Do you expect more or fewer affordable housing units to start construction in 2024? And, why?
We do expect fewer affordable housing units to start construction in 2024, primarily due to prohibitive economics, including higher construction costs and interest rates.
In high-cost geographies such as California, New York, and Massachusetts, new construction costs exceed $700,000 per unit. With construction financing rates above 8%, these economics do not work.
What are your expectations for interest rates and overall financing conditions in 2024?
The high cost of debt and the imminent distress caused by near-term loan maturities in this environment are serious issues. While interest rates may begin to decrease in 2024, they are not likely to fall significantly until 2025 or beyond, and the challenge of loan maturities will require innovative steps to resolve. Fortunately, we in the affordable housing industry have ample access to debt through Fannie Mae and Freddie Mac, and developers are discovering creative capital solutions including public/private partnerships that allow projects to move forward even in the tight debt environment.
Biggest threat to affordable housing?
There continues to be prevailing misconceptions surrounding affordable housing, its owners, and its residents that all stakeholders would benefit from deconstructing. Examples include the public sentiment surrounding landlords, as well as the negative perceptions of programs like Section 8 and the residents who depend on these by owners and operators.
Biggest opportunity in affordable housing?
Public officials at the state and local levels now view housing affordability as a significant crisis and are increasingly open to innovative public/private solutions. For instance, we have had discussions with mayors and their planning and development staffs regarding office conversions to residential. These officials are open to public/private ventures in office conversions, to the extent there is meaningful affordable housing created.
What is your firm preparing for this year?
Avanath will continue to focus on providing the best housing quality and customer service to the 16,000 households that we serve, as well as the new housing that we acquire or develop. A key component of this strategy is to continue to make investments into our property management operations to optimize efficiencies and resident engagement. Also, we will continue to invest in our resident services program, which allows us to deepen our relationships with residents to provide them with a better experience at our communities.
Trend to watch in 2024?
The trend to watch will be the increase in affordable transactions involving private capital aligned with public benefits, other than low-income housing tax credit executions. Avanath will be highly focused on working with our public-sector partners. A key aspect of our public/private strategy will be to introduce more innovative technologies, including modular construction.