The “American Dream” as we have known it is no longer part of the American success story. With a shortage of six million homes to house our families, the United States is facing a housing attainability crisis.
Today, only 18 percent of the Americans earning the medium income can afford a home in their communities, a number that inflates to 30 percent in urban areas. By taking advantage of existing Low-Income Housing Tax Credits (LIHTC), the government and the private development community can work together to increase the supply of affordable housing to minimize the current crisis.
Based on the Low-Income Housing Act of 1989, corporations and investors can receive tax credits for investments in building low-income housing across the country. These tax credits are a popular tool to provide millions of dollars to developers for the design and construction of low-income housing. There are two primary vehicles for LIHTC: 4 percent bonds and 9 percent investment credits. While both provide funding for low-income housing projects, the type you chose will depend on your project.
Although some of the 4 percent projects are new developments, most are acquisition/rehabilitation projects. These renovation projects typically prove to be less costly per unit but also are common in areas where low-income housing is not in as much demand. The more lucrative 9 percent investment credits are more ideal for new construction as they cover a larger percentage of development costs.
Unfortunately, these tax credits are severely underfunded. The current federal budget allocates around $9 billion nationally for these tax credits. Because these funds are so limited, the guidelines and applications for all LIHTC projects are comprehensive and onerous. It’s important to ensure what little funding there is goes to projects that are built efficiently, both for cost and energy. But knowing why others have been turned away can give great insight to fine-tune a potential project and better your chances of receiving these tax credits.
Private developers can increase their opportunity to receive LIHTC credits and thus increase the supply of low-income housing by reducing costs. Perhaps the best route for a developer to take is to lower construction costs through thoughtful construction management and design. One such way to decrease construction costs is by minimizing the number of trades used to build a housing project, therefore increasing efficiency. Most housing developments take a minimum of fifteen separate trades to complete a home or apartment building and this inefficiency adds cost to the project. While it may be difficult to modify the traditional trade skills, by self-performing a few of the trades, general contractors can reduce some of the cost.
Developers should also consider modular construction as an opportunity to decrease construction costs as well as delivery time. While this technique is not new and is used in many areas of the country, the wide-spread use of modular construction is hampered by a lack of production companies. Going this route means committing to a contractor well in advance of the construction start to get in their production schedules. But the ability to construct wall and floor panels in an enclosed factory setting allows progress to continue during inclement weather. The precision of “factory” construction should save some time in the field. The walls and floors can even be pre-fabricated with electrical and plumbing rough-ins, thus saving additional time.
Developers should request energy efficient design in all their projects. The current codes require tight building envelopes, but do not require net-zero energy or use of renewable energy for the building’s power source. The overall cost of maintaining and managing the new affordable developments would decrease if this were the case.
Mixed-use developments, primarily consisting of retail below housing, is a great solution for affordable housing developments because the retail uses in the building will most likely be beneficial to the residents. This could reduce transportation cost and energy usage. The retail portion of the development is not typically funded by the LIHTC. However, if the project is large enough (over $5 million on the commercial uses), they could qualify for New Market tax credits, another government-sponsored funding source.
Of course, the best way to ensure affordable housing projects receive funding is to ensure the right people are in office to increase budgets to these programs. When it comes time to cast your vote, be sure to investigate the candidate’s stance on affordable housing and zoning. But in the meantime, these energy- and cost-effective solutions can help developers navigate the current LIHTC situation and improve their chances of receiving these credits, thus chipping away at the current affordable housing crisis.
About the Author
David Kennedy has nearly 40 years of experience working on a variety of project types, including multi-family, healthcare, office and retail. Projects have included affordable housing units, mixed-income developments and high-rise apartments. As a Senior Architect at Bailey Edward, David has led design teams, business development efforts, client management and staff development on projects. He is a thoughtful architect of the highest integrity who invests his time and vision greatly into the projects he leads.