Costs are a major challenge in the affordable housing market segment. The requirement to keep costs down requires multiple funding sources, which lead to fragmented and complex deals that are often too challenging to develop. A new report sponsored by Capital One from the Terner Center for Housing Innovation at the University of California Berkeley highlights the fragmented nature of affordable housing and calls for more streamlined alternatives.
Part of the reason for greater funding complexity is that it has gotten more expensive to build housing, and LIHTC affordable financing is not immune to this, Desiree Francis, head of community finance at Capital One, tells GlobeSt.com. “The number of stacked financing sources needed has risen in tandem with the rapid increase in building costs. These increases are not unique to affordable housing production: the Terner Center’s research found that hard construction costs have driven up costs for both affordable and market-rate developments.”
However, layering financing sources to pursue a deal actually drives up costs, making affordable projects even more out of reach. “In addition to mismatched allocation cycles, individual requirements for funding sources varies, which lengthens the development timeline and contributes to costs increases,” says Francis. “Many developers that the researchers spoke to for the report pointed to the lack of alignment of deadlines among key funding sources as a key contributor to longer timelines and associated cost increases.”
Unfortunately, the problem is getting progressively worse. “The average number of financing sources layered in a LIHTC development has ticked upward in recent years, but the patchwork of funding sources needed tends to vary by credit type, project location, and target population,” says Francis.
Solving the financing problem will require coordination from multiple players, but Francis says that the sector is ready for innovation. “We encourage developers, investors, government and other industry stakeholders to identify and design solutions that create more affordable housing,” she says. “Advocate at the local, state and federal level for policies, processes and practices that drive efficiency, reduce costs and remove barriers in support of addressing the affordable housing crisis.”
Often, affordable financing becomes more complex when it serves the lowest income residents, usually when the budget is already tight. Francis adds, “The lower the target income of the population served by the affordable community, the gap financing needs increases and the more complex the financing tends to become.”
https://www.globest.com/2021/05/28/affordable-housings-problem-with-fragmented-funding/
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