Just like many other areas, the Lehigh Valley is facing a housing shortage. To help address the problem, state and municipal officials are offering developers incentives to invest in affordable housing. Unfortunately, when it comes to housing development, the terms “affordable,” “attainable,” and “low-income” are used somewhat interchangeably even though they have different policy goals, income targets and financing tools. Learn more about the distinctions of each, as well as affordable housing incentives for developers in the Lehigh Valley.
Defining Affordable Housing Development
To help understand whether to invest in affordable housing, you need to decipher the difference between it and other similar terms.
Affordable housing focuses on the rent charged. Specifically, it is generally defined as annual rent that is less than one-third of the median income for that area, including utilities. Area Median Income (AMI) is the annually-adjusted metric used by HUD to allocate affordable housing, determining the rents you can underwrite and who can live in the affordable housing you build. It is not public housing, although public housing is a source of affordable housing; nor is it “Section 8” or necessarily “low-income housing.”
A subset of affordable housing is low-income housing, which is based on the amount of income earned by a household. Low-income housing targets households earning at or below 60% of AMI, depending on the program. Low-income projects frequently rely on income-targeted subsidies (e.g., vouchers, public housing) or tax credits that require long-term affordability covenants.
Lastly, attainable housing is aimed at middle-income households – people in the local workforce who earn too much to qualify for traditional subsidized programs but still are priced out of market-rate housing. Attainable housing is priced to be attainable for individuals or households earning roughly between 80% and 120% of AMI. It’s often produced through zoning incentives, modest subsidies, smaller lots, or house types, or public-private land deals rather than the deep tax-credit subsidies that underwrite low-income and affordable housing projects.
Incentives to Invest in Affordable Housing Development
When developer clients inquire about investing in affordable housing, they are generally seeking to understand their eligibility for incentive programs. Beyond the goodwill aspect of this investment, the project also has to be financially feasible. In the Lehigh Valley, there are several programs that developers can consider with respect to affordable housing, including low-income housing tax credits, state tax credits, density credits, and opportunity zones. Each of these programs has different requirements and benefits.
Working with an experienced land use and real estate attorney, as well as a tax advisor, can help you identify which incentive(s) program is best for a particular project. It’s critical to note that financing, covenants, investor markets and compliance obligations differ dramatically depending on which program is utilized.
If you have never invested in affordable housing, you should consider the following concepts:
- Determine the long- and short-term goals related to the project, potential resident income bands, and whether those goals align with a particular type of housing or program.
- Map incentive eligibility to the geographic location of the project.
- Based on the project type, program goals and geographic location, identify any public-private partnerships that may facilitate the project.
- Develop a project timeline. Keep in mind, many of these programs have very specific timing deadlines. These deadlines, together with land development deadlines, deserve careful consideration.
- Build a team that includes tax counsel, land development and real estate counsel, a syndicator (if needed) and an accountant. Clear communication amongst this team is critical.
Support for Affordable Housing Development in the Lehigh Valley
Despite a housing shortage, the Lehigh Valley remains a desirable market and is experiencing persistent population growth. Unfortunately, this has caused a 9,000-unit deficit in available homes, driving up prices and rents and making it more difficult for people to affordably call the Lehigh Valley home. Fortunately, local leaders are developing strategies to help combat the housing shortage, which include incentives for affordable housing development and density credits. With these strategies come opportunities for development, creating the potential for more affordable housing projects in the area.
Connect with a member of our Real Estate, Land Use & Development team to discuss and explore your next development project.
