Give Credit Where Credit Is Due: Demand for Affordable Housing in the Mid-Atlantic Outpaces Supply
Mirel, Diana, Journal of Property Management
When strong demand exists in specific real estate markets, the industry typically rallies to meet the demand. That is not quite the case with the affordable housing segment in the mid-Atlantic region of the United States, including the Washington, D.C., and Philadelphia areas.
As land acquisition and construction costs climb--with some areas reporting more than 300 percent increases--affordable housing development is decreasing. Yet, the demand for affordable housing continues to soar.
Enter the Low-Income Housing Tax Credit (LIHTC). Created by the Tax Reform Act of 1986, the program gives states the equivalent of nearly $5 billion in annual budget authority to issue tax credits for the acquisition, rehabilitation or new construction of rental housing targeted to lower-income households. To help fill the gap between Section 8 housing and market rate properties, this program offers either a 9 percent or 4 percent tax credit for the development of affordable housing.
While the LIHTC program has certainly helped increase the amount of affordable housing, the mid-Atlantic region is faced with the challenge of making such development economically feasible.
In its 20-year history, the LIHTC program has helped develop substantial affordable housing nationwide. Roughly 1,350 projects and 95,000 units were developed annually between 1995 and 2003 with the help of tax credits, according to the U.S. Department of Housing and Urban Development's Office of Policy Development and Research. Real estate developers and managers in the mid-Atlantic region credit the LIHTC program with a growth in affordable housing.
"We have more than 2,600 units in our tax credit properties in our portfolio and our partners' portfolios," said Carl Greene, CPM and executive director of the Philadelphia Housing Authority. "We would probably have less than one third of that without the LIHTC, or maybe not any of them because we would have been renovating [existing] units instead of building new products."
WANTED: AFFORDABLE HOUSING
The dramatic rise in housing costs in D.C., Virginia and Maryland has priced people out of the market, said Cindy Clare, CPM and president of KSI Management, a management and development firm in Virginia. As a result, demand for affordable housing continues to grow.
Greene said a surge in property values in Philadelphia led to increased profit potential. Thus, for-profit developers are acquiring land and producing market rate housing, which ultimately increases the need for affordable housing.
"We have some developments with 100 units, and there are 5,000 people on waiting lists," Greene said.
MAKING ENDS MEET
Despite the LIHTC program, a combination of escalating construction and acquisition costs and the condo conversion boom have driven many for-profit developers and managers out of the affordable housing market.
"[The affordable housing market] is losing ground dramatically," said Don Tucker, executive vice president of AHD, Inc., a developer in the D.C. area. "There are only a handful of for-profit like us doing tax credit deals now. Most of the for-profits have gotten into something else because they can't find sites to make it affordable."
Making ends meet has been a challenge for many developers. …