Affordable housing developments have recently experienced cost increases averaging 30% and, in some cases, even greater amounts, according to the National Council of State Housing Agencies (NCSHA).
A new NCSHA report finds that “nearly all deals that were awarded low-income housing tax credits (LIHTCs) from 2019 to the present have faced significant, unexpected cost increases after being awarded credits. As a result, many—if not most—projects have had to seek additional credits, soft funding, or other resources from housing finance agencies (HFAs) and other sources to close unexpected funding gaps.”
“As the primary sources of financing for new affordable apartments, state HFAs are doing everything in their power to preserve the financial viability of projects that have seen their costs spike in the last year,” said NCSHA executive director Stockton Williams. “The agencies are saving as many deals as they can, but only additional, immediate federal resources will ensure the country’s affordable housing deficit doesn’t worsen further.”
His association commissioned ABT Associates and Tingerthal Group to examine the experiences of 11 state agencies as well as interview developers and other affordable housing stakeholders.
To help save affordable housing deals that are facing budget gaps, state HFAs have taken a number of steps, including providing new financing, streamlining regulations, and tapping federal fiscal recovery funds, according to the analysis. Affordable housing developers have worked with agencies to bridge the unexpected funding gaps by modifying project designs, pursuing additional sources of financing, and deferring the fees.
“Even when these strategies have filled funding gaps and enabled projects to proceed, they have often come at the expense of the current and future production of affordable housing,” according to the report. “Longer-term and more comprehensive solutions are needed to avoid significant reductions in affordable housing production and preservation in the coming years.”
NCSHA is urging Congress to increase funding for the HOME program and expand the LIHTC before it adjourns this year or in an expected lame-duck session after the midterm elections. States and cities are already using these programs to support affordable housing so they can deliver immediate additional impact if expanded.
“Developments that fall through the cracks through no fault of their own may never come back, and, with no end in sight to the main drivers of historically higher costs, it is urgent Congress invest in these well-established, highly effective affordable housing development programs,” Williams said.
For more information, read “Filling Funding Gaps: How State Agencies Are Moving to Meet a Growing Threat to Affordable Housing.”