An affordable housing crisis has been developing across the United States since before the Great Recession, and in many areas it threatens the vitality of the entire region.
Access to housing has been a concern of the federal government since The National Housing Act of 1934 created the Federal Housing Administration (FHA). Since then, many new bills, laws, agencies, and policies have developed at the national, state, and municipal levels.
Many of the existing policies have proven effective, while some new policies seem promising. Others have done as much harm as good. Here’s a look at some of the key policies that impact Affordable Housing development, and their pros and cons.
The LIHTC provides tax credits to developers who agree to develop new or preserve existing affordable housing units. It provides dollar-for-dollar federal income tax credits, awarded on a per-project basis.
Established in 1986, this IRS Tax Code item accounted for one-sixth of all multifamily housing units built in its first twenty years. It continues to be a major incentive for developers, and is generally considered an effective policy for increasing stock of Affordable Housing. However, it has not been sufficient to eliminate the problem, as many regions still struggle to maintain sufficient stock of affordable housing.
The federal Affordable Housing Program (AHP) provides vouchers to very low-income families, the elderly, and the disabled, to supplement rent at approved, private properties. The subsidy is paid directly to the landlord by the Public Housing Authority (PHA) on behalf of the family.
This program is effective in areas where enough housing is available and enough landlords participate in the program. However, it only applies to very low-income individuals and is only available where landlords voluntarily participate in the program. In many major metropolitan areas, standard rents are excessive even for middle-income families and as such, this is only a partial solution.
The Affordable Housing Competitive Funding Program is of particular interest to developers, as it focuses on subsidizing the development of affordable housing units.
Funds are offered on a competitive basis, through local or State agencies, to developers who wish to participate by submitting proposed affordable housing projects. Guidelines for award of funds vary by municipality.
This program can be extremely effective, depending on implementation, in alleviating local affordable housing conditions.
Many municipal areas have their own policies and approaches for addressing affordable housing. These policies can be incredibly diverse. They may give grants and/or tax credits to private developers, based on location, characteristics, and cost of proposed developments; they may limit land use and building codes; create additional zoning regulations; or institute “smart growth initiatives.”
These policies vary as widely in their success as they do in their nature and implementation.
For instance, Portland, Oregon implemented a policy in 2017 that requires all apartment buildings with more than 20 units to make a certain number of them affordable (costing less than 30% of income) to households earning 60% or less of the area median family income. Although on the surface such a policy seems it would alleviate stress on the affordable housing market, this policy can be detrimental because it discourages developers from investing in housing at all, leading to less overall availability.
Another common policy that can backfire is when municipalities place restrictions on how quickly landlords can raise rent. In these cases, investors may feel that they are better off to wait until they feel the market can bear what they want to charge before they renovate or develop their land. This contributes, rather than alleviating, to the decrease in availability of housing units.
Miami, on the other hand, has just unveiled an ambitious new affordable housing approach in January 2020 that focuses on fueling the development of new units. According to Miami Herald, the new approach will:
“Create a bank to finance affordable housing construction and renovations, streamline permitting and tweak zoning, then get small and mid-size developers churning out 3,200 units of housing every year for 10 years – a scale and pace that the plan’s authors call ‘unprecedented.’”
The strategy may be brand new for Miami and the scale unprecedented, but the elements of it are based on tested policies from around the country. Improving financing for affordable housing, and making it easier for developers to start and run development projects, has shown to be one of the most effective approaches overall, and for that reason, the ambitious plan looks promising for Miami, if it can be instituted effectively.
If you’re a developer interested in pursuing affordable housing funds and credits to fuel your next project, we’d love to help you navigate the process. Call us today to find out how we can help.