NHPF Industry Report
Co-Creating The Future of Affordable Housing
“Transforming the housing industry will likely take at least a generation. Affordable housing impacts not just construction and financial industries, but needs to account for population growth, demographic shifts, technological disruptions, and environmental changes. While simpler fixes will be accomplished sooner, systemic change will take 15–25 years.” —DR CINDY FREWEN, FAIA, URBAN FUTURIST & ARCHITECT T his study offers insight on how decision-makers in the next decades can harness the power of Construction, Demographics, Government, and Innovation to dramatically increase the availability of smart, safe and reliable affordable housing. It is an amalgam of survey results plus existing third-party research and the expert opinions of the presenters at this year’s NHPF Symposium. One thing that all parties can agree on is the urgency of finding workable strategies to ensure there will be affordable housing in the future.
NHPF Industry Report
Leverage the Strengths of Millennials and Gen Z
“They survived a global pandemic and arguably some of the biggest historical struggles, but they’ve developed resilience and [the ability to] bond with others through hard times. With their spirit and support from others, they can create a bright tomorrow.” —TRACY BOWER, PHD, AUTHOR Baby Boomers have dominated our country for the better part of the last five decades. Many credit the exceptional wealth generated by this cohort for fueling America’s strong economy and providing opportunity. Many others harbor negative views, particularly when it comes to social issues such as affordable housing. NHPF’s proprietary annual survey posited that Baby Boomers were to blame for the current lack of affordable housing. Each generation (Baby Boomers, Gen X, Millennials, Gen Z) agreed, about equally, with Gen Z polling slightly higher. Respondents cited Boomers’ tendency to stay in houses and jobs longer, prevent younger people from moving up socioeconomically, and NIMBY behavior—working to prevent construction of less “desirable” housing. Gen Z also believed more strongly than other groups that Boomers have contributed to a non- sustainable lifestyle. The cohort with the most power 20 years from now will be the youngest Millennials and the oldest Gen Zers with 72M 40–60 year-olds—larger than the Boomer generation. A 2022 NHPF study found that this group has a passion for activism, supporting human rights and social causes, with 33% supporting affordable housing based on “societal benefits of decreased poverty and crime and increased economic opportunity.”
The Coming Decades of Demographic Change
Source: Philip Bump, author, The Aftermath: The Last Days of the Baby Boom and The Future of Power in America
Upon achieving career success and/or political will, might Gen Z fall back on a previous jaded mentality? Or will their tendency towards individualism, tech prowess, and belief in “access more than owning” empower them to transform America’s affordable housing?
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NHPF Industry Report
They are very motivated to succeed with 87% reporting at least a “somewhat difficult” time finding affordable housing. However, what will “successful housing” look like to Gen Z, with its passion for inclusivity and sharing? Nearly 70% view “healthy housing” as the most important component of future affordable housing. This will likely include an emphasis on biophilia—proximity to communal green spaces and water—as well as access to medical and wellness facilities, sustainable energy, and other “healthy housing” features. It is also likely that as Gen Z ages, they may prefer communal living—sharing energy, water, community gardens, and food, plus knowledge and services that can make a community self- sufficient—their inclination towards sharing could prove truly transformative.
Create a Federal Zoning Agency
“Right now, there’s no one in the federal government whose full-time job is to improve land use and housing supply. Creating such a position would be a useful first step towards better outcomes.” —JENNY SCHUETZ, SENIOR FELLOW, BROOKINGS METRO Can we achieve a future with abundant affordable housing without changes to current zoning policy? Many in the study agreed that Boomers, with their penchant for NIMBYism, bear some responsibility for the maintenance of static and unproductive zoning law. Recent research reveals these codes as the number one “villain” standing in the way of the future of affordable housing production.
STATES WITH A NATIONAL ZONING ATLAS
4 • THE NHP FOUNDATION 2023 SYMPOSIUM: INDUSTRY REPORT
NHPF Industry Report
Zoning has long been used both as a tool to build cities and as an exclusionary practice to keep neighborhoods, towns, and cities racially and economically divided. According to a study by preeminent housing law scholar and Cornell University professor Sara C. Bronin, “zoning codes nearly universally establish areas exclusively for single- family housing. Lifting numerical caps in these areas brings the promise of increasing housing supply.” In a 2019 study conducted by NHPF, “onerous regulations” such as zoning also keep some would-be investors from even entering the affordable housing market. The creation of a federal zoning agency like USICH (United States Interagency Council on Homelessness), the only federal agency created to prevent and end homelessness, could mean an overhaul of the nation’s archaic and often arcane zoning laws impacting lot size, single residence per lot requirements, and parking minimums. We would also advocate for federal penalties for municipalities with restrictive zoning policy including withholding federal funding. A helpful tool for anyone looking to overhaul the zoning system could begin by supporting the creation of a national zoning atlas already in the works by a team including Professor Bronin.
