What are the costs of affordable housing?

May 22, 2013 admin

In the wake of disaster, both natural, such as Hurricane Sandy, or manmade, such as the housing bubble and subsequent foreclosure crisis, affordable housing has become a critical issue for many homeless or struggling Americans, and one that lacks a clear solution.

The National Low Income Housing Coalition (NLIHC) and federal government say that, for housing to be considered affordable, no more than 30 percent of a household’s gross income should be spent on gross housing costs. Cost-burdened households are those spending more than 30 percent of their income on housing costs, while severely cost-burdened households are those paying more than 50 percent of their income on housing costs.

The NLIHC reports that, in 2013, demand for affordable housing continues to dramatically outpace supply. An estimated 4.5 million units still need to be built to make housing affordable to extremely low-income households, which bring in $19,810 or less annually. Extremely low income (ELI) refers to households that make less than 30 percent of the area median income, which is used to determine a household’s eligibility for affordable housing programs. Families that qualify as ELI often have access to federal and local subsidy programs, but with strong demand and dwindling supply, many of these households go unassisted.

While ELI households are eligible for subsidized housing through Section 8 or rental assistance programs, households that bring in an average income also struggle to maintain the costs of housing, but don’t qualify for aid programs. According to NLIHC data, the median income for a family in the United States is $66,032. While bringing in more than ELI households, many median income families still rely on more development and rent-controlled housing to maintain financial stability in the face of spiking prices and competitive markets.

Other People’s Money, written by New York Times reporter Charles Bagli, shows how tenants are willing to fight for access to affordable housing. In the now-legendary deal, Tishman Speyer and BlackRock paid $5.4 billion for two middle-income and rent stabilized housing schemes in lower Manhattan. Planning to dislodge tenants and raise rents to market value (which, absent of rental laws, a unit in this location could fetch $5,242 a month), Tishman and BlackRock borrowed most of the money to acquire the property, according to NPR. Tenants caught wind of their plan and the tenant association blocked the deal, forcing the property to go into foreclosure and $5.4 billion in investments to disintegrate.

The lack of affordable housing is clearly a problem, but each of the proposed remedies — government subsidies, reform of zoning laws, more development, rent-stabilized properties, nonprofit participation etc. — come with a cost.

The Wall Street Journal recently reported on the acquisition of a multifamily complex in a working-class section of Aurora, Ill. The $5.2 million property was acquired by a joint venture between Mercy Housing Inc. and Housing Partnership Equity Trust, a private REIT founded by Mercy and 11 other nonprofits. Housing Partnership has raised more than $100 million from investors and intends to continue acquiring properties and keeping rents affordable.

Alan Billingsley, a principal with Billingsley Interests and former head of research with RREEF, says that acquiring an existing building and applying some practical renovations, as opposed to developing new properties from the ground up, presents a viable solution to investors devoted to keeping rents at affordable levels.

Institutional investors continue to invest in workforce housing in the United States, and globally. Earlier this month, Canyon Capital Realty Advisors and Citi Community Capital announced a partnership through the Canyon Multifamily Impact Fund, an $800 million fund that will invest in multifamily properties in underserved communities in California, Illinois and Texas. According to a filing with the Securities and Exchange Commission, $50 million has already been committed since its May launch date.

Despite the work of affordable housing advocates, many landlords are acquiring low-cost housing, and adding luxury amenities with the intention of hiking up rental costs, and capitalize on values for multifamily properties, notes The Wall Street Journal. And, if the 2006 lower Manhattan deal is any indication, there are enough investors who are willing and able to acquire affordable housing and try to turn it into a luxury multifamily property, dwindling the supply of affordable rentals.

Advocates for affordable housing would be wise to apply their social mission through for-profit structures, as demonstrated by the movements of the Housing Partnership Equity Trust and Canyon Multifamily Impact Fund.

Sara Kassabian is a reporter with Institutional Real Estate, Inc.

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