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Developers Take Aim At Red Tape For Affordable Housing As Economics Tighten

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DC affordable housing developer unprecedented $500 million It will receive housing production funds from district governments next fiscal year, but in a tense economic environment they say it’s time to clear regulatory hurdles to make affordable housing easier to do business with. .

Rising interest rates and construction costs make affordable housing deals harder to come by, developers say DC regulations lengthening time to construction exacerbate uncertainty, putting projects at risk said.

Bisnow/Jacob Wallace

Wincos” Aimee McHale, Donald Kann of Michael Graves Architecture & Design, and Matt Robinson of MRP Realty will speak at the Washington, DC Affordable Housing Summit panel in Bisnow on July 28, 2022.

MRP Realty principal Matthew Robinson said each new hurdle adds “time and therefore risk” to multifamily deals today. Bisnows Washington DC Affordable Housing Summit at the Marriott Courtyard Convention Center.

“Let’s say you’re going through the TOPA process right now and interest rates spike,” Robinson said.

of Tenant Purchase Opportunity ActAlso Topagives tenants of multifamily homes for sale the ability to organize and come up with financing to either purchase the building outright or sell TOPA rights to another home provider for preservation .

The 40-year-old law has long been criticized by developers. They say it could slow down the multi-family transaction process given the legally mandated tenant organizing period of several months.

However, like some economists warn of recessionand supply chain shortages continue to affect projects of all kinds, while at the same time some of the crosshairs of developers who say they need the help they can get to address the shortage of affordable housing. became one of the policies of

“Please continue to think of other solutions.” Fairstead Development Managing Partner Brett Melinoff said: “I think it’s probably a challenge he hasn’t faced in a long time since 2008.”

Rising construction costs are worsening, and uncertainty around inflation is making it difficult to estimate project costs, Meringoff said.

“It’s been a very volatile period, so it’s more difficult to lock in prices or get price commitments from subcontractors, and they can’t keep it up for long,” he said. “We have had some challenges with our submarines, especially in the middle of the job, failing on their part or facing major challenges.”

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Bisnow/Jacob Wallace

Julia Gordon, Under Secretary for Housing and Federal Housing, US Department of Housing and Urban Development, delivers a keynote address at Bisnow’s Washington, DC Affordable Housing Summit on July 28, 2022.

Rising interest rates have made trading more difficult and the lending environment more challenging. united bank Managing Director Joseph Lemmens said:

“The interest clock is ticking,” says LeMense. “When he hits 70% completion of the project, he’s out of money.”

That challenging environment continues to be exacerbated by TOPA, according to market-savvy researchers. In the second quarter of this year, Northern Virginia accounted for a very large percentage, accounting for more than 50% of the sales of multifamily investments in the entire Washington, DC area. One reason is that TOPA and the priority denial program in suburban Maryland have made investors uneasy.Recent multi-family housing market report from Newmark.

“Although TOPA compliance is no longer an issue for investors, policies such as TOPA and ROFR that create uncertainty in earnings schedules are not likely to be an issue for investors given the uncertain direction of future interest rate increases. It’s a challenge,” the report said.

Topa emerged as a prime target of outrage during the pandemicwhen the district acted to effectively freeze the process, given the difficulty of organizing tenants amid the public health crisis.

While this has frustrated market-price developers, non-profit housing providers are increasingly Can slow down or even interfere Ability to acquire buildings for sale, even with the intention of maintaining affordability.

Kimberly Driggins,executive director Washington Housing Conservancyshe is skeptical that TOPA actually maintains housing affordability. It is structured in such a way that there are just too many ways to give residents a one-off lump sum when the property is transferred.

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Bisnow/Jacob Wallace

Winell Belfonte of CohnReznick, Jim Knight of Jubilee Housing, Kimberly Driggins of Washington Housing Conservancy, AJ Jackson of JBG Smith, Lawrence “Murphy” Antoine of Torti Gallas + Partners, and Drew Hubbard of DHCD.

Additionally, the extended time it takes residents to organize and find a buyer is dangerous for nonprofit housing providers, who often operate on tight margins, Drigins said.

