Developers of affordable housing in the United States are flummoxed by the Trump administration’s bull-in-a-china-shop approach to breaking bloated bureaucracies.
Like their brethren in the market-rate multifamily sector, affordable housing developers are anticipating potentially higher material costs because of tariffs and generally elevated interest rates.
But more specific to the affordable sector, developers remain in the dark as to how the administration’s view on housing policies and programs will impact their ability to build low-income units in the coming months and years.
Within two months after assuming office, the Trump administration had paused the $1 billion U.S. Department of Housing and Urban Development’s Green and Resilient Retrofit Program (GRRP) that funds affordable housing renovations in line with climate-resilience goals. The administration is also shuttering numerous HUD and Federal Housing Finance Agency (FHFA) offices across the country.
Some developers would like to know whether promised regulatory relief extends to affordable housing, particularly amid housing agency staffing cuts. Case in point: GRRP and the HOME funds program, which dole out grants to cities to help build and preserve low-income housing, require that developers pay laborers locally prevailing wages for federally funded projects as proscribed by the pro-union Davis-Bacon Act enacted in 1931.
In Chicago’s North Lawndale neighborhood, the Habitat Company, a developer and manager of market-rate and affordable multifamily projects, used HOME funds to develop the recently completed $50 million first phase of OC Living, a 92-unit mixed-income project that is part of the larger Ogden Commons mixed-use development. Ninety percent of the apartments are reserved for low-income residents earning 60 percent or less of the area median income (AMI).
While OC Living was fully leased, Habitat still needed HUD to certify its compliance with Davis-Bacon, says Jeff Head, vice president of development of the Habitat’s affordable unit. But the office that signs off on the requirement had closed without explanation or additional information, leaving Head in the dark as to whether Habitat could receive its certification. The office did eventually reopen, and Habitat received its certification in April.
“We have no clarity on whether this represents a short-term or long-term decision,” says Head. “We understand that this administration wants to make significant changes (like possibly eliminating Davis-Bacon). But for us, it would be helpful to understand its goals, implementation strategy and timelines.”
Caution Prevails
The administration has hinted at new affordable initiatives. HUD and the Department of the Interior, for example, announced in March that the agencies would partner to identify federally owned land for potential affordable housing expansion.
The new head of HUD has also voiced support for expanding affordable housing in opportunity zones, reducing regulations, and reviewing and updating funding allocation formulas. Still, such proposals remain light on details.
In some cases, the affordable housing uncertainties are directing more opportunities to the doorstep of SDS Capital Group, a private fund sponsor that provides financing for low and moderate-income housing developers. But developers trying to plan projects using traditional federal funding sources are bracing for continued confusion and delays in an already complex and time-consuming process.
“We’re actively looking for land to buy for future development, but at the same time I’m paying very close attention to what’s going on in Washington, D.C.” says Patrick McDowell, chairman and CEO of McDowell Housing Partners, a Miami-based affordable housing developer active in the Southeast and Texas. “We have to be flexible and ready to pivot based on what the impact of some of the policies coming out might be.”
In February, McDowell Housing secured $56 million in construction financing to develop the second phase of its $122 million Southpointe Vista affordable housing project in suburban Miami. The 12-story building will add 208 units to the existing 124-unit, 10-story community that serves residents earning as low as 30 percent of AMI.
Supply Slowing
The shake-up in Washington, D.C., comes at a pivotal time for the industry. Developers this year are expected to complete some 78,000 new affordable units, according to Yardi Matrix, a provider of commercial real estate research and operations software.
That would represent a year-over-year increase of nearly 13 percent and rank as the highest number of annual completions ever since Yardi began tracking the data in 2013.
But the abundance will be short-lived. Affordable housing starts, which for the most part have gradually risen over the past 12 years, fell to 66,000 units in 2024, a year-over-year decline of nearly 29 percent and the lowest number since 2020, reports Yardi, which further notes that deliveries will decline in coming years despite growing demand.
In addition to a higher cost of capital, land, construction and insurance that is creating challenges for both affordable and market-rate developers, declining prices that investors are paying for low-income housing tax credits (LIHTC) are presenting additional difficulties to affordable developers, according to Yardi.
In a LIHTC deal, banks, life insurance companies and other private investors funnel equity to affordable housing developers by buying the tax credits. Then they use the credits to offset taxable income over 10 years. In turn, LIHTC-funded projects must provide housing to people earning 60 percent or less of AMI. There are two LIHTC categories: a 9 percent tax credit, which finances 70 percent of construction; and a 4 percent tax credit, which finances 30 percent of construction.
As of the end of 2024, the three-month average price per credit had dropped to 86 cents, a penny below the price a year earlier, according to Novogradac, a certified public accounting, valuation and consulting firm that specializes in real estate.
More recently, however, it hasn’t been uncommon to see investors offer only 83 cents per credit, says Seth Gellis, president of Community Preservation Partners, a subsidiary of WNC, an Irvine, California-based affordable housing investment pioneer that has amassed an $18.3 billion nationwide portfolio through its LIHTC syndication services.
