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The market for affordable housing and local placemaking has gotten significantly more challenging over the past few months. The passage of what we refer to as the Big Ugly Bill has meant the elimination of federal funding for climate resilience upgrades on HUD-assisted housing, the decrease in Medicaid and SNAP benefits, which means low-income families will have less money to spend on housing, and the new bill has reduced funding for federal rental assistance. The bill did make some changes to Low Income Tax Credits that should incentivize more private investment, but without the gap capital necessary to make these projects pencil, we are not sure that it will help much.
All of this against a backdrop of a growing crisis in affordability. Current estimates show a deficit of millions of units when aggregated across the country, and 22.6 million renter households experiencing housing cost burdens. High interest rates and potential tariff cost increases on construction costs are also raising the challenges for affordable housing built in areas of high opportunity.
However, states and local areas are increasingly leaning into these challenges and have become far more active in requiring affordable housing units as part of new construction and creating local pools of funds to support accessible housing. The “flight to quality” in private investments has also brought more private impact investors into the space, larger funds like Vistria and Rise East have successfully raised $100 million or more from private and institutional investors seeking deep impact on an important issue, but also the protection of affordable housing as an asset class.
Work-from-home has also created opportunities for more innovative funds to think about partnering with the federal government and local officials on converting office buildings to affordable housing in large cities. In DC, Rooted Communities is partnering with the local and federal governments, as well as local office building owners, to find ways to responsibly develop transitional and affordable housing solutions by converting existing office buildings.
If rates can stay flat or decrease, and the tariff war calms down, we could have the perfect set of ingredients for a cooling in the housing market, which would create an opportunity for affordable housing developers to gain some ground on their market-rate foes.
Sincerely,
George Ashton, CEO
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