Baltimore Developers Look For City's Help To Solve 'Math Problem' Of Affordable Housing

Baltimore has a need for more affordable housing, with over 50,000 city residents spending at least half of their income on housing. But developers looking to build those units say they need more help from the city to solve the complicated "math problem."

At the heart of the challenge is how to make up the difference between the cost of building new housing units and the lower rents charged for a unit to be considered affordable. To help bridge that gap, developers speaking Thursday at Bisnow's Baltimore Multifamily and Affordable Housing Summit said the city should provide more subsidies and streamline its processes to lower the cost of moving projects forward. 

"There seems to be an attitude or feeling that we don't want to provide [affordable housing]," said Chris Mfume, managing partner of Civic Group, formerly known as CLD Partners, which builds everything from deeply affordable units to moderate-income to market-rate. 

"Our favorite place to play, it's kind of like an affordable mixed-income, middle-income area. That's our specialty," he said. "So, we want to provide it, but primarily, it's a math problem."

Developers and experts speaking at the event, held at the Four Seasons Hotel Baltimore, said there is no single solution to meet the dual goals of stimulating the construction of affordable housing and attracting private sector investment and development. 

According to the Baltimore City Department of Housing & Community Development, more than 20% of city households spend more than half their income on housing, and 92% of the more than 51,000 households in that category earn no more than half the area median income. 

At the same time, about 30% of the city's total rental inventory of 131,000 units is affordable to low-income residents, according to the Department of Housing & Community Development. The number of affordable units includes 12,800 units with federally funded Section 8 housing choice vouchers subsidizing rents for private rentals. 

Between 2016 and 2018 — the last publicly accessible data from the Department of Housing & Community Development tracking affordable housing development in the city — developers delivered 1,155 new publicly subsidized affordable rental homes and rehabbed another 3,265 units. Those projects' total development cost, which included 283 market-rate units, exceeded $1B. 

Council Member Odette Ramos is preparing a final version of her bill to replace Baltimore's inclusionary housing law that expired last summer. That bill, if passed, would require developers receiving city subsidies to include affordable units in their projects.

But Mfume warned that the subsidies developers receive from the city aren't enough to offset the cost of including affordable units in market-rate developments. He said that because Baltimore's property tax rate is so high — roughly double surrounding jurisdictions — tax credits and other subsidies only put market-rate projects competing for investment with projects nationwide on a level playing field.   

"This isn't voodoo. ... I can show you the numbers," Mfume said. "There needs to be an understanding. We all need to be on the same page from a policy perspective to understand that these tax credits are just getting us to zero. They're not getting us to the point where we can provide more inclusionary units, which we all would like to do." 

Here is the amount Baltimore spends annually on affordable housing programs:

• Section 8 housing choice vouchers: $156M
• Low-Income Housing Tax Credits: $25M
• HOME Investment Partnership Program: $3.3M
• Baltimore City General Obligation Bonds: $3M
• Maryland Rental Housing Program: $2M

Since 2019, the city has also provided funds for affordable housing development from its Affordable Housing Trust Fund, using revenues from excise taxes on transfer and recordation taxes on property sales over $1M. The city also agreed to allocate funds starting at $2M in 2020 and gradually escalating to $7M annually in fiscal year 2023. According to the fund's latest publicly available annual report, in fiscal year 2021, the fund provided $13.6M to 19 projects. 

Workshop Development principal Doug Schmidt said that more than government subsidies is needed to spur the development of affordable housing units.

"There's never enough subsidy," Schmidt said. "There will never ever be enough."

The best way to help private developers build more affordable units is to improve the local economy by taking steps such as fixing the city's tax rate in order "to unleash that giant engine of private capital," Schmidt said.      

Richard Baron, chairman and co-founder of McCormack Baron Salazar, also said the solution to encouraging more affordable housing development involves creating a sustainable market for affordable units. He said those projects require large-scale initiatives to stimulate a market substantial enough to attract financing that allows developers to build units for lower-income families in mixed-income communities.

"The biggest challenge in all these efforts is the speed with which we can move," Baron said. "That is the thing that turns the market faster than anything is the more you can put in the ground, the more area you can take in, then looking at the ancillary kinds of support you need."

Cheryl Washington, president and CEO of nonprofit East Baltimore Development Inc., said her 20 years of experience at the nearly $2B redevelopment around Johns Hopkins Hospital supports the argument that the ability to develop the mixed-income communities city leaders want depends on market forces. 

When the EBDI project started, only about 30% of homes in the area were occupied, but that still required significant displacement, she said. The nonprofit had committed to first bringing back residents who lived in the area, so the first three residential developments in the project were Low-Income Housing Tax Credit projects. As a result, EBDI initially struggled to bring in amenities and market-rate development that would create the mixed-income community it envisioned. 

"Timing is so important because most retailers, grocery stores who want to come into a food desert want to have certain demographics, certain area median incomes," Washington said. "And so ... attracting those types of amenities has been delayed, if you will, because we committed to doing affordable housing in the beginning."

Panelists also said that streamlining the gathering of investments for affordable housing projects would encourage more affordable housing development. 

Schmidt said the time and effort spent dealing with bureaucracy and paperwork to assemble the capital stack necessary to complete an affordable housing project significantly increases the price tag of affordable development. By some estimates, he said, the work that goes into getting a deal done makes building affordable units 20% more costly than market-rate units.  

"That's wasted money, as far as I'm concerned, wasted opportunity," he said. "We have to be more efficient."