Real estate developers say affordable housing is getting more profitable

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Whether it’s in the for-sale or rental market, the affordable housing crisis is only getting worse. There is simply not enough supply, especially in the apartment market, where developers have said it’s just too expensive to put up quality, low-income housing.

They cite rising costs for land, materials and labor, as well as increasingly restrictive zoning regulations. So-called NIMBYism (an acronym for “not in my backyard”), is also on the rise, with residents fighting affordable housing in their neighborhoods, where home values have soared in the past five years.

“This is a tough time, I think. All of real estate is being challenged by higher interest rates and by higher construction costs, and, by the way, the building department requirements and all the frictions that are making real estate difficult,” said Jonathan Rose, founder and CEO of the Jonathan Rose Companies, a real estate planning, development and investment firm.

“But there’s also a lot of support, and our job is to weave the pathway in between the complexities, the challenges and the opportunities and find the pathway through,” he said.

Developers like Rose just got some more of that support from the recently passed tax and spending bill. It expanded the Low-Income Housing Tax Credit, by increasing the amount of credits available and lowering the financing requirements. Specifically, the legislation permanently increased the 9% credit allocation to states by 12%. Developers sell these credits to investors in order to help finance their projects.

“It’s a big boost for the creation of more affordable housing. In fact, the United States has a shortage of about 10 million units. This won’t solve the whole 10 million unit problem, but it’ll be a big help,” said Rose, adding that he sees a growing opportunity for investors in the space.

Affordable housing advocates applauded the bill’s passage, saying that the LIHTC remains the nation’s most effective tool for building and preserving affordable rental housing.

“This legislation delivers a significant expansion of the credit by incorporating key elements of the Affordable Housing Credit Improvement Act, aimed at boosting the supply of rental homes across urban, rural and tribal communities,” said David Dworkin, president and CEO of the National Housing Conference, in a release.

Dworkin pointed both to the expansion of the credit as well as changes to another tax credit for developers that would make it easier to qualify for the benefit.

“Together, these changes are expected to produce or preserve more than 1 million additional affordable rental homes between 2026 and 2035,” Dworkin said.

There does appear to be strong investor demand in the affordable space, both in new development and renovation. The Jonathan Rose Company recently closed a $660 million impact fund, “dedicated to acquiring, preserving, and enhancing affordable and mixed-income multifamily housing in high-demand urban markets across the United States,” according to a release.

Rose said he is seeing increased interest in housing-related investments from family offices and foundations.

There is, however, a new wrench in the works. The Trump administration has proposed a $27 billion cut in federal rental assistance programs for low-income tenants. That is reportedly already causing some lenders to pull back.

The cut would need to be approved by Congress, and Rose notes that the House has had longstanding bipartisan support for funding affordable housing.

To his point, the Senate Committee on Banking, Housing and Urban Affairs announced Friday it is moving forward on new bipartisan legislation to expand housing supply and address affordability. The package includes removing regulatory barriers to housing development and providing funds for communities that are building more housing that can be used for water and sewer infrastructure. The legislation, however, is aimed more at making for-sale housing more affordable and less at helping build more low-income rental housing.

And even still, the new tax incentives for rentals won’t help NIMBYism, which appears to be rising right along with home values. Even mixed-use buildings, which have a small percentage of units designated as affordable, are seeing pushback from neighbors concerned that any such housing will damage current and future home values.

Even before its expansion, the LIHTC gave developers incentives for more mixed-income buildings, with certain units designated for affordable housing and others at higher price points. Rose said this type of higher-quality, better designed, greener developments benefit owners in the long run by lowering operating and capital costs.

“One of the reasons why communities oppose affordable housing is because a lot of affordable housing – it was built in the ’60s, ’70s and early ’80s – was cheap and ugly, and I wouldn’t want it in my neighborhood either,” said Rose. “We’re deeply committed to creating beautiful buildings.”