An article last fall in the New York Times demonstrated what billions can and can’t do to bring about more affordable housing in a large metropolitan area.
It can’t, for example, convince community groups to allow development in their neighborhoods or local government leaders to support it. Money alone also can’t ensure that a deal is properly structured to support sustainable affordable housing. Citing efforts by tech giants Apple, Google and Facebook to dedicate a total of $4.5 billion toward developing affordable housing near their California headquarters with low interest financing and even free land, the article noted that actual development efforts were slow.
This is not a surprise to long-time affordable housing developers, local government leaders and our team at LvHJ. Although we all agree that money from private corporations can be part of the solution, the current costs involved with developing affordable housing as well as the hoops to ensure community support are vast.
Case in point are recent successful Bay Area projects by experienced housing developers such as BRIDGE Housing, AvalonBay and Mission Housing and the Tenderloin Neighborhood Development Corporation (TNDC). They include the Balboa Reservoir project (near City College) and TNDC’s 500 Turk Street project (the former site of an auto and tire shop sitting vacant for years).
The projects mentioned here involve multi-layered financing and incentives, stakeholders and neighborhood amenities beyond the affordable housing piece. For Tenderloin, amenities included neighborhood bike and pedestrian and transit improvements. At Balboa, decades of negotiation resulted in a project that includes childcare, public green space and dedicated rental units for higher education faculty and staff for a nearby college. Besides the years involved to obtain financing and approvals, it takes projects additional years to develop the housing and secure residents.
Affordable housing public, private and not-for-profit collaboration
To help preserve the affordability of housing and also cover the cost of development and returns to investors, the primary source of funding for affordable rental housing development in the nation is still the Low-Income Housing Tax Credit (LIHTC) program. Preserving this credit and combining it with public and private cash may be more important than ever due to additional complications with COVID-19 construction delays and economic fluctuations.
Currently, LIHTC pricing is expected to decrease in the second half of this year. In a recent article in Affordable Housing Finance, a survey of LIHTC syndicators also anticipate that new deals will face tougher reviews and underwriting, with expectations for higher cash reserves to account for possible construction delays or health and safety measures on the job sites.
With this ongoing complexity, affordable housing developments also require knowledgeable accounting, tax and attestation services. This knowledge supports developers and management companies with adhering to federal, state, local and private funding terms as well as the LIHTC, Section 8 and/or cap-and-trade incentive requirements, to name a few.
Working collaboratively with affordable housing CFOs, only a few CPA firms in the country like LvHJ offer this depth of focus. Years of experience and industry involvement provide context to stakeholders on what is really needed for a successfully financed and sustainable project.
What’s ahead for affordable housing?
According to HUD’s National Comprehensive Housing Market Analysis, dated January 2020, approximately 380,000 rental units under construction nationwide will partially satisfy a forecasted overall market demand for 1.37 million units in the next three years. Average market rate median rent increased 5 percent to $1,409 nationwide. The percentage of cost burdened rental households paying more than 30 percent of their income toward rent was decreasing due to steady economic growth, but that progress is now threatened by higher unemployment as a result of COVID-19.
According to HUD, the number of households receiving rental assistance has increased 4.3 percent since 2010 to just over 4.6 million. Since 2010, the monthly tenant contribution has also increased by 2 percent. It’s estimated by HUD that three of every four eligible households don’t receive housing assistance due to funding limitations through local Public Housing Authorities (PHAs).
With all of this in mind, money does matter. It also matters how it’s allocated, how projects are negotiated at the local level, and how well the project is developed and managed for years afterward. Working with knowledgeable affordable housing and not-for-profit industry leaders and their advisors is the first step toward understanding where and how a project will match the needs of people, communities and businesses.
As you move forward with affordable housing projects in your not-for-profit organization or community, we welcome your questions at LvHJ. We want to be part of collaborative solutions to help you manage your organization for years to come.
You may be interested in our recent blog post about FASB deferrals of effective dates for not-for-profit revenue recognition from contracts with customers and leases.
Sources:
New York Times – https://www.nytimes.com/2019/11/06/business/economy/california-housing-apple.html
HUD Office of Policy Development & Research (PD&R) – https://www.huduser.gov/portal/home.html
https://www.huduser.gov/portal/sites/default/files/pdf/NationalSummary_4Q19.pdf
San Francisco Office of the Mayor – https://sfmayor.org/article/board-supervisors-approves-balboa-reservoir-housing-project
SF Weekly – https://www.sfweekly.com/news/state-gives-tenderloin-affordable-housing-project-20m/
Affordable Housing Finance – https://www.housingfinance.com/finance/lihtc-market-weathers-changes-wrought-by-covid-19_o