Affordable-housing developers nationwide are stalling work on new projects, delaying thousands of units from coming to market when the U.S. already has a broad deficit of low-income housing.
These forces can disrupt all types of property development, but they have been especially detrimental to affordable housing. Developers of market-rate apartments can raise rents when they are running low on cash. Affordable-housing developers tend to be limited in their rent increases in order to qualify for federal tax credits.
“‘I’ve been doing this for 18 years. I’ve never seen this level of uncertainty or this level of complexity to get anything done.’”
“I’ve been doing this for 18 years. I’ve never seen this level of uncertainty or this level of complexity to get anything done,” said Aaron Pechota, executive vice president of development and head of affordable housing at the
Group, a Cleveland-based multifamily developer.
NRP started this year with plans to finance and start building nearly 1,900 affordable housing units. Now the organization is postponing plans for at least 200 of those units while it tries to line up the additional financing.
The shortage of affordable housing has worsened over the decades, leaving the U.S. short seven million affordable units for the lowest income renters, according to the National Low Income Housing Coalition. That deficit reflects a long stretch of under-building and a lack of federal housing subsidies, especially as the gap between household incomes and housing costs has widened, NLIHC President and Chief Executive
said at a Senate Banking Committee hearing in August.
Today’s economic climate may only exacerbate the nation’s longtime affordable housing issue. “It will become much bigger in two years when delivery numbers drop significantly based on the lack of starts today,” Mr. Pechota said.
Developers that have broken ground but are short of cash are leaving projects temporarily unfinished. Construction delays are the top reason that Enterprise Community Partners, a national affordable housing nonprofit, has seen projects it has invested in pause this year, said President and CEO Priscilla Almodovar. Many of these delays last for over three months.
Affordable-housing builders typically factor in 2% to 3% operating increases and about 10% of a buffer for construction, according to Dirk Wallace, a partner at the accounting services firm Novogradac & Co. LLP. This year, operating costs have risen by 9% or 10% for some projects while others have been “exhausting” the construction buffer “and then some,” Mr. Wallace said.
“Some developers have had to sharpen their pencils and say, ‘Do we really need this amenity? Are there opportunities for value-engineering?’” said Buzz Roberts, the president of the National Association of Affordable Housing Lenders.
The Arlington Partnership for Affordable Housing, a nonprofit affordable-housing developer for Arlington, Va., and the surrounding D.C. metro area, is trying to find cheaper building facade materials or eliminate parking garages if a property is close to public transport, said APAH’s chief executive officer, Carmen Romero.
Still, there are recent reasons for optimism, developers say. In 2021, when the federal government issued $350 billion in fiscal recovery, only 3% was used for affordable housing as of late July, according to Mr. Pechota.
In late July, the Treasury Department clarified and expanded the regulations on how governments can distribute those funds, allowing for more allocation to affordable housing.
“We anticipate more developers, potentially housing agencies working together to use that aid to support housing, because there is a lot of money there,” said Cindy Fang, a partner at CohnReznick, a national tax adviser with a large practice dedicated to affordable housing.
Meanwhile, developers have tried to find “creative workarounds” to move their projects along, said Ms. Almodovar. Some are applying for philanthropic funding or preordering building materials before their deals close to circumvent supply-chain delays. Organizations like APAH have had to request additional funding from state and local governments.
“We usually don’t need to go back,” said Ms. Romero. “But it’s either putting the project on hold, not fulfilling it at all, or really needing to go back to your partners and say, ‘This is the reality in the market, how are we going to work together?’”
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