How local governments are closing the financial gap for affordable housing developments

<p>The challenges facing real estate development today are well-known. Construction costs remain 40% higher than pre-COVID levels and increased interest rates have slowed the pace of new projects. A June 2024 survey of the nation’s largest developers found that two-thirds of multifamily projects in the pipeline are delayed because they are no longer economically feasible under current conditions.</p> <p>Affordable housing developers, particularly those using the Low-Income Housing Tax Credit (LIHTC) to build new low-income rental housing, are also feeling the effects of this challenging development environment. This post examines how local government participation in affordable housing has changed because of rising construction and financing costs and relies on data from nearly 300 new construction projects awarded 9% tax credits by the North Carolina Housing Finance Agency (NCHFA) between 2015 and 2023.[1]</p> <p>The data shows that rising costs are taking a toll on new affordable housing projects. Last year, the median development cost for LIHTC projects climbed to $250,000 per unit—over 50% higher than in 2020 (Figure 1).</p> <p> </p> <p></p> <p> </p> <p>How have developers adapted to rising costs? One key shift is project size. In 2023, the median number of units in awarded projects dropped to 56, down from the historical range of 68-72 units (Figure 2). While 9% tax credits typically funded over 2,000 units annually in past years, only about 1,400 units were funded in both 2022 and 2023.</p> <p> </p> <p></p> <p> </p> <p>More projects are relying on state and local government support to cover increases in construction costs. One common way LIHTC developers access gap funding is through low-cost loans distributed by two NCHFA programs: [...]</p>