Expand and Safeguard the Low-Income Housing Tax Credit (LIHTC)
“LIHTC is the only tool we have to create and preserve affordable housing supply at any meaningful scale. Any attempt to solve our nation’s affordable housing crisis must include a significant expansion of the program and reforms to allow the Credit to break more ground.” —EMILY CADIK, CEO, AFFORDABLE HOUSING TAX CREDIT COALITION LIHTC has financed over 3.7 million affordable homes since its inception in 1986. Though widely regarded as a successful program, spanning nearly four decades, and receiving broad, bipartisan support, the program is perennially at risk. In 2018 Congress increased the Housing Credit allocation by 12.5% on a bipartisan basis, but the increase has now expired at a time when rents are skyrocketing. In addition to restoring these resources, the program should be significantly expanded to meet the vast growing demand for affordable housing. Bipartisan legislation, the Affordable Housing Credit Improvement Act (S. 1557/H.R. 3238), would restore the 12.5% allocation increase, further increase the Housing Credit allocation by an additional 50%, and make other changes to unlock additional resources, streamline the program, and facilitate more developments in hard-to-reach areas like rural and Native communities. Though the legislation has the support of more than one-third of Congress, evenly divided between Republicans and Democrats, it has not yet advanced because of congressional gridlock. It is essential that Congress pass the Affordable Housing Credit Improvement Act this year, to allow thousands of shovel-ready affordable housing developments to move forward and LIHTC to continue unabated.
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NHPF Industry Report
Rental Subsidies Have Increasingly Shifted to Tenant-Based Assistance and Tax Credits
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1992
1998
2004
2010
2016
2022
Public Housing
Housing Choice Vouchers
Project-Based Section 8
LIHTC
LIHTC occupancy is based on the 96.6% rate reported by Novogradac in 2021. LIHTC units include low-income units only. Source: JCHS tabulations of HUD, Picture of Subsidized Households Reports and Low-Income Housing Tax Credit Database; Robert Collinson, Ingrid Gould Ellen, and Jens Ludwig, Low-Income Housing Policy, NBER Working Paper, 2015
Donahue Peebles lll, Founder and Chairman, Legacy Real Estate Development also advocates for LIHTC and HCVP (The Housing Choice Voucher Program) derivatives to include 100%- 165% AMI bands to ensure access to market rate housing in job-generating urban centers. When looking at future affordable housing, there are important legislative and other avenues to be pursued including:
• Expansion of down payment assistance programs; easing hurdles for Co-Op and Condo acquisitions; reduction of RMBS (residential mortgage-backed securities) reserve requirements and allocation of CRA (Community Reinvestment Act) credit to allow for non-agency single-family housing financing options. • Increase emphasis on M/WBE (Minority or Women-owned Businesses) capacity building programs, more stringent First Source and M/WBE utilization requirements; a greater emphasis on local hiring. • Ensure tax credit and gap resources can function assertively within single capital stacks. • Considering that, according to Philip Bump’s demographics predictions, the youngest Boomers will be in their 80s in 2050, municipalities must also look to provide them with ancillary assistance and co-locate essential services they have come to expect.
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NHPF Industry Report
Make More Modular Housing and Make it Close to Cities Where it is Needed
“When buildings are constructed in a pre-fabrication plant, the quality is better than on site building. These houses are so well-designed even a trained eye struggles to tell the difference between one built in a factory and one built onsite.” —AVI FRIEDMAN, PROFESSOR OF ARCHITECTURE, MCGILL UNIVERSITY, CANADA Nearly 70% of those surveyed believe residential buildings should be required to have a percentage of rental units for lower-income earners. However, ensuring enough affordable housing is built by future generations will take more than a positive attitude. It will take changes to the construction industry at a granular level. According to Roger Krulak, CEO, Full Stack Modular, future builders must incorporate modular construction, building components or entire houses in a controlled factory environment and then assembling them onsite. The process streamlines everything,
significantly reducing construction time, delivering projects 20 to 50% faster than traditional methods, with elevated quality, and with practice, cost savings of up to 20%. This approach also offers a strong business case, mitigating delays due to weather exposure, materials availability, on-site delivery issues and assembly. It also requires 67% less energy to manufacture modular buildings.
According to Krulak and others, the process is also generally safer and healthier, shielding employees from the outside elements. These factors resonate with younger generations’ emphasis on healthier lifestyles. For modular to become industry standard, leaders like FullStack have to solve the proximity issue, i.e., eliminating the need for long-haul deliveries that use gas and other resources.
