Inside Charles Werhane's Plan To End Housing Insecurity
The problem of housing insecurity is not only bad, it's getting worse. The growing pool of renters has pushed rents up while wages have remained stagnant. At the same time, construction, land and regulatory costs are so high in many cities that it has become harder to build affordable housing.
"If you look from 2000 forward, the affordability gap in rental housing has gotten worse," Enterprise Community Investment president and CEO Charlie Werhane, who will speak on this topic during his keynote at BMAC East next Thursday, tells Bisnow. "If you look at it from the standpoint of income growth versus rent growth, the curve is widening."
Charlie says the problem is especially bad in cities like DC because increasing demand, tightening supply and the high cost of developing new housing has led to exceptionally high rents.
"If you look at the average cost of a one-bedroom versus the average wage, you're spending more than 50% of your income on rent," Charlie says. "You just can’t do that long term, you need a balance of housing in your communities to take care of the needs."
With these trends heading in the wrong direction, Enterprise has set a goal of ending housing insecurity within a generation, meaning that in roughly 20 years nobody will have to spend half their income on housing. Their more immediate goal is to provide opportunity to 1 million low-income families, allowing them to stress the urgency of solving the problem.
Enterprise's strategy for combating housing insecurity has two sides: preserving existing affordable housing and creating better conditions for new affordable housing to be built.
On the preservation side, Enterprise is setting up funds focused on buying Class-B and C properties that naturally have lower rents. The goal is to prevent these properties from being redeveloped into expensive Class-A product and rather give them modest, cost-effective improvements that maintain their livability but keep them affordable for people earning 80% of area median income.
"We have to intentionally preserve the stock of affordable housing or we'll lose it," Charlie says.
He says their first of these funds, which launched last year, had solid investor demand and he expects the success to continue when their second fund launches next year. He says the affordable properties in these funds are in high demand from renters, making the funds low-risk enough that investors can accept lower yields.
Enterprise is exploring the acquisition of large portfolios, Charlie says, and has investors aligned with his strategy to keep the rent low while maintaining the quality with small improvements.
"The intent is to maintain affordability," Charlie says. "We're putting our money where our mouth is."
On the new construction side, Enterprise is focused on changing policy on the local and national level to allow for the building of more affordable housing units.
Charlie said Enterprise supports a bill introduced in Congress by Sen. Maria Cantwell (D-WA) and Sen. Orrin Hatch (R-UT) that would expand the low income housing tax credit by 50%. Charles said this would create tens of thousands of affordable units each year.
On the local level, Enterprise supports inclusionary zoning policies that allow developers to increase the density and build more market-rate units if they create a certain level of affordable units. The Obama administration recently recommended cities adopt inclusionary zoning, among other policies, and proposed spending $300M in grants to help cities that implement the policies.
Charlie, speaking above on Capitol Hill in May, says he has been disappointed for a long time that the issue of housing hasn't been raised to a high enough level in US politics. He says he sees the White House recommendations as a step in the right direction.
"We’re really hopeful this is going to lead to a broader dialogue in how we can deal with housing insecurity," Charlie says.
In addition to changing public policy, Charlie said a key to increasing affordable housing supply is finding ways to bring down construction costs. He said developers should be active in working with localities to reduce the costs involved in the zoning processes and to reduce parking requirements.
"Developers face this issue every day: 'How do you get affordable apartments built new with the cost of land and the cost of materials in a lot of cities?'" Charlie says.