The U.S. isn’t alone in its affordable housing crisis. In a study of 200 global cities, 90 percent were found to be unaffordable for living. The average home costs more than three times the average income with shortages of land, lending, labor, and materials fueling the crisis, according to the World Economic Forum.
In recent years, the pandemic and inflation intensified the challenge, which has widened the gap between those who can and can’t afford housing, says architect Mike Krych, partner of Minneapolis-based BKV Group. Exacerbating the problem is a lack of multifamily production to meet demand. Additionally, federal funding hasn’t kept up with growth, says David Block, director of development for Evergreen Real Estate Group, a Chicago-based vertically integrated developer, owner, and manager of affordable housing.
As the need for affordable and workforce housing increases across the country—from big cities to suburbs and rural areas to resort locations—government agencies and authorities, nonprofit organizations, developers and architects seek solutions. The work isn’t for the faint at heart, though, says Jeff Head, vice president of development at Chicago-based The Habitat Company’s Affordable Group, “It takes time and doesn’t offer the same returns as market-rate housing, especially with higher interest rates.”
Paula Munger, CRE®, assistant vice president of industry research and analysis for the National Apartment Association and a member of the Counselors of Real Estate says that even though the process might be cumbersome, there’s reason to start investing in affordable housing now. Munger and colleague Paige Mueller, CRE®, offer a warning to those who don’t see the urgency. In the Counselors of Real Estate’s 2022-2023 Top 10 Issues Affecting Real Estate report, they wrote, “Those cities that don’t work to change the tide and provide lower cost housing may experience ongoing out-migration.”
Government funds aren’t as enticing as they once were, with allotments cut and the climb of construction costs. Multiple sources outside of funding often are needed, Head says. One solution is to work with public and private partners.
As an example, he cites the $200 million multi-phase, multi-use, mixed-income Ogden Commons, which replaced a former public housing project. The partnership brought together The Habitat Company, Sinai Health System, Cinespace Chicago Film Studio, and the Chicago Housing Authority (CHA). Because costs increased, the number of mixed-income housing units was pared to 92 from 110 in the project’s first residential building. The Habitat Company is targeting more than 300 rental units at Ogden Commons where approximately 80 percent of units will be affordable. Financing came from debt and Opportunity Equity Zoning, which allows the sale of appreciated assets with reinvestment of gains and tax breaks.
Head also cites 43 Green where his firm collaborated with P3 Markets, which works in public-private partnerships. The three-building, 300-unit mixed-income, mixed-use development is the first of its scale in the Bronzeville neighborhood in 40 years, with half the units marked as affordable. The project is also a designated Equitable Transit-Oriented Development (eTOD), which played a factor in the city’s decision to provide financial incentives.
In St. Paul, the St. Paul Rondo Community Outreach Library brought together a new ground-level library that doubled the space of a former one and a 147,000-square-foot, five-level building with 98 affordable units, plus garage parking. The mix helped renew a culturally diverse area, says Krych, whose firm designed the structure for developer Legacy Management and Development Corporation. “Working on a larger scale often makes costs more effective,” he says.
In Cleveland, The MetroHealth System and multifamily developer The NRP Group worked together to create Via Sana. The mixed-use property provides the community with 72 affordable residences and a community services hub. Its MetroHealth Opportunity Center will be run by a partnership between Cuyahoga Community and MetroHealth’s Institute for H.O.P.E. offering job training, financial and digital literacy training and access to classes.
To fill funding gaps, Aaron Pechota, Executive Vice President and Head of Affordable Housing at Cleveland-based NRP, says he and colleagues may go back to municipal and state partners and ask what they can do to work together to produce the units needed.
Existing, obsolete buildings offer a promising and sustainable option for housing. BKV Group adapted a vacant brewery into the St. Paul Schmidt Artist Lofts for Dominion Management Services. Once restored, the 247 lofts and 13 townhouses were slated as affordable housing for artists making a minimum household income of 2.5 times the stated rent. Funding came from financial institutions and a diverse group of public stakeholders.
BKV kept costs down by selecting cost-effective materials and repeating floorplans where possible. The group also kept existing infrastructure exposed where applicable, Krych says. The building was leased at full capacity before opening, and adaptation helped neighborhood venues enjoy a resurgence.
Evergreen Real Estate Group has also seen the value of adaptive reuse by converting two hospitals into senior housing in the Chicago area and redeveloping a vacant ice cream factory into affordable rental apartments in Milwaukee. Certain types of buildings lend themselves more easily to residential reuse, Block says. “In general buildings with long, narrow footprints and extensive windows are easier to adapt than buildings with square footprints and fewer windows,” he says.
Workers have been squeezed to afford local housing, but solutions are emerging. In South Haven, Mich., more vacation houses were bought for use as rentals, Head says. Because the community recognized it needed workforce and “missing middle” housing—what falls between market-rate and low-income, the city acquired with federal tax credits a former factory and approved it as a 144-unit, mixed-income building with for-sale and affordable apartments and townhomes. “If financing works, construction will begin,” says Head whose firm will design it.
To add workforce housing and some affordable units, Pechota's firm may ask local officials to partner and invest in the development by providing gap funding or other incentives such as property tax relief. It carefully picks locations, often near TODSs, in high-growth central business districts or where gentrification occurs, or in burgeoning neighborhoods to kickstart economic development.
Modular housing offers a lower cost, faster construction option to address affordability issues. In Chicago, where the city is short 150,000 to 230,000 units, Structured Development, a company specializing in developing urban properties, used Kinexx Modular Construction’s modules for its Harrison Row Townhomes. This helped reduce construction time to 90 days, says Mike Drew, principal of Structured Development. The company is working with the nonprofit Chicago Housing Trust to supply housing to buyers who qualify for one of the 28 units in Phase 2 priced at $245,000 for households earning up to 120% of the Area Median Income (AMI), which is $125,040 for a four-person household.
New York City-based RKTB Architects is taking another approach by designing a housing prototype that lowers construction costs. Its four-story walkups have stairs rather than elevators for healthy living and decreased maintenance. Good insulation and mechanical systems make the homes energy efficient. To avoid an institutional look, glass expanses bring in light and views, says principal Peter Bafitis. To date, the firm has developed multiple sites using the prototype as a template and producing about 400 affordable units. All were commissioned by the nonprofit developer Community Preservation Corporation.
More mixed-use with residential units, grocery stores, healthcare facilities, banks, schools, and job training centers improve quality of life. One example is Body-Lawson Associates’ The Peninsula buildings in New York’s South Bronx neighborhood where 740 affordable units replace a juvenile detention center.
Ordinances and Overlays
A variety of ordinances and overlays can support the cost of affordable units. For example, Chicago’s Affordable Requirements Ordinance (ARO) requires that a percentage of affordable units permit the development of market-rate housing, says Drew. The company’s $250 million The Shops at Big Deahl features 487 residential units on a site previously zoned for manufacturing until the Industrial Corridor Modernization Initiative permitted 760 acres to be re-zoned for mixed-use. Thirty-four of the condos in The Seng building provide affordable housing. Owners’ incomes will be limited to 120 percent of AMI, currently $100,080 for a two-person household.
Instead of changing zoning, Princeton, N.J.-based architect Joshua Zinder prefers to see ordinances relaxed to make more units available through affordable housing overlays that incentivize developers. For example, residential units are built above ground-level retail, service, commercial, and office space. Instead of one large block, clusters of smaller mixed-use units fit these neighborhoods better and help residents feel connected, Zinder says. As an example, Nelson Glass House has six apartments above a commercial space, now with a coffee shop and cigar bar.