Affordable Housing Shortage to Worsen
[November/December, 2000]

Researchers at Lend Lease Real Estate Investments, one of the nation's largest real estate investment organizations, say a decline in low-cost housing availability, along with overall rent inflation, is preventing many low- and moderate-income households from participating in today's booming U.S. economy. They warn that today's affordable housing crunch will worsen significantly during the next decade.

In a commentary issued by Lend Lease, authors M. Leanne Lachman and Deborah L. Brett say that the nation has made significant progress in correcting the physical problems associated with low-cost housing. However, affordability issues remain largely unaddressed. Expanding the federal Low-Income Housing Tax Credit (LIHTC) program would help but would not eliminate the need for additional low-cost housing.

"The number of low-income households spending too much for shelter is rising, while the supply of affordable units is static at best—more probably declining," Lachman says.

The report notes that "[d]uring the 1990s, relatively few young adults entered the market for the first time, but this will change as the Babyboom Echo joins the workforce in large numbers. Moderate- and middle-income seniors who can no longer live alone find it difficult to locate affordable apartments with the supportive services they need. The inevitable economic slowdown will put many under-educated workers back on the waiting list for subsidized apartments."

"Affordable housing used to be a lucrative business, but is no longer," explains JoAnn Hirsh, vice president of operations for Associated Estates, a multifamily development and management REIT. The REIT began developing affordable housing projects more than 35 years ago. "At the time, affordable housing seemed to be an opportunity to grow," she says. "Not only were you keeping your employees working, it was helping the community." But she points out that the changing financial and economic conditions are causing many REITs to rethink their affordable housing position.

"Making affordable housing developments profitable has been a challenge," says Richard Crossed, president of the Conifer Development division of Home Properties.

The Lend Lease Real Estate report notes:

• Since 1995, very low-income households—especially immigrants and minorities—have accounted for the bulk of rental housing demand growth.
• The Consumer Price Index for Residential Rent rose 6.2 percent between 1996 and 1998, compared with overall inflation of 3.9 percent. In 1998 alone, rent increases were double the rate of inflation.
• On the other hand, renter households' median income rose only 0.3 percent in real dollars over the same period, according to the U.S. Census Bureau. Also, according to the Federal Reserve, their median net worth declined nearly 20 percent.
• The housing that is affordable to financially struggling families is shrinking. In addition to overall rent increases as a cause, subsidized projects have begun to "opt out" of the Section 8 program and public housing units are being demolished.
• The LIHTC program is the primary federal funding source for affordable new units. Yet the annual allocation formula has not been increased since the program began in 1986.