6 Trends for Affordable Housing in 2022

The recent Affordable Housing Finance (AHF) LIVE Conference offered a glimpse into what we can expect in 2022 for the affordable housing sector. Taking place in-person this year in Chicago, the conference was well-attended – an indication of the continued focus in this important space. The annual conference, geared toward affordable housing developers, owners, management firms, 3^rd party service providers like ourselves, and state housing agencies nationwide, provided an invaluable time for these key stakeholders to come together and discuss challenges and opportunities in the industry.

Out of the numerous panels and speakers, here are our top 6 takeaways for what’s ahead in 2022 for affordable housing:

1. A friendly administration and policy changes under consideration at the local, state and federal levels should help to increase incentives and opportunities for affordable housing development.
2. Supply chain issues, market volatility, and cost overruns will continue to be a concern, along with labor shortages and rising wages. To mitigate construction risks, it’s important to carefully evaluate the feasibility of the project’s cost and schedule during underwriting, and to weigh the pros and cons of prepayment of goods and services.  Pros include locking in current prices; cons include added risks of storing material for longer periods of time, and potentially prepaying for a service that is not delivered.  A construction risk management consultant can help mitigate these risks with an independent cost/schedule evaluation and close monitoring of the project and budget through completion.
3. As Low-Income Housing Tax Credits (LIHTC) become more competitive, the pool of viable projects becomes constricted, as do the opportunities/locations in traditional markets. It’s possible that this leads to new emerging markets, especially as people and companies adapt to remote/hybrid working. Those with flexible jobs may flock to less traditional markets, gentrifying historically less-desirable areas. This would lead to opportunities in urban zones and possibly price hikes in submarkets/rural/suburban areas.
4. While the affordable housing crisis isn’t a new issue, the emphasis on reform to address the need for all sectors (low-income, moderate/middle income, and workforce housing) is progressing. For example, proposed programs like MIHTC (Middle-Income Housing Tax Credits) target a sector just above LIHTC income limits and would help individuals with incomes less than or equal to 100% of the area median income.
5. Additional tax credits being added to the market is a double-edged sword:
   • It’s advantageous because it creates more affordable and workforce housing and could open the market to new developers.
   • The drawback is that it devalues the tax credit, ultimately slenderizing the bottom line, and potentially capping potential returns on investment for companies that have been in the game for years.
6. LIHTC has not fully embraced Environmental, Social, and Governance (ESG) yet, but it will likely be a matter of time. It should also be an easy and smooth transition because most newly developed properties are energy efficient, are socially beneficial, and governance is part of the larger discussion.
   • The overarching questions around ESG during the conference were “Am I having an impact, and can I prove it/?” and “How can we bring ESG/impact investing to scale in affordable housing?” The answers of course will vary for each investor, but for many it’s a matter of engaging an ESG consultant to help you establish a baseline and identify the ESG-positive things you’re already doing, and then setting goals and a roadmap for improving your performance. Our colleague Tony Liou, President of Partner Energy, has written frequently about ESG for GlobeSt.com – including on understanding the E in ESG, where the ESG landscape is today, and steps toward decarbonizing your building footprint.

Despite potential challenges for the affordable housing market, momentum is gaining for more opportunities in this space in 2022. As any affordable developer knows, these projects can be complex, so be sure to work with a consultant who has extensive experience with the incentives and programs to avoid hiccups and costly delays. The rewards are attractive for those that successfully navigate the process.