The affordable housing industry is one that thrives on partnerships, collaboration and creative alliances. From government agencies partnering with private capital to various networks of non-profits coming together to share ideas and resources, there is ample example all around us about the value of teaming up with people to get affordable housing built.
The Bisnow Multifamily Annual Conference (BMAC) East took place on the 29th of November and one of the panels at the conference was all about bringing industry leaders together to talk about the power of partnerships in affordable housing. Our founder and CEO, Kanan Ajmera, was a prominent voice on the panel and brought insights from the proptech world. Other panelists included, John Gilmore (SVP and Managing Director - Walker & Dunlop), Drew Hubbard (Interim Director - DHCD), Yarojin Robinson (Managing Director - Goldman Sachs), Joe Ouellette (Chief Strategy Officer - Standard Communities), Christopher Donald (Executive Director and CEO - DC Housing Finance Agency), Tabaré Borbón (SVP, Affordable Production - Colliers Mortgage), and Robert Gilbane, Jr. (Vice President of Development - Gilbane Development Company). The panel represented a mix of private and public stakeholders, all of whom have extensive experience in forging creative alliances to accelerate affordable housing development in the country.
Here are some of the key insights from the panel.
Definition of affordable housing has changed
The most consistent and wide known definition of affordable housing comes from the Federal Department of Housing and Urban Development (HUD). They consider housing affordable if it takes up 30 percent or less of a household's income. However, the panelists agreed that this definition is changing. Different markets have different Area Median income (AMI) and there are different benchmarks for what is considered affordable in those respective markets. They also pointed at the difference between affordable housing and housing affordability. While affordable housing is simply any unit that is government-subsidized for low-income households, housing affordability goes beyond that and is a reflection of the general level of housing prices relative to the general level of household or family incomes. So technically, while a unit can be deemed affordable by government standards, it might still be out reach for a sizable population of low-income households. Current market trends indicate a supply-demand mismatch, with supply being limited, which has resulted in a serious shortage of affordable rental homes across the country.
Different models of PPP emerging at all levels
The panelists shed light on various models of PPP that are now prominent in the affordable housing market. During the pandemic, there was a need for government aid to reach those in need and reach them quickly and efficiently. This is when private partners stepped in to ensure that the allocation of funding for various programs was accelerated and streamlined. Hence, there are private organizations partnering with government institutions at all levels to facilitate allocation of funds for affordable housing development. There are various tax-credits which are being used to incentivize private developers to dedicate their resources towards affordable housing development. There is increased advocacy around expanding Federal Low Income Housing Tax Credits (“LIHTC”) for multifamily rental housing projects, which are routinely used by both for-profit and non-profit developers for affordable housing development. Although there have been challenges around financing gaps, especially during COVID-19 pandemic, HFAs have routinely adopted creative strategies to close these funding gaps.
Challenges for smaller developers - scalability, balance sheet, liquidity
Smaller developers are often the ones with limited resources and capital and face several barriers to affordable housing development. Which is why they often get outbid by bigger developers when it comes to securing development rights for housing projects. The panel unanimously agreed that there was a need to help out small developers and provide them resources to scale their business. On that note, Kanan Ajmera commented:
"With Builders Patch, we are working with several non-profit developers to help them manage their project pipeline and secure financing for their projects quicker. These are folks with small teams and limited access to capital and we help them organize and accelerate their business process. We have seen first-hand how technology has played a crucial role in helping smaller businesses scale and we hope to keep supporting them and help them make an impact."
Christopher Donald introduced the McKinney Act Loan Program by the DCHFA, which has allowed smaller developers to access "bridge loans" to finance the acquisition, pre-development and rehabilitation costs associated with housing development. Financing programs such as this offer liquidity to smaller developers and allow them to find financing for their development projects when their money is locked in, in various deals. This liquidity is crucial for them to scale.
Need for racial equity in the industry
The affordable housing industry has come a long way in addressing racial inequities but more needs to be done. Developers of color require more opportunities to help them pursue their projects. It was refreshing to hear from Roj (Goldman Sachs) about how they are lending specifically to minorities and investing in bridging racial gaps. The One Million Black Woman program by Urban Investment Group, a subsidiary of Goldman Sachs, has made it possible for Black women developers, to access funding for their development projects which relate to affordable housing creation. These targeted investment programs are crucial to help level the playing field for minority groups in the affordable housing development industry.
Besides these key takeaways, the panelists discussed about initiatives such as the Amazon Housing Equity Fund, which is paving the way for a one-of-a-kind PPP of that scale, dedicated specifically toward tackling the housing affordability crisis. The panel was hopeful that private capital and technological innovations will continue to drive affordable housing development across the country.