A Menu of Ideas for Addressing the Affordable Housing Crunch

Nancy Burke, VP of Government & Community Affairs at the Colorado Apartment Association, wrote an article for the Colorado Real Estate Journal that summarizes the challenges faced by the multifamily industry in terms of developing affordable housing and offers a nice overview of the many different approaches being taken around the country to address the ever-increasing demand for affordable housing solutions. Here’s a taste:

Thirty-two percent of multifamily construction cost is from regulation. The National Association of Home Builders and NMHC states regulation imposed by government accounts for an average of 32.1 percent of multifamily construction costs. Building codes, development requirements, impact fees, inspections and other fees contribute to this highly regulated industry, which translates into higher rents and reduced affordability.

Lack of labor, land prices and costs of materials have increased over 30 percent in the past two years. The not-in-my-backyard movement and moratoriums placed on multifamily construction equate to millions of dollars in legal fees and slows the time for units to reach the market. Blocking new development doesn’t keep people from moving in, but it usually prices people out of the neighborhood. Building more lessens the likelihood of displacement and gentrification…

The U.S. Department of Housing and Urban Development created a “landlord task force” to look at incentives and reduce regulatory requirements in the complicated process of offering housing choice vouchers. Onboarding each renter costs nearly $1,300.

Minneapolis incentivizes landlords to retain a 40 percent tax abatement if 20 percent of the units are set aside for 60 percent area median income or less, for a 10-year term.

New Orleans is constructing a co-living roommate model arrangement in a multifamily building near downtown. It features furnished rooms, paper products and house cleaning for under $1,300 per month. Management is working with AirBnB to allow residents to rent their rooms and retain 75 percent of the proceeds…

Denver is a point of reference in affordable housing solutions, too. City Council recently adopted the Lower Income Voucher Equity Denver program, the first-of-its-kind, public-private partnership highlighting an integrated, transitional, two-year affordable housing model that is being considered in other cities. It is designed for working citizens earning $23,000 to $67,000 (40 to 80 percent AMI) that leverages employer and foundation support to buy down rents.

 

How Will Tariffs Affect Multifamily Development?

In a post on the BMO Harris Bank site, Managing Director and Head of US Commercial Real Estate Kim Liautaud looks at how tariffs could impact multifamily development:

In the multifamily market, project underwriting has tightened across the board because capital providers are concerned that the sector is late in the cycle, according to Chris McKee, head of development at CRG, the real estate development arm of Clayco. McKee explains that while trended rents used to attract equity providers, there’s now a reluctance to underwrite projects unless they’re at flat rents. Tariffs have only exacerbated that effect.

“We’re seeing contractors start to plan for increased costs,” McKee says. “Steel and aluminum companies know the tariff increases are coming, and they’re passing the costs along to general contractors. With flat rents and construction costs on the rise, spreads have been squeezed and multifamily projects became more difficult to underwrite. Tariffs have only added to that, and that trend will likely continue for the foreseeable future.”

McKee notes that trended rents still drive multifamily developments in certain markets where availability is tight, such as Seattle, Lehigh Valley in Pennsylvania and Inland Empire in Southern California. Less constricted markets, however, require more caution. “You may get squeezed a little bit by those cost increases because you may not have the rent increases that you would get in some of the tighter submarkets,” McKee says…

When it comes to managing multifamily projects, McKee stresses focusing on fundamentals and relationships. “Look for the right opportunity in the right location,” he says. “If you have a long-standing relationship with an equity or debt provider, you can make a case for rent increases specific to a high-growth micro-market, such as Tampa or Fort Worth. It’s an advantage to have pre-existing relationships with equity lenders who trust and believe in you. So when you go to show them something, they know you’ll deliver.”