Naturally Affordable

4 min read

Housing is generally considered affordable if total housing costs do not exceed  30 percent of an individual’s gross income. This is really more of a programmatic definition than a practical one; it is a helpful measure for setting subsidized rents and utility allowances for low-income families that are lucky enough to live in LIHTC or Section 8 housing.

But this definition doesn’t take into account the myriad of other factors that aren’t “technically” regarded as housing costs but effect affordability. Transportation and commuting costs, for example, are not considered in this formula. Yet many families can only find affordability in the suburbs and exurbs or in neighborhoods without easy access to mass transit and, as a result, getting to work makes their housing more expensive.

The subsidized market is only a small part of the affordable housing landscape.

According to data from the CoStar Group, subsidized housing only represents about eight percent of the overall rental market. Although it may be a little more of the total rental stock if you include market rate apartments that accept portable vouchers.

So most low and moderate income renters don’t live in subsidized housing. There simply is not enough supply to meet demand. Many of these renters are in the “workforce housing” income band—they are severely housing- cost- burdened but earn too much to qualify for subsidy.

So where do they all live?

Many of them live in the approximately 5.6 million units of “Naturally Occurring Affordable Housing” or “NOAHs.” The rents in these apartments are affordable to low-income families because the apartments are older and of lower quality. The amenities and features tend to be very limited and the neighborhood characteristics and qualities can be pretty variable. It’s functional housing and it is at risk. Residents living in NOAHs in desirable locations are facing rising rents while those living in NOAHs in impoverished neighborhoods confront deterioration.

As a society and as an industry, we need a concerted strategy to preserve these properties as affordable, but given the private nature of the product we lack the regulatory levers necessary to do so. Society needs to increase the supply of these units but we are not building them because regulatory barriers make it cost prohibitive to build at this price point absent subsidy in most markets.

Fortunately, there is a lot of innovation around the edges of this market that could change this dynamic. For example, Senator Ron Wyden has proposed a workforce housing credit that, if enacted, could be a great resource to preserve and increase these units. Local programs in Massachusetts and New York City are similarly leveraging “lighter” subsidies to encourage building new workforce units.

Meanwhile, mission-oriented private equity acquisition funds operated by Enterprise Community Partners, PNC, Housing Partnership Network, as well as CDFI’s, like CIC, LIF and others, are a promising source of capital active in this space. A recent paper published by the American Enterprise Institute (Economical Rental Housing For Communities that Work) suggests that a combination of cost-effective land use regulation and more efficient design, construction and management practices might be another way of encouraging more naturally affordable housing.

As our industry matures and becomes more competitive, diversification of income sources beyond developer fees and an increased emphasis on cash-flow are on many of our members’ minds. Industry data has found that as an investment opportunity, NOAHs actually compare pretty favorably to higher end rentals. Historically, vacancy is low and rent growth is surprisingly strong. A skilled developer can create many operational efficiencies through property management economies of scale and strategic energy investments.

While we do not want to lose focus on our core mission and business model, it is important that we also expand the preservation and production conversation beyond our highly specialized space.

Thom joined National Housing & Rehabilitation Association (NH&RA) in 2004 and currently serves as its as Executive Vice-President and Executive Director. NH&RA is a national trade association and peer-network for affordable housing and tax credit developers and related professionals including: investors, lenders, public agencies and professional advisers. Thom directs the association’s day-to-day operations including legislative and regulatory advocacy, committee activities, conferences and events, publications, financial management and strategic planning. Thom also serves as the Executive Director of the Tennessee Developers Council, a state-wide trade association for affordable housing developers and professionals active in Tennessee. In 2013 he spearheaded the launch of NH&RA's Preservation through Energy Efficiency Project, a major educational initiative supported by the John D. and Catherine T. MacArthur Foundation. Thom also serves on the Board of Directors for International Center for Appropriate & Sustainable Technology (iCAST) as well as the Advisory Board for its ResourceSmart program, a turn-key, cost-effective, green rehab provider for multifamily affordable and market-rate housing communities and nonprofit facilities. Thom is a frequent speaker at affordable housing, sustainable development and tax credit industry events and has been published in a variety of industry journals including Tax Credit Advisor, Independent Banker, and the Novogradac Journal of Tax Credit Housing. Thom also serves as the Associate Publisher of Tax Credit Advisor, a monthly magazine for tax credit and affordable housing professionals and is an Executive Vice-President at Dworbell Inc., a boutique association management and communications firm in Washington, DC. Thom was previously employed at a national lobbying firm focusing on financial services and technology issues. Prior to moving to Washington, Thom worked in media relations in the New York State Assembly and as a research assistant for New Hampshire Governor Jeanne Shaheen. Thom graduated Magna Cum Laude from Tufts University with a double major in Political Science and History.