Affordable housing is in an undeniable state of crisis. According to estimates from the National Low Income Housing Coalition, the US has a shortage of 7.3 million units of affordable housing units for extremely low-income households alone. Now the industry faces a new challenge: Many affordable housing units are about to become market rate, as the rent cap stipulations in the earliest LIHTC deals reach their 30-year expiration.

This has put a renewed emphasis on affordable housing preservation, say Kyle Kolesar and Stacie Nekus of KeyBank’s Community Development Lending and Investment Team. But the two note that capital is available to keep the country’s affordable stock from dwindling.

The Importance of Preserving Affordable Housing

The 30-year requirement will expire for nearly 500,000 LIHTC housing units by 2030. That number represents half of the current affordable housing stock. “If you look across the country, the number of units that are eligible to become market rate in the next 10 years is somewhat significant, and that is concerning,” says Kolesar.

To address the affordable housing crisis, the primary objective has been to develop more affordable units. It seems to be, according to Kolesar, the one solution that everyone can agree on. Yet, with the potential to lose so many affordable units in less than a decade, preservation is proving to be equally as important. “You can’t just create more supply and lose existing supply,” adds Kolesar. “That is really a problem.”

KeyBank has seen appetite for both new affordable housing development as well as preservation, but the latter takes a very different type of investor. Developers really want to build their own project. They understand it, and they know what they are getting. There is more control. On the preservation side, investors must be willing to make a really complex deal work, explains Kolesar. They have to be willing to commit to preserving affordability for the next 15 to 30 years.

Equity and Debt Capital Is Available

KeyBank has invested in affordable housing since the 1980s, but in the last eight years, it has become a core objective of the bank. With a global pandemic that required people to stay home and rampant housing affordability issues, investors also have an increasing appetite for affordable deals. “Affordable housing preservation has been a really competitive market for sponsors,” says Kolesar. “It leads to new tax credit deals, new investments and really new, refreshed units that are safe and quality.”

Today, there continues to be both debt and equity capital available to make a deal work, although Kolesar admits that the market has tempered somewhat given the macroeconomic headwinds and elevated interest rates. Still, KeyBank’s affordable housing equity program expects to invest $50 million this year into equity funds strictly focused on affordable housing preservation. “We try to bring every tool that you can imagine in the affordable housing space to create a one-stop-shop,” adds Nekus. “That has really allowed us to lean in.”