'One Crisis After Another': How Covid Has Turned Affordable Housing Development Into A High-Wire Act

In the best of times, developing a new building that provides affordable housing in a major U.S. city can feel like performing in the circus — keeping 20 plates spinning at once, fending off lions, pulling rabbits out of hats.

But these developers’ juggling ability has been tested like never before in the past two years as the housing market has buckled under the weight of pandemic-driven shifts in lifestyle, supply chain disruptions and shortages, and inflation rising at the fastest rate in 40 years.

For luxury developers and market-rate homebuilders, this has meant rents and sale prices hitting record highs and riches that seemed unthinkable in April 2020. But affordable housing builders’ mission of keeping rents low denies them that same backstop in this moment of cost increases and historical challenges.

At the same time, vocal groups in communities around the country have increasingly fought to add dense, government-subsidized housing — the type of units this country needs by the million. As a result, many projects have stalled, some have fallen apart, and the need for the homes these developers provide has only deepened.

“To be an affordable housing developer right now is incredibly difficult,” said Texas affordable housing developer Lisa Stephens, the president and owner of Saigebrook Development. “Our rents are not keeping up with the cost of construction, and particularly, the increases we’ve seen across the last 24 months.”

When Mary Lawler, executive director at Houston affordable housing developer Avenue, names various government funding sources the organization has accessed through the years, it is usually with the addendum that they are no longer available.

The Low-Income Housing Tax Credit, one of the key ways the federal government funds affordable housing, is oversubscribed and underfunded, she said. Funds allocated to senior housing have dried up. The Build Back Better bill, which aims to provide hundreds of millions of housing funds, is on shaky ground. Coronavirus eviction moratoriums have been lifted. 

"There is not enough funding to meet the need," Lawler said. "What we're trying to do is come up with new, creative ways of doing this work."

The past two years have been a stressful, demanding, disheartening, but also rewarding time for those who work in the affordable housing industry, according to the 15 men and women Bisnow spoke to for this story. 

Many found new ways to serve residents at their time of highest need, learning lessons they will carry forward past this crisis. All levels of government have focused more attention, and funding, on overcoming the shortage of homes that working-class people can buy and rent.

“From an economic point of view, we as a nation were more generous in the last two years than we had been during this rental crisis,” said Nina Janopaul, an affordable housing consultant and former CEO of the Arlington Partnership for Affordable Housing. “The crisis has made some resources available that weren’t there before. The availability of federal funding has really made some municipalities and states more generous.”

But these groups see trouble ahead. Federal rental assistance has been exhausted in some states and is expected to run out in the coming months, land costs have continued to rise and community pushback in many parts of the country is intensifying. To top it off, for the projects on the books, the highest inflation in 40 years is going to force many developers to find more money — or give up entirely.

“What we’re seeing now are concerns around escalation and supply chain that are going on really for the next few years,” APAH President and CEO Carmen Romero said. “We are kind of confronting one crisis after another right now. It’s been tough getting deals to pencil.”

Managing Through Crisis

Even in the best of times, affordable housing property management is a labor-intensive process. The pandemic made the load heavier almost immediately, and for the long run, said Julianna Stuart, the vice president of community impact for Boston-based nonprofit Preservation of Affordable Housing.

"In the early days, not only did we have to do the ordinary management job in a pandemic, we also had to help residents navigate this new world," she said.

At first, that meant distributing masks and conducting wellness calls on a regular basis for residents who didn't leave home to connect with various kinds of social services, but it evolved into much more. 

"Our work as property managers couldn't stop," Stuart said. "We had to do what we've always done: pay the bills, collect the rent and maintain the buildings, but with the added complication that many of our renters were home all the time and needing more from us than before."

“We’ve had to get creative,” Romero said. “It’s a lot more than the roof over your head.”

APAH, a nonprofit developer that owns and develops thousands of units in Northern Virginia, Maryland and Washington, D.C., raised money for an emergency fund to help residents pay for car repairs or a new work uniform, set up vaccine and testing clinics at its properties, and gave resources to assist children with virtual learning.

“In a way, Covid was an opportunity for us to build relationships that were maybe lacking before,” Romero said. “We increased our staffing from four to 11 so we can be there for them, and we can hopefully deliver more than just a home, to deliver a need.”

But property owners also found themselves in big financial holes, as many of the residents who live in subsidized housing work blue-collar or service-oriented jobs and were laid off at vastly higher rates than better-paid white-collar workers.

“We lost millions of dollars in rent. People were laid off and unable to pay their rent,” Janopaul said. “That was unique to affordable housing.”

When the Emergency Rental Assistance program was established, Stuart said, it became clear that many residents in POAH’s 12,000-unit portfolio needed assistance in applying for it.

