THE NEED FOR AFFORDABLE rental housing is on the rise. According to The State of the Nation’s Housing 2013, as of 2011 there were 12.1 million extremely low-income renters, an increase of 2.5 million since 2007. Furthermore, there is a growing body of evidence that the demand for rental housing is growing and that the trend will continue as those under 35 years old form households of their own.
Despite the increasing need, the supply of rental housing is generally not keeping up. According to the National Multi Housing Council, some 300,000 new apartments are needed to meet demand annually, but just 130,000 units were built in 2011. The gap in supply is even more dramatic when specifically examining affordable rental housing. In 2011, there were just 6.8 million housing units affordable to extremely low-income renters—some 135,000 fewer units than in 2007, a shortfall of 5.3 million units.
In an era of growing demand and declining government financial support for affordable rental housing, it is more important than ever to deliver affordable housing effectively as possible. Bending the cost curve will enable developers to deliver additional affordable rental homes and help jurisdictions provide more housing choices, meet the growing need for affordable rentals, and ensure that individuals and families across a range of incomes have a place to call home within the community. Bending the cost curve will also allow for the most efficient use of what are increasingly scarce public funding sources.
Why Lowering Cost Matters
The delivery of affordable housing is shaped by a number of procedures, regulations, and policies instituted at all levels of the system and at all points in the development process—each with associated costs. Development costs may be dictated by site constraints, design elements, local land use and zoning restrictions, building codes, delays in the development process, efforts to reduce long-term operating costs, and the affordable housing finance system.
Most affordable housing developments rely on multiple funding streams, both equity and debt, each of which carries its own set of requirements and compliance costs. While there may be some alignment of affordable housing land use regulations, financing tools, or programs, far too often developers must seek a complex series of approvals or obtain waivers to bring a development to fruition. This process alone can introduce costs through delays to the development timeline as well as additional uncertainty and risk, which, in addition to regulatory barriers, can also increase costs.
Moreover, developers of affordable housing are often tasked with providing a variety of amenities and services to create opportunities for and improve the lives of residents. Although developers strive to meet a variety of community goals and foster the development of high-quality affordable housing, these criteria tied to amenities and services increase hard, soft, and ongoing compliance costs.
The question of how to lower the cost of developing long-term affordable rental housing has important financial and policy implications. As public funding sources come under threat—in efforts to reduce government expenditures or simplify the tax code—it becomes increasingly necessary to identify opportunities to lower the cost of providing affordable homes. View Full Report