About 77% of affordable housing professionals recently surveyed report that planned projects have been delayed, resized, or canceled in the past six months due to financial or cost pressures this year.
The finding comes from a poll of 156 industry professionals conducted by TD Bank at the U.S. Housing and Community Development Conference in June.
The intense strain on recent deals is one of several insights from the survey.
“This is not an isolated challenge,” Andrew Warren, head of community development lending at TD Bank, tells Affordable Housing Finance. “It is affecting pipelines across all communities, big and small, rural and urban, and for all property types. Cost pressures, high interest rates, and limited public funding are all converging at the same time, which makes it harder for developers to move projects from concept to completion.”
The top three challenges affecting development today are construction/material costs (59%), financing/interest rates (58%), and limited public funding or tax incentives (51%), according to respondents.
Even with the tough environment expected to remain the same or worsen in the second half of the year, Warren says his overall outlook is optimistic yet cautious.
“Obviously, pressures exist, but new housing is still getting built,” he says. “It will not be enough to solve the crisis, but we're seeing new ideas and solutions with a strong pipeline.”
Warren points to momentum for affordable housing both locally and federally along with a “sense of urgency recognized everywhere.”
“There’s movement across all levels of decision makers to create opportunities for housing through new funding efforts, unique partnerships, and creative government programs,” he says.
Warren shares that he and his colleagues at TD Bank are closely looking at how they can support the growing momentum around attainable, workforce, and middle-income housing.
“Our survey found that this is one of the areas where affordable housing leaders see the greatest potential to address a growing need, with 47% of respondents identifying it as a key opportunity to improve housing affordability,” he says. “That tells us the market is increasingly focused on households that may earn too much to qualify for traditional affordable housing programs but still cannot comfortably afford housing in many communities. We’ve seen in recent studies that 50% of the renters in America are rent burdened, and we also unfortunately know there’s no region across the United States that is spared that growing challenge.”
This “missing middle” may include teachers, healthcare workers, and other service providers who are being squeezed by high rents and limited housing supply.
“From TD’s perspective, this sits directly at the intersection of community need and economic vitality,” Warren says. “Expanding workforce and middle-income housing can help communities avoid displacement, support local businesses and community services, and create more stable housing options for people who are central to the strength of local economies.”
Findings from the recent survey reveal:
- Financial pressure is delaying development pipelines: In the past six months, 36% of respondents estimate that up to a quarter of planned projects have been delayed, resized, or canceled due to financial or cost pressure, while 33% estimate that up to half of planned projects have been affected;
- Projects remain highly dependent on public support: More than half of respondents (53%) say their affordable housing projects significantly rely on public subsidies and gap funding to move forward;
- Operating costs are forcing tradeoffs: The majority of respondents say rising operating costs have affected their properties over the last 12 months, with 36% reporting minor tradeoffs and 35% reporting significant tradeoffs;
- Residents are feeling utility and energy cost pressure: 40% of respondents say rising utility and energy costs are moderately impacting residents, while 37% say they are having a significant impact;
- Workforce housing and financing innovation present the greatest opportunities: Increased workforce or middle-income housing was identified as the top opportunity to improve affordability (47%), followed by expanded tax credit programs (43%) and innovative financing models (41%); and
- Artificial intelligence’s (AI’s) impact is expected to be broad but uneven: Respondents are split on where AI will have the greatest impact, citing compliance and reporting (29%), financing and underwriting (19%), development and construction planning (14%), property management and operations (12%), labor needs and hiring (8%), and resident services and communications (6%). Only 11% say AI will not have a meaningful impact.