Affordable Housing Supply Can't Fulfill Demand

IRVINE, CA—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, Michael Gaber, EVP and COO of WNC, tells GlobeSt.com. We spoke with Gaber after the firm's recent closing of the WNC Institutional Tax Credit Fund 39 LP—a $125-million institutional low-income housing tax-credit fund that will acquire 25 affordable-housing properties located throughout the country—about the affordable-housing crisis and what's being done about it.

GlobeSt.com: Why is there a lack of affordable housing in many parts of the country?

Gaber: The simple truth is, if you look at it not state-by-state, but county-by-county, demand is growing exponentially, and we're not keeping up with the demand based on population growth and the economy. People are looking at housing that's not adequate, safe or decent. That number continues to increase every year. We're falling behind and not able to produce enough affordable housing to help those who need it.

People should spend no more than 30% of their income on housing, but a lot of people who are not in affordable housing are paying up to 50% of their income on housing. I've been in this industry for 18 years, and we're always trying to catch up. The number of units developers put on the market every year is not enough. And a lot of the properties worked on are rehab properties, so the numbers might look overinflated—out of 100,000 units put on the market, 50,000 of them might have been just preservation.

GlobeSt.com: How do the affordable-housing programs work?

Gaber: Programs go only 15 years, and then owners have to reapply and maintain the affordable components. One of the nice things is as an industry, we've gotten smarter. In the early days of the tax-credit program, you could take that credit and convert it to the market the next day and double the rents after 15 years. Today, it's changed significantly. In California, for example, we have steady-use agreements that go out not just for 15 years, but for 50-plus years. They're always going to stay in the inventory, but they require significant rehabilitation after 15-20 years. That's what we go through.

It's exciting for us to go to a property where the same people are living there for many years. They don't have significant increases in income, and they're excited when we go in and put in a new roof, new kitchen cabinets or new countertops.

There are a number of people who need the housing. The units are well-maintained, and in most cases you wouldn't realize it's an affordable-housing property just by looking at it. You could have two apartment buildings that are identical, and you wouldn't be able to tell which is affordable and which is not—or you might even guess the opposite because of the compliance issue. We don't just have a general partner, but limited partners and we are going out and making sure the property is in good working condition. A lot of times, these properties are better maintained than the property next door that's not affordable housing. You can't be a slumlord of an affordable-housing property—it's not allowed. The industry built in such contingencies to maintain the properties' expected condition.

GlobeSt.com: What is being done to encourage the development of this sector of the multifamily market?

Gaber: What generates the investor base is primarily banks and insurance companies. Large corporations have significant tax liabilities. Most significant is the CRA requirement which states that if you're going to be taking deposits in an area, you must also reinvest in that community. It prevents banks from taking investments from an area and not investing in that area, and it motivates banks to participate on that basis. CRA is obviously much stronger in L.A. or Orange County, but not as significant in rural areas since banks don't have as many investments in those areas. The requirements are easy to reach because banks only need to make a few investments to meet the affordable-housing requirements. The units are just as nice, but there aren't as many properties being developed.

Stay tuned for more exclusive commentary on trends in the affordable-housing sector, coming up on the Orange County page.