With skyrocketing construction costs and higher interest rates, $900 rent is a thing of the past, says Sarah Odio, deputy director of housing for the Development Finance Initiative (DFI) at the UNC School of Government.
In the past, Odio said, $900 in rent covered the money developers borrowed from lenders and equity investors to build affordable housing. It cost $140,000 to $150,000 to build a unit during that time period, Odio said. Today, developers are paying $300,000 per unit, and interest rates are higher, she said.
“At $900 a month, you’re going to have a funding gap one way or another,” Odio said. “You can’t even pay $2,000 a month (rent) without having a funding gap. So what the market can deliver today because of the ability to take on debt and equity is basically rents of about $2,500.”
Odio was a speaker at the 2024 Land of Sky Regional Council WNC Housing Forum in Flat Rock last week. Her department at the UNC School of Government focuses on real estate development and finance.
The Land of Sky Regional Council works with local agencies, regional leadership, state and federal agencies, service providers and volunteers to promote desired social, economic, cultural and environmental conditions in Buncombe, Henderson, Madison and Transylvania Counties. The conference brought together elected officials, developers, real estate agents, housing professionals and others from the region and across the state.
“If you, as a public partner, ask yourself why private developers come to you (local governments) and say we need help, it is because the market today is not able to provide this (an adequate supply of affordable housing) on its own,” Odio said.
The lack of affordable housing is a particular burden for extremely low-income households.
The National Low Income Housing Coalition (NLIHC) Annual Report The gap: A lack of affordable housing found that there are 326,751 extremely low-income households in North Carolina, but only 130,930 affordable rental units available. That means that for every 100 extremely low-income households in the state, there are 40 affordable and available rental units.
“Our state and our counties’ need for affordable housing is not going away. It’s growing,” Stephanie Watkins-Cruz, director of housing policy at the NC Housing Coalition, said in March after the NLIHC released its report. “But it’s being borne disproportionately by people who are low- or extremely low-income. And that’s hurting the health, prosperity and resilience of our communities. We need more investment in housing to meet the scale of the true need.”
At the national level, the NLIHC report found that there are only 34 affordable and available rental units for every 100 extremely low-income renter households nationwide. As a result, 74% of the country’s poorest families – seniors, people with disabilities and low-income earners – spend more than half of their income on rent and utilities, leaving them unable to afford food, transportation, healthcare and other basic needs.
Public-private partnerships are needed to provide affordable housing and reduce costs, Odio said. As the housing crisis worsened, more local governments turned to DFI for help recruiting private partners to build housing for low- and middle-income households, she said.
Subsidies to increase supply
Speaking at the Land of Sky regional conference, Watkins-Cruz said increasing the supply of affordable housing is not a panacea to solving the current crisis.
“You need supply, and the supply needs to be affordable,” Watkins-Cruz said. “To keep the supply affordable, because our beloved market doesn’t automatically produce $100,000 homes, we need subsidies.”
Managing these subsidies also requires interventions, policies and programs, Watkins-Cruz said. The federal Low-Income Housing Tax Credit (LIHTC) and land trust models are examples of programs that help provide care but also have subsidies as a component, she said.
Under the land trust or shared equity model for homeowners, homes remain affordable for over 99 years, providing long-term stability to the community. Now, about 90 percent of all new affordable housing projects are financed through LIHTC. The program does not provide housing subsidies. Instead, it offers tax incentives enshrined in the Internal Revenue Code to encourage developers to create affordable housing.
Adrianne Todman, acting secretary of the U.S. Department of Housing and Urban Development (HUD), told NC Newsline this week that Congress recently missed an opportunity to expand the program that would have created one million additional affordable housing units.
“The Republicans in the Senate decided not to approve the bill, and that’s where we are now,” Todman said. “It takes leadership, you have to make sure you have the people to get these programs passed, but it also takes the resources.”
Todman was in Durham this week to attend the groundbreaking of a new 172-unit mixed-income development called Commerce Street Apartments. The project is the first project to be built through the $40 million Choice Neighborhoods Initiative Grant will be administered by HUD and awarded to DHA and the City of Durham in 2022.
“People need to vote based on their values, quite frankly,” Todman said when asked how to remove partisanship from housing issues. “People like me, who work in my job, need to make sure that when we have these resources, we use them responsibly.”
Creative solutions to increase affordability
Some of the more practical steps a local government can take to reduce housing costs include relaxing zoning requirements and restrictions, Odio said.
“If you don’t allow that extra density, it might make it a little more difficult to get the most out of the land. Things like parking requirements. If you impose two parking spaces per unit on a developer, that costs more. Things like height and location – all of that can impact how much it actually costs to build a unit,” Odio said.
Speeding up the development process could also help reduce costs, she said.
“For many communities, this is a big obstacle. Maybe they don’t have a planning authority, maybe they don’t do much development and so they take their time,” Odio said. “You hear that a lot, but time is money because you’re paying interest on the loan you took out to build.”
The granting of subsidies to property developers is another way to keep real estate affordable, Odio said.
“Land is huge, especially in the more expensive areas,” she said.