"We had to invest in staff, who not only did the outreach to residents but to the folks in our central offices, who were doing the mountains of paperwork and learning these new data portals to submit these requests for rental assistance for thousands of households — and keep track of everything," Stuart said. 

A major part of the pandemic grind for the company was marshaling the talent to set up and maintain the data systems for a portfolio as large as POAH's, ensuring rental assistance got where it needed to be. For each resident, it might have meant just a few hundred dollars, but for the entire portfolio, it was critical the new systems worked — and worked well.

The pandemic also put intense stress on POAH's employees. Resolving that, Stuart said, is still a work in progress.

"We've been working with teams of staff across our portfolio to get ideas for getting along with co-workers and managing stress," Stuart said. "How do we care for our staff, who continue to come to their work sites throughout the pandemic even though they were living through it at home too?" 

Romero said on her calls with nonprofit CEOs across the country, she has heard of upticks in violence and mental health crises at subsidized properties, a concern after nearly two years of isolation for many families.

“What I think people are struggling with now is, where are those resources?” she said. “We’ve figured out rent relief, we’ve figured out eviction prevention. Where do we figure out the mental health resources that we need? That’s where I’m feeling stress, especially because we take on, in many cases, the hardest to house. People who need that extra support to deal with a trauma, our staff is not equipped to do that. They try.”

Project Limbo

In early 2020, David Schwartz’s development firm, Slate Property Group, was under contract for a site in Brooklyn, hoping to build a property that would be affordable to the lowest-income New Yorkers. The deal was signed and the deposit was paid — all with the understanding the city would help provide the financing. But when the pandemic began, the project was immediately thrown into jeopardy.

“Covid hit and the city delayed funding all of their projects. … The city didn't know what was going on with its budget, so it had to hold all of the affordable housing projects.” Schwartz said. “We were probably in limbo for nine to 12 months.” 

New York City cut its Department of Housing Development and Preservation capital budget by $457M that year, a 40% cut that housing advocates warned could lower housing production by tens of thousands of units. The city added $741M in fiscal year 2021, backstopped by federal funding, in an effort to make up for lost time.

Schwartz said the deal didn’t make any sense without city-supplied financing, and the company prepared to walk away without the deposit. But the seller was understanding, and Slate was able to work with them to extend the closing date. Building is due to start soon, and when complete, Slate’s project will provide affordable housing to young New Yorkers who have aged out of city foster care. 

While the project is now moving forward, it showed Schwartz how fragile financing can be for these sorts of projects. Amid an unforeseen crisis, New York had to freeze its support, underscoring the importance of a city maintaining backup funds. 

“I think we need to have emergency funds for affordable housing for a rainy day,” he said, adding that his company dropped possible deals in the past because the financing didn't make sense. “Frankly, we can't afford to not continue to produce affordable housing.”

The Washington Housing Conservancy was just getting started when the pandemic hit. Formed in 2018, the nonprofit identifies and preserves naturally occurring affordable housing, thanks in part to funds kicked in by Amazon HQ2 developer JBG Smith. But getting the nonprofit off the ground has been difficult in a pandemic, said Kimberly Driggins, its executive director. 

“We had a healthy pipeline, and that pretty much evaporated because of the pandemic,” Driggins said.

Driggins said local regulations in Washington, D.C., made it much tougher to complete transactions, as an emergency extension of the city’s Tenant Opportunity to Purchase Act allowed tenants to effectively freeze the sale of their building. Nonprofits can have a more difficult time financing deals than for-profit developers in that environment, Driggins said, partially because they can’t extend a line of credit for a lengthy period while they wait for a deal to come through.

“Time kills deals, and not-for-profits don’t have the same kind of time,” Driggins said. “I believe strongly in tenant rights, but I would like the existing laws to do better with serving their interests.”

D.C.-based Wesley Housing, with an existing portfolio of 26 communities, has 13 affordable housing projects in development or planned across the mid-Atlantic, totaling 985 new units and 139 renovated units. The nonprofit affordable housing developer has managed to keep its planned projects moving forward during the pandemic, but CEO Shelley Murphy said it hasn’t been easy. 

Faced with rising materials costs and supply chain delays, the developer has decided to use its own balance sheet to buy materials in advance before securing construction financing for a project, Murphy said. This strategy creates more predictability in the pricing and timing of obtaining construction materials. But it comes with the risk that if the developer can’t land financing and the deal falls through, it is on the hook for material costs. 

“We’re putting our cash at 100% risk,” Murphy said. “If the project were to blow up, we would be sitting there with 100 doors and kitchen sinks. We’re taking that risk so we can keep the project going. While we can afford to do that up to a certain point, I’m sure there are other organizations, smaller organizations, who may not be in a position to do that.”

