As we start a new decade, Affordable Housing Finance Editorial Advisory Board members weighed in on what they’ll be watching closely in 2020. Here are five issues that could have an impact on industry stakeholders in the coming year.
1. 2020 Presidential Election
The presidential election will dominate the national stage this coming year and will bring with it uncertainty for the future. After the 2016 election, as the industry was still assessing how President Trump might impact affordable housing and the potential for tax reform, developers were faced with increasing interest rates and debt costs as well as decreases in low-income housing tax credit (LIHTC) equity pricing. The 2020 election is already making some companies anxious.
“Uncertainty tends to make financial institutions conservative, not wanting to make commitments in an environment where legislation, regulations, and tax policy could alter the basic assumptions upon which long-term loan and investment commitments are made,” says Richard Gerwitz, co-head of Citi Community Capital. “In that regard, I would expect the uncertainty to increase as the year progresses and we get closer to the election.”
One positive this election cycle is that the Democratic presidential candidates have made affordable housing a prominent talking point.
2. Labor Challenges
Rising development costs and labor shortages have been top concerns for the industry the past several years, and those challenges aren’t going away. With positive economic trending, a big issue that could hinder housing development in the new year is reduced labor availability leading to rising labor and payroll costs on top of “routine” material costs.
“We are finding that getting subcontractors to a final contract is much more difficult than in the past, because the firms have more options for business opportunity than in previous years,” says Rob Hoskins, managing principal of The NuRock Cos., a Georgia-based affordable housing developer. “To stay on track with LIHTC delivery and timing, we are finding it necessary to incentivize subs to focus on the LIHTC developments as opposed to market rate.”
3. Modular Housing
While the industry has a cost problem, affordable housing stakeholders are looking to alternative building techniques to save time and money. Some industry leaders predict an insurgence of modular housing for affordable housing as more U.S. factories are slated to open in the coming year.
“It’s an approach that saves time, reduces changes orders, and speeds tax credit delivery,” says Bart Mitchell, president and CEO of The Community Builders, a leading affordable housing provider.
Pat Sheridan, executive vice president of housing at Volunteers of America, adds that finding alternative building techniques that can be taken to scale, and be acceptable to code officials, also will be important for the industry.
4. CRA Reform
In mid-December, federal regulators released a plan for Community Reinvestment Act (CRA) reform, which raised significant concerns for affordable housing and civil rights leaders who fear the proposal will weaken the CRA’s original purpose of expanding financial opportunity and spurring investment in underserved areas. From the time the proposal came out, the public has 60 days to comment. However, the industry was calling on extending that period to 120 days.
“The direction of CRA in the future could have a huge impact on LIHTC pricing and investment availability,” says Sheridan. “Monitoring that and having a seat at the table to ensure the industry doesn’t suffer as a result of the changes will be crucial.”
Gerwitz adds there is still a lot to digest and his firm will go through the material carefully before responding to comments. “We can say that the time for changes in the regulatory framework is still considerable, and changes, perhaps significant from what is contained in the document, are likely,” he says.
5. Housing for the Homeless
The U.S. homelessness crisis is receiving increased national attention. In December, Department of Housing and Urban Development (HUD) secretary Ben Carson certified data ahead of the release of the 2019 Annual Homelessness Report to Congress, with year-over-year homelessness ticking up in 2019. Significant increases were seen during the January 2019 point-in-time count on the West Coast, particularly in California and Oregon, while the rest of the nation experienced a combined decrease.
“The evidence is clear. We are in a real crisis,” says Robert G. Marbut Jr., a controversial homelessness consultant who recently was appointed to head up the U.S. Interagency Council on Homelessness (USICH), in his welcome statement. He adds that by working together with the administration, member agencies of the USICH, Congress, state and local governments, and community-based service providers, changes can be made to address the crisis.
“The provision of housing for the homeless has been building to a crescendo in some parts of the country (cities large and small) and will likely be a major trend in 2020,” says Ronne Thielen, director of public policy and advocacy at R4 Capital. “This provides opportunities to develop housing but also includes great risk due to the special attributes of most in this population—addiction, mental illness, socialization—and the need for long-term rental and social services subsidies.”