Despite the many uncertainties ahead for the affordable housing sector, industry executives are largely optimistic going into 2025.
Several leaders say they are hopeful the increased attention on the need for affordable housing will result in valuable gains for the sector, including a long-sought expansion of the low-income housing tax credit (LIHTC).
Affordable Housing Finance asked several members of its editorial advisory board and others to share their overall outlook for affordable housing as well as make a prediction.
“I think we have an opportunity to challenge the new administration into going BIG for housing. Not just resource-wise but with regulatory reform,” says Bob Moss, founding partner of MG Housing Strategies. “Let’s peel back the layers of the regulatory onion and get back to basics.”
Industry veteran Ronne Thielen also sees an opening for key action to take place.
“I have to believe that the time has come for Congress to take action to increase the inventory of affordable rental homes by enacting legislation affecting the housing credit program that allows the tax credit industry to step on the accelerator and build, renovate, and hold affordable these homes far into the future,” says Thielen, executive vice president and director of public policy and advocacy at R4 Capital.
“As tenuous it may be to make predictions for 2025, I believe we have an excellent chance to have housing credit expansion legislation in the expected tax bill to be enacted in 2025,” she says.
Deborah VanAmerongen, strategic policy adviser and deputy practice group leader of the affordable housing and real estate at Nixon Peabody, also cites the possibility of new resources emerging in the year ahead.
“Given the unprecedented focus on this issue, I do not see retrenchment at the federal level, and I believe the issue will receive increased attention at state and local levels as well,” she says. “Hopefully, this will translate into additional resources—specifically increased 9% LIHTC and a reduction in the 50% test.”
In addition to calling for an increase in the amount of LIHTCs available, advocates have been seeking to lower the tax-exempt bond financing requirement, known as the 50% test. This rule requires that at least 50% of a project needs to be financed with tax-exempt debt to receive the full amount of 4% housing credits it is eligible to receive. Officials say this is an arbitrary amount and should be lowered to 25% or 30%, which would significantly increase the number of affordable housing units created or preserved under the program.
“We also are likely to be affected by issues that, while not driven by the affordable housing crisis, could have significant impact—such as tax reform and CRA reform,” says VanAmerongen.
With demand for affordable housing far outpacing supply, it's critical for the industry to advocate for the resources needed to deliver safe, high-quality housing, adds J. David Heller, president and CEO of The NRP Group, a leading affordable housing firm headquartered in Ohio.
“Top of mind across the affordable housing market is the ever-growing need for more supply to meet renter demand,” he says. “I predict that there will be additional supply constraints across the industry. With most federal ARPA [American Rescue Plan Act] funding depleted and inflation putting pressure on city and state budgets, government financing at both the federal and local levels is shrinking. This reduction in funding will inevitably hinder the development of new affordable housing.
“On the other hand, development opportunities are growing through innovative private-public partnerships with local governments and institutions. Cities and municipalities are increasingly offering non-monetary support such as land access and streamlined regulations to help reduce costs. Currently, over 25 of 50 states have some form of state tax credit, and many others are eager to create similar programs. That said, inflation-driven budget cuts will make it difficult for states to allocate the necessary funds to develop these projects. Regions that prioritize affordable housing through financial commitments will continue to produce new supply, while other areas that lack this focus will see a significant drop in development.”
Many eyes will be on the financial markets, with the hopes of lower interest rates in the new year.
A potential drop in short-term interest rates could be favorable for bridge, interim, and construction financing, notes Paul Bernard, president and CEO of Affordable Homes and Communities, a leading nonprofit based in Virginia.
In addition, affordable housing developers may find opportunities to acquire and convert commercial and market-rate housing if there’s disruption across these other real estate sectors, according to Bernard.
“The combination of housing affordability’s newfound attention, sustained market disruption in commercial real estate, and an increase in housing supply may provide tailwinds to the affordable housing market and, more important, provide much-needed relief to Americans struggling to afford housing,” he says.
Jim Gillespie, executive vice president at BWE, is among those optimistic about the new year.
“Compared to traditional forms of residential real estate, the affordable sector is still young, which gives us plenty of opportunity to forge new development partners and introduce new forms of capital into the affordable market that haven't been as engaged in the past,” he says. “Coupled with more stability in interest rates and construction costs, this bodes well for a strong year in 2025.”