Wesley has deployed this early material sourcing strategy on at least four recent affordable projects: the rehabilitation of the 56-unit The Hampshire building in Northwest D.C.; the development of the 79-unit Quarry Station senior affordable project in Manassas; the renovation of the 37-unit Knightsbridge Apartments in Arlington; and the renovation of the 63-unit Whitefield Commons community in Arlington. 

The materials Wesley sourced before landing financing for those projects included windows, doors, roofing materials, cabinets, countertops, insulation and appliances. Affordable housing developers must work especially hard to keep down material costs, Murphy said, because they don’t have the ability to raise rents to make up for rising expenses. 

“Our rents are capped, and when we underwrite the project, we underwrite it as so many units that are at 60% rent and so many at 50%,” and so on, Murphy said. “That really puts the pressure on the expense side and what we can manage there, because we’re not going to be able to bring in more operating revenue.”

Right around the onset of the pandemic, The Decro Group was gearing up to start work on a 97-unit mixed-use project on Main Street in Los Angeles, imagined as a multigenerational building. Of the 48 affordable units available to people making 60% of the area median income, some would be designed for and available to families, while others would be available to 55-and-over tenants.

The building would also include 49 units of permanent supportive housing — a type of affordable housing that includes on-site service providers and, with a 30% area median income cap, usually for people transitioning out of homelessness. The ground floor would be leased to a small grocery store. 

The project, Brine Residential, was envisaged as a way people could stay in the building as they moved through the stages of life — families could move into a smaller, senior unit when their children left home, for instance, making space for new families to move in. Across Decro’s portfolio, tenants have stayed long-term, partly because they can't afford to live elsewhere, but also due to relationships with neighbors they don’t want to leave behind. 

“These aren’t just doors that you can lock,” Decro Group Chief Financial Officer Laura Vanderweghe said. “We’re trying to build a community of support within this building where people look after each other, where they lift each other up.” 

At the eleventh hour, Vanderweghe said, she was alerted that, because of a change in fair housing regulations, it wasn’t possible to have designated 55-and-over units in the same building as units where younger people lived. If they wanted age-restricted units, the age restriction needed to apply to the whole building. 

Decro needed to make a choice: senior units or family units. 

“Anyone housed off the street is a win. I don’t want to pick populations,” Vanderweghe said. “But I will tell you that the most vulnerable population in our housing stock at the moment are seniors,” due to their fixed incomes and rising rents. 

But Decro ultimately chose to go with the family units because there are fewer restrictions surrounding who can live in them, she said. Seniors can still apply to live at Brine Residential when it opens, but they will be competing against a vast pool of Angelenos hoping for a lower-cost place to live. 

“We have to kind of cross our fingers and see who occupies this unit, based upon who we pull out of that [housing] lottery,” she said. “And the waiting list will be years and years and years long, because there will never be a shortage of people, unfortunately, who want to live in affordable housing in Los Angeles.” 

Market Competition

If there has been a positive for affordable and social housing during the pandemic, it is the acceleration of a pre-existing trend: Large institutional investors are now even more keen to deploy big amounts of capital in the sectors.

“There is a lot of capital flowing into this space in the UK and a lot of competition for sites,” Man Global Private Markets Head of Community Housing and Portfolio Manager Shamez Alibhai told Bisnow. 

Blackstone, M&G, L&G and Man Global itself are among the myriad names now looking to make significant investments in affordable and social housing in the UK.

“What the pandemic has done is highlighted the issues around housing for key workers and people on low incomes, people who had to keep traveling and working,” Alibhai said. “It has highlighted the scale of iniquity around housing.” 

The trend of more for-profit investors in subsidized housing capital markets has come to the U.S. — drawn by assets with low vacancy rates, stable tenancy and the potential for rent growth once subsidy contracts expire, nonprofit developer NHP Foundation Vice President of Development Mansur Abdul-Malik told Bisnow. Any investor pricing affordable housing as a yield-generating asset is likely to win out over one prioritizing the preservation of affordability.

“Projects are going for $1M or $2M more than they were originally listed for,” Abdul-Malik said. “From a risk-adjusted perspective, it’s almost like a bond.”

TriStar Real Estate Investment, an Atlanta impact investor that buys run-down apartment complexes to renovate and keep rents affordable for low-income families, accomplishes its mission via “capital stack gymnastics.” But with investors on a shopping spree for multifamily, TriState Managing Partner Margaret Stagmeier said it has become less expensive for the firm to build new affordable apartment projects. 

“The robust capital markets have created an artificial investor demand for this product type,” Stagmeier said. “I probably average one to three phone calls a week, sometimes a day, from investors wanting to buy our properties.”

Stagmeier said TriStar is competing with private equity for the same low-income apartment properties previously overlooked by most investors. But instead of maintaining them as affordable, these investors are looking to refurbish and “flip them for huge profits,” thereby eliminating a community's affordable stock, she said. 

