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Nov 13, 2023 213 likes •395 views

Market-Rate Housing Development Economics 101 OR, Why doesnt the market provide affordable housing? Lorelei Juntunen April 2017 Affordability Spectrum Private tely-fund nded and nd Publicly ly-fund nded and nd / or produced produc

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OR, Why doesn’t the market provide affordable housing?

Lorelei Juntunen April 2017

Market-Rate Housing Development Economics 101

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Federal programs (HOME, CDBG, etc.) General fund Housing bond

Publicly ly-fund nded and nd / or produc uced

Primarily 0 – 30% MFI

Private tely-fund nded and nd produced

Primarily 80% MFI ++ Regulatory Inclusionary zoning Supply-side strategies (i.e., increase allowable density in SF zones) Linkage or impact fees Ince centi tive-base sed Incentive zoning Transfer of Development Rights Development Finance Land Write-Downs Public Private Projects Non-profit- funded projects Community Land Trusts Land Donations LIHTC Property Tax Abatement

Affordability Spectrum

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Part 1: The Theory

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The Concept of Housing Filtering: “Naturally Occurring” Affordable Housing

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Price Equilibrium Price Equilibrium Quantity Quantity Demand Supply Affordability at 60% MFI Subsidy

Affordability Gap

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Price Quantity Demand Supply Affordability at 60% MFI Subsidy Equilibrium Price Equilibrium Quantity

Affordability Gap

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Part II: The Theory Plays Out in Portland

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Housing Permits per New Portland Resident

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Slide or two about affordability for rent and for sale product in PDX

Single Family Affordability (5% Down Payment, 2016)

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Renter Affordability (1 BR)

$1,268 $964 $400 $500 $600 $700 $800 $900 $1,000 $1,100 $1,200 $1,300 $1,400 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Average Monthly Rent

Portland Gresham +106% +70% Increase from 2000 100% MFI 60% MFI

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Part III: Why don’t developers just build more units?

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Project Operating Pro Forma

Apartment Rent

Revenues

Parking Retail

Costs and Expenses Returns

Debt Service Operations Vacancy Property Tax Reserves Net Cash Flow

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Net Cash Flow Distributions (“Waterfall”)

Internal Rate

f Return %

8 12 15 18

Initial Return Tranche Second Return Tranche Third Return Tranche Underwriting Target 60% 25 % 40% 75%

Equity Developer

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Leverage Points: Land and Policy

Public Policy Market Feasibility Capital Land

Development Can Occur

Rent and Construction Cost Fixed Capital is mobile

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Making Housing Affordable

Supportive public policy
Available subsidy programs for below-

market development

Creative partnerships to:
Reduce development costs
Secure available land

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Email: juntunen@econw.com