America's Affordable Housing Crisis Is At A Breaking Point. How Can CRE Help?

There is no state or county in the U.S. where a renter working full time at minimum wage can afford a two-bedroom apartment. America’s affordable housing crisis has been growing for decades, and there is a shortage of more than 7 million affordable homes for the country’s more than 10.8 million extremely low-income families.  

And it isn’t just extremely low-income individuals who are struggling to find affordable housing: It’s a problem for nearly half of all renters. 

“Right now, 46% of all the renters in the United States pay more than 30% of their income towards rent,” said John Ducey, senior vice president and chief production officer for affordable housing at commercial real estate finance firm Walker & Dunlop. “It's astounding. And that number has been unfortunately fairly stable over the last 10 or 15 years.” 

The commercial real estate industry has long been working toward addressing this crisis, and companies like Walker & Dunlop have been providing capital and services to finance affordable housing for years. 

Bisnow sat down with Ducey to learn more about what is driving the affordable crisis, and what Walker & Dunlop is doing to help.  

Bisnow: The affordable housing crisis has been growing for decades. What are some of the major factors currently contributing to it?

Ducey: There are multiple factors and some disagreement throughout the industry, but the one thing we can all agree on is that it is lack of supply that is really driving the affordable housing crisis. This was especially dire during the Great Financial Crisis, when construction slowed down across the board for both single-family and multifamily housing. 

Another driving factor is income inequality. The lack of sufficient housing supply has pushed up rents significantly, and income growth has not risen with them. In the last few years, rents have gone up 11% nationally, while wages only grew by 4%. 

The other thing we all agree on when it comes to affordable space is the definition of affordable versus unaffordable. If you pay 30% or more of your income toward rent, you’ve got a problem and you are considered housing cost-burdened, and that figure has been used for many years. Far too many American renters — 46% as noted above — across the board are paying more than that. 

Bisnow: Why should commercial real estate professionals, and the public in general, prioritize this crisis? 

Ducey: This issue is causing widespread, significant problems that impact us all. One example is that it is driving homelessness, which is currently at a much higher level than it was 50 years ago. Lack of affordable housing supply is the main cause of homelessness. 

Personal housing costs are also driving inflation. We use the price of housing to calculate almost a third of the consumer price index, so as housing prices are dramatically going up, it's driving inflation across the board. 

The bottom line is this is a major problem, and people would have more stable lives and be more productive if they didn’t have to worry about where they were going to live or that their rent was going up significantly each year. 

Bisnow: What incentives, policies and regulations have been implemented recently to spur the creation of more affordable housing? 

Ducey: The two major government programs for affordable housing are Section 8 and the Low-Income Housing Tax Credit, both of which have been around for a long time. Section 8 is an operating subsidy that helps people pay their rent, while the LIHTC is a capital subsidy that helps developers bring down the cost of building housing, which allows them to charge lower rents. 

In the 2017 Tax Reform Act, the LIHTC was increased by 12.5%, and that increase has been in place since then. It was only given a five-year time horizon, which is now burning off, and it must be reinstated. Many in the affordable housing industry are working with Congress during this current lame-duck session to ensure this provision remains in place.

These federal programs need to be expanded because they are not keeping up with the current demand for affordable housing. As a result, state and local governments are taking their own tax dollars and putting money into affordable housing through low-interest loans as well as offering real estate tax abatements or tax exemptions. 

There also needs to be a lot more zoning and land use reform. Not in my backyard, or NIMBYism, continues to be a major issue, where many local single-family housing communities are saying they do not want any apartment buildings in their neighborhood, let alone affordable ones. We need land use reform to allow the construction of buildings in these areas. 

Bisnow: Aside from building more affordable housing, what can the commercial real estate industry do to help?

Ducey: At Walker & Dunlop, we’ve been financing affordable housing for many years. But two or three years ago, we really started to focus on the longstanding gaps that have been impacting the financing of this much-needed asset class and created a broad strategy to address it. This ties into our mission of “community starts here,” where we build and finance places that create community, and that includes low-income individuals. 

We have ramped up our platform to provide increased affordable housing loans, LIHTC equity and affordable investment sales to help developers sell and acquire affordable real estate. Not only is this an important thing to do to address the affordable housing crisis, but it's an important business for the company to grow. It's something we were already doing, but over the past two years, we’ve created a platform to drive production in these three key areas.

Bisnow: Can you talk about any recent affordable projects Walker & Dunlop is involved with? 

Ducey: Abbott Arms in South Carolina is an existing property with a Section 8 contract that was in need of significant repair. Our client, the Dominion Group, acquired the property and it underwent a significant renovation. We were able to provide the permanent loan with Fannie Mae, syndicate the LIHTC equity and also arrange an equity bridge loan. We brought three pieces of the capital stack to this transaction, which is really one of the strengths of Walker & Dunlop.

We are also providing the equity capital for the renovation of Lawson House in Chicago, which is a former YMCA that is being renovated into 400 studios for formerly homeless individuals. 

At Walker & Dunlop, we’ve been focused on affordable for years, but we are now committed to expanding our footprint to truly make a difference in this crisis. 

This article was produced in collaboration between Walker & Dunlop and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.