While the Eighth Annual Affordable Housing Summit could not go on as scheduled this week, the need for innovative thinking and conversation on this topic has never been more important.
Like most industries, affordable housing faces harsh new realities and unprecedented challenges in a COVID-19 world. In a span of just six weeks—from early March to mid-April—nearly 20% of Minnesota workers filed for unemployment. Across the country, millions more Americans are now unemployed. For many of them, this stretch of unemployment will make their current housing options virtually unaffordable.
These once unimaginable circumstances offer a valuable reminder of the delicate balance in which many renters find themselves—and the growing gap between supply and demand for affordable housing.
“If anyone didn’t already believe that access to affordable housing is critical, unprecedented circumstances over the last month have made it exceedingly clear,” said Winthrop & Weinstine shareholder Erin Mathern. “This is a key inflection point for us, and it will require a renewed focus across the entire affordable housing ecosystem—from the legislature, on down to developers, investors and landlords—to solve it.”
While the full impact of the pandemic may not be known for months, some areas for policy and procedural reform are becoming clearer. Here are three takeaways based on early indicators:
- Project construction has slowed—but the finances remain sound. For occupied rehabilitation projects, shelter-in-place exemptions have largely halted construction work. However, many new construction affordable housing developments have continued as scheduled. The good news is that the market for tax credits has remained strong despite economic fluctuations. The bad news? Construction delays and looming deadlines tied to existing tax credits are creating significant financial uncertainty as some projects move forward. Exceptions that protect investors and developers by adjusting credit delivery or providing deadline extensions will be needed to bridge this uncertainty and promote new development—especially as housing needs grow.
- Legislative changes are necessary to expand affordable housing access. Government tax and assistance programs, such as LIHTC, represent the key to securing more affordable housing for the communities that need it most. Without comprehensive support and access to realistic funding packages, building new affordable housing would be an impossible task. As more families face housing hardships in the aftermath of the pandemic, increasing access to affordable housing will be a top priority. Challenging local and federal legislators to work with the private market in the coming weeks and months will be necessary to respond quickly to this threat and improve the long-term outlook for affordable housing. Measures like fixing the 4% low income housing tax credit percentage, reducing the 50% bond test, increasing state volume cap and widening access to state and local bonding opportunities, including Housing Infrastructure Bonds, are all tangible measures that could be adopted now to ensure a strong pipeline of affordable housing in the future. By example, many will remember that the 9% low income housing tax credit was fixed at a federal level in the wake of the last financial crisis. A decade later, the industry has seen, real, tangible benefit from that measure.
- In the short term, industry-wide collaboration will be key. The pandemic has placed new strains on all aspects of the affordable housing industry. Active communication—between tenants, property managers, lenders, investors, developers, and government—is one way stakeholders can navigate considerable uncertainty and prepare for fluctuating financial risk due to missed rent and loan repayments. Additionally, sharing emerging best practices with peers can help the industry get as close to “business as usual” as possible by solving many of the practical challenges associated with affordable housing transactions—from coordinating closings and recording, arranging for inspections and governmental sign-off on project occupancy, to restructuring deals to account for anticipated construction delays. Together, the industry will need to draw from its collective experience to weather these challenges and protect the populations most affected by this crisis.