Affordable Housing’s Cost Challenges Discussed at Event Moderated by Arnall Golden Gregory Partner Althea Broughton
ATLANTA – Arnall Golden Gregory partner Althea Broughton moderated the panel discussion “Cost-Saving Considerations and Financing” at a recent Bisnow Atlanta Affordable Housing event.
Ms. Broughton, who co-chairs Arnall Golden Gregory’s Real Estate Practice and its Housing Team, pointed out that the term affordable housing is not consistently defined. In general, it is housing for families whose income is below or slightly above the area median income and their rent or mortgage payment does not exceed 30 percent of family income.
Satisfying demand for affordable housing faces significant challenges. Chuck Young, SVP of development at Prestwick Development Company, said two big obstacles are nimbyism and soaring construction costs. Gabe Seghi, vice president of Hunt Mortgage Group, said land costs often can be prohibitive, and John Moore Jr., founder and president of Highland Commercial Mortgage, said the complexity of public-private financing of affordable housing can hinder deals.
Margaret Stagmeier, president of TI Asset Management and founder of TriStar Real Estate Investment, said her business has not sought government subsidy financing. Instead, her strategy is to buy rundown properties for $35,000 or less per unit and rehab and rent them at a government-established affordable price.
Part of Ms. Stagmeier’s investment strategy involves supporting local-school improvements to battle transience and create a stable environment. A school in Cobb County she worked with changed from failing to a Title I school of distinction.
Some developers have tried to counter rising construction costs by building micro-units and pre-fab housing, and converting shipping containers to housing.
Finding a way to incentivize property owners keep their properties affordable instead of converting them to market rate is important in addressing the affordable housing shortage and holding down costs, some of the panelists said. “It’s a lot less expensive to take a property that’s already affordable and keep it affordable,” rather than build new, Mr. Seghi said.
Ms. Broughton, who represents developers and property owners, added that investors often buy affordable properties towards the end of the compliance period, then flip them in market-rate sales, further shrinking the affordable stock.
Tax credits foster investor interest in affordable housing development, but possible reductions in corporate tax rates might dampen that interest. Lower taxes make tax credits less attractive. Affordable housing deals nose-dived after the presidential election due to investor uncertainty about future tax cuts.
But with the retiree population rapidly growing, tax credits are vital to incentivizing affordable housing for seniors, Mr. Seghi and Mr. Young pointed out.
Another idea that was discussed that makes affordable development more feasible is income averaging. Income averaging allows a family earning more than the income limit to live at an affordable development provided the development’s aggregate average income does not exceed the limit.
Ms. Broughton asked what can be done outside of spending to foster more affordable housing. Mr. Young responded that “political will” is needed at all levels of government to pass laws that make affordable housing more attractive to developers.
“According to the Atlanta Regional Commission, we have 2 million more people moving here in the next 20 years,” he said. “We already have an affordable housing crisis. Something can be done and lot of that is controlled by the leadership.”
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