean in on solutions to create and preserve affordable housing options.
Leveraging Previous Successes
To address these challenges, policymakers, advocates, and organizations must prioritize the expansion of affordable housing programs and initiatives by leveraging the success achieved in existing programs, while continually innovating and pushing forward new ideas. These programs and initiatives include:
- Federal Programs, Initiatives, and Legislation: The continued expansion of the Low-Income Housing Tax Credit (LIHTC) is essential for the creation and preservation of affordable housing. The “Affordable Housing Credit Improvement Act” is a promising bill that aims to reform and expand the LIHTC program.
- State and Local Programs: Fostering public-private partnerships is a key opportunity for creating and preserving affordable housing. Governments at the local level can implement measures such as granting density bonuses, streamlining entitlement processes, providing subordinate debt or gap financing or offering property tax exemptions.
- State Tax Credits: The introduction of state tax credits can significantly contribute to the viability and financial sustainability of affordable housing projects. Multiple states have already implemented these credits to encourage developers to invest in affordable housing initiatives.
- Going Green: Implementing energy-efficient designs and technologies in affordable housing projects can result in lower operating costs over time. The savings generated can then be redirected towards improving affordability and ensuring the financial sustainability of affordable housing projects.
- Mixed-Income Housing: Developing mixed-income housing, which combines affordable units with market-rate and higher-income housing, is an underutilized yet compelling approach to address the affordable housing crisis and has a positive impact on communities. By leveraging quantitative data on crime reduction, educational outcomes and economic mobility, policymakers can prioritize and incentivize mixed-income housing development to create vibrant, diverse and inclusive communities.
- Modular Housing: Modular construction presents an emerging opportunity to expedite the construction process and increase the supply of affordable homes. Its cost-effectiveness, time efficiency, quality control, and sustainable advantages make it a compelling alternative to traditional construction methods. However, potential challenges related to design flexibility, transportation logistics, site preparation, skilled labor availability, building codes, financing and perception need to be carefully managed for successful implementation.
The challenges facing affordable housing are undeniable, but there are emerging opportunities to be found. Public-private partnerships, state tax credits, energy-efficient designs, mixed-income housing and modular construction can all contribute to overcoming these challenges. Additionally, federal programs, initiatives and legislation, such as the expansion of the LIHTC through the Affordable Housing Credit Improvement Act, play a crucial role in creating and preserving affordable housing. By working together and utilizing all available tools, significant progress can be made in the fight to create and preserve affordable housing options for the benefit of communities nationwide.
Angela Kelcher is senior managing director with JLL Capital Markets.