“Overall, I doubt it will actually create housing affordability,” Drigins said. “TOPA’s problem is time and cost, and it’s time and cost that ruins the deal. Many times nonprofits are running on very little money and can’t wait.”

The affordability of housing is gaining national attention, just as the economic climate makes those units more difficult to produce. Julia Gordon, Assistant Secretary of Housing and Federal Housing Commissioner, speaking at the event of the meeting U.S. Department of Housing and Urban Developmentechoed Previous statements by President Joe Biden We urge local governments to strengthen inclusive zoning and remove barriers to affordability.

“Across the government, we are looking for ways to incentivize communities to continue facilitating affordable housing development,” Gordon said. “I wish there was a silver bullet for this here at HUD.”

Recommendations included finding ways to change local land-use and zoning laws to allow more development and forming more partnerships with the private sector to build housing. increase.

But since Biden’s housing action plan was announced in May, Federal Reserve Bank We’ve raised interest rates by three-quarters of a percentage point twice. After the latest rate hike on July 27, developers said the economic environment is forcing multi-family projects to trade across the country. re-pricing.

In DC, TOPA isn’t the only process developers worry about. Tax relief currently in place in DC for non-profit developers building homes that qualify for the low-income housing tax credit could also apply to for-profit developers building the same types of homes. There is, and should be, said Vice President Aimee McHale. Wincos.

McHale said such a suspension would ease pressure on the operating budget, reduce initial trust debt, and make it easier for WinnCos. Compete for resources.

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Bisnow/Jacob Wallace

Matt Greeson of Reno & Cavanaugh, Joe Lemense of Carmen Romero United Bank of Arlington Partnership for Affordable Housing, Brett Meringoff of Fairstead, Ben Apfelbaum of Davis Construction, Aimee McHale of WinnCompanies, Kan Donaldn of Michael Graves Architecture & Design, Matt of MRP Realty Robinson to speak on panel at Bisnow’s Washington DC Affordable Housing Summit on July 28, 2022.

“We are all trying to create or maintain affordable housing units,” McHale said. “I think this is something that needs some momentum.”

Some affordable housing nonprofits take a different look at the issue. Carmen RomeroCEO Arlington Partnership for Affordable Housingmost of her staff are not in the real estate business, but instead focus on providing services to tenants that most for-profit developers don’t.

“There are differences between some nonprofits that we spend time with,” Romero said. “I think real estate savings for everyone building is fine, but it needs tools that help it do other things.”

gym nightPresident and CEO Jubilee HousingWard Integrated request for proposal process, introduced in 2021. This highlights net new affordable units for households with regional median income less than 30% of hers.

But he said DC needs to focus more on wraparound services for low-income tenants, not just keeping rents up-to-date, but also providing the services needed to achieve life stability and financial independence. I said that I need to be able to get good support.

“For the first few decades, we celebrated renters moving from affordable housing to regular ownership,” Knight said. “It’s slowed down little by little. Jubilee hasn’t changed anything. The market has changed.”

The prospects for affordable housing are enormous. DC Mayor Muriel Kuppawho He is almost certain to reach his third term as mayor next year.with a goal of building 12,000 affordable units between 2019 and 2025, has so far reached approx. one third of that goal. on the other hand, Washington Metropolitan Government Council I was asked It said 75,000 more housing units would be added than planned in 2019 to address the shortage in the area, with 75% needing to be affordable to meet long-term needs. .

“Housing seems to be the mayor’s number one priority,” said AJ Jackson, executive vice president of social impact investing at JBG Smith. “If so, we need to make sure that all policy oars are rowing in the same direction.”

For Drigins, the issue of affordable housing is central to the competitiveness of the entire district. She said that without a focus on housing across all income groups, regions could lose workers to other regions, harming businesses and the economic health of the region.

“If you look at San Francisco, I love that city, but it’s a polarized city in terms of the ultra-rich and very low or no income,” Drigins said. I think we’re at an inflection point, at which point we have an opportunity to make sure that regions and cities are economically diverse. [and] Racially.

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