Surging Economies Present Affordability Challenges, Opportunities

Affordable housing woes have been simmering on the West Coast for decades, and certain markets have recently boiled over. Typically, the regions with the fastest-growing economies tend to have the tightest housing inventories, a combination that can have tragic consequences for low-income families and seniors. Booming technology sectors continue to drive demand up and price renters out of their homes all while affordable housing landlords and government programs struggle to keep pace, particularly in the San Francisco Bay Area and Pacific Northwest.

At CPP, we look for properties that are at risk of converting to market, so that we can purchase them, invest in them and preserve the affordability within the community. This strategy applies to the private for-profit developers as well as nonprofit groups and municipal housing authorities.

San Jose is a good example. In the heart of Silicon Valley, the city has grown to be one of the most populated in the U.S. The metro area has seen the largest annual increase in rent (9.3 percent from 2015 to 2016), according to RealtyTrac’s 2016 Rental Affordability Analysis. With this surge, private owners cannot afford not to convert to market rates – especially if the tax incentives they receive for keeping the rents affordable are due to expire within the next five to 10 years.

We recently purchased a 144-unit senior community there, our seventh in the Bay Area. With $5.5 million invested in the rehabilitation, the deal will protect affordability there for 55 more years by securing favorable financing terms and tax credits through local, state and federal programs. Often times, these incentives can be bundled and sold to a diverse array of investors from Wall Street investment banks to technology giants, who use them to offset their own tax liabilities.  As a subsidiary of the well-capitalized WNC & Associates, we are able to provide surety of closing to interested sellers, offsetting some of the concerns investors may have during this period of tax policy uncertainty.

With maintenance costs on the rise and tax-payer patience on the slide, many public sector property owners are looking to unload some of their assets in favor of private sector solutions such as ours. We found this to be the case in Portland, where Home Forward sold us Plaza Townhomes in a $16.5 million transaction that included a rehabilitation investment of about $50,000 per unit.

Portland has seen economic trends similar to the Bay Area and we’d like to scale our strategy further into the Pacific Northwest in the coming year to protect affordability and keep seniors comfortably housed.