Five opportunities to address the affordable housing crisis
The affordable housing crisis has reached historic heights, with Freddie Mac estimating a U.S. housing supply deficit1 of 3.8 million units as of the end of 2020. Although rife with challenges, this sector is also rich with opportunities for practical innovation.
The 2021 Infrastructure Investment and Jobs Act aimed to address the problem with legislation, but ultimately amounted to a missed opportunity because affordable housing provisions were largely stripped out of the final bill.
While an estimated 700,000 housing units were under construction earlier this year, how many will be completed remains uncertain as the possibility of recession looms. With rising interest rates driving up the cost of construction and slowing down the development of new units, low-income renters seeking affordable housing face a steep uphill battle.
To address this critical challenge, real estate industry leaders and policymakers need to take action that brings relief in the short term and lays a foundation for long-term solutions. Here are five areas of opportunity for improving the affordable housing outlook in the U.S.:
1. Clarify the definition of “affordable housing”
Conversations about resolving the affordable housing crisis are complicated by a lack of clarity on how various agencies and institutions define “affordable housing.” This includes distinguishing between Section 8 and workforce housing, as well as addressing variances in meaning of the term “affordable.” Federal reserve banks and government agencies have indicated plans to establish shared terminology later this year.
2. Reform outdated zoning restrictions and bureaucratic processes
Outdated zoning and bureaucracy-heavy processes increase the cost and time-to-market for new affordable housing units. Despite massive progress and innovation in building technology over the past several decades, the U.S. still relies on conventions established by the Federal Housing Authority in the 1970s. Updating these regulations can help remove obstacles to increasing affordable housing supply. At the federal level, President Biden’s Housing Supply Action Plan2 will encourage jurisdictions to make these changes by rewarding them with higher scores in certain federal grant processes.
3. Embrace innovation in financing
The financial service industry needs to devote more capital to affordable housing lending and embrace innovative approaches to financing that will incentivize development. Reducing the number of required approvals and lowering associated costs could help streamline the lending process and increase capital flows to affordable housing projects.
4. Leverage construction technology and creative solutions
In the U.S., construction methods and building technology have evolved more quickly than housing policy. From incorporating prefabricated housing materials to repurposing existing buildings like schools, churches or factories into multifamily residential properties, applying creative and forward-thinking solutions to the affordable housing sector can help bring more units to market at reduced costs.
5. Increase collaborative efforts through public-private partnerships
Housing leaders have bold ideas, from modular construction to streamlined tax credits and improved zoning. But more public-private leadership is needed to bring these ideas to life in ways that lower construction costs and rapidly increase supply.
Solving the affordable housing crisis is a crucial step toward equity and inclusion. The affordable housing shortage disproportionately affects diverse households and marginalized communities: According to the National Low Income Housing Coalition, 20% of Black households, 18% of American Indian or Alaska Native (AIAN) households, and 16% of Hispanic households are extremely low-income renters3, compared to only 6% of white non-Hispanic households. Decision-makers and service providers alike need to ensure diversity and equity across the affordable housing ecosystem to secure a more equitable future for tenants.
From political resistance to unwieldy legacy systems, the affordable housing landscape is rife with challenges—but also rich with opportunities for practical innovation. By taking the long view and exploring a variety of approaches and solutions, the real estate industry can help alleviate the current shortage and ensure access to affordable housing for those who need it most.
Make sure you identify and work with a proven capital expert in this critical sector so we can continue to drive housing supply. To start the conversation about your next affordable project, let’s connect, Robert_L_Likes@key.com or 801-297-5811. And to learn more about KeyBank’s recent transactions, expert content and other team leaders, visit key.com/affordable.
About KeyBank Community Development Lending and Investment:
KeyBank Community Development Lending and Investment (CDLI) finances projects that stabilize and revitalize communities across all 50 states. As one of the top affordable housing capital providers in the country, KeyBank’s platform brings together construction, acquisition, bridge-to-re-syndication, and preservation loans, as well as lines of credit, Agency and HUD permanent mortgage executions, and equity investments for low-income housing projects, especially Low-Income Housing Tax Credit (LIHTC) financing. KeyBank has earned 10 consecutive “Outstanding” ratings on the Community Reinvestment Act exam, from the Office of the Comptroller of the Currency, making it the first U.S. national bank among the 25 largest to do so since the Act’s passage in 1977.
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