Cities across the US are facing affordable housing crises, and despite government initiatives to increase the number of affordable units, many developers still seem reluctant. Will affordable housing continue to struggle as the year goes on? What are the country’s biggest lenders doing to add incentive?

We sat down with Hunt Mortgage Group senior managing director of affordable housing finance Paul J. Weismann—who has financed well over $1B of affordable and market-rate multifamily transactions and has 20 years of experience in multifamily housing, including development, tax credit syndication, lending and investment banking—to get his perspective on where the affordable housing market stands and where it’ll be as the year continues.

Help From All Sides

Paul says the affordable housing crises not only plagues major cities like NYC, DC, LA, Boston and San Francisco, but it’s worked its way into secondary markets like Austin, Denver, Seattle, Portland and Miami as well. To tackle this ever-expanding need, Paul says, Fannie and Freddie have continued to strongly support affordable housing projects.

He tells Bisnow their affordable housing products are more innovative, provide lower rates than what is available for market-rate transactions, and allow for higher leverage.

The Federal Housing Administration has also announced 20 basis point reductions in mortgage insurance premiums for both affordable housing developments and green properties. The Community Reinvestment Act continues to provide strong incentive for bank investment through lending, tax credit equity and other sources. There’s even effort on the policy side as the Federal Housing Finance Agency consistently presses to add sustainability to rent housing as a way to reduce energy use and lower costs of operations.

“I think there’s a belief that long-term energy sustainability could help moderate increases in the overall cost of housing,” Paul says.

Increasing Quantity, Not Quality

With all this encouragement and new sources of funding, Paul says there’s been a push to broaden the scope of what's deemed “affordable housing” to include more mid-level incomes.

“In the past, only transactions that focused on tenants at or below 60% of area median income were really considered to be affordable,” he explains. “But with the significant increases in rents over the last three to five years, there’s been a recognition that people at 80% and 100% of AMI are also being squeezed and devoting larger portions of their income to housing. So there’s a focus on preserving what has generally been termed workforce housing.”

Paul believes many affordable housing projects are being developed at a level equal to or better than a number of market-rate developments, so he doesn’t expect that we’ll see an increase in the quality of affordable housing developed in the coming years.

“It’s important not to lose sight of the importance of providing a decent, safe, sanitary home for as many people as possible,” he says. “A housing development doesn’t have to be LEED Platinum or have a state-of-the-art gym to meet the needs of its residents.”

Instead, he says the market and lenders should focus on things that encourage development, like lowered impact fees, real property tax abatements, streamlined permitting or zoning processes, and exemption from sales taxes on materials frequently used in affordable housing developments.

Fundamentals Are Not Forgotten

Paul says no amount of evolution changes what makes a good deal. For example, rather than adding debt or underwriting lower debt service coverage levels—which can create situations where owners/operators feel pressured to increase rents or skimp on expenses—owners find ways to maintain cash flow to weather the inevitable storms they'll face. To put it simply, a good deal is one that works long term.

“I’m a firm believer in the idea that more housing will help lower its overall cost. No one wants to see a glut or high vacancies, but in many markets, supply is so much lower than demand that we’re seeing double-digit rent growth creating enormous pressure on rental households,” he says.

To learn more about our Bisnow partner, click here.