Affordable Housing Gap Headed for Crisis Proportions

The housing supply gap is the most critical for the most economically disadvantaged, warns Americans CoreLogic Public Policy Executive Pete Carroll 

The gap, projected to reach 4.5 million units in 2022 from 2.5 million in 2018, will be of crisis proportions for the disadvantaged who earn less than half of what their neighbors do, asserts Carroll in a recent presentation.

He says the disadvantaged will account for 2.6 million units of the 4.5 million gap next year.

“This particular gap is especially critical because the problem is twofold: in addition to there being an under-supply of new units for this income level, total household income is not keeping pace with the cost to operate and maintain these housing units,” says the CoreLogic official.

People with low-to-moderate income are those who earn somewhere between half of what their neighbors earn to a little more than what their neighbors earn will account for roughly 1.1 million units of the 2022 gap, he estimates.

Going further up the income ladder, people who earn more than what their neighbors earn will be hit by a gap of roughly 650,000 units that year, Carroll estimates.

There are many complex reasons behind the shortage of low-income housing units, but it is clear that they, like the rest of the multifamily asset class, is hurting from the rapid increase in material costs, such as the 150% spike in lumber prices last year. Another challenge is the necessity for multiple funding sources, which often lead to fragmented and complex deals, according to a recent report by Capital One from the Terner Center for Housing Innovation at the University of California Berkeley.

“The number of stacked financing sources needed has risen in tandem with the rapid increase in building costs. These increases are not unique to affordable housing production: the Terner Center’s research found that hard construction costs have driven up costs for both affordable and market-rate developments,” Desiree Francis, head of community finance at Capital One, told GlobeSt.com.

Developers complain the myriad of financing sources needed for a single project have deadlines that aren’t aligned contributing to longer timelines and associated cost increases.