Real estate developers say affordable housing is getting more profitable

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Whether it’s in the for-sale or rental market, the affordable housing crisis is only getting worse. There is simply not enough supply, especially in the apartment market, where developers have said it’s just too expensive to put up quality, low-income housing. 

They cite rising costs for land, materials and labor, as well as increasingly restrictive zoning regulations. So-called NIMBYism (an acronym for “not in my backyard”), is also on the rise, with residents fighting affordable housing in their neighborhoods, where home values have soared in the past five years. 

“This is a tough time, I think. All of real estate is being challenged by higher interest rates and by higher construction costs, and, by the way, the building department requirements and all the frictions that are making real estate difficult,” said Jonathan Rose, founder and CEO of the Jonathan Rose Companies, a real estate planning, development and investment firm. 

“But there’s also a lot of support, and our job is to weave the pathway in between the complexities, the challenges and the opportunities and find the pathway through,” he said.

Developers like Rose just got some more of that support from the recently passed tax and spending bill. It expanded the Low-Income Housing Tax Credit, by increasing the amount of credits available and lowering the financing requirements. Specifically, the legislation permanently increased the 9% credit allocation to states by 12%. Developers sell these credits to investors in order to help finance their projects. 

“It’s a big boost for the creation of more affordable housing. In fact, the United States has a shortage of about 10 million units. This won’t solve the whole 10 million unit problem, but it’ll be a big help,” said Rose, adding that he sees a growing opportunity for investors in the space.

Affordable housing advocates applauded the bill’s passage, saying that the LIHTC remains the nation’s most effective tool for building and preserving affordable rental housing.

“This legislation delivers a significant expansion of the credit by incorporating key elements of the Affordable Housing Credit Improvement Act, aimed at boosting the supply of rental homes across urban, rural and tribal communities,” said David Dworkin, president and CEO of the National Housing Conference, in a release.

Dworkin pointed both to the expansion of the credit as well as changes to another tax…