The National Housing Conference’s (NHC) National Advisory Council convened last week for an in-depth discussion on rental housing and the complex challenges facing housers across the country. Multifamily housing is highly multifaceted, with relationships between stakeholders significantly more complicated in the affordable space where layers of financing and partnerships are needed to make investment, ownership, and management possible and sustainable. During the discussion, we discussed the challenges of the impact of climate change on insurance costs and uninsured exposures, the impact of regulatory burden on the need more housing supply, and the cost of tenant protections on affordable housing preservation.
Climate Change Impact
Last week, I wrote about climate change and insurance. One fact stood out above the others. The insured losses from Hurricane Helene will be $6 billion to $11 billion. But the?uninsured flood losses are estimated to be $20 billion to $30 billion, according to CoreLogic. The impact of this and so many other catastrophic weather events is most devastating to those who experience them directly, but they also have a large and lasting impact on future development of affordable housing throughout the country. Insurance companies have been clear that the frequency and severity of triggering events for steep premium increases have risen, putting insurers in a position where providing coverage may be unsustainable in some areas and localities stuck without coverage to protect their homes. While there is widespread agreement on the need to uplift climate resilience and mitigation efforts to prepare for future storms, this requires significant investments of money, time, and labor while we are simultaneously competing with the need for new development. Who pays for these costs is central to the debate.
Looking for a government solution is complicated by the fact that insurance regulations are set at the state level. Further, the two federal programs for insurance that address flooding and terrorism are notoriously unpopular and in the case of the National Flood Insurance Program, insolvent. Of all of the issues discussed, this will perhaps require the most creativity and cross-sector collaboration. Ultimately, better infrastructure planning from the government is crucial to make a material difference for rising insurance costs and devastating climate events. In the meantime, we will have to work together to address the current challenges.
Housing supply and regulatory burden
The cost of regulation is another major consideration for affordable housing developers looking to strike the right balance between necessary costs and onerous and expensive red tape. It’s no secret to those of us in the housing world that supply is the name of the game, and we all are looking for ways to expedite and reduce costs of development to try to meet the needs of the affordable housing crisis. Higher development costs lead to higher rents or deeper subsidies in order to make projects pencil out. And for many mission-driven operators and nonprofit housing organizations, the margin of error is extremely thin. Rising development costs threaten to force smaller developers out of the housing market altogether, reducing diversity and silencing important mission-oriented groups that help to give voices to tenants who often feel a power imbalance with their landlords. Without an ecosystem that allows construction to move at the pace it needs to in order to meet our demand for affordable housing, we will always be chasing our tail.
Yet regulations don’t come from nowhere. Many new regulations are focused on mitigating our environmental impact, which cannot be ignored. And when considering the cost-benefit analysis of what a regulation will do and who will pay for it, we must remember to consider the consequences of inaction. We know that some environmental regulations add significant costs to producing housing, but if a $7,500 bill saves a homeowner $30,000 worth of flood damage two years down the road, it surely was worth the initial cost. However, if a regulation adds more cost to housing that isn’t offset by significant carbon reduction, we cannot allow the bill to fall on the backs of middle- and lower-income families for the sake of immaterial environmental impact.
In thinking of solutions, housers are turning to technology to find new ways to cut construction costs. Modular, prefabricated, and panelized housing are tools that can reduce energy use, time, and construction costs, helping to offset regulatory burdens. It’s also clear that for the sake of affordable housing, some requirements are too burdensome to be borne by already financially stretched developers or low-income consumers. Well intended policies are not immune to the law of unintended consequences, and we should continue to advocate for the exclusion of certain appropriately determined provisions for affordable housing development.
The cost of tenant protections
Tenant protections and potential rent caps and regulations have been a fiercely debated topic that regained traction during the pandemic, and NHC will continue to explore these arguments at our upcoming Solutions for Affordable Housing convening.
Rental costs appear to be leveling out based on recent analysis, with national year-over-year rent growth at -0.7% and staying in the negative territory for over a year. But the harsh truth is that rental costs leveling out does nothing to ease the economic burdens of those who have already been coping with increases of hundreds of dollars since the pandemic.
The pandemic also brought a slew of new tenant protections, largely focused on eviction prevention. Many were incredibly successful in aiding people experiencing hardships and helping them maintain housing. While the eviction moratorium was a necessary move during the first year of the pandemic, the long-term impact of these policies is becoming clearer, particularly where additional guardrails are needed now that we are through the shock of the pandemic.
In a recent Washington Post article, this was put on full display as the DC Council unanimously passed an emergency bill to repeal some pandemic-era eviction protection policies that have led to a crisis of unpaid rent. A tenant deciding not to pay their rent and in turn not being evicted can have a contagious impact on a multifamily property, and this is happening in other states that NHC members operate in as well. In 2020, there was $11 million in unpaid rent owed to affordable housing providers in DC. This year, that amount is $100 million. The result is affordable housing developments being pushed financially to the brink of foreclosure. Without the rental income to maintain the property, basic maintenance and repairs cannot be completed, risking affordable housing falling into disrepair and losing the stock altogether. If we do nothing, housing providers are at risk of being crushed under the weight of their own portfolios, first and foremost the nonprofit and mission-oriented groups already under pressure from development costs. NHC members recognize the need for empathy – landlords must understand the struggles of tenants, and tenants cannot expect to simply not pay their rent forever. Good policy must look to create appropriate guardrails against bad actors without becoming a bad actor itself, impacting everyone on behalf of a few. The decisions we made during the pandemic were good decisions given the context of our situation nationwide, but we now must reexamine our market realities to ensure long term sustainability.
These issues are complicated, but they are not insurmountable. We can strike the right balance to maintain an equilibrium in the housing continuum, and it takes a village to find that balance. In DC, policymakers have altered their eviction delay proceedings, moving from a potential indefinite loop of delay to a one-time extension. Many housing operators have negotiated deals with existing tenants to partially repay their balances and become current to avoid a massive slew of evictions.
There are reasonable ways for us to thread the needle on each of these dichotomies, and NHC plans to continue to lead in finding tangible, impactful and achievable solutions.