BSC Summit

Thursday, April 13, 2017

Affordable Housing Deconstructed

The proper definition of Affordable housing is that which is deemed affordable to those with a 30% cost of living to median household income as rated by the State, region, or municipality where they live.

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Families who pay more than 30% of their income for housing are considered cost burdened and may have difficulty affording necessities such as food, clothing, transportation and medical care.

However, to most people and elected officials in the United States, the term affordable housing is used to describe housing, rental or owner-occupied, that is affordable no matter what one's income is.

Excluding the world’s population and just concerning ourselves with the US we find several unique types of renters and homeowners.

Starting at the top of the housing affordability scale we have people that earn significantly more than the average person in a city or region. Their incomes are so high that even a cost of housing over $5,000 a month still means less than the 30% threshold.

Then there are the homeowners and renters that are just above or just below the median income for a region and have a cost of housing at 30% or less. This is the ideal situation.

Where the problem rears its ugly head is in regions where people meeting the median income level can’t afford to live there as the cost of housing is too high. The real question is why is housing priced out of reach for people that should be able to afford it?

There is no one single answer to the question. Cost of land which is always going up, cost of infrastructure and utilities, Federal, State and local building regulations, increasingly stringent energy building codes, increasing taxes and even over crowded schools that need new bonds to expand are driving up the costs of every new and existing home and rental.

There seems to be no help in sight for this group. This is why local governments are so concerned. A growing population that can afford housing without the help of government help at the Federal, State and even local level is what everyone strives for but it seems to be constantly out of reach for a majority of our population.

One answer is the Low Income Housing Tax Credits (LIHTC), a Federal housing assistance program that provides tax incentives to owners of affordable housing.

The program does not provide direct assistance to renters and is strictly used to finance the construction (not the operation) of rental properties. Usually, LIHTC properties have units available for families earning 60% or less of the Area Median Income (AMI). The rental properties are usually of very high quality and are often mistaken for luxury apartment communities. LIHTC is America's most successful affordable housing program having created millions of affordable rental units since its inception in the late 1980's.

A lot of modular housing production is being directed to projects using LIHTC. Just about every modular factory in the US is ramping up for more and more multifamily projects in this market. Some say this will be the main business of modular home factories within 10 years.

With the number of independent new home builders, both site and modular, dwindling and a shortage of skilled labor on jobsites, modular can do the job of building LIHTC cheaper, faster and better.

The last option I want to mention today is Section 8 which has turned into a bad word though it's a good program that helps good people.

Section 8 is a HUD program that helps renters pay their rent by paying for any rent costs that exceed 30% of the renters income. If a renter earns $2,000 per month in San Francisco but their rent costs $1,150 per month, Section 8 helps by paying $550 of that rent since 30% of the renters income is $600. This rental subsidy is very scarce and there are waiting lists across the country for the program.

Because it has no incentives for construction, limited monies available from the government and only on the rental side, construction of new Section 8 housing is a game to be played only by builders and developers that can afford to work on the slimmest of margins. Not really an arena many modular factories want to venture into.

Modular home construction appears headed in two different directions over the next 10 years, the custom home market where site builders and skilled labor are disappearing and the mid and upper price range multifamily market.

Overall, not terrible markets to begin dominating.


1 comment:

Builder Bob said...

Now this is what I call a real "meat and potatoes" article making it easy to understand where modular fits into affordable housing. Another great job Coach.