Supply constraints, soaring insurance premiums, and other rising operating expenses are among the major headwinds challenging affordable housing developers, according to a new report from the Local Initiatives Support Corp. (LISC).
“The affordable housing industry is facing complex, acute, and compounding challenges that have made increasing supply and profitability more difficult than ever,” says Valerie White, head of LISC’s National Housing Strategic Initiatives. “This report shows that to find meaningful and lasting solutions, the industry must be nimbler. We are committed to partnering with Community Development Financial Institutions, financing partners, property developers, and policymakers to develop more innovative solutions that have an enduring and meaningful impact.”
“The State of Affordable Housing: Saving Affordable Housing Assets" says that impactful solutions are grounded in deploying capital through more creative financing solutions, building the capacity of emerging and nonprofit developers, and advancing policies to scale and preserve housing.
The analysis comes on the heels of LISC committing to deploy $5.2 billion by the end of 2027 to expand access to affordable housing across the country.
Affordable Housing Finance recently caught up with White to find out more.
How would you describe the state of affordable housing today?
We’re at a very tenuous time in the ability of the national affordable housing portfolio to meet the needs of the country. We’ve had major disruptors, including the Global Financial Crisis in 2006 and 2007 and then COVID. When you couple that with natural market shifts along with increases that all sectors of real estate are dealing with, including insurance, interest rates, and tariffs, all of that has eroded the ability to meet the nation’s need. This is a critical stage. At LISC, we as an organization have made affordable housing our north star and a key driver of our strategic plan. Between 2025 and 2027, we’re looking to invest $5.2 billion through our parent company and affiliates to provide access to 57,000 units to increase affordable housing and prevent the portfolio from losing any more ground.
The new report calls on the industry to pursue more creative financing solutions to scale development. What’s an example of a strategy that is emerging or should be further explored?
There’s a need to explore as many capital opportunities as possible. We have great tools like the low-income housing tax credit (LIHTC) that have helped elevate the affordable housing industry. The housing credit has been around since 1986, and we would not be able to produce affordable housing without it. It’s been a key driver, and it’s great that we received a recent expansion of the program.
However, additional capital is needed primarily because expenses have continued to grow over time. There still needs to be additional innovation. We’re seeing nonprofit developers issuing “as of right” bonds and public housing authorities obtaining credit ratings and issuing bonds backed by their balance sheets. Many of them have had credit ratings for years, but they’re now utilizing that to bring additional capital resources into transactions in order to close gaps. The market understands that a nonprofit developer or a public housing authority is going to do everything they can to ensure that the project remains affordable, and it’s becoming a more accepted way to gain an investment not in place of but in addition to the many things that are happening now.
What’s a recent state or federal policy change that you are watching?
Several are mentioned in the new report. On the homeownership front, one legislation that I’m watching is the Neighborhood Homes Investment Act, which would provide tax credit support for the development of homes. It would help cover the difference between the cost to build or rehabilitate a home and the affordability level.
With the emergence of artificial intelligence (AI), there’s been much overall discussion about data centers. How do these data centers impact affordable housing?
There is a lot of discussion about data centers and how they impact a community, including the use and cost of energy and water. They also tend to go into neighborhoods that are less affluent so the impact may be more stressful to lower-income communities. Because of the growth of AI and data, we are carefully watching for different opportunities for data centers to be more inclusive in a community they would like to build in and how they are going in as a partner and protecting the community as opposed to taking valuable resources out.
LISC recently announced it is deploying $5.2 billion by end of 2027 to expand access to affordable housing. How will those funds be invested?
We will be expanding our production and preservation pipeline. We’re identifying pipeline growth, and we’re identifying markets where we currently don’t have a LISC local office to expand in those areas. We’re looking at additional funding structures to increase the amount of money that we’re bringing to affordable housing, the potential growth of national pools. We’re working to bring forth what we call a “one LISC model” and collaboratively bring a suite of investment products to regions or to particular deals by working closely with our affiliates, such as the National Equity Fund, which is the largest nonprofit LIHTC syndicator in the country; our LISC Fund Management, which does place-based funds specifically to address a particular location’s housing needs; and Broadstreet Impact Services, which is our New Markets Tax Credit syndicator and also does lending to support transactions that include housing and need additional capital.
Affordable housing deals are very complex. You might have anywhere from eight providers if you are lucky but often up to 13, 14, or 15 capital providers in one transaction. The ability to be nimble and ensure that we have capital to close any gaps or contingency cap is important. We’re putting together all of those resources, growing our pipeline, exploring new markets, and looking at being part of innovative capital stacks.