Low Cost Sustainable Housing Not Just for Luxury Multifamily
There is plenty of evidence that low cost sustainable housing could save commercial real estate developers and landlords money in the long run. The U.S. Green Building Council (USGBC) says owners will see 14 percent savings in operational costs over five-year savings for green buildings, and a 7 percent increase in asset value compared to conventional buildings.
In the multifamily sector of the industry, people may think savings apply only to high-end developments. There are current trends, though, that point to a movement for more low-cost sustainable housing.
Demand for Affordable Housing Is High
According to the National Low Income Housing Coalition (NLIHC), 43 million U.S. residents (26 percent of the country's renters) are in poverty and are barely making their housing payments. Additionally, in California alone, the NLIHC found there's a 1.1 million rental unit lack of affordable housing stock. All of the United States is reportedly short by 7.4 million dwellings.
Why the Lack of Supply?
There are several reasons for the lack of affordable multifamily housing, but the biggest is the cost-benefit ratio facing commercial real estate developers. Urban Land Institute reports that in order for builders to get sizable loans large enough to construct these types of facilities, there must be evidence that they will bring in enough revenue to make repayments. Often, the rents received from these units won't cover the gap of the cost of development. Workarounds include tax breaks, lower land costs provided by a municipality and zoning changes.
Low Cost Sustainable Housing Solutions
For nearly any type of commercial real estate development, it is documented by the USGBC that there are several economic pluses to developing and retrofitting buildings to make them more sustainable. One of the macro cost-savings benefits for building listed by the organization include 13.6 percent less operating costs for newly constructed green buildings compared to traditional assets. ROI may also be more favorable.
The Available Tax Breaks and Incentives
Depending on an asset's locale, there are several potential incentives for building green and low-income housing. On a federal level, the Low Income Housing Tax Credit, put into the Internal Revenue Code in 1986, allows investors to purchase tax credits and then sell them to owners that agree to provide a certain number of affordable units, offsetting both development and acquisition costs. The Tax Increment Financing (TIF) available in states across the nation can offset the development and redevelopment costs of several types of multifamily structures that offer affordable housing.
When it comes to sustainability, there is the 179D tax deduction offered for energy efficient commercial buildings. The Certification of Energy Efficient Home Credit (Section 45L of the Internal Revenue Code) gives incentives for new energy efficient dwellings, as well. The Qualifying Advanced Energy Project Credit applies to businesses that build or expand a manufacturing facility for the production of green equipment. Corporate Tax Incentives lists individual state examples.
An Investment in the Future
It's crucial to rely on a trusted financial partner to make this happen. They will be able to streamline the process and make financing available. Developers might balk at the perceived higher initial prices when constructing low-cost sustainable housing since they're not familiar with these types of assets.
A major cut in expenditures during the life cycle of a building has gained popularity among investors. Architecture Week reports how Colorado Court was built in 2002 in Santa Monica, California. The builders made it 100 percent energy neutral by using solar panels, natural ocean air for ventilation and recycled materials in the construction process, among other techniques. There are similar examples scattered throughout the country.
With the need for more affordable housing across the United States, and the increased popularity of green building due to long-term cost savings, both developers and communities can profit from a push for more of these assets. It's been done before and could become more commonplace in the future.