What are the Components of Affordable Housing?

Is affordable housing really affordable?  This is a relative question, of course, because there is no comparison in rents or construction costs between Chicago and Jacksonville, for example. For the sake of argument, this article denotes fifteen of the components required to deliver affordable housing (they are underlined without duplication).

Determining affordability requires knowing local household income, family size and population density.

To determine affordable rents you have to know household income, costs of construction, subsidy amounts and information about the capital stack (source of funds for construction and repayment terms).

In the construction of affordable housing, there is a wide variance in land costs, costs of construction, bond programs, median income and poverty levels and the availability of tax credits. These items only begin to scratch the surface about how affordable housing is provided in urban environments.

Land valuations, construction cost and type, median household income and Fair Market Rents (FMR) vary greatly between locations, regions and states.

Less populated locations also experience deterrents to providing affordable housing; NIMBYism (Not in My Back Yard),  development capacity, access to utilities and auto traffic loads can limit suitable land.  It may sound silly in a big city but there are many places where roads cannot carry traffic of two hundred cars a day consistently.

Public financing plays a big roll in the availability and affordability of subsidized housing (bonds, tax credits, subsidized mortgages).  For example, many developers in the state of Missouri thought approval of a tax credit application required a location  south of Interstate 70.  True or imagined this thinking likely had some impact on application submissions.

The real "tell" about affordable housing requires comparing quality and price to market rate assets.  As population density increases the price differential is easily quantifiable.  Unfortunately, in densely populated areas the amount of affordable housing (in terms of aggregate units) continues to be well below needs.

In suburban markets there is the potential for more units with the trade-off being transportation becomes a necessity to connect to the wider community and job opportunities.

In rural communities there are many places with an over-supply of affordable housing (read: subsidized housing) that competes head-to-head with market rate assets.  While this can keep rents low it provides a dis-incentive  to future development.  This creates an environment for older rental housing stock to perpetuate because there is no is no "market rate" financial incentive to build new developments.

Affordable housing is a huge industry nationally, yet need and need assessment is always local and subject to interpretation.  When a community decides to "close the gap" and provide affordable housing, the first battle ground is in obtaining an accurate assessment of need then moving the community in the direction of acknowledging the need is real.  That and recognition and acknowledgement of the required components to providing affordable housing.

This article is intended to be informational only and does not provide legal, financial or accounting advice. See http://multifamilyinsight.com. Multifamily Insight.  See video at John Wilhoit.com.

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