The economy is approaching a decade without a downturn. U.S. and global GDP are likely to hit a multi-year high at about 3 percent this year and the consensus view is that growth will slow only slightly in 2019, according to a recent Yardi Matrix report on the state of the real estate market. However, the same report shows that rising interest rates and affordability are making it difficult for first-time buyers to afford homes, with construction getting more and more expensive. Soaring land and materials costs have made it difficult to pencil all but high-end new projects in many metros.
Multi-Housing News asked an industry veteran to weigh in on the poignant affordable housing issue. Aaron Gornstein is a leader in affordable housing policy and development, with more than 25 years of executive experience. He is currently the president & CEO of Preservation of Affordable Housing (POAH), a national nonprofit organization that owns more than 7,000 units across 11 states. Gornstein used to serve as undersecretary for the Massachusetts Department of Housing and Community Development. Prior to that, he spearheaded the passage of state and federal legislation, launched innovation programs and helped form numerous coalitions as the executive director of Citizens’ Housing and Planning Association.
How serious is the affordable housing crisis in the markets you currently operate in?
Gornstein: Several major national studies show a severe lack of affordable housing in every state in the country. A new report from the National Low-Income Housing Coalition, for example, found a shortage of seven million affordable and available rental homes for extremely low-income renters and found that no state or major metropolitan area has an adequate supply of rental housing for the poorest renters.
There is a serious shortage of affordable homes in every one of the 11 states where POAH is active. We have long waitlists at our communities, particularly those with rental assistance, where the waitlists are typically years long. When we open new communities, we get dozens of people entering the lottery for every new affordable unit that is available.
What are the main factors that contributed to the intensification of the affordable housing crunch across the U.S.?
Gornstein: It’s a convergence of several long-term trends. Household incomes, especially for lower-income people, have been stagnant as housing costs have grown. At the same time, the government greatly reduced its investment in new affordable housing from the early 1980s on. And in some markets, it’s so difficult and expensive to create new housing that supply constraints have inflated costs beyond what most people can afford.
Gornstein: I’m very proud of our property management teams. They are asked to provide excellent customer service, keep our properties well-maintained, handle significant compliance requirements and manage a lot of external relationships—all while meeting budget targets. Given the complexities of the job, we are now focusing more on robust training and retention initiatives across all of our sites.
Our management teams are also excited about our new community impact approach in which everyone is involved with improving our residents’ outcomes in the areas of health, education, employment, financial literacy and community engagement. We accomplish this through dozens of local partnerships with community-based organizations that have expertise in these areas.
How hard is it to obtain public or private financial support when developing new affordable housing properties or preserving older ones?
Gornstein: Public resources for new affordable housing or for preserving existing, at-risk housing are under growing pressure because they have not kept pace with the escalating housing crisis. Anytime a public funder awards resources for a development, we know there may be a half-dozen other worthy projects that can’t be funded—so we do everything we can to ensure our projects use resources as efficiently as possible.
On the other hand, the private capital markets for affordable housing—primarily mortgage debt financing and low-income housing tax credit equity—generally function efficiently to provide affordable liquidity throughout the markets we are in, thanks to the infrastructure provided by the Community Reinvestment Act, Federal Housing Administration, and Fannie Mae and Freddie Mac.
Are there any legislative changes that would encourage the construction of more affordable housing units across the country?
Gornstein: The Affordable Housing Credit Improvement Act, which will be refiled soon in the 116th Congress, is a practical proposal with strong bipartisan support that would significantly and immediately increase the number of affordable units that the LIHTC can support. It is a top priority for POAH and for many national housing advocacy organizations.
Longer term, there are good proposals to make significant expansions in both federal capital programs for housing—like the HOME Program, the National Housing Trust Fund and others—as well as rental assistance programs like vouchers and project-based Section 8, which should be refined and advanced. We also need legislation to ensure that affordable housing can be created in all communities, including communities of opportunity, such as anti-discrimination protections for voucher holders and incentives to reform local zoning barriers. Fortunately, many of the presidential candidates are talking about affordable housing as a major platform issue and have put forth specific housing proposals.
Which are the most important projects currently in POAH’s construction pipeline?
Gornstein: We have an active pipeline of both preservation and new production projects across the country. All of our projects are important to the families who live in them or who may live there in the future. But we do have some very exciting, large-scale development efforts going on at Whittier Street in Boston, where we’re transforming an aging public housing project into a vibrant mixed-income, mixed-use community with support from a federal Choice Neighborhoods Initiative grant; at Barry Farm in Washington, D.C., where we’re renewing a historic, but neglected community, for the benefit of existing and future residents; and in Chicago, where we’re using new “RAD for PRAC” authority from HUD to fund major renovations, so these properties can continue to serve low-income seniors for decades to come.
Gornstein: POAH’s Design and Building Performance works with the project managers to ensure resource efficiency is a prime consideration from the start of the design process on every project. Every new construction project is designed to one of the major green building—depending on local funding requirements—and every substantial renovation project is designed using the Enterprise Green Communities checklist. This year, POAH is pushing the envelope on its green design priorities by pursuing its first “passive house” projects, for which financing applications are now pending.
What is your investment strategy for the year ahead?
Gornstein: POAH’s strategy will continue to center on its commitment to effective partnerships. We want to be the best possible partner for public agencies, private investors and lenders, and community-based organizations who share our mission. Within that partnership strategy, we respond to opportunities that match POAH’s strengths—notably, preservation and renovation of existing assisted housing, larger-scale community revitalization efforts and new production in partnership with local partners.
How do you see the affordable housing market evolve during the next five years?
Gornstein: Overall, I’m optimistic about the next five years. Following federal tax reform, the low-income housing tax credit investor market has stabilized and I’m hopeful that there will be increased resources for this program soon. We’re seeing more activity at the state and local levels in terms of new initiatives and funding opportunities. There is greater public consciousness about the need for affordable and that should be translated into stronger political support. Finally, given rising construction costs, I think we’ll see more innovation in building technologies and we are likely to see those innovations get wider adoption in the affordable housing market.
Image courtesy of Yardi Matrix