Multifamily Housing is More Essential Than Ever. Here’s How Affordable Housing Legislation Can Affect It

Last year, according to the National Association of Realtors, was the slowest housing market since 1995.

The reasons are not any tightly held secret: High interest rates and rising prices meeting low inventory to create a perfect storm. (The Philadelphia Inquirer estimates a yearly national construction shortfall of 1.7 million homes as builders struggle to keep up with a population that has grown by almost a quarter since that last 1995 slowdown.)

In this environment not only are young potential homebuyers delaying their entry into the market, but older homeowners are choosing to stay in homes with locked-in lower interest rates—even when that means they can’t keep up with basic home improvements.

All of this makes the multifamily housing market more important than ever to communities, providing safe and more affordable housing as well as personal credit-building rental agreements to families and a workforce population in need of both.

For thoughtful, conscientious investors, there is a real opportunity to do good in the community while doing well in terms of ROI.

Of course, the multifamily sector is not immune to low inventory pressures and subsequent rising rental rates. (Here are some thoughts on how multifamily investors can navigate turbulent markets.) And though it is worth noting rent increases dropped from a February 2022 peak of 16 percent and an overall 2022 rate of 7.6 percent to a more manageable 3.3 percent in 2023, rental prices are still a cause of popular concern and anxiety—and, therefore, on the radar of politicians.

How will affordable housing legislation on the federal, state, and local level affect the multifamily industry?

Here are a few key initiatives to give you an idea of the current landscape and what it means to your investments…

  • Low-Income Housing Tax Credit (IHTC). Created by the federal Tax Reform Act of 1986, the LIHTC, in part, encourages multifamily developers to allocate a portion of their units to low-income households by providing tax incentives to developers who build or rehabilitate affordable housing units.
  • Section 8 Housing Choice Vouchers. Though the roots of the Section 8 voucher program stretch all the way back to the US Housing Act of 1937, it has been amended many times and evolved significantly. Essentially, today’s Section 8 has two components: One, it provides rental assistance vouchers to eligible low-income families, allowing them to choose rental housing in the private market. Two, it provides federal project-based assistance for existing, newly constructed or rehabilitated housing. The concept for investors is to ensure stable income while empowering low-income tenants to access affordable housing.
  • Community Reinvestment Act (CRA): The CRA incentivizes banks to invest in the communities they serve, which can include funding for multifamily projects that benefit underserved communities.
  • Affirmatively Furthering Fair Housing (AFFH): AFFH promotes fair housing practices with a goal of ensuring equal access to affordable housing for all. Multifamily investors should be familiar with these regulations not only to avoid any potential violations, but also, in the words of a 2021 White House memorandum, “afford access to long-denied opportunities”—which can be seen to include not only groups that have traditionally faced discrimination but investors seeking to serve a wider, more diverse tenant base.  
  • State and Local Initiatives: Many states and cities have their own specific affordable housing programs ranging from development and inclusionary zones (i.e. ordinances which require developments in certain areas to have a set percentage of units set aside for moderate and low-income renters) to trust funds, rent controls, and tax incentives. See, for example, Florida’s comprehensive Live Local Act, signed into law last year and dubbed “the largest investment for housing efforts in Florida history” by the National Law Review. These regulations and incentives vary widely, obviously, but investors should be aware they exist to leverage what is beneficial.

As Florida’s leading balance sheet lender, A&S Capital is here to help you efficiently and profitably navigate the multi-family rental investment market. Not only do we provide direct financing on single and multifamily residential real estate throughout the country, but our team of seasoned, versatile professionals can help you secure tailored, bespoke solutions designed to channel the right lending to the right deals at rates that are fair and favorable.