Housing Affordability Roundtable

In February 2020, housing affordability was a critically urgent topic of discussion at MICA. And that was pre-COVID crisis job losses and income curtailment. We’ll bring together some of the most involved executives who are bringing new and evolving thinking to addressing different elements of the issue. 

This Multifamily Innovation Conference – Atlanta (MICA) session brought together industry advocates on the policy side, as well as property operators who’ve worked and harnessed resources to keep residents in place, while making sure that property obligations are being met.

Panelists Lily Goldstein, Vice President of Social Impact Investing at JBG Smith; and Michelle Boyd, Program Director, Housing Lab, Terner Center for Housing Innovation, along with moderator, Darren Wesemann, EVP and Chief Innovation Officer, Berkadia, discussed the affordable housing crisis in many markets and potentials ways the housing industry can solve it.

Terner Center for Housing Innovation

Boyd’s Terner Center for Housing Innovation at the University of California at Berkeley focuses on increasing housing supply locally and nationally and conducts research on things such as housing construction materials pricing.

Its mission is to formulate bold strategies to house families from all walks of life in vibrant, sustainable, and affordable homes and communities. Its work provides timely analysis and data-driven research to support policy and innovation for policymakers, practitioners, and advocates in addressing with urgency the multiple, layered crises of housing affordability, entrenched inequities, and climate change.

The Terner Center aims to provide actionable, pragmatic paths that are based in evidence and can bring together a coalition to make change.

Under the affordability solutions umbrella, Boyd said she’s intrigued by financial innovation that can help create access to housing, such as alternative security deposits. She also looks at lease-to-own and shared-equity models whereas an investor comes in and helps consumers with home down payments. 

On the development side, she said conversions of hotels and commercial space to affordable housing is a cost-effective way to create more and it’s gaining traction.

Her group is also looking at new housing acquisition models that are focused more on “mom-and-pop” property owners with 2 to 4 units that are not covered by protection programs that have been introduced in light of financial stress for landlords during the pandemic.

She’s seeing more interest in the single-family rental housing option, because people want more space after being confined during the pandemic. “If we see a higher transition into that as a housing solution, how are we going to create stability for the benefits of this type of homeownership?” she asked.

As a property owner or investor, there is benefit to stabilized occupancy. Boyd suggested that there could be a way for the renter to capture some of the value that they are helping to create. 

“What doesn’t work well, she said, “is when the corporate side does all the blending of finances for their benefit and other investors’ benefit, and not the consumers’ side.”

One Terner case study features San Francisco’s 833 Bryant Street. Because of a new financial source that wiped out many of the restrictions involved in building in that city such as the type of labor used, small business influence and design elements, the property was built at 25 percent less cost than anticipated and in less time: An astounding 30 percent quicker (or 33 months). 

Boyd said this is just one example of how much financing can restrict affordability.

Washington Housing Initiative

JBG Smith is a publicly traded REIT whose portfolio comprises high growth mixed-use properties in the Washington, D.C. metro region, including those in National Landing, the area represented by the new Amazon Headquarters in Arlington, Va. 

JBG Smith sees rents in the D.C. area rising faster than incomes, and it has become a big business and social issue. As a result of rising affordability issue in the region, JBG Smith has created the Washington Housing Initiative (WHI) to focus on the preservation and creation of affordable workforce housing. Goldstein said that while LIHTC is the standard go-to model for financing affordable housing, there is space for innovation and use of private capital to further preservation.

She focuses on subsidies for the middle-income worker – those earning between 60 percent and 120 percent of area median income and who have been left out of the marketplace – teachers, nurses, dry cleaners, firemen – so they must live elsewhere.

WHI has two arms – the Washington Housing Conservancy, a non-profit owner of the real estate, and the Impact Pool, an investment vehicle that financing to preserve affordable workforce housing. The Impact Pool has spent $21 million to date, with greater reserves (over $90 million) waiting to be deployed.

WHI is a mission-driven group, seeking to preserve naturally occurring affordable housing (NOAH) properties that are affordable to those median income families based on the age of the property, but have no rental restrictions. For example, “maybe their LIHTC deal has expired or the age of the building is keeping it affordable today,” Goldstein said. 

These properties can be prime for value-add owners to come in, fix up, raise the rent, and displace the residents who had been there for many years. By using WHI capital, an owner who wants to keep them affordable to the existing resident base can compete with those who might want to come in and raise rents.

The Impact Pool provides loans of up to 10 years to owners of mission-driven for-profit or non-profit housing. 

“The bulk of the return to the lender is back-ended. There’s a lower cost of capital early on for borrowers, and then by year 10, that’s when our return is realized.”

“It’s private discretionary capital, with a targeted 7 percent net return to our investors, but it’s structured with enough flexibility to meet the borrowers’ needs.”

“Our loans are less expensive than private equity offerings, and more readily available than philanthropic capital, so owners don’t have to hope for a $50 million gift every time they want to preserve a building,” she said.

The Impact Pool is Community Reinvestment Act (CRA)-qualified and must provide 51 percent of the capital to units reserved for families who earn 80 percent of area median income. Based on requirements by the borrower or first mortgage lender, affordability can often be higher than our minimum. Our first two projects have 75 percent of available units are income-restricted, Goldstein said.

In the case of an Amazon investment in Crystal House, located adjacent to their future HQ2 site, the online retailer provided 96 percent of the initial capital stack for an 825-unit property. The Washington Housing Conservancy’s equity was limited to about 1 percent and the Impact Pool provided the remainder of the financing.

The Impact Pool’s investors are primarily financial institutions seeking a CRA investment, high-worth individuals, family offices, and local foundations. 

Goldstein said she’s seeing some generational shifting, with the younger generation moving more toward social-impact initiatives for their family offices or foundations. “And, 7 percent is a fairly healthy return in the context of social impact investing and the risk profile of the assets financed,” she added.

Boyd said she, too, is seeing increases in philanthropic commitments with more local funds helping to close the gaps. 

Wesemann said affordability remains a significant issue in housing – even more so than a year ago (pre pandemic).

“The real, tangible solution to this crisis can come from within the industry,” he said. “Obviously, outside help is welcomed, but with that always comes strings attached.”

Here is the replay: