Affordable housing problems paint a ‘bleak picture’

Erika Velez considers herself lucky. A 31-year-old single mom in San Antonio, who had been struggling to find a place to live since last June, when she fell behind on rent and fluctuated for months between sleeping on friends’ couches and in her car.

Then in November, she got a teary-eyed phone call: A two-bedroom home at Mirasol Townhomes, a public housing project of townhouses and single-family homes, had opened for just $675 a month. Her previous monthly rent of $950 put a strain on her salary as a cleaning service coordinator. But now she could afford a house with money to spare for herself and her 8-year-old daughter, who plastered her new bedroom with pictures of favorite anime characters.

“There are a lot of people in San Antonio who are having a hard time finding housing,” Ms. Velez said. “It’s just out of their price range.”

Her experience reflects the broad challenges posed by a shortage of affordable housing in the United States. Since the pandemic, builders have been held back by higher costs for materials and labor, tighter lending practices, rising interest rates and supply chain hiccups.

The uncertainty threatens to further slow down the process of building affordable housing. So many developments have been sidelined or delayed that some experts expect a “manufacturing cliff” to hit in a year or so, meaning fewer new homes coming onto the market.

“When I started my career 30 years ago, the topic of affordable housing was mostly limited to really lower-income clients, industries and jobs,” said Albert Milo, president of the Affordable Housing division of the Related Group, an urban developer. “Now it is diametrically different. Most parts of the country are talking about teachers, police officers, nurses and professionals struggling to find housing that is affordable for their income.”

160,000 affordable homes and apartments will be produced nationwide by 2021, said Benson Roberts, president and CEO of the National Association of Affordable Housing Lenders.

But industry setbacks have reduced the country’s chances of filling its shortage of affordable housing. The gap was widened by more than 500,000 homes during the pandemicleaving a national shortfall of 7.3 million homes for renters on extremely low incomes, according to the National Low Income Housing Coalition.

“Just as pandemic eviction moratoria expired and resources were depleted, the lowest-income tenants entered a truly unforgiving housing market,” said Diane Yentel, the president and CEO of the housing coalition. “Rents are skyrocketing, costs have risen across the board with increased inflation, and they have little to no means to pay.”

Costs for materials and labor remain stubbornly high. Developers are responding by cutting back, including by cutting amenities, using cheaper materials, setting higher income limits and reducing the number of affordable apartments in projects that combine affordable and competitive housing.

Builders and financiers are pooling different sources of public and private financing for affordable housing. But assembling the “capital stack” – the full financing package, which can include loans, tax credits and grants – has become more challenging.

Lenders have become hesitant to invest after several medium-sized banks went bankrupt this year. Interest rates are rising rapidly, which increases costs. Every quarter-point increase in the cost of a loan can add a million dollars to the cost of their developments, said Jonathan Gertman, senior vice president at the NRP Group, a developer of affordable housing.

A key federal tool to fund these builders, the Low-Income Housing Tax Credit program, has lost some of its value due to increased interest rates and the volume of loans made by the Department of Housing and Urban Development for apartment buildings has halved this year. Even operating costs for existing buildings have risen, causing companies that manage them to make less money, hindering their ability to invest in new projects.

“It’s the hardest time I’ve been through in my 30 years in business, a pretty bleak picture,” said Rafael E. Cestero, CEO of the Community Preservation Corporation, a nonprofit financier of affordable housing in New York.

The vast majority of affordable housing being built comes from private developers working with public agencies and using government grants.

Late last year, the NRP Group attempted to salvage a deal to build Los Arcos in Vida, an affordable project in San Antonio. Construction cost was originally $110,000 per unit in April 2021, but by December interest rates had soared and cost per unit had risen to $151,000. NRP was $7.75 million short and in trouble, as much of the government’s funding depended on closing the deal that year.

“Our motto here is: time kills deals,” said Debra Guerrero, NRP’s senior vice president of strategic partnerships and government affairs. Fortunately, NRP was able to close the gap through city bonds and federal funding and break new ground.

Developers must navigate the same planning regulations and permitting procedures that regulate all construction projects. The industry needs zoning code reforms and more federal funding, said Jenny Schuetz, a Brookings Institution researcher and housing expert. The policies are simple, she added, but the politics of making them a reality is challenging.

Local governments, including in Montana and Massachusetts, have increasingly changed zoning and permitting practices to speed up construction. Others have invested pots of “soft money” – long-term loans with exceptionally low interest rates.

San Antonio, the poorest big city in the country, according to census data, enacted policies to help low-income renters, including a $150 million bond issuance to support affordable housing and a strategic housing plan. Before the pandemic, the public housing waiting list in San Antonio was about 35,000 families, earning an average of $11,000 a year, said Ed Hinojosa Jr., president and CEO of Opportunity Home, the city’s housing authority. Today there are 95,000.

“The need has never been greater than it is now,” said Mr Hinojosa. “And with the trends we’re seeing, it’s only going to keep growing.”

In California, the state housing agency created an accelerator program in the pandemic to help close some funding gaps, when the legislature has passed more than 100 laws since 2016 restrictive zoning. Los Angeles Mayor Karen Bass pledged to cut red tape for affordable housing projects.

Florida, which has seen a huge influx of residents, passed the $710 million Live Local Act in March, a hybrid package of funding and zoning initiatives to catalyze affordable housing and usurp some local power to block development.

The need for such homes is critical, especially in markets with a large hourly workforce of hospitality workers, said Ryan von Weller of Wendover Housing Partners, who advised lawmakers on shaping Live Local.

“You’re never going to be able to cope with this issue, but you have to do something,” he said. “Watching it slide further downhill is not an option.”

Developers expect markets to eventually normalize, making it easier to get financing, and some have suggested that the cooling of other real estate sectors, such as offices, will free up construction workers. But few see any hope that production will increase in a way that will close the supply gap significantly any time soon.

Perhaps the best case for optimism comes from realizing the depth of the problem: The scale of need has brought Republican and Democratic politicians together in a shared sense of crisis, said Ms. Yentel, the president of the National Low Income Housing Coalition. Two bipartisan bills have been introduced in the House of Representatives to create or maintain 1.5 million affordable homes over the next decade.