IRVINE, CA—The higher median income in Orange County than in Los Angeles, coupled with tax-credit rules, prevent tenants from affording OC’s affordable-housing rents, WNC‘s EVP and COO Michael Gaber tells GlobeSt.com. Because of this higher median, the tax credits for affordable housing aren’t as high, so owners need to charge higher rents, which many people can’t afford, he says.
As GlobeSt.com reported earlier this week, demand for affordable housing in many US markets is growing exponentially because of population growth and the economy to the point where developers can’t keep up, Gaber told us. We also spoke with him about the differences in affordability between Orange County and Los Angeles and other affordable-housing trends he’s noticing.
GlobeSt.com: What trends are you noticing regarding affordable housing in Orange County?
Gaber: What a lot of people don’t realize is the difference between median incomes in Orange County vs. Los Angeles. In Orange County, the median income is approximately $85,000, while in L.A., it’s approximately $59,000. The way our program works, we are able to offer lower rents because of the investments by the investors for the tax credits. A traditional apartment building will have maybe 80% loan-to-value, so the owner comes up with 20% equity and the rents are say, $1,000 a month. At the apartment building next door, you might have everything the same, but the owner may have only a $3-million or $4-million loan because of the infusion from investors, so it allows the rents to be lower. The same concept in Orange County is magnified because the median income is so much higher. People are paying more for rent in Orange County than in L.A. areas that are less affluent. The market-rate units are higher, so the affordable rents are higher.
Also, Orange County is built-out, so there’s not a lot of available land there. You won’t find naked land in Orange County so much, except for some areas in South County, but most cities now require some type of affordable component. That’s a good thing. When you see something new being built in Irvine, generally there’s some affordable component there. These are the people working in the grocery stores, hotels, etc.—most of them are blue-collar workers, the workforce within Orange County.
GlobeSt.com: What other trends are you noticing with affordable housing in general?
Gaber: The other big concern we have as an industry is what’s going to happen with potential tax reform. This can create changes in the investment community. If Congress increases the corporate tax rate, it could dampen investors’ appetites because they don’t need the tax incentive. That means less affordable being built. We’re working as an industry very closely with our friends in Congress so that they’re aware of the potential risks. Great things come out of tax reform, but we need to educate Congress as to the pros and cons. We’ve been around for 43 years, and our goal is to provide decent affordable housing for those less fortunate. We believe very strongly in this, and we will continue to pursue it.