Given the enormous inventory of unsold homes in the marketplace, it’s very easy to claim that the U.S. is simply over-housed. But despite 300,000 new foreclosures per month and a national apartment vacancy rate of nearly 8%, in many metro areas there is still not enough housing for low-income households. The reasons for this shortfall are many, including high prices for land, impact fees, zoning requirements and pricy carrying costs. Add to that list uncooperative neighborhood groups who assume that affordable housing equals increased traffic, utilitarian architecture and neighborhood decay, and it’s no wonder that the demand chronically exceeds supply.
In the case of Heritage Walk, a collection of 34 single-family homes built on small lots in the Southern California City of Fullerton, they look like many other infill developments and feature Spanish-style elevations which blend with the surrounding neighborhood, LEED certification for energy-conscious buyers and three pocket parks for those with families.
Not surprisingly, like many infill communities in established areas, sales have been brisk, with the first phase of homes selling out within the first weekend of opening. Yet not all hopeful buyers will qualify even if they can afford it: in a fairly unique situation for California in which the builder partnered with the city’s redevelopment agency, eligible buyers cannot earn more than 120% of the Orange County median income based on household size, the home cannot be rented out (not even a bedroom), and it must be resold to another eligible buyer at an affordable purchase price based on the same formula used for the original sale.
Consequently, it’s possible that if interest rates rise faster than countywide incomes and they’ve not paid down enough principal, if they sell original buyers could actually lose money – an issue which made it difficult for us to price the community against competing new home developments and resale homes which had no such restrictions. Fortunately for Olson, the combination of low costs, an efficient land plan and an effective marketing campaign in an area desperate for affordable new homes has meant brisk sales as well as a healthy profit margin.
For rental housing, the Low Income Housing Tax Credit (LIHTC), which was created under the Tax Reform Act of 1986 and provides dollar-for-dollar tax credits administered by each state and ultimately sold by developers to investors to raise funds, has historically been a huge success, accounting in part for nearly 90% of all affordable rental housing nationwide. And yet as the Great Recession began and corporations no longer had the earnings against which to shield income taxes, it’s become nearly impossible to find willing buyers for these credits even though the demand by low-income households remains unabated.
In these cases, affordable housing developers have had to be both nimble and quick, cobbling together financing from local jurisdictions, tax-exempt state bonds and HUD-administered HOME funds. Moreover, although the market studies which must be produced by third parties typically adhere to LIHTC guidelines, they’ve gradually become so complex and time-consuming that most traditional consultants can’t or won’t touch them.
However, in MetroIntelligence’s dealings with both non-profit and for-profit entities, such projects are increasingly crucial, whether providing the inclusionary housing to get a large master plan approved, allowing a builder of market-rate apartments to clear a financing hurdle by reserving some units for low-income households, or ensuring that cities are meeting their requirements for low-income families, seniors and other special populations. And for those driving or walking by, these projects are certainly not the public housing projects of yesterday. They’re now just part of the fabric of a dynamic community.