Construction Decline Hits Affordable Housing

By Sean M Carpenter

The slump in the housing market has had far-reaching effects. Home prices have fallen significantly on existing homes, especially because there are so many foreclosures on the market. It has also affected new construction, including affordable housing projects.

Because there are so many existing homes on the market, the demand for new housing just isn't there. The need exists, especially for low- and moderate-income families, but developers are having a hard time finding financing. Investors struggle to see the benefit of new home construction of any kind when there are so many homes already on the market. In addition, many new construction projects are sitting idle, having lost their financing.

A story out of Massachusetts shows just how dramatic the effect has been. New construction permits in the state fell to 7,260 in 2011, compared to over 9,000 in 2010. That's a 20 percent decline in just one year. Unfortunately, the drop in production is mostly driven by the drop in single-family home prices. Markets across the United States are nearly saturated, creating the strongest buyers' market in decades.

The decline in new construction has a wide-reaching economic impact. Lack of construction jobs adds to unemployment figures. In addition, the lost wages translate into lost tax revenue for cities and the state. It also means less money is being spent in the local economy, potentially causing job losses in non-construction-related industries.

Though the foreclosure crisis has caused a sharp decline in housing sale prices, it has had the opposite effect on rental prices. Because more families have been forced out of their homes, rental units are in high demand. Consequently, rental prices have been increasing and the number of available units has been falling. The need for affordable housing has risen dramatically in the last few years, especially rental housing.

Restrictions placed on existing affordable housing prevent owners of those using from raising rent to reflect market rates. However, because more people need low-income housing, available units are being filled quickly. All across the country, cities and states have closed Section 8 and other affordable housing waiting lists to new applicants because the existing lists will take years to cycle through.

The combined slump in multi-family housing production and increase in rental prices points to a market need that affordable housing developers are uniquely able to meet. Their experience successfully completing low-income housing developments, combined with their knowledge of the housing market enables them to present solutions that are both creative and financially viable.

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