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Affordable Housing Crisis Prompts Search for Answers

With the number of cost-burdened renter households exceeding 22 million, finance experts say local, state and federal governments are key to remedying the situation.

(This is an excerpt from the January/February 2024 issues of Multifamily + Affordable Housing Business.) 

One step forward, one step back could easily be the motto for affordable housing development this year. Experts are hopeful a more stable interest rate environment will bolster transaction activity in 2024. At the same time, rising insurance costs, supply-chain hiccups and property staffing issues are forcing developers and investors to proceed with caution in the affordable housing sector.

The one-step-forward theme also applies to the legislative arena. The Tax Relief for American Families and Workers Act of 2024 contained Low-Income Housing Tax Credit (LIHTC) provisions that would have incentivized developers to build more housing for extremely lowincome renters. 

The act passed the U.S. House of Representatives in late January and is headed to the Senate, though the National Low Income Housing Coalition (NLIHC) reports that the major reforms to LIHTC were left out of the bill. 

These speedbumps aren't mere bureaucratic headaches. Some experts say they stand in the way of keeping many Americans safe and secure. 

According to NLIHC, the United States is short 7.3 million rental homes that are affordable and available to renters with extremely low incomes, which is defined as either the federal poverty guideline or 30 percent of their area median income (AMI), whichever is greater. 

What's more, NLIHC reports that 60 percent of Americans who are paid hourly cannot afford the average rent for a two-bedroom apartment.

With these topics in mind, Multifamily + Affordable Housing Business reached out to affordable housing finance leaders about what 2024 may bring and how the industry will rise to this multifaceted challenge. The panel of experts included: Bryan Dickson, senior managing director, affordable originations with NewPoint Real Estate Capital; Karen Dubrosky, executive vice president, head of affordable production for Colliers Mortgage; Kamara Green, executive vice president and national director of affordable housing production with BWE; Marge Novak, senior vice president, capital markets, Berkadia Affordable Housing; and Sheri Thompson, executive vice president and head of affordable housing with Walker & Dunlop. Their edited responses follow.

Multifamily & Affordable Housing Business: Please give us a brief summary of the niche your company fills in the affordable housing finance space. 

Dickson: NewPoint provides Fannie Mae, Freddie Mac, HUD/FHA and proprietary debt solutions for affordable housing developers nationwide. One of the fundamental principles of NewPoint is to offer creative products that solve typical and atypical issues that arise while working to finance a deal amid shifting market conditions. 

A hurdle many developers face is a widening imbalance between the sources and uses of funds in a project, as we have seen insurance, material and debt costs increase significantly over the past two years. 

MAHB: How acute is the affordable housing shortage in the geographic area in which your firm operates?

Dickson:Unaffordability is at an all-time high based on the number of renters who are moderately or severely cost-burdened, as the affordable housing shortage is extremely acute on a national basis. The latest figures from Harvard's Joint Center for Housing Studies 2024 edition of America's Rental Housing report are alarming, to say the least. 

There are currently 22.4 million moderately cost-burdened renter households (50 percent of all renter households) who spend more than 30 percent of their income on rent and utilities — that's an all-time high and 2 million more households than pre-pandemic figures. 

Even more worrisome is that 27 percent of all renters are now severely cost-burdened. That's to say, spending more than half of household income on rent and utilities. 

There are now 12.1 million severely cost burdened renters, also an all-time high, and 1.5 million more households than before the pandemic. 

When you look at these levels of cost-burdened households — and add in the fact that 32 percent of renters have household incomes below $30,000 and median cash savings of just $300 — you start to get a sense of how there is a tremendous portion of our nation in precarious situations facing a very real risk of housing instability.

MAHB: What impact did the steady rise in interest rates in 2022 and much of 2023 amid an inflationary environment have on the affordable housing sector? What's the outlook for this sector in 2024?

Dickson: Inflation, the rise of interest rates and residual effects from COVID-19 created a huge impediment for getting affordable housing deals done — either built, rehabbed or sold — for the better part of two years. Rates clearly stalled the business and created all sorts of challenges from top to bottom. 

In 2024, we are seeing rates moderate a bit. There are a few financings I am involved with that have been in the works since late 2022 and early 2023. I am happy to see that some of these transactions have become viable based on improving rates and overall macroeconomic conditions and will close this year. 

We are seeing an uptick in new transactions at the beginning of this year. My hope is that if rates continue to moderate, macroeconomic conditions improve and we get inflation under control, we will see a steady increase in transactions and move toward a normal environment. Hopefully, then we can increase the production and preservation of affordable housing. 

There are, however, headwinds. Insurance costs are going to weigh us down as storms are getting stronger and weather less predictable. 

Developers are also still facing supply chain issues. There is a switchgear shortage, for instance. I recently spoke with a developer who turned to eBay, Craigslist and other non-traditional sources in search of building components to avoid waiting the estimated eight months it would take to source power systems and other parts. 

Additionally, there is still pressure on staffing at the management companies. Management companies indicate that it's difficult to hire and train employees. So, while there is a lot of what I would consider warranted optimism, there are still reasons to take a tempered outlook.

(This is an excerpt from the article "Affordable Housing Crisis Prompts Search for Answers" written by Lynn Peisner for the January/February 2023 issues of Multifamily + Affordable Housing Business.)

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