POSSIBLE SOLUTIONS TO IMPROVE MODULAR BUILDING PROXIMITY:
• Network of manufactories, way stations, and project sites. Just as Amazon delivery drivers optimize their routes for efficiency by making multiple stops, the modular construction industry could similarly benefit from this approach that would significantly enhance the efficiency of on-road deliveries, thus reducing the overall carbon footprint associated with construction projects. • Standardize certain project aspects to further multiply efficiency gains.
• Establishing strategically located regional "way stations" partially pre-fabricated and partially pre-assembled modules can be collected, organized, and temporarily stored, similar to Amazon or FedEx distribution centers • Specialized materials management and schedule management software would enable manufacturing managers to order raw materials in bulk, simultaneously assemble modules for multiple projects, and then deliver these modules to their respective sites with exceptional efficiency.
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NHPF Industry Report
Lower the Costs of Insuring Affordable Housing
“Every option [must be considered] to reduce costs, enforce anti-discrimination measures and reverse the trend of insurance companies simply walking away from affordable housing. ” —BAABA HALM, VICE PRESIDENT & NEW YORK MARKET LEADER, ENTERPRISE COMMUNITY PARTNERS Today, many insurance companies refuse to insure certain properties, making the ability to produce more affordable housing in the future even more arduous. These include project- based section 8 properties, ones in high crime areas, old properties, and those in high- probability climate-related disaster areas.
US Property Insurance Rates Have Increased for 20 Quarters Straight
24%
21% 22%
19%
18%
15%
13%
10%
9% 10%
8%
7% 7% 6%
4% 3% 3% 3% 4% 4%
–5% –4% –4% –4%
Q2 17 Q1 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21 Q1 22 Q2 22 Q3 22
Q4 16
Source: Marsh Specialty and Global Placement
According to a recent survey from the National Multi Housing Council, as of the first quarter of 2023, property insurance rates in the United States have increased for twenty-two consecutive quarters. Over the past three years, insurance premiums have skyrocketed, with many owners having experienced year-over-year premium increases from 30 to 100+ percent at affordable rental housing communities.
Garet Marr, Regional Managing Director, Franklin St. Insurance Services, believes insurance companies are not intentionally discriminating against affordable housing owners and tenants, but market conditions and industry inefficiency lead them to the conclusion that economically they must. He sees a future where affordable housing can have affordable insurance. It begins with a shake-up of the staid housing insurance industry. There must be new ways to look at the riskiest parts of insuring affordable housing—crime and climate-related disasters. Marr would like to see underwriting incentivized to focus on community investments and revitalization looking forward, with some real skin in the game. According to a 2017 American Sociological Review study, there is a causal relationship between local nonprofits and the decline in violent crime. The study found that “approximately every 10 additional organizations focusing on crime and community life per 100,000 residents leads to a 4% reduction in the property crime rate.” When a community takes an interest in themselves, with the right resources, crime, and unemployment rates decrease. Insurers need to be part of this equation at the outset. With regards to climate-induced crises, often the solution is to cease investment in areas prone to natural disaster, and many private companies have chosen to do that. This leaves an increasing void in affordable housing units in areas that need it most. The big idea here is to integrate climatology into future construction and development. By assessing the sustainability of developments not only under today’s climate conditions but considering those far in the future, insurance companies can insure with more confidence, while still calculating risk.
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NHPF Industry Report
The way forward includes accessing data and technology to model out climate change along with social and demographic changes at the local level, allowing owners and developers to better understand where they should build, and which infrastructure improvements need to be made. Insurance modeling software today is both cost-prohibitive to many and primarily models based on how historical events would have impacted a portfolio’s assets. While that data is important, more advanced software becoming available includes “Climate Risk Analytics”, provided by CoreLogic, which does the pre-building work, ensuring properties are built to withstand catastrophic weather events. The goal is for products like these to be made widely available. The industry must do all it can to enshrine the goal of housing insurance: to protect residents, and assets, long term, and control costs (including insurance) to guarantee continuous investment in communities.
Invest in Trade Schools and Other Skilled Labor Education
“Bridging the labor mismatch in US construction should start with early training and early talent acquisition through partnerships with universities, colleges, and high schools.” —GARO HOVNANIAN, RYAN LUBY, AND SHANNON PELOQUIN, MCKINSEY & COMPANY Shortages in skilled labor have been on the rise since US families were sold an American dream with only one path—a four-year college degree. Stupefying student debt, recessions, the housing crash, paychecks unaligned with the cost of education and other factors have caused many to rethink that path. Yet, there is good news.
