June 25, 2017, Affordable Housing Finance - Affordable housing developers are increasingly focused on bringing affordable housing to suburban areas — which often resist new development. Affordable housing advocates have begun to seek development opportunities in a new type of location: suburban towns.
Some suburbs have been welcoming of affordable housing development, but many have not. “Suburbs are far from monolithic,” says Andrew Jakabovics, vice president of policy development at Enterprise Community Partners.
However, receptive and unwelcoming suburbs alike present difficult challenges to affordable housing as high prices push such development out of the most desirable areas and local resistance slows or stops it from being built.
Yes in My Back Yard!
Some suburbs have made it their policy to allow a degree of affordable housing, often through inclusionary zoning rules, which mix new affordable housing with market-rate units.
Suburbs with such rules often tend to be older, inner-ring areas, though the motivations behind zoning policies differ. Some communities are concerned with inclusion and social justice. Others view affordable housing as economic development. “We’ve seen chambers of commerce support affordable housing in jurisdictions where employers are faced with turnover or lowered productivity as a result of housing challenges,” says Jakabovics.
Land Costs Push Developers Out
Even when a town is willing to accept affordable housing, the high cost of land can push developers out of bustling urban and suburban neighborhoods into less-desirable locations.
When development sites are available in high-cost suburban areas, luxury-apartment developers often leap at the opportunity. “They can pay more and move more quickly,” says Adam Oates, president of SunTrust Community Capital.
Many of the largest conventional-apartment developers now build high-end communities in suburban town centers, close to commuter rail stations and retail. To pay for the high cost of land, these developers often create mid-rise buildings with wood-frame construction over a concrete podium for parking. “That deal doesn’t pencil out for affordable housing,” however, says Oates.
In contrast, the economics of development often push affordable development into places where demand for housing is low, and the rents, too, are already low. “The areas where you’re seeing a significant amount of affordable housing product are areas where there are already significant amounts of poor people,” says Jeff Lawrence, senior vice president for Walker & Dunlop. “A lot of this is driven by land costs.”
Fair Housing Changes the Game
New fair housing regulations may press officials to allow more affordable housing development in strong suburban markets.
The U.S. Department of Housing and Urban Development recently finalized its “Affirmatively Furthering Fair Housing” rule (AFFH). The rule is “nudging some suburbs to take a more proactive, or even regional, approach to affordable housing,” says Jakabovics. However, some towns and counties view the regulation as federal interference. “In very rare circumstances, suburban jurisdictions have refused to accept federal funds, to avoid having to comply with AFFH,” he adds.
State housing officials are also encouraging more development in places where residents will be close to jobs, services, and transit. “Developments in high-opportunity areas [oftentimes, suburban areas] are being awarded points in state QAPs [qualified allocation plans],” says Amy Rosenthal, senior project leader for National Church Residences.
For example, state agencies such as the Illinois Housing Development Authority now give extra points in the competition for low-income housing tax credits (LIHTCs) to applications to build affordable housing “Opportunity Areas” close to employment centers and services.
Affordable housing developers can also sometimes find opportunities to preserve and recapitalize existing apartment buildings in desirable suburbs. Developers don’t need any kind of zoning approval to renovate these older apartments. Communities and local elected officials sometimes even welcome affordable housing developers who may be able to turn around a building that has been a problem property in the community.
Affordable senior-housing developers also sometimes get support from local officials, who worry less about strain on schools and services. “When you see suburban communities embrace affordable housing, it has been seniors development,” says Lawrence. “Seniors housing doesn’t get the same level of NIMBY resistance.”
Officials in more-expensive suburban areas, however, often strongly oppose the new construction of affordable housing for families. “Desirable suburban communities often [impose] a much more difficult approvals process,” says Chris Estes, president and CEO of the National Housing Conference. In many of these communities, rising property values and a carefully maintained exclusivity are signs of success. “It’s in the interest of these communities not to have a lot of change,” he says.
Even local officials who value affordable housing may resist new affordable development. “They may understand the need, but they need to be elected,” says Lawrence. Also, in some states, a development needs the support of its local congressional representative to be considered for LIHTCs. “When this is the case, local NIMBY pressure can force a politician’s hand to deny the project consideration,” says Rob Likes, head of KeyBank Real Estate Community Development Lending & Investment.
The Challenge of Suburban Development
Some suburbs also might not be the best locations for low-income households if they don’t have a car.
“The challenge with suburban areas is the lack of proximity to jobs and adequate public transit,” says Likes. “Additionally, if there are supportive services necessary for the residents, this could become more challenging to fulfill outside of the urban core.”
New developments can also face expensive infrastructure challenges. “Suburbs also may or may not have appropriate infrastructure for multifamily housing,” says Jakabovics. “A municipality may require a developer to provide that infrastructure, adding costs.”