Affordable Housing Reset
As if the problem wasn’t acute enough, the US is about to hit a wave of new uncertainty for affordable housing. As noted by the Wall Street Journal last week, the fight between asset owners, regulators, and renters is about to get a whole lot more contentious.
Start with the simple truth that the Unites States does not have nearly enough affordable housing. Investors, on some level, would love to exploit this imbalance between supply and demand. But we generally don’t. And there have always been a lot of very good reasons for this, including: high delinquency rates, low rent growth, and suboptimal exits. The federal government has long offered 30-year tax credits to encourage developers to build affordable housing. For a long time, this was a great program for everyone involved, but today, as building costs and insurance have exploded, the appeal has fallen off a cliff.
Further exacerbating the issue is the fact that hundreds of thousands of units, funded by the government 30 years ago, are now eligible for rent increases in a market where asking rents have soared 25% in the last couple of years. On top of that nearly 400,000 units affordable to those living in poverty came off tax breaks during the pandemic. While there is currently no legal recourse for those that increase rents after 30 years has expired, the problem continues to worsen, and the government is highly unlikely to stay out of it.
What is also clear, is that while the last several years saw tremendous building of new apartments, most of them were class A level apartments because the difference in cost between building class A and affordable housing, even with the tax credit, is not that large. But since class A garners so much higher rents, the profitability differential makes that decision a no brainer.
Unfortunately, this situation has put nearly everyone in a bind. Renters below the poverty line continue to see rent become a larger part of their cost of living, and for the poorest, there will be some very difficult choices to make. Meanwhile, landlords have no choice but to raise rents because maintenance, insurance, and taxes have all increased.
At the end of the day, this will ultimately turn into a partisan political fight on the floor of Congress where no one wins. Democrats will argue loudly for rent relief, and they’ll paint Republicans as heartless for trying to protect landlords. Republicans will likely fight this by arguing for additional tax credits for landlords as a method to achieve the same goal. It’ll be a mess, and if nothing else is sure, this one thing will be. The process will take way too long and nearly every stakeholder will hurt until there’s a solution.
Source: The Wall Street Journal
