Even before COVID-19, hundreds of thousands of Americans were homeless. Nearly half of renters are spending one-third to half of their income on housing, and close to two-thirds said they couldn’t afford to buy a home, according to recent surveys There’s no disputing we are in the throes of a housing crisis in the U.S.—but I would argue that this crisis is also an opportunity.
As the conversation around affordable housing gets louder and grows in stature, federal and state lawmakers, city officials and housing providers are increasingly finding themselves on the same side of the table. We’ve never seen a moment like this and today, as we battle back from COVID and seek remedies for the inequities it has exposed, we are at an inflection point. Real progress in affordable housing is possible now, but we must attract significantly more public and private investors to be part of the solution.
And to create lasting impact, we must better understand supply problems and why they exist, preserve, and further expand Naturally Occurring Affordable Housing (NOAH) inventory, and rally the growing coterie of stakeholders to work together, push old roadblocks aside and pass beneficial legislation that clears the path to progress.
The pandemic dealt a severe economic blow to low- and mid-income individuals who face a worsening struggle: affordable housing is becoming harder to come by. According to the National Low Income Housing Coalition (NLIHC), there was already a shortage of nearly 7 million affordable and available rental homes in the U.S. for renters with incomes at or below the poverty line prior to COVID-19. There are also threats to NOAH—a particularly important segment of affordable housing—that could make the crisis even worse.
Just before the COVID-19 pandemic hit, the NLIHC calculated that 70 percent of -low-income households in the U.S. spent more than half of their income on rent. Only 37 affordable and available homes existed for every 100 low-income renter households and no single state was deemed to have an adequate supply of available homes for these renters. In California, our home state, the shortage equated to over 960,000 homes in real terms—and this data, importantly, does not account for the homeless.
In fact, California has struggled with this crisis for quite some time. According to Next 10, an independent non-partisan organization, supply has not met demand for years and it has become increasingly difficult to maintain an adequate stock of affordable housing units, forcing some residents to move further away from job centers or out of the state entirely. While less pronounced, these same trends are growing elsewhere in the country, too.
Several headwinds require new perspective and fresh urgency. First, and most obvious, is the glacial rate of new affordable housing construction. For illustration Next 10 reports, San Francisco, Oakland and Los Angeles will not reach their housing goals for very low-income renters until 2030, 2032 and 2040, respectively. For those renters classified as low-income, the need will not be met until 2025, 2072 and 2036. Moderate-income housing goals are also far behind, with San Francisco projected to meet their need in 2045, and Oakland and Los Angeles trailing with estimates of beyond 2500 and 2223, respectively.
Second, current models for new-build target and performance reporting—such as the Regional Housing Needs Assessment (RHNA)—appear to be insufficient and in need of modification. Too often, there are few enforcement mechanisms in the law to compel jurisdictions to meet their housing development projects.
Finally, regulations regarding lot sizes, zoning and parking requirements artificially restrict the amount of housing that can be built. Regulations that have been used historically to maintain segregation can also be used to block new development. Others masquerade as environmental protections; for instance, anyone in California can object to new construction under one such 1970 law, and about 25 percent of affordable housing building costs cover fees for permitting and extraneous oversight and consulting. Projects become mired in years of red-tape and regulatory process requirements, strangling the ability to make the math work for developers and solve problems quickly.
A legislative arc for NOAH
Hidden, but paramount, in this mix is NOAH—the multifamily rental properties that are affordable without public subsidy. These are the largest existing supply of affordable housing—and they too are at high risk, according to McKinsey & Company.
NOAH renters are predominately low-income people of color, and the NOAH properties are often more sensitive to economic shocks. Buildings are typically older and more likely to be redeveloped when sold. As cities recover from the pandemic, NOAH is a critical part of maintaining—and growing—supply and ensuring equity in affordable housing. Yet, the vast majority of cities lack substantial NOAH-preservation strategies. To support renters and owners and incentivize developers to acquire and preserve NOAH, we are encouraging cities to consider a set of interventions.
Incentivizing owners to convert existing NOAH properties to long-term and deed-restricted affordable housing is an important way for existing owners to create more permanent affordable housing. Simplifying the approval process and cost for conversion can create a road map for both cities and owners to follow. At Mosser, we continue to work with stakeholders toward a state-wide approach that can overstep limitations and bureaucracies in local jurisdictions to pave the way for future NOAH conversion opportunities.
We have about 65 of history investing in underserved communities and NOAH properties and a track record of significantly improving the often neglected housing stock and injecting vibrancy, security and a sense of home into neighborhoods that have lacked this prior to our involvement. Even with decades of direct experience working within the confines of this conversion process in California, we find it’s extremely difficult¾if not impossible¾to achieve, given the current administrative and legislative options available. Change is critical.
As a proven steward of NOAH properties, we are working toward significantly expanding its positive impact on NOAH tenants, properties and communities in California. Since 2012, with the start of Mosser Capital, we have invested over $600n million of institutional capital into NOAH and intend to invest another $500 million over the next several years.
Foundation for opportunity
Today represents a unique opportunity for policymakers and regulators, developers, landlords and investors to come together and take meaningful action towards ending this crisis. New consensus around NOAH preservation will create more opportunities for affordable housing development, while properly reengineering land-use restrictions, preventative permitting processes, requirements like California’s Environmental Quality Act (CEQA) and other hurdles that make it difficult to develop new affordable housing and preserve the inventory that already exists.
By thoughtfully supporting rent-regulated housing and those that build it, we can support workforce housing providers—and attract new investors to a massive, unmet market demand—who take steps every day to convert market-rate buildings and build new long-term, non-covenant restricted places to live. Ultimately, this is the only way to keep the vital promise of robust, sustainable affordable housing—a foundational requirement for opportunity—in our communities.
Jim Farris serves as CEO of Mosser Capital, an investor and operator of value-add and rent-stabilized urban workforce housing in California.