Affordable Housing Challenges Increase

Housing affordability remains a big problem in many metros, especially those with robust rent growth over the past few years, reported Reis, New York.

The vacancy rate for affordable housing created by the Low-Income Housing Tax Credit and project-based Section 8 program stayed tight at 2.4 percent in the first quarter, said Reis Associate Director of Research and Economics Mary Le. She noted the affordable housing vacancy rate has remained between 1.6 percent and 2.4 percent since mid-2016. “Reis forecasts it to remain at this level over the next five years,” she said in the firm’s Affordable Housing Quarterly View.

Affordable housing construction is trending downward, Le said. Inventory grew just 0.4 percent in the first quarter compared to a 0.8 percent growth rate a year ago. Fewer than 4,000 units delivered in the first three months of 2019 compared to the quarterly average of nearly 7,800 units over the past year. “This is the lowest figure recorded since Reis began tracking affordable housing data in 2015,” Le said, citing the 2017 tax law as one reason for the decline because it reduced the value of affordable housing-related tax credits.

Last summer Reis predicted LIHTC property inventory growth would drop by up to 40 percent over the next few years unless policymakers revise the incentive structure to make what was lost through tax credits attractive again. “It is perhaps too early to tell at this point if the decline in LIHTC deliveries is an early manifestation of this forecasted decline, but anecdotal evidence from slowing LIHTC deal flow in capital markets suggests that the tax cuts are already making an impact on the sector,” the report said. “Given how the LIHTC framework provided an incentive compatible way of financing affordable housing, it is imperative that policymakers find an alternative to the current situation. Otherwise, potentially disruptive policies like California’s Proposition 10 will continue to be debated and considered given the crying need for more affordable housing in many major metropolitan markets.”

California’s Proposition 10 would have expanded rent control in the state. Voters rejected the proposition last November.

The Los Angeles Times said gentrification and displacement are taking formerly affordable rental units off the market in the Golden State. “[In addition,] restrictive zoning rules along with high building costs and anti-development sentiment have made it increasingly difficult to create new affordable housing,” the Times said. California needs to add 180,000 new housing units each year to keep up with growing demand, but said the state has averaged just 80,000 a year over the past decade, it said.