Student Housing Pushes Out Affordable Living in College Towns
For Kyle Bach, CEO of The Annex Group LLC, there’s an affordable housing crisis taking place in large university towns. After extensive research in Bloomington, Indiana, and other similar towns, Bach found that over the past decade or so virtually all new multifamily product added to the market has been either student or luxury housing. This has priced out the workforce or affordable housing residents in those communities, he says.
About a year-and-a-half ago, Bach’s Indianapolis-based firm reconfigured its development focus in effort to fill this need by providing affordable housing for the university workforce or married students.
In Bloomington, The Annex Group is in the midst of securing final approvals for Union at Crescent, a 146-unit affordable housing development about two miles from Indiana University. The $18 million project has received tax credits from the Indiana Housing Community Development Authority. The project will also be financed with Section 42 of the low-income housing tax credits program (LIHTC).
With this type of financing, law regulates that full-time students are not allowed to live in the development unless they are married and their spouse’s income qualifies. The Annex Group hopes to break ground in the fourth quarter of this year with a 2020 delivery.
Selecting Winning Projects
LIHTC is a federally governed program administered by each state. A housing finance agency is in charge of the program in each state and reviews applications, financial feasibility and market feasibility, according to Bach. Typically what’s called a qualified allocation plan lists the rules and regulations for eligibility for funding in each state.
The affordable housing program has two funding sources: either a 9 percent or a 4 percent credit. The 9 percent credit is very competitive, according to Bach, who says that roughly 30 percent of the applications submitted in this category are funded. The Annex Group submitted for the 4 percent credit, which is a non-competitive credit but significantly more challenging to make financially feasible, says Bach. The Annex Group’s project in Bloomington received several financial incentives from the local community totaling approximately $1 million through various resources.
“For similar cities interested in providing additional affordable housing, it’s almost a necessity to participate financially in some capacity,” says Bach.
Crisis Continues to Grow
In Bloomington, the gap between low-income households and units available is increasing by almost 332 units each year, says Bach. With the university adding approximately 500 additional students each year without increasing the on-campus residential capacity, the problem is exacerbated.
In order to receive tax-credit funding, Bach and his team were required to obtain a market study. The findings of the market study completed by Lea & Co. showed that only 14 units of affordable housing were available for every 100 low-income residents in Bloomington. In addition, 69 percent of the city’s rental households were considered cost-burdened, meaning they spend more than 30 percent of their gross income on rent.
“Per our study, the current demand for affordable housing units in Bloomington is around 2,700 units,” says Bach. “Our project of 146 units only captures 4 percent of total demand. There’s still a tremendous need for additional housing units.”
Traditionally in big university towns, the university is the largest employer in the community. There are hundreds of employees that would be eligible to rent at an affordable housing community, says Bach.
“Presumably employees are not able to live in close proximity to their workplace because of the cost burden for home ownership or a rental component,” says Bach.
Bach says he is looking at developing properties like The Union at Crescent at other regional college towns such as Ann Arbor, West Lafayette, Iowa City, Lincoln or Madison. Bach currently owns interest in two affordable housing properties in Indiana, Pattern Mill in Connersville and Kingston Square in Kokomo. The firm owns various student housing assets throughout the Midwest.
— Kristin Hiller