Contractors Prep for Increased Affordable Housing Development

The pandemic may catalyze a boom in affordable housing construction in Southern California. Affordable housing was already in high demand before the pandemic, and the economic dislocation has only driven demand up. In addition, affordable housing typically outperforms traditional multifamily product during market downturns. This has created a perfect storm for increased affordable housing construction with Southern California contractor RAAM Construction already seeing an increase in activity.

“As the coronavirus pandemic and its economic aftermath play out in the multifamily sector, affordable housing development and construction have remained strong as compared to sectors like luxury apartment development,” Richard Lara, founder and president of RAAM, tells GlobeSt.com. “With affordable housing demand consistently outpacing supply, public-private partnerships on the rise to develop this product type, and investors looking to diversify with a stable investment category, affordable housing construction is positioned to remain a strong sector of commercial real estate well into the future.”

The pandemic has increased the need for affordable housing, and that will drive more developers into the asset class. “As unemployment figures continue to climb due to the COVID-19 pandemic, having fewer breadwinners per household for many American families means that people will be increasingly seeking affordable housing as the market struggles to recover,” Lara says. “It’s clear that the need for affordable construction will only continue to grow in the coming months and years as we make our way to recovery.”

The new demand has already compounded existing demand for affordable housing, and added to an already severe affordability crisis. “There was an affordable housing shortage before the pandemic and this shortage has now been exacerbated by the crisis, ultimately increasing the need for affordable housing development and construction,” says Lara.

For developers, the stability of affordable housing will help to mitigate risk during the recovery period. Today, few investors are optimistic about the near-term outlook for multifamily, especially with rents continuing to fall. “Affordable housing has historically performed extremely well in times of economic uncertainty, in addition to times of economic growth, which has generally kept the pipeline of affordable projects flowing consistently for contractors and developers,” says Lara.

Lara expects capital to support the construction pipeline for affordable housing. “With the stock market demonstrating alarming volatility during the pandemic, investors will likely take a more cautious investment approach, incorporating more stable investments like affordable housing in their portfolios,” he says. “This will ultimately drive more capital to the sector, resulting in increased development and construction.”