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NHPF Industry Report
Thousands of high-paying building jobs go unfilled. Nearly 90% of construction companies have trouble finding qualified workers , reports the Associated General Contractors of America. Baby boomers remember “Shop” and “Home Economics” classes in high school where training for a career in skilled labor began and could begin again. A reinvestment in skills training as early as middle school is being advocated to address this “labor mismatch.” The Rework America Alliance highlights the merits of skills-based, rather than credential- based, hiring—tapping into the 106 million workers who have built capabilities through experience yet lack a four-year college degree. This skills-based approach should complement apprenticeships that bring younger students and vocational talent into the industry earlier. Employers need to partner with local technical schools, providing scholarships, instructors, and apprentice programs. This path could also work with a range of nontraditional sources of talent, including veteran-transition programs, formerly incarcerated individuals, and others. Moreover, identifying and attracting talent from outside the typical construction industry paths will help to increase the diversity of its workforce, which as of today is 88% white and 89% male.
Incorporate the Best of AI and Other Tech Advances
“Artificial intelligence is taking a more prominent role [in affordable housing], and we can leverage it to create more comprehensive real- time data to improve our operating systems and procedures.” —DAVID A. NORTHERN SR., HOUSTON HOUSING AUTHORITY PRESIDENT & CEO Developers are using AI programs like ChatGPT or Bob.AI with various assistance programs to expedite the application and borrowing processes. Many report trying out these services with Asset Management and Resident Services Coordinators to scan for health and community resources. Many in our industry use AI-assisted platforms like Grammarly to ensure writing is error- and plagiarism-free. Some use ChatGPT to kickstart grant proposals, outlines for Powerpoint presentations, award entries and other repetitive writing. We are enthusiastic about time- and labor-saving AI tools that reduce resident burden by offering such a reusable, single-fee application, powered by real-time data and that produce an “ability to pay” score from factors including assets, income, and previous rental history. This AI promotes more inclusive scoring giving property managers a quick and accurate financial profile of a prospective renter, more equitably and with less bias—especially valuable for those states where vouchers are often routinely denied. Other technology advances paving the way for future affordable housing include Wemimo Abbey’s Esusu Inc. which taps into on-time rental payments typically excluded from credit reports (unlike missed rental payments which are reported to credit bureaus). Esusu addresses this disparity that leaves some 45 million credit-invisible renters without the benefits accrued to homeowners who pay mortgages. Esusu calculates that rent reporting could unlock a potential $4.1 trillion, generating hundreds of millions in tax revenue and significantly contributing to the GDP.
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NHPF Industry Report
ESUSU WORKS WITH 65% OF THE NMHC TOP 50 PROPERTY AND ASSET MANAGERS. BUSINESS RESULTS INCLUDE: • An average credit score increase of 34 points . • Over $12.9 billion in mortgage loans and over $4 billion in auto loans were accessed by Esusu renters with increased credit. • Over 121,000 auto and 29,000 mortgage loans were accessed by Esusu renters with increased credit. • Millions in eviction prevention and zero-interest rent relief distributed to 8,000+ households in 46 states. • 82% of recipients are BIPOC (Black, Indigenous, and other People of Color) and 63% are women. • 81% of borrowers have an AMI below 80% . Second Century Ventures works with proptech startups to solve affordable housing issues through investing in and adopting new building techniques and materials, and digital tools to lower development and property management costs, new construction materials and processes among other solutions. As we incorporate more AI into our business, the industry must remain vigilant against the spread of misinformation and seeing technology replace jobs. Our recommendation here? Use technology in balance with the human touch. We are in the business of providing housing to people and only other people have the compassion and understanding to make housing and other personal connections meaningful.
Conclusion: Co-Create the Future
The baby boom has had a profound and lasting impact: Over 11,000 people are still turning 65 daily in 2023. However, by 2048, the baby boom will dwindle, and the nearly-as-large millennial generation will reach retirement age, with the vibrant Gen Z picking up the mantle. What is the worst that can happen in 2050? The senior population that is projected to grow from 18% to 22% in 25 years suffers even more housing scarcity, risings costs of living, social unrest and lower wages—dire problems for everyone and even a total collapse of the country is possible. What is the best that can happen? The combined recommendations in this report resonate enough to make real change. All the segments of the affordable housing equation; all the living generations co-create a vision that provides high quality healthy housing, breathes new life into cities, eliminates the affordable housing gap, and builds a way of life for future generations.
Mission The NHP Foundation is a not-for-profit real estate organization dedicated to preserving and creating sustainable, service-enriched multifamily housing that is both affordable to low and moderate income families and seniors, and beneficial to their communities.
Vision
A future where communities flourish because attractive, sustainable housing options and life- enhancing services are ensured for income- challenged Americans.
Values
NHPF seeks to promote greater diversity, inclusion, racial equity, and social justice in addition to its long- established mission of providing sustainable, service-enriched affordable housing. NHPF is committed to increasing access to opportunities for historically underrepresented individuals and businesses in the development and operation of affordable housing communities.
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