Private Developers Must Step Up to Fix Affordable Housing
Private developers will need to play a bigger part in the years to come in keeping DC affordable for lower-income residents, and this morning at our The New Era of Affordable Housing in DC event, Mayor Muriel Bowser said her administration plans to do its part to make that happen.
“Please let me know what we can do,” she told the crowd of 250 at the Renaissance DC Downtown hotel. One of her first platforms as mayor is spending $100M a year to support affordable housing. Bowser says it’s vital that the development community knows it can rely on the government for funding every year for it to commit to be a partner.
Among our panelists, Enterprise Community Partners VP and market leader for Mid-Atlantic David Bowers pleaded with the developers and real estate professionals in the crowd to “call the mayor, call the county executive and tell them they have your support” for more affordable housing funding. David says the real estate industry is thinking far too small on the issue. “We’re having million-dollar conversations about billion-dollar problems," he says.
The opportunity is there, says Jair Lynch investment manager Phuc Tran, because "there is so much private equity in multifamily" in the DC market. Jurisdictions and nonprofits must work hard to market for it, but with gravity-defying demand continuing—and showing no sign of slowing region-wide—affordable housing could become more and more attractive.
“As a nation, we’re rediscovering our cities,” APAH president and CEO Nina Janopaul says. Higher-income Millennials and Baby Boomers are flooding back to urbanity, but lower-income residents who already lived in the district are leaving almost as fast.
The Menkiti Group CEO Bo Menkiti says that while DC grows by about 1,000 people per month, those moving in make three dollars to every two of those moving out. More importantly, new residents look for thriving, economically diverse neighborhoods, which are frequently those in transition. NoMa certainly rings a bell as shiny new buildings pop up and rents in the area rise as a result.
CohnReznick principal Kayla Gross, snapped to the left of her colleague, moderator Winell Belfonte, says private developers can take advantage of tools like the New Market Tax Credit, which provides funds to build commercially in low-income neighborhoods. This week, 76 groups around the country received $3.5B from the US Treasury in NMTC funds, including $15M to a nonprofit JV of Jubilee Housing and Manna called Jubilee Manna. Other recipients of NMTC funding in DC: $50M to Bank of America, $50M to City First Bank and $45M to the National Trust Community Investment Corp.
The NMTC is just another fund to leverage to make paying for affordable housing easier. Another avenue, National Housing Trust president Michael Bodaken says, is utility companies that pay to retrofit old buildings to make them more efficient. The easiest operating cost for any building to reduce is energy, Michael informed the crowd, and utility companies are spending up to $7B a year on rehabbing buildings to make them use less energy. Programs to install solar panels and wind turbines also serve to bring costs down, which makes buildings (you guessed it) more affordable.
Sorg Architects principal Suman Sorg gave a presentation about her firm's plans for a radically designed, affordable building on North Capitol and K streets in NoMa. An affordable housing project has to be affordable from the start, she said, not with value-add changes after the fact. The 124-unit, 14-story building she presented has micro-units, some smaller than 400 SF, and is designed to be occupied by formerly homeless veterans, including those with brain injuries and PTSD.
Projects like Sorg's are possible because of the DC government's involvement, DHCD director Polly Donaldson (right, next to Stratford Capital Group president Stephen Wilson) says. DC donated the land to the building's owner, a regional church group, which developed the land. Donaldson, a former affordable housing nonprofit director, and the mayor's top priority is preserving the 8,000 affordable units in DC currently at risk because LIHTC and rent subsidies are set to expire.
Developers will have to find every revenue stream they can, and Nixon Peabody partner Michael Reardon, the former assistant general counsel for HUD, laid out all the different programs the federal government has cycled through over the years. There are so many programs, so many regulations and so many barriers to entry in the affordable housing space, it's enough to make even the smartest person in the room's head spin.
That's why the Constitution Ballroom was packed this morning. The stakes are high and the opportunity is there. It's rarely easy; Mayor Bowser pointed out the District's controversial new inclusionary zoning law could use some tweaks. Phuc says "it's going to be harder to get deals done" because 40% of the yearly $100M affordable housing fund must be spent on residences for those making less than 30% AMI.
Combine those factors with one of the primary, obvious hurdles: land in this area is highly expensive, Stephen says, snapped with Nixon Peabody DC managing director and moderator Jeff Lesk. But, according to David Bowers, there are 250,000 cost-burdened households in the area. 338,000 people moved out of the district from 2000-2014 who cited housing as their primary reason. As DC market-rate rents rise and rise, the hurdles must be overcome. And we learned this morning that private developers have to be part of the race.