How to tackle the affordable housing crisis
The United States has long been in the grips of a housing crisis. Since COVID-19 hit, with 50 million people filing for unemployment, the problem has only gotten worse.
“We have a shortage of about 7 million affordable rental homes for people whose household incomes are at or below the poverty line,” says Robert Likes, president and chairman of the board of Key Community Development Corporation. “This vulnerable population needs safe, quality, decent, affordable housing.”
And the crisis disproportionately affects people of color. “A lot of this is due to the historic and current biases we have in our country that affect housing, health, education and employment,” says Stacie Nekus, senior vice president and team lead of KeyBank’s Affordable Housing Equity Initiative.
Push for More Housing Credits
During his campaign, President Joe Biden developed a plan for a $640 billion investment in America’s housing, including a $10 billion investment in low-income housing tax credits (LIHTC). These dollar-for-dollar credits go to real estate developers and investors that make their properties available as affordable housing for low-income Americans.
Over the past four decades, housing credits have financed 3.2 million affordable housing units, leveraging $190 billion in private investments. This has provided housing for more than 7.4 million families, seniors, veterans and people with disabilities.
In Dayton, Ohio, for example, housing credits were a key part in transforming the historic Biltmore Towers hotel into Section 8 housing that provided 230 units for residents ages 55 and older. “Low-income seniors now have a place to live in downtown Dayton overlooking the Great Miami River,” Likes points out.
Affordable housing projects, like the Biltmore Towers, are complex economic deals. Developers typically rely on numerous financing sources that can come from local and state governments, federal block grants and foundations.
“When it comes to financing, affordable housing is as complicated as it gets,” says David J. Wilk, assistant professor of finance and director of the real estate program at Temple University in Philadelphia. “The cost of building the housing is no different than building a normal house. But because the rent charged does not cover the full cost of the unit, there is a complex blend of senior debt, secondary debt and gap financing necessary to make these projects happen.”
Housing tax credits represent the largest equity component in the capital stack. “You need significant capital sources to drive the overall debt down, which enables you to pass lower rents on to the population being served,” Likes explains. “It’s a wonderful example of how public and private partnerships work together to create solutions.”
An expected development on the legislative front will be the reintroduction of the Affordable Housing Credit Improvement Act of 2019, which aims to expand and strengthen low-income housing tax credits. “It has bipartisan support and the support of the Biden administration,” Nekus says. “It would be extremely impactful if passed. The act is asking for a 50% increase in the number of credits available, which would allow us to build substantially more units and developments around the country.”
KeyBank, one of the nation’s largest affordable housing capital providers, has developed a one-stop shop to streamline the logistical issues of financing these projects. KeyBank’s Equity Growth Initiative provides a central resource for tax credit equity, construction and permanent financing, including Freddie Mac, Fannie Mae and Housing and Urban Development (HUD) executions. As a result, developers can focus more of their time on working with communities and partnering with architects to finalize designs.
“Putting together an affordable housing development, particularly a low-income housing tax credit deal, requires collaboration,” Likes says. “It can take a very long time to put all of the pieces together, including acquiring and developing the property, working with the various cities, states and municipalities involved, as well as working with your financing and capital partners.”
All that work can bring powerful results. Wilk sees affordable housing as the foundation of social justice and inclusive economic development, contributing to community stability and the overall economy.
“With everything that happened in 2020, the stars are aligned to promote inclusion and shared economic prosperity—and that can transform our country,” he says. “If we can somehow create better pathways for people to elevate out of survival mode, there is unlimited potential to create new generations of economic producers. And it all starts with housing. Everyone should have a safe home and a warm bed to put their head on at night.”
To learn more or to speak to one of our affordable housing lending experts, visit key.com/affordable.