"It is very expensive to develop and preserve any type of multifamily, not just affordable housing," King says. "But affordable is also tricky. As costs go up, so does pressure to charge more in rent to make a project make any sense. At some point in time, if there aren't enough soft sources of financing to put the deal together, it just doesn't pencil."

Interest rates, which have ticked up several times in recent months, with an additional series of increases expected this year, still remain at near-historic lows, and King posits that if the Fed can get inflation under control without triggering a recession, currently-spiraling labor and materials costs will moderate over time.

"Those of us in this space are always hopeful," King says. "But right now the problem is everything is going on at the same time. Labor and materials costs are going up at the same time as interest rates.  But for affordable housing, the key is that when you see those costs go up, to keep it affordable you need other low-cost forms of capital."

Building the Capital Stack

Those pieces of the capital stack can include more tax credits to allow developers to drive more equity into deals. Movement is on the horizon to expand the LIHTC program, which has enjoyed bipartisan support since its inception, and King says developers are also "consistently looking for other forms of soft financing," typically through state or local municipalities. He also noted burgeoning interest in philanthropic communities to increase their presence in the affordable sector through impact investing and gap financing for affordable housing projects.

From a fundamentals perspective, supply and demand remains significantly out of balance as the rising costs of homeownership and slower income growth have kept many would-be buyers renting. But King also says that the imbalance can also be viewed as an opportunity: if developers can find a way to get the capital stack to pencil out and actually build it, "it's going to lease up," he says.

"Thinking as a financier, we're always asking is the project viable? Is it going to work?" King says. "And the answer is if you have a good partner and the capital stack makes sense, it's going to work because there's need for that product. The key is thinking more holistically about where you build and making sure you're developing or preserving affordable housing in areas of opportunity."

Affordable Finds Its ESG Niche

The sector fits nicely into many investors' ESG goals as well, and King says Truist leadership is also "constantly thinking" about how to create access to capital for diverse communities including supporting diverse developers in the space.  They're also focusing on what they can do within the affordable housing space to help renters create more generational wealth.

"From a Truist perspective, we are about inspiring and building better lives and communities. That's our purpose. We really connect to that in Truist Community Capital and we're all very passionate about it," King says. "Even with interest rates and construction costs rising, we'll still keep building affordable housing. We'll find a way."