BMAC Panelists Say Tax Incentives Not Enough To Sate Affordability Demands
Rising construction and land costs are all contributing to higher apartment rents in many cities. But at the same time, the ability for families to pay those rents is more strenuous.
“Poverty is now becoming the new normal for a lot of our cities,” TriStar founding partner Margaret Stagmeier said during Bisnow's Multifamily Annual Conference Southeast on Sept. 12. Stagmeier's company invests in ailing apartment properties, rehabs them and strives to keep rents where they were before to help needy families.
In 2018, the average rent across the nation for a two-bedroom apartment is $1,180/month, according to Apartment Lists data. For much of the country, renters need to earn more than $15/hour — or more than $31,000/year in a full-time job — to afford the average two-bedroom apartment, according to Business Insider.
Yet, Stagmeier said many families struggle given the official poverty line for a family of four in 2018 was $25,100/year.
“I keep thinking to myself, 'How do these people afford to live?'” Stagmeier said.
She is not alone in those concerns. The main topic at Bisnow's multifamily event was about the growing affordability issue, not only in Atlanta, but across the country. It is an issue that is rising in prominence across all age groups, including the baby boomer generation, The Benoit Group CEO Eddy Benoit said.
Benoit said retiring baby boomers who still need affordable housing are finding supply in a crunch.
“It's almost impossible to get on a waiting list. There's still not enough supply for the demand. We're barely scratching the surface here,” he said.
Even if a family is not officially in poverty, more income is being funneled into rents, creating a growing class of renters who are paying more than 30% of their income toward housing.
“You're literally talking about tens of millions of people who will be deemed rent-burdened through all age groups. So the need for affordable housing is tremendous,” Arnall Golden Gregory partner Jeff Adams said.
Adams said developers have been diving into ways to keep rents in check, in many cases by reducing the size of units and in other instances reducing the number of parking spaces at a property. Still, tax credits and demands by municipalities to set aside a portion of a new apartment complex's units toward affordable renters is the primary driver for creating more of a pool of cheaper apartments. But Stagmeier said tax credits only provide limited relief by developers to provide for affordable housing.
Of the 40 million renters in the United States, 11 million live at or below the poverty level, she said. At the same time, tax credits only address about 9% of these needs.
“Tax credits are not going to solve affordable housing,” she said.
That has both capital and developers looking beyond the urban core to deliver more affordable housing, panelists said, especially in secondary and tertiary markets.
“In the primary markets, it just gets tougher and tougher and tougher as you see cap rates push below 5%, 4%. A place like LA, you see cap rates, believe it or not, at 2.5%, 3%. Deals just don't pencil,” Pender Capital Senior Executive Neil Beldock said. “So we find ourselves moving more into the tertiary and secondary markets where we see a lot of opportunities where deals actually pencil and deals actually work."
In Atlanta, developers have been pushing more often into the suburbs with new apartment projects this year, SunTrust head of real estate lending Joe Pella said.
“Two years ago, we were here in Midtown. This year we're in the Kennesaws, Savannahs, Jacksonvilles, Fort Meyers of the world,” he said.