July 17, 2024

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Regulatory roadblocks to affordable housing

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Kansas needs more than 50,000 affordable housing units to meet low income and affordable housing demands in the state according to the National Low Income Housing Coalition (NLIHC). In addition 23% of the people who rent in Kansas are in the extremely low income category. That equates to more than 89,000 Kansans. Yet, government regulations and increasing construction costs, some of which are a result of regulatory burdens, is keeping affordable housing from being built.

The Low Income Tax Credit in Kansas

Developers focusing on low income housing need tax credits to make the projects financially viable, due to high construction costs, which are high due to regulations taking up 30% of construction costs.

Without the Low Income Tax Credit the cost to develop low income properties would not be feasible for many developers. However, a joint study by the National Association of Home Builders (NAHB) and the National Multifamily Housing Council (NMHC) found that more than 30% of the cost to build a multi-family property was due to government regulation. The study notes regulations, specifically those for safety, are important, “but regulation that exceeds 30 percent of a project’s development costs raises questions about how thoroughly governments are considering the consequences of their actions. Are they aware of how much regulation currently exists?”

Ironically, Fred Bentley, Director of Rental Housing Allocation with the Kansas Housing Resources Corporation, notes that the federal Low Income Housing Tax Credits (LIHTC) program has some of the lowest regulation requirements.

“We do have some federal requirements that we have to go through. We do try to keep it as free from red tape as possible,” says Bentley.

The LIHTC program was created by Congress through the Tax Act of 1986. The Federal government issues the tax credits to state agencies to award to private developers. Developers generally sell the tax credits to investors to get the money to build. To get the credits developers agree to an income test for tenants to make sure low income renters are occupying the building.

“The investors are primarily big banks and insurance companies, who want these credits in their accounts,” says Bentley.

According to the U.S. Department of Housing and Urban Development (HUD), “in recent years, LIHTC’s have provided funding for approximately one-third of all new multifamily housing units built in the United States.” The IRS gives out a certain amount of tax credits each year based on the state’s population. The Kansas Housing Resources Corporation is tasked with giving out the money for the Federal Government in the state.

The Cost of Regulatory Road Blocks

Developers grapple with is the regulatory burden and competition to build low income housing. Byron Adrian, the CEO of Mennonite Housing in Wichita says the limited availability of Low Income Tax Credits to build low income housing is a barrier to meeting needs.

“There are a lot of applications every year and it’s nationwide,” says Adrian.

Competition is stiff in Kansas. Kansas Housing Resources Corporation awards a tax credit to a developer for every four applications they receive. Bentley says KHRC has begun awarding credits for future commitments for years going forward.

“We are heavily committed into the future, which we have been doing for 20 years and it has worked real well. We are maximizing production, but we are committing next year’s credit and some credit from 2021,” says Bentley.

One of the largest issues Bentley sees as keeps affordable housing going up is skyrocketing construction costs.

“I’ve been doing this for 28 years and the costs have just increased probably 500% since the early 90’s. It’s a big concern. It limits the amount of housing we can develop,” says Bentley.

David Ledford, Executive Vice President of Housing Finance and Regulatory Affairs with the National Association of Home Builders, notes that the rising costs are in part due to redundant regulatory requirements.

“There are time delays from inspections, and some of these inspections can be redundant because they are being required by HUD and some of the requirements under the tax credit end up having redundant inspections and that’s costly,” says Ledford.

Ledford also says a big cost that could be curtailed is the sheer amount of many needed to secure and ready land for development.

“A lot of that is in the development process, just getting to the point where you get the land ready to build on is very expensive. Therefore you are already behind the 8-ball even before you start to build,” says Ledford.

In 2017 a Wichita developer scrapped plans for a low income senior housing in the Riverside area when those living in area protested the new complex would not fit in with the older homes. The Sentinel reached out to Interim Wichita Housing Authority Director Scot Rigby to learn if any other planned projected were cancelled in the city due to protest, but received no response to our request.

The Federal government apportions tax credits based on population in each state. This means the amount of a state gets for tax credits is set on a yearly basis. For 2019 it is $2.62 per person. Kansas is getting just shy of $8 million dollars in tax credits to hand out. Yet with increasing construction cost, the money is not going as far as it has in years past.

“We have to put more and more credit into deals, so we do less and less housing, but at the same time we have more and more demand because they market has shifted toward rental housing,” says Bentley.

Aging Population Growth

The need for affordable housing is growing and much of the reason is due to aging baby boomers. Currently, 43% of extremely low income renters are in the labor force, 25% are disabled and 22% are seniors.

According to the Joint Center Housing Study of Harvard University the areas with the highest rate of households 50+ with cost burdens in Kansas are Dodge City, Garden City and Liberal. One third of households over 50 in those cities are struggle with paying for housing. In Wichita 25% of the households over 50 have cost burdens. This equates to more than 32,000 households in the Wichita metro area. Lawrence is at 28%. The 2018 study also found that the number of aging seniors needing affordable or low income housing are higher in rural areas.

Mennonite Housing is a non-profit that operates 19 low income properties in the Wichita metro area and at Mennonite Housing demand is high. An expansion at a property in Valley Center saw by 28 units added in 2018. At a popular location in Wichita, they simply cannot accommodate all the low income seniors looking for rentals.

“We have over 100 names on the wait list at that location. There is such demand for these properties,” says Byron.

The number of low income seniors in rural environs is expected to grow. In Kansas the areas with the highest share of the population over the age of 65 were rural areas. Compound this with data showing that homeownership rates of those under 65 has significantly decreased since 2000 and the increase in demand for affordable housing is evident.

“The demand is there across the country,” says Byron.

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