Housing affordability continues to be a pressing issue across the country. According to the National Low Income Housing Coalition, the U.S. has a shortage of 7.3 million rental homes affordable and available to renters with extremely low incomes.
There are 34 affordable and available rental homes for every 100 extremely low-income renter households, which are defined as households either at or below the federal poverty guideline or 30 percent of the area median income (AMI), whichever is higher.
“The country is facing a severe shortage of high-quality affordable housing, with demand far exceeding supply in the Midwest and every market we serve across the country,” says Geoff Milz, director of development for Ohio with Pennrose, which maintains eight offices across the U.S. “The housing crisis, compounded further by inflation and the rising cost of living, spans all demographics, geographies and family types.”
In short, the need for affordable housing “has never been more critical,” adds Milz.
Affordable housing developers are eager to build, but they must get creative to obtain the necessary financing for new projects. Due to the restricted rents, affordable housing properties are unable to generate as much income as market-rate assets.
“The primary tool that we use is the Low-Income Housing Tax Credit (LIHTC) program along with tax-
exempt bonds. But almost every project these days requires a stack of funding,” says David Wesner, vice president of development for The Annex Group in Indianapolis. “We commonly use a property tax incentive, HOME funds, the Housing Trust Fund (HTF) and various other city, state and federal funding sources.”
LIHTC is a federal program that awards tax credits to developers that create rent-restricted units for lower-income households. HOME provides grants to state and local governments to create affordable housing, while HTF provides grants to states to produce and preserve affordable housing. Affordable housing developers also utilize historic tax credits for adaptive reuse projects or financial tools geared toward sustainability efforts.
“We are seeing more and more cities, towns and villages looking for help to address housing needs for those facing or at risk of homelessness,” says Craig Patterson, senior vice president of development for Columbus, Ohio-based Woda Cooper Cos. Inc. “There is great need. We are in 17 states, and in every community where we operate there is need for more affordable housing for workers, families, seniors and those with disabilities.”
Development specifics
A typical affordable housing property for The Annex Group is designated for residents with a household income of up to 60 percent of AMI. The developer is currently underway on Union at River’s Edge, a 216-unit community in downtown Des Moines that is slated for completion in fall 2025. All units will be reserved for the 60 percent income threshold. The Annex Group also builds workforce housing properties, which are generally set aside for households with income between 80 and 120 percent of AMI.
Wesner says he utilizes several metrics when assessing the need for housing in a certain market. When undertaking a new ground-up development, The Annex Group considers the need and demand for various rent levels, and the developer customizes the project accordingly.
“We have conversations with city officials and evaluate their housing need studies alongside any housing goals we need,” he adds. “We also evaluate the market rental rates to ensure that the affordable rents we’ll be providing are at a meaningful discount.”
The Annex Group will often partner with various organizations to provide supportive services for residents. “The organizations with ‘boots on the ground’ do the best job of meeting local needs for our residents, and we connect with those groups early on,” says Wesner.
Amenities at the developer’s affordable housing communities are similar to market-rate apartments and include features such as dog runs, fitness rooms, group spaces, community gardens and rooftop patios. Units typically include washers and dryers as well as balconies.
Woda Cooper recently began construction on Phase II of Annika Place in Traverse City, Michigan, located in the northern part of the state.
The project will include 52 units with 19 set aside for chronically homeless residents. Units are restricted for those who earn 30 to 80 percent of the area median income. Phase I of Annika Place, completed in April, includes 53 units.
Woda Cooper is also under construction on Black Rock Crossing, a 50-unit community in Marquette, Michigan. All units are restricted to residents who earn 30 to 80 percent of area median income.
The majority of Woda Cooper’s developments are strictly affordable, but Patterson says that on occasion the developer is able to utilize a mixed-income approach. In these cases, local rents are higher than average or there are local funding or incentives to help offset the construction cost of the non-affordable units.
Typical amenities include community rooms with kitchenettes, fitness rooms, common laundries and outdoor spaces with patios, grills, picnic tables, playgrounds and park benches.
In most cases, Woda Cooper works with nonprofit service providers who serve the communities where its properties are located. In addition, most buildings receive LEED Silver or higher certification due to energy-efficient appliances, HVAC systems, windows and insulation.
According to Milz, incorporating green or energy-efficient building practices into a development not only takes advantage of certain financial incentives but it also helps lower the cost of living for residents. “In our practice, we view affordable housing as a three-legged stool — rent, transportation and utility costs are all critical factors in a family’s cost of living,” he says.
Examples of financial tools geared toward improving sustainability include the Inflation Reduction Act’s Greenhouse Gas Reduction Fund and Solar for All program.
Through collaborative joint ventures, Pennrose routinely partners with local nonprofits, community development corporations, housing authorities, health systems and other neighborhood groups to ensure that developments are tailored to the residents’ and community’s needs.
One project Milz is particularly excited about is the Warner & Swasey building redevelopment in Cleveland, a project that has been years in the making. Pennrose and partner MidTown Cleveland plan to transform the historic 220,000-square-foot building into a mixed-income community with 112 units of affordable and market-rate seniors and family housing.
The building, originally developed in the early 1880s as a manufacturing plant, has sat vacant since the 1980s.
“Warner & Swasey is a well-known building that many in the area have a connection to,” says Milz. “After seeing it sit dilapidated for decades, we’re hopeful that it’s finally time to bring new life to this historic landmark and create a catalyst for continued investment in the neighborhood.”
— Kristin Harlow
This article originally appeared in the December 2024 issue of Heartland Real Estate Business magazine.