Affordable Housing Money Flowing From Government, Amazon, But Developers Say Process Is Still Too Slow
With housing prices rising throughout the D.C. region, government agencies and large private sector and nonprofit players are working on new ways to finance the preservation of affordable housing in high-growth areas.
Hundreds of millions of dollars have been committed this year from the public and private sector to finance affordable housing, but developers say jurisdictions still need to remove regulatory hurdles to help projects break ground faster.
Few areas are expected to grow faster in the coming years than the National Landing neighborhood around Amazon's second headquarters, and the tech giant closed a deal this year for a major affordable housing project near its new home.
Amazon Head of Community Development Catherine Buell, speaking at Bisnow's Greater D.C. Affordable Housing event last week, said she started working on the deal after seeing the 828-unit Crystal House property and an adjacent development site come up for sale. She said the property, one block from the HQ2 site, was being marketed as a luxury apartment opportunity.
"Crystal House is relatively affordable in the D.C. area, and we were mortified," Buell said. "We didn't want that property to flip over and for everybody to raise rents and for National Landing to become an exclusive neighborhood. We wanted it to be an inclusive neighborhood."
Amazon in January announced it would provide a $339M below-market loan and $42M in grants to the Washington Housing Conservancy to acquire and preserve the affordability of the Crystal House apartments. The deal gave Amazon a $40M option on undeveloped land next to the building, and in July it donated that land to Arlington County to build a new 550-unit affordable housing project.
As part of the deal, the Washington Housing Conservancy committed to preserving the affordability of the Crystal House apartments for 99 years. Arlington County Board Vice Chair Katie Cristol said she was glad to see that long time horizon.
"As a frame of reference in Arlington we usually consider it a spectacular success to talk about the 30-to-40-year time horizon, so really this is a commitment for generations," Cristol said.
Buell said Amazon is now showing other potential partners that 99-year preservation deal that Washington Housing Conservancy committed to, and the example is making others more willing to extend their time horizons to ensure that neighborhoods don't lose affordability after they've experienced growth.
"Many of us have seen buildings where 20, 30, 40 years in as the neighborhood gets really, really great, all the sudden you're losing those assets," Buell said. "We know that change takes place over time, and we wanted to make sure just as the neighborhood is really taking off that there is a diversity of incomes that are able to stay in the neighborhood."
For Amazon, the deal is part of the $2B Housing Equity Fund it announced in January, focusing on the Seattle, Arlington and Nashville areas. Also as part of that fund, it announced plans in June to provide $125M in below-market loans to WMATA to finance affordable housing developments on Metro-adjacent land that the transit agency owns.
Buell said it has decided to structure many of its contributions as loans because Amazon's balance sheet gives it the ability to provide loan terms and structures that other lenders aren't able to offer.
"We try to leverage assets that are unique to Amazon," she said. "Cash isn't unique to Amazon. A lot of companies are able to do donations. We also have a very strong balance sheet ... we're looking to leverage Amazon's balance sheet and think about creative ways we can invest in our communities and bring the complex and innovative financing structures to the table that will help get a lot of the very hard-to-fund deals across the finish line."
Across the river from Amazon HQ2, the District government and the Department of Housing and Urban Development this year launched a new effort that they say could be a model for affordable housing preservation.
HUD announced in February that it would guarantee a $38.8M loan to D.C.'s Department of Housing and Community Development to fund affordable housing rehabilitation projects in the District. The funding was secured through HUD's Section 108 Loan Guarantee program.
This program is available for jurisdictions that receive Community Development Block Grants, and they are able to leverage future funding from that program to bring in a one-time lump sum, HUD Deputy Assistant Secretary for Grant Programs Kevin Bush said. He said jurisdictions have used this for other types of economic development projects, but D.C. is the first to leverage the funds for affordable housing preservation.
"What's innovative about what DHCD and D.C. have been able to do is say, 'How can we use this to address the housing shortage?'" Bush said. "It's a great use and one I'd love to see replicated across the country."
DHCD Director Polly Donaldson said the HUD money for housing preservation helps D.C. use more of its own housing fund to produce new units. Mayor Muriel Bowser this year increased the allocation of D.C.'s Housing Production Trust Fund to $400M over the next two years, money she said will help produce 2,700 units of affordable housing.
"What this does is enable us to maintain and preserve our existing affordable housing, meaning we can use more of our Housing Production Trust Fund dollars toward production of net new units in the District," Donaldson said.
Bush said HUD would be able to finance much more affordable housing in D.C. and across the country if Congress passes President Joe Biden's American Jobs Plan, part of his Fiscal Year 2022 budget proposal that would allocate $30B to Housing Choice Vouchers program and $40B to public housing.
"My budget is $67B, and if we got the funds they're talking about in the American Jobs Plan, it'd be more than double that," Bush said. "That would probably double [DCHD's] budget, which means we're going to have to construct more housing and we're going to have to preserve more housing."
While new funding, whether from tech giants or the federal government, could help finance more affordable housing, developers say there are still too many local regulatory hurdles preventing projects from getting off the ground.
Arlington Partnership for Affordable Housing CEO Carmen Romero, who became head of the nonprofit affordable housing developer in June, said major changes to local zoning processes are needed if the region is going to meet its target of adding 320,000 new housing units by 2030.
Romero said the process to build affordable housing in most jurisdictions today takes several years from land use planning to rezoning to applying for tax credits.
"You stack those things up, and it's $3M to $5M of pre-development expenses to get to the closing table," Romero said. "We will never get to 300,000 units, of which three-quarters of that has to be low or moderate income, if that's the way we do it. We need construction innovation, we need zoning innovation and we need acceleration of the policy tools to meet the need."
Dantes Partners Chief Operating Officer Corey Powell said the development firm has worked to speed up its internal processes to get projects under construction faster, but he said local governments need to do the same.
"We're trying to make sure we're doing things to move it along as quickly as possible, but it's definitely something we need help with at the policy level to make sure every step of permitting or zoning or getting the dollars out the door goes as quickly as possible, because it only adds cost to deals, and resources are finite," Powell said.