The U.S. Desperately Needs More Affordable Housing. What’s Standing In Its Way?
Not New York, California, Texas, Georgia or even Massachusetts — not a single U.S. state has an adequate supply of affordable rental housing for its lowest-income renters. With tens of millions of Americans currently out of work, the gap between housing supply and demand looks poised to grow into a chasm.
Despite these troubling numbers, Eddie Lorin sees hope on the horizon.
“I think capital markets are finally coming around to the importance of affordable housing,” said Lorin, co-founder and CEO of Alliant Strategic Development. “Real estate investors are tired of seeing individuals in their cities with nowhere to live and want to do something about it. They’re seeing that not only is it the necessary thing to do, it’s the right thing to do.”
Alliant Strategic Development has made it its goal to help spur the development of more affordable and workforce housing in its home of Southern California and in the Southwest.
Bisnow recently sat down with Lorin to hear his thoughts on the need for affordable housing, the hurdles developers have to overcome in order to create it and why, despite all these challenges, he remains optimistic.
Bisnow: What are some factors driving the demand for affordable housing?
Lorin: Incomes for the working class have remained stagnant for the last 10 years while rents have risen by up to 75% since the global financial crisis. Factor in transportation costs, and suddenly people are spending 60% to 70% of their income on housing and transportation when they should be spending 30%. Along with that, there are not enough housing vouchers to help people bridge the gap between what they’re spending and what they can afford.
Our affiliate, Alliant Capital is one of the largest tax-credit syndicators in the country and has invested in Low Income Housing Tax Credits to help over 300 third-party developers build more affordable housing over the last 22 years. Through Alliant Strategic Development, we are now building our own workforce and affordable developments in the Southwest.
We are also focused on building "workforce housing'" to serve the "missing middle" population that earns between 80% to 120% of area median income. This population does not qualify for vouchers or other government subsidies but is still struggling to afford market-rate rents in major cities, and they need housing.
Bisnow: What challenges to delivering this housing are you facing?
Lorin: We’re facing several challenges, but they can mostly be broken down into three major issues.
The first is that we need more government vouchers to bridge the gap between market rents and what people can afford. Along with that, we need low-interest loans that can help fill the shortage in the capital stack needed to build and convert existing assets into affordable housing.
Finally, we need greater allocation for the Low Income Housing Tax Credit program, which issues tax credits for the rehabilitation or new construction of rental housing targeted to low-income households, which are those making between 0% and 60% of area median income.
Bisnow: Have you been utilizing the Opportunity Zone program to help you construct this housing?
Lorin: When the Treasury set the final OZ regulations, before the pandemic hit, we were seeing a lot of interest from investors who wanted to work with us to build housing in local California OZs. Then COVID-19 came, and the whole world stopped.
Now, there are a lot of OZs and not enough capital flowing into them yet. With over 8,700 zones designated, there are a lot of opportunities sought after by limited funds. So the opportunity is there, the demand for the housing is there and we hope that with the stock market’s rebound there will be more gains to be harvested and invested in OZ deals.
Bisnow: Despite all these challenges, you said you still think people are coming around to the importance of affordable housing. Why do you think that is?
Lorin: I think affordable housing is finally starting to look sexy to investors. For many years, it was a tough sell since what investors normally consider "sexy" has been new, luxury multifamily buildings. But now, investors are seeing that with affordable housing they can invest in a cause that might provide them with a slightly lower return but could help solve one of the greatest social challenges we face in this country.
Average occupancies nationwide for affordable housing are still hovering between 97% and 98% even through the pandemic.
The bottom line is cash flow is sexy and this sector is a great "defensive" investment. The momentum is shifting, the pandemic has been a catalyst to incentivize capital markets to make money by doing good and investing in workforce and affordable housing.
Bisnow: What does the future of affordable and workforce housing look like?
Lorin: The demand for housing is only accelerating, and we need a multifaceted solution. We need to accelerate the building of more new product, expedite approvals of all types of housing and we need to support projects that renovate the existing affordable and workforce housing stock while keeping it affordable.
Too often, developers are spending millions of dollars renovating these buildings to turn them into unaffordable luxury apartments, which is only raising rents overall.
To get the housing we need, it will take a concerted effort and collaboration from both government agencies and the private/philanthropic NGO sector who are committed to helping make this a better world providing a clean, safe affordable place to live for all.
This feature was produced in collaboration between Bisnow Branded Content and Alliant Strategic Development. Bisnow news staff was not involved in the production of this content.