Affordable Housing 101: What it is, and what it isn’t

Updated December 19, 2018 at 3:47 p.m.

"NOBODY ever does the f*cking math."

Caveat – the math in question is hard. Finance can be not just difficult, but arcane.

When you add in low-income housing tax credits (LIHTC, “lie-tech” to those who know it), it becomes downright Byzantine.

So I called my friend Rex to get a handle on it. Rex is not his real name. However, he gave me some colorful quotes, so that’s what I’m calling him.

I knew Rex in grad school. He now works for a developer that specializes in the construction of affordable housing, utilizing LIHTCs.

LIHTCs are too complex to delve into in here, but know that the vast majority of new, affordable housing is created through this program. It is estimated to cost the federal government about $6 billion per year in lost revenues (due to use of those tax credits by the end purchaser).

The “nobody” that Rex is referring at the top are those seeking to help create affordable housing – with an offer of free or low cost land, or a low interest loan – that they think will be the silver bullet allowing the project to be affordable.

But as Rex explains to me, it’s usually not enough, even with the LIHTCs. Developing affordable housing is complex, and difficult.

Let’s back up a second. That word. “Affordable” – what does that really mean?

First of all, affordable, when speaking of housing, is not the opposite of luxury. Affordable is not the same as cheap.

The Department of Housing and Urban Development (HUD) defines housing as affordable if a household can attain it with no more than 30% of the household’s income.

Obviously, affordability defined this way is relative to income. Thus, income must be discussed along with affordability. Affordable to whom?

Step One: get very comfortable with the acronym AMI – Area Median Income.

(A reminder that median is not average – it means that half of households will have incomes above this number, and half will have incomes below.)

When stated without any extra comment, you can assume that the AMI applies to a family of 4. AMI does go up or down for households that are larger or smaller.

When devising AMI, HUD casts a wide net, because households will theoretically look for housing in a fairly wide area. HUD’s Savannah “area” is three counties – Chatham, Effingham, and Liberty counties.

HUD’s current AMI for this three-county area is $65,200.

Recalling that HUD defines affordable housing as consuming 30% or less of the household’s income, here are some numbers for different income levels scaled to our HUD-provided AMI:

Affordable monthly expenditure for housing:

Area Median Income (AMI):

$65,200 $1,630

Low-income: 80% of AMI $52,160 $1,304

Very low-income: 50% of AMI $32, 600 $815

Extremely low-income: 30% of AMI $19, 560 $489

Long story short – when you hear someone say “affordable”, and that person knows what they are talking about, this is typically short-hand for units in new developments targeted at, and reserved for, households making 80% of AMI or lower, made possible through subsidy of one form or another.

Rex doesn’t think that new affordable development projects should target those at 80% AMI – the market should already be producing that, somewhere, though maybe not right where people would like it.

60% AMI is what housing wonks consider the spot where you are actually doing some real good.

But even developers specializing in affordable housing want as many market-rate units in the mix as possible, to make the numbers work.

For example, here’s the distribution of units in a recent affordable project that Rex was involved in:

20% of units at market rate

60% of units affordable at 60% AMI

20% of units affordable at 50% AMI

Two recently announced market-rate projects here in Savannah have raised the ire of many for not containing any affordable units. I described these to Rex - the 243-unit “703 Lousiville” development near the new arena, and the half-block apartment building that will be constructed on Bull and 31st in the increasingly desirable Starland District.

“I can’t afford that dirt,” he replied, speaking of in-demand areas that market-rate projects target, such as these. “If the land is priced at market, then the units will be market-rate.”

Then I told him that in the first case, the land is being sold to the developer by the city, and in the second case, the land would be sold to the developer by a church.

Rex said that both of these could have been opportunities for creating some affordable housing, but only if the land were sold significantly below market, or better yet, donated to the project.

Speaking of the Atlanta area, he mentions a couple of projects where the church “stayed in the project” as a partner, donating the land to ensure that affordability goals could be reached.

But, he doesn’t blame churches with dwindling congregations for just selling off land at market rates - “Hey, they’re broke too.”

When it comes to a city selling off surplus land, that’s definitely an opportunity to make a deal for some affordable units. The two basic ways to do that are to either sell the land to the developer below market price in exchange for a percentage of the units being affordable, or to ask that a certain number of units be available to renters using housing vouchers.

In addition, says Rex, if a city really wants affordable units, they should also be willing to give property tax abatements and/or waive a variety of fees.

“I’ve got a 100-unit project right now where I’m already looking at half-a-million in permitting fees,” he says with frustration.

“100k in building permit. 100k in city impact fee. 40k or so in land disturbance permit and fees. Water tap fees of about 35k and sewer tap of 200k. I think there are some other small ones that fill it out to 500k.”

“And that’s for 108 units!”

So, understand that it is difficult for developers to supply new, affordable housing units, even when it’s their specialty. They have to have help – as much as possible.

But, there are other ways to provide affordable housing, and other ways to look at affordability.

Todd Litman, founder and executive director of the Victoria Transport Policy Institute, would characterize the HUD definition of affordability, and the subsidy-reliant methods of addressing it, as part of a “narrow analysis” of affordability.

Litman argues for a “broad analysis” which looks at increasing affordability for the middle class as well, and takes transportation costs into account along with housing.

From Litman’s blog:

“A narrow definition favors policies that preserve and subsidize cheap housing. A broader definition tends to supports policy reforms that allow much more development of moderate-priced housing in walkable urban neighborhoods.”

“Even if the new units are initially too pricey for lower-income households, they increase affordability through filtering, as some lower-priced housing occupants move up to the moderate-priced units, and over time as they depreciate and become cheaper.”

Just last week, the city of Minneapolis made some huge moves that take the “broad analysis” approach.

The Minneapolis city council passed a new comprehensive plan (12-1 no less), Minneapolis 2040, which will kill the most sacred of all zoning cows – the single-family housing district.

Duplexes and triplexes will be allowed everywhere in the city. That is unheard of, and awesome.

In addition, and just as importantly, the plan also eliminated off-street parking requirements (which increase construction costs, and hence housing costs) – EVERYWHERE in the city.

Not just in certain districts. That’s heard of, but only in two other cities (Buffalo NY & Hartford CT).

Finally, the plan also allows increased density at transit stations, along with actually limiting parking in the vicinity. That one is a no-brainer.

With these radical changes to its urban DNA, Minneapolis has suddenly become the poster-child for walking-the-walk and taking a broad, long-term approach to housing affordability.

There are many ways to address affordability, narrow and broad, short-term and long-term, subsidized and market-based. Do some further research, and decide which ones you support. I never even got to inclusionary zoning. Look it up.

Then, by all means, advocate for more affordable housing, but don’t just show up at public meetings and ask why it isn’t being included in a new market-rate project.

That’s too little and too late. More on this next.


Published December 19, 2018 at 1:00 a.m.


Jason Combs

Jason Combs is a consultant, entrepreneur, and writer with masters degrees in City Planning & Urban Design from the Georgia Institute of Technology. He is a long-time resident of the Thomas Square Streetcar Historic District.
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