New Developments: The Long Road to Recovery
By Thom Amdur
5 min read
“Then it comes to be that the soothing light at the end of your tunnel was just a freight train coming your way.” – James Hetfield, No Leaf Clover
It has been a momentous few months for the affordable housing community. After a bumpy presidential transition, there has been a flurry of positive activity from the Biden administration and 117th Congress. The enactment of American Rescue Plan of 2021 provides much-needed financial support for affordable housing renters at a critical moment. Our champions in Congress have reintroduced the Affordable Housing Credit Improvement Act and Historic Tax Credit Growth and Opportunity Act with expanded scopes that would dramatically enhance and expand the Low Income Housing Tax Credit and the Historic Rehabilitation Tax Credit if enacted. The Biden administration highlighted affordable housing as a critical component of its economic recovery, infrastructure and budget packages and has appointed strong and experienced leaders in critical roles at The Department of Housing & Urban Development and across the federal government that have a deep understanding of community development programs and their impact. Growing availability of the various COVID-19 vaccines give many professionals hope that we will be able to resume traditional approaches to critical business activities, like construction, resident services, operations and maintenance.
Unfortunately, we are still a long way from a return to the “normal” business environment. While we may finally be getting a handle on the public health crisis, there are many significant challenges in the latter half of 2021 that will demand our attention.
Leading the list of challenges is the skyrocketing cost of lumber. Lumber prices have spiked dramatically over the past 12 months and long delivery delays are stymieing affordable and multifamily development at a time when it should be leading the recovery.
Lumber is not the only building material in short-supply – derivative products, like cabinetry and flooring, as well as appliances, HVAC equipment and controls are increasingly hard to come by, sometimes at any price. It is a distressing sign of the state of affairs of our building supply chain that I am increasingly hearing from our members that they are resorting to renting warehouse space to stockpile building supplies for use six to nine months down the road. This run-up in costs is so dramatic and so fast that it is forcing allocating agencies, lenders and investors to underwrite transactions and come up with new gap sources.
While COVID-19 has been a factor, there are deeper root causes of these supply chain issues that can be traced to recent trade policy and structural changes in our own domestic lumber and manufacturing industries – in other words there are not likely to be quick fixes. Federal and state housing policy will have to adjust to address these costs run ups through additional subsidy, updated cost caps, and more nimble underwriting while long-term structural issues are pursued and hopefully addressed.
Operating budgets are also significantly stressed. As we discussed at one of our town halls earlier this year, liability insurance costs continue to rise dramatically. It has not been uncommon for our members to see their premiums double year over year. Many properties have also seen increased utility bills as residents have increased time in their apartments, working, schooling and recreating at home.
The other day, I tried to start our second car and discovered that the battery was dead, the front driver’s side tire was flat, and to add insult to injury, when I opened the glove box to get the lug-nut key the door latch broke. OK, I admit I have an old car, but it has been historically reliable. The issue is that I haven’t driven it in a year and haven’t been doing a whole lot of preventative maintenance over the last 14 months. Heck, I don’t think I have filled the gas tank in 2021! I guess what I’m saying is that many of the concerns I’ve highlighted so far in this column may be leading indicators for other issues we have yet to identify in our portfolios because we have been forced to limit some preventative maintenance and have had limited access to units. There is no telling what we’ll discover when inspections and maintenance routines normalize, but it is clear to me that we are still in for a challenging year ahead. The resources I highlighted at the beginning of this column are needed to address the core lack of affordable housing across the country and address our construction and operational budget challenges. I am actually pretty optimistic about their prospects, but they are by no means guaranteed. Just as Dr. Anthony Fauci has cautioned that we cannot get complacent as COVID cases have begun to plateau, NH&RA members must take the same medicine and vigorously pursue our advocacy goals and continue to focus on developing and sharing creative development, design, finance and operational solutions. While we sure hope we’re seeing the light at the end of the tunnel, we should also be prepared to dodge another oncoming train.
