Maya Saraf

➤➤ Join the GlobeSt.APARTMENTS (formerly RealShare) conference October 29-30 in Los Angeles. The event will analyze the opportunity in the emerging trends and conditions of the multifamily market. Don't miss out on joining the 1000+ of the industry's top owners, investors, developers, brokers and financiers as they gather for THE MULTIFAMILY EVENT OF THE YEAR! Click here to register and view the agenda.

Naturally occurring affordable housing is disappearing. According to a new brief on affordable housing from UCLA Ziman Center for Real Estate, naturally occurring real estate, defined as class-B and class-C housing with below market rents, is disappearing as a result of value-add investment and a lack of new affordable housing development. Affordable and workforce housing are a critical component of the housing market, and according to the report, if there isn't a correction or rent control regulations, naturally occurring affordable housing will continue to disappear.

"Naturally occurring affordable housing is a critical piece of meeting the demand for affordable housing in high-cost cities," Maya Saraf, UCLA Anderson School of Management MBA 2019 alumna, tells GlobeSt.com. "Because there is not enough new affordable units being built, it is critically important to preserve the existing supply of affordable units, which includes NOAH.  Building new affordable housing, such as those built with federal low-income housing tax credits, is besot by challenges including restrictive zoning, nimbyism, and rapidly escalating construction costs. Providing enough affordable housing in high-cost cities requires multiple solutions in addition to building new affordable housing. These include inclusionary zoning, allowing accessory dwelling units by right, and importantly, preserving the supply of existing affordable units."

Repositioning class-B and class-C product into high-end luxury housing has provided the most optimum returns. Despite high demand for more affordable product, it generally offers lower returns than value-add business plans. "Even though there is high demand, developers may choose to demolish or convert these units into luxury units due to the relatively higher returns they can earn," says Saraf. "A developer can come in and buy an older NOAH building, often for a discount, renovate the building with high-end features and finishes, then raise rents substantially to make a much greater return on investment than if they preserved the building as affordable."