“It's forced us to compete with these buyers in the same market,” she said. ”I can't buy them and keep them affordable at today's pricing.”

A big driver of fund managers looking to invest is local government pension schemes deciding to up their allocations to the sector as a way of using capital for social good. But Alibhai pointed out that with inflation higher than at any point in the last generation, affordable housing owners will have difficulty increasing rents at the same rate. 

NHP’s costs for development and redevelopment have increased by over 25% in the past 18 months. General contractors have been reporting their subcontractors can only stick to a price quote for a week before taking their services back to the open market, Abdul-Malik said. 

With capital stacks resembling houses of cards, affordable housing projects are ill-suited to both unexpected cost increases and the sort of quick decision-making such a competitive market rewards.

In 2019, the government of Baltimore City awarded NHP master development rights to a 17-acre parcel in the neighborhood of Park Heights, a 96% Black community whose decline into poverty in the latter half of the 20th century is painfully familiar to anyone involved in affordable housing or urban planning. At the time, the project was estimated to cost $100M, which included a large chunk of direct investment from the city. But with costs of all kinds skyrocketing and the development yet to begin construction, NHP was forced to go back to the city and ask for more funds.

“Now the city isn’t sure if it’s able to do it,” Abdul-Malik said. “So we need to figure out if we can cobble together the funds from other sources to make it work.”

Taking On NIMBYism

“It’s not uncommon to see fear-mongering when it comes to affordable housing,” Bickerdike Redevelopment Corp. CEO Joy Aruguete said.

Bickerdike is set to welcome over the next few weeks the first residents of Emmett Street Apartments, its 100-unit, all-affordable project in Chicago’s Logan Square neighborhood. Such developments are necessary to avoid displacing longtime Logan Square families. A 2018 analysis of census data by WBEZ showed Logan Square had lost 20,000 Latino residents since 2000 and become a majority-White neighborhood. The median single-family home in the neighborhood costs nearly $900K. 

That helped make the seven-story Emmett Street building popular with low-to-moderate-income families, with more than 700 applying for the 50 units reserved for Chicago Housing Authority voucher holders. Some neighbors tried to stop it from even being built.

In March 2020, a group of nearby property owners calling themselves Neighbors for Responsible Development filed a lawsuit alleging Bickerdike’s building would choke off local businesses and create traffic nightmares by adding too much density and replacing a parking lot.

But citing census data, the Metropolitan Planning Council, a Chicago-based nonprofit, found the neighborhood needed affordable housing far more than it needed parking spaces. A judge later dismissed the lawsuit.  

“As a society, we’ve become so incredibly litigious, and everybody now sues for any reason,” Aruguete said.

Frivolous court cases are a part of doing business if you are an affordable housing developer, Aruguete said. A similar neighborhood group tried and failed in 2010 to block Bickerdike’s 61-unit Zapata Apartments, also in Logan Square and completed in 2014. No one attempted such lawsuits against the MiCA Apartments, a 216-unit upscale apartment community that opened just down the street from the Emmett building in 2016.

Lawsuits cause delays, cost money and can make funders nervous, but the open community meetings that typically precede major Chicago developments are sometimes worse, Aruguete added.

“Some people lose whatever filters they have and feel free to talk to others in ways they never would in other circumstances,” she said. “Here you are, trying to do the right thing and build nice housing that contributes to the fabric of the neighborhood, and then you hear people being racist or anti-family or anti-poor people. That can be hurtful. We are human, and some of our staff are affected by it, especially if it’s their first time.”

Aruguete said she never responds in kind. She prefers to cite statistics backing up her contention that neighborhoods like Logan Square need more affordable housing.

“We’re people with a mission,” she said. “So we’ll keep doing our work and never go as low as they do.”

Dallas-based Saigebrook has also faced a groundswell of opposition to affordable projects. Stephens, the company's president, said she has had to combat misconceptions that projects attract individuals from far-flung areas. 

“There are a lot of concerns about concentration of poverty and what impact that will have on the community,” Stephens said. “What a lot of people don’t understand is that … our residents are generally relocating from within a 5-to-10-mile radius, which means they’re already living in the community.”

Despite all of the obstacles to their mission, the increased difficulty of building their projects and the further stressors the last two years have added to the job, Stephens and many other developers interviewed for this story said the impact of their work on families, children and seniors is worth the struggle.

“That’s what continues to get us up every morning,” she said. “I sometimes feel like I’m doing calculus to figure out how to get things off the ground. But at the end of the day … if we didn’t love it, we would have found something else to do a long time ago.”

Bianca Barragan, Jon Banister, Lane Gillespie, Miriam Hall, Olivia Lueckemeyer, Mike Phillips, Brian Rogal, Ethan Rothstein, Matthew Rothstein, Jarred Schenke, Dees Stribling, David Thame and Jacob Wallace contributed to this story.