Some of that decline is part of a long-term trend that is largely a function of supply and demand. Energy tax credits issued as a result of 2022’s Inflation Reduction Act, for example, increased the supply of tax credits in general and ate into the demand for housing tax credits. But the administration’s policy unknowns have also made LIHTC buyers more risk-averse, he adds.
Depending on the housing project’s size and location, each one-cent decline in tax credit prices can reduce funding by between $100,000 and $300,000, Gellis points out. As a result, developers selling 300,000 credits could face as much as a $900,000 financing hole today compared with just a few months ago.
Community Preservation Partners was formed in 2004 and since then has acquired, developed and rehabbed around 15,000 affordable units for families and seniors.
“It’s pretty hard to fill that hole in an environment where other gap sources are under threat, as we’ve seen with the elimination of GRRP funds,” says Gellis. “The uncertainty and volatility in the affordable market is making it hard for investors to credibly underwrite a proposed capital stack.”
LIHTC Still Expanding
The good news is that the LIHTC program continues to receive the same strong bipartisan backing today as when it was launched in the 1980s, according to a consensus of developers. Plus, the industry is hopeful that additional benefits for which it has been lobbying over the past few years will be placed in a tax bill and approved this year, says Emily Cadik, CEO of the Affordable Housing Tax Credit Coalition, an advocacy group for the affordable housing development industry.
Those sought-after benefits include an increase in the LIHTC allocation by 12.5 percent, a provision that was passed in 2018 and expired in 2021, and the creation of more flexibility in private activity bonds, which are issued by states to finance 4 percent LIHTC deals.
Currently, developers must use the bonds to pay for 50 percent of a project, and the affordable housing industry would like to decrease that to at least 30 percent to provide states with more affordable financing capacity.
“Our challenge is not a lack of awareness about the affordable housing crisis or a lack of belief that the housing credit is the right solution,” says Cadik. “There are just several trillion dollars of competing priorities. But I think we have a pretty decent shot at getting something done this year.”
Vouchers Face Uncertain Future
Developers are less clear about the future of direct taxpayer subsidies administered by HUD, most notably project-based and tenant-based voucher programs. Tenant-based vouchers provide rental funds to low-income residents that travel with them, while project-based vouchers are attached to the property and are often paired with LIHTC and other funds to develop properties and to support operations and programs.
In the latest continuing resolution passed this year, Congress increased tenant-based vouchers dedicated to contract renewals by roughly 11 percent over fiscal year 2024 to more than $32 billion, according to the National Low Income Housing Coalition, a nonprofit group based in Washington, D.C., that advocates for more affordable housing for low-income earners. Meanwhile, project-based voucher funding increased 5 percent to about $16.9 billion.
Still, that short-term spending fix only lasts until Sept. 30, the end of fiscal year 2025. “I think vouchers are a place where we’re seeing some concern,” says Head of Habitat. “If that’s disrupted, the risk of defaults becomes very high.”
Project-based vouchers, in particular, provide developers the wherewithal to underwrite a deal with a long-term income stream, says Matthew Franklin, president and CEO of MidPen Housing, a Foster City, California-based affordable housing developer. Such vouchers are especially helpful in delivering housing to very low-income residents and the homeless.
Close to 40 percent of the MidPen Housing’s 9,000-unit portfolio depends on project-based vouchers, which in 2025 will deliver more than $105 million in rental revenues, reports Franklin. MidPen is currently constructing 1,200 affordable units and recently completed the revitalization of Gateway Rising, a 140-unit affordable project in Menlo Park, California.
“Because they’re tied to the universal problem of homelessness, I would be hopeful that we’ll continue to get new project-based voucher authority and funding,” he states. “But if any program were to be threatened, I think that could be the first.”
Construction Pricing Adds to Troubles
Compounding the anxiety that the Trump administration’s actions have put on the affordable housing sector is the turmoil over tariffs in Washington, D.C., which has foiled a potential opportunity to pocket construction savings, say industry sources.
Market-rate apartment starts declined at a more accelerated rate than affordable housing starts in 2024 amid oversupply and soft rents in many markets, Yardi says. As a result, general contractors and subcontractors are looking for business and have become more aggressive when bidding on affordable housing projects, observes McDowell.
Yet new tariffs are likely to wipe out any savings as developers anticipate higher prices on items ranging from steel beams to cabinets and countertops made overseas, say developers.
The same holds true for products made domestically: As the price of imports rises, the thinking goes, U.S. manufacturers will increase their prices to a level that’s only slightly below that of their competitors.
Additionally, the lack of U.S. manufacturers makes it difficult to secure certain materials in a timely manner, they add.
For the time being, developers are confident about moving forward with projects that have secured entitlements, financing and construction pricing. But funding commitments for projects a year out or so are more tenuous, points out Todd Cottle, a principal of C&C Development, an affordable housing developer based in Tustin, California, that is focused on building ground-up projects.
Ideally, C&C Development seeks to partner with cities or other public agencies that are providing land for deals. The motivation driving those transactions is to provide more affordable housing.
“We’re trying to navigate through the next number of months to see how things firm up,” says Cottle. “That involves making sure that we have a patient seller or that we have the ability to hold a development site longer than we normally would.”
— By Joe Gose. This article originally appeared in the March/April issues of Multifamily & Affordable Housing Business.