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Higher Development Costs Slowing Affordable Housing Construction

Digested from “Affordable Multifamily Supply is Squeezed by Development in the Conventional Market”
Property Management Insider (2/23/15) Kitchens, Bill

The historically high rate of apartment construction is driving up development costs and making it more difficult for affordable housing projects to find funding. Meanwhile, demand for affordable housing is growing, as wage growth is not keeping pace with rising rents.

The U.S. Housing and Urban Development’s Low-Income Housing Tax Credit Program (LIHTC) Program incentivizes affordable housing construction and rehabilitation, but it is negatively affected by an increase in development costs overall. Historically, as total apartment construction increases, development of affordable housing units decreases.

Some states are finding ways to encourage more affordable housing construction in this environment. For instance, the Indiana Housing and Community Development Authority is paying developers a fee based on the number of LIHTC units produced, and the Massachusetts Department of Housing and Community Development has increased the recommended cost limits for LIHTC program development.

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