Tuesday, August 16, 2022

Maxwell Drever talks about the possible reasons for resistance from investors toward affordable workforce housing

A large number of state and federal funding programs focus on homelessness and poor income households. As a result, families earning 80-100 percent of average annual income remain primarily ignored or neglected. Subsidies that guarantee roofs over low and below-average income populations fail to address the need of the workforce that earns enough to sustain themselves but not enough to secure a shelter over their heads due to exorbitant housing prices or rents. It has created a wide gap in the demand and supply of housing for the middle-income groups, leading to a crisis in the US. Private funding can address this concern, but private capital mostly goes to expensive or market-rate homes for the kind of return they offer.

Maxwell Drever emphasizes attracting funds from high-net-worth individuals, family businesses, foundations, banks, and corporations can be the way. However, one needs to understand why private investors shy away from this critical real estate segment.

The scale of affordable properties

Perhaps institutional investors haven’t had an enormous impact on the affordable workforce apartment market due to their relatively small portfolios. A majority of a community’s affordable properties consist of less than 200 units, so one needs to find funding for multiple projects at once. Additionally, they need more time and development before they are ready to ship.

Uncertainty around project completion

People shy away from workforce housing because, like any other construction project, it also comprises multiple stages, which begin with land acquisition. Then,things like designing the project, civil engineering, and land survey feature.After selecting the land, a developer appeals to the local government for building permission, where comes another roadblock. At this juncture, the authorities can reject the application depending on whether or not there is enough space for each home’s parking space, sewage system, etc. Adding to this, manyneighborsdon’t want workforce housing near their bungalow, mainly due to traffic issues, which might lead to lower property prices. Hence, it leads to another challenge for them to handle.

Lack of adequate tax incentives

Middle-income housing developers don’t get tax incentives like those focused on low-income family homes. They can expect a maximum of 10% tax credit from the state government depending on specific criteria when working on a neglected or abandoned housing project. But affordable workforce housing has lacked this so far. Maxwell Drever points out that some American states are bringing change by proposing a tax credit for the development of middle-income houses also. Such proposals intend to encourage public-private collaboration to utilize federal money with private funding to create affordable rental homes for the workforce.

Real estate experts believe that investment from private players can push development projects toward faster completion. However, for this, one has to show them the brighter picture. The positives of investing in this type of real estate need to reach them. Since many of them like to maintain a delicate balance between their profit and community work, they also need to know that these housing projects can efficiently fulfill their goals.

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