Affordable Housing Investing

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Affordable Housing Investing

A shortage of housing inventory, lack of affordable rental housing, and construction labor shortage are fueling the affordable housing crisis. Below are details as to how these three areas are contributing to the affording housing crisis and what efforts are being made to change the results.

1. A shortage of housing inventory

Description

How it contributes to the affordable housing crisis

  • A shortage of housing inventory causes higher prices on homes, which results in affordability issues. "As loan amounts increase, it becomes harder and harder to qualify for financing on a budget."
  • A shortage of housing inventory also causes rents to increase. There are currently "seven million extremely low-income households" who "are in unaffordable rental homes where they are paying more than 30 percent of their income on housing."
  • Higher income households occupy 3.5 million out of the 7.5 million affordable rental homes, which were meant for the extremely low income households in the United States. This means "four million affordable and available rental homes exist for the 11.2 million extremely low income renter households." As a result, there is a shortage of about "7.2 million affordable and available rental homes for extremely low income households."
  • Currently, there are 29 American states that are dealing with a housing deficit, and the housing shortage will grow "from 2.5 million units to 3.3 million units" in these states.
  • Shortage of housing inventory causing higher home and rental prices have resulted in some people relying on shared living spaces, moving back to parent's homes, and homelessness.

Efforts to Change the Results

  • In 2018, United States Senator Elizabeth Warren introduced the American Housing and Economic Mobility Act. One of the aspects of this bill is that it will "provide down payment grants to first-time homebuyers living in lower-income, formerly redlined or officially segregated areas to allow those families to start building home equity and close the racial wealth gap."
  • In 2019, California's governor signed 18 bills to remove barriers to construction and increase housing production.

2. Affordable Rental Housing

Description

  • Affordable rental housing is a rental property that doesn't cost over 30 percent of the tenant's gross income.
  • 11.2 million out of 43.8 million renter households in the United States are extremely low income.
  • "Forty-six percent of extremely low income renter households are seniors or disabled, compared to 26 percent of other renter households."

How it contributes to the affordable housing crisis

  • The affordable "housing crisis is most severe for extremely low income renters," whose incomes are at or below the poverty line. Extremely low income households represent "nearly 73 percent of the nation’s severely cost-burdened renters, who spend more than half of their income on housing."
  • The United States has a shortage of over 7.2 million affordable rental homes that are "available to extremely low income renter households. However, "only 35 affordable and available rental homes exist for every 100 extremely low income renter households."
  • There are "11 million renter households in the United States who are severely cost-burdened." As a result, these renters aren’t able to pay all or a portion of their rent, and are threatened with eviction.
  • The shortage of affordable rental properties have led to people becoming homeless and “putting a growing number at risk of becoming homeless.”

Efforts to Change the Results

  • In 2018, United States Senator Elizabeth Warren introduced the American Housing and Economic Mobility Act. One of the aspects of this bill is that it will lower rents for low-income and middle-class families by 10 percent, which would save households "an average of $100 per month." Additionally, the bill will increase federal funding in order to "build or rehabilitate 3.2 million new housing units for lower-income and middle-class families."
  • In 2019, United States Senator Kamala D. Harris and United States Representative Maxine Waters introduced the Housing is Infrastructure Act, which proposes more than "$100 billion investment in affordable housing." The act will build and rehabilitate public housing and construct "hundreds of thousands of new rental units that would be affordable for the lowest income households."
  • In 2019, California lawmakers announced that there would be a statewide cap on annual rent increases, where annual rent increases would be limited "to 5 percent after inflation."

3. Construction Labor Shortage

Description

  • Construction labor shortage means construction companies do not have enough people to work, resulting in issues accepting new projects, meeting deadlines, and containing costs.
  • In March 2018, 248,000 positions were open in the construction sector.

How it contributes to the affordable housing crisis

  • Labor shortage is causing high costs in constructing homes and as a result, increasing home prices. The high prices paired with high mortgage interest rates have "reduced housing affordability to a 10-year low." During the second quarter of 2018, "57 percent of new and existing home sales were affordable for a typical family."
  • Additionally, rents that the lowest income households are able to afford usually do not "cover the costs of development and operating expenses." Therefore, new rental housing developments are catered more "toward the higher end of the market."

Efforts to Change the Results

  • In 2019, the House approved legislation that provides legal status to more than 100,000 workers in the construction industry.
  • In January 2020, Illinois announced $25 million in financing to programs that would recruit people into the construction industry.
  • The Wisconsin Economic Development Association proposed legislative initiatives that would exempt sales taxes on “construction materials, supplies and equipment used” for developing workforce housing. The initiatives would also create “an individual income tax credit for expenses related to the rehabilitation of older single-family homes.”
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