Subsidies Matter for Affordable Housing Developers
Kudos to PAW for bringing this important issue to the attention of alumni. It misses some key elements that are required actually to accomplish the goals of the YIMBYs. As an affordable housing developer for 45 years I know the terrain.
Housing production is a local issue driven by local market forces, not determined by national models. Every locality has its own parameters. The focus of YIMBY advocates on zoning densities, parking requirements, environmental restrictions, and other measures to ease construction and development costs is important but not adequate to the solutions. Capital subsidies for covering costs and/or rent subsidies for the lowest income households to be served are essential.
The fundamental cause of the lack of affordable housing: an owner (even a public owner) cannot rent an apartment for $1,000/month if the cost of the building is $350,000 per unit, as it is in my market, unless the capital structure for building the unit has very substantial “free money,” i.e. capital subsidies from government at every level. My company competes for awards of local, state and federal resources. Yes, take the steps in the article: higher density, taller buildings, reduced parking, less open space, faster by-right processing. If I had the benefit of all of them, maybe the cost would go down 10%, but affordable rents still won’t carry the debt without subsides.
The “free money” in the capital structure — tax-credit equity, state reduced-price loans and local subordinate debt — will need to be $200,000 or more. That’s daunting, especially for local government officials, but many municipalities have stepped up.
The “free money” can come in other forms. In our area local churches and their governing bodies (YIGBYs, as noted in the article) have offered reduced-price land. Local governments have surplus land that they have designated for our use.
I applaud the YIMBYs for their advocacy. Here is the most important tool for use locally either by local choice or mandated by the state: require that a certain portion of new units produced on a parcel of five or more acres include a percentage of units that is priced for households with incomes well below the area median, whether for sale or rental. Many jurisdictions in our area have used this tool. This tool puts local governments in the “compliance” business to hold the property owners and tenants to account for the subsidies for the life of the project’s financing. A necessary burden.
Of course, localities have also done foolish, counterproductive things. Please, please YIMBYs, no rent freezes. They stop new construction and cause deterioration of the stock. The new mayor’s plan in New York City will prove disastrous. The city council in D.C. froze evictions during and after COVID, which also proved disastrous.
The tools in the article as a full solution at the national level won’t work. Knowledgeable local government officials know that truth, and I hope the advocates will see it as well.
Kudos to PAW for bringing this important issue to the attention of alumni. It misses some key elements that are required actually to accomplish the goals of the YIMBYs. As an affordable housing developer for 45 years I know the terrain.
Housing production is a local issue driven by local market forces, not determined by national models. Every locality has its own parameters. The focus of YIMBY advocates on zoning densities, parking requirements, environmental restrictions, and other measures to ease construction and development costs is important but not adequate to the solutions. Capital subsidies for covering costs and/or rent subsidies for the lowest income households to be served are essential.
The fundamental cause of the lack of affordable housing: an owner (even a public owner) cannot rent an apartment for $1,000/month if the cost of the building is $350,000 per unit, as it is in my market, unless the capital structure for building the unit has very substantial “free money,” i.e. capital subsidies from government at every level. My company competes for awards of local, state and federal resources. Yes, take the steps in the article: higher density, taller buildings, reduced parking, less open space, faster by-right processing. If I had the benefit of all of them, maybe the cost would go down 10%, but affordable rents still won’t carry the debt without subsides.
The “free money” in the capital structure — tax-credit equity, state reduced-price loans and local subordinate debt — will need to be $200,000 or more. That’s daunting, especially for local government officials, but many municipalities have stepped up.
The “free money” can come in other forms. In our area local churches and their governing bodies (YIGBYs, as noted in the article) have offered reduced-price land. Local governments have surplus land that they have designated for our use.
I applaud the YIMBYs for their advocacy. Here is the most important tool for use locally either by local choice or mandated by the state: require that a certain portion of new units produced on a parcel of five or more acres include a percentage of units that is priced for households with incomes well below the area median, whether for sale or rental. Many jurisdictions in our area have used this tool. This tool puts local governments in the “compliance” business to hold the property owners and tenants to account for the subsidies for the life of the project’s financing. A necessary burden.
Of course, localities have also done foolish, counterproductive things. Please, please YIMBYs, no rent freezes. They stop new construction and cause deterioration of the stock. The new mayor’s plan in New York City will prove disastrous. The city council in D.C. froze evictions during and after COVID, which also proved disastrous.
The tools in the article as a full solution at the national level won’t work. Knowledgeable local government officials know that truth, and I hope the advocates will see it as well.