Affordable Housing’s Headwinds

You can add financing to the litany of challenges being faced by affordable housing developers. From the Wall Street Journal:

Rising interest rates are undermining efforts to build more affordable housing, creating larger funding gaps for an industry already grappling with cuts in government subsidies and rising construction costs.

This year’s climb in borrowing costs—coupled with expectations that they will keep rising—has driven down the amount of debt used to fund affordable housing deals, said Michael Novogradac, managing partner of Novogradac & Co., an accounting firm that specializes in affordable housing…

The permanent debt rate—a measure of the long-term debt projects pay to lenders—was 4.18% for a Bridge project completed in the Mission District of San Francisco in 2016. This year, a proposed development less than a mile away, with the same developer and a similar amount of debt, closed at a rate of 5.06%. The fed-funds rate rose about 1% in the interim…

Affordable housing, which constitutes about a quarter of all new apartment construction in the U.S., is already facing a number of difficulties, including a decline in government subsidies and rising construction costs.