If you’re confused about what affordable housing actually is, you’re not alone. The concept has been cleaved in political discourse so much that “affordable housing” has been frequently misinterpreted and obscured by many of the same myths as other social policies intended to assist low-income and vulnerable groups. To put it plainly, the federal government defines affordable housing as any dwelling, whether rented or owned, that costs less than 30 percent of the household’s monthly income.
By that definition, affordable housing is becoming less and less attainable. Due to the underproduction of housing, apartment rents have risen in turn, causing the amount of affordable units to dwindle. Almost five million apartments with rents of $1,000 a month or less have vanished from the market. With fewer and fewer options for affordable housing, the sector has grown into a complicated labyrinth of governmental assistance, arbitrary thresholds, and miles of regulatory red tape. Not only that, the sheer lack of available affordable housing has ramifications throughout the real estate ecosystem. The collective sense of urgency for affordable housing solutions in the United States is so glaring that JLL created its own specialized practice to address it.
Affordable housing isn’t completely alien to the commercial real estate services company. For a long time, JLL’s Valuation Advisory group had lumped their affordable housing valuation services as part of the department’s overall multi-housing practice. But all that changed in April. In order to cater to the overwhelming demand for affordable housing in the U.S. and “provide more consistent valuations and reports,” JLL centralized affordable housing into one property type, and dedicated a specialized team to handle the designation.
What was special about this team was that it had not one, but two leaders.
Partners in prime (real estate)
When Andrea Gillman and Chip Ard, longtime associates under the JLL brand with a combined 35 years of experience between them, stepped into their new roles as co-directors of this new team, they knew they had their work cut out for them. The crisis for affordability was (and still is) in full swing. Between skyrocketing rental rates, inflation encroaching on a record-high, a recession expected just around the corner, and Ard and Gillman only had four analysts working under them.
But Gillman conveyed nothing but giddiness when she recalled her and Ard’s initial excitement when they were first given this opportunity. I quickly got the sense that Gillman finds joy in a challenge as her steadfastness rang through her enthusiasm. “Let’s face it, affordable housing is not considered a sexy property type,” she said. “But, the people who get involved in affordable housing don’t leave it. In fact, they get very deep in it because affordable housing is really a national need. Every single state is facing huge deficits in affordable housing.” The affordable housing crisis isn’t just a problem for every state government, it’s literally a problem for everyone.
Ard, who has been involved in affordable housing valuations since the sector’s inception in the 1980s, sees affordable housing as a central focus in the commercial real estate arena. He told me that the affordable housing portion of the overall commercial real estate market (“it’s primarily multifamily,” he said) in the United States is pretty significant. In their short time as Managing Directors, both Ard and Gillman have seen more and more evidence that the demand for affordable housing is only going to increase.
Ard explained that affordable housing is a critical subject, but not just for residents struggling to make their rent payments. Housing affordability has a ripple effect on all other forms of commercial real estate. “A lot of other commercial real estate trends have a real dependency on affordable housing, right? You can’t put a, you know, a large distribution center that’s going to employ a few thousand people in a location that doesn’t have some type of affordable housing available unless you want those people to drive for hours to get to work.”
Few and far away
High housing costs have an influence on more than just those who can’t afford them. They also have an effect on governments, local businesses, and even wealthy homeowners. But in Ard’s example, droves of workers commuting long distances to work because they can’t afford housing costs in the area ultimately results in one of the biggest pain points in life: traffic. Once upon a time, there was a pervasive belief that building more housing would result in clogged roadways, but the opposite appears to be true. Traffic within a job center gets worse as low-income people are forced out because fewer residents in the area do not equal less traffic. On the other hand, building more affordable housing options in areas in which they work puts a focus on walkability, keeping fewer commuters off the road as they’re able to travel on foot instead.
Traffic congestion is just one example of affordable housing’s reach in real estate and one reason why developers are flocking to the sector. Another seems to be purely altruistic intent… or as altruistic as an ROI can get. “I do think a lot of the developers that we deal with are making profit-driven decisions, at least partially, but they all have some altruistic interest,” said Ard.
Ard told me that despite the tangled economy in the wake of the COVID-19 pandemic, affordable housing is growing pretty significantly. “Right now, everybody wants to get into affordable properties for multiple reasons, whether it’s to satisfy ESG requirements or because of the resiliency of this property type, and so a lot of them are chasing affordable deals. While the desire for affordable housing hasn’t historically been the case, those who want to be in it are trying to figure out how to get in it.”
There’s unmistakable enthusiasm and urgency for affordable housing development, but not just any developer can break into the affordable sector. Affordable housing is a complex sector with a lot of moving parts and a lot of red tape to slash through, so if you’re a new developer with an itch to venture into affordable housing, don’t expect to be able to just waltz right in. It’s a competitive environment where you’re competing for available funding on an application basis, especially in the tax credit program. That’s not even touching on the number of administrative hurdles throughout any of the programs.
Additionally, a lot of the funding sources will require developers to have some experience, but that quickly becomes a Catch-22 if inexperienced developers need experience in affordable housing development yet aren’t allowed to facilitate an affordable housing project to gain that experience. But that’s where the ball gets rolling at JLL. Ard and Gillman’s team come in on the back end after the developer has already drafted plans of what they want to move forward with and funding lined up. It’s up to the team to evaluate the project and determine whether or not it will work.
Sense and creativity
I asked Ard and Gillman to share the most intriguing projects they’ve witnessed in their respective careers. Ard told me a story of visiting a redevelopment site that featured an empty, decrepit Catholic hospital in Colby, Kansas, a couple of years ago. “That would have been a great spook house,” he chuckled. “It really was the scariest place I had ever wandered through.” But the developer that Ard was with was unfazed by the empty halls and stuck to his vision. Per Ard’s description, the developer ended up partnering with the local credit union, and after the town approved the redevelopment of the hospital, the developer put a senior affordable housing development in its place. It turns out the abandoned hospital that Ard was referring to eventually became the St. Thomas Historic Residences, which has supposedly been dubbed “The Oasis” by the locals. “It’s pretty interesting to see how these developers can stand on the curb and have a vision of something that you and I would never think of, you know?”
Gillman, on the other hand, had another story to tell. This one involved an Agrihood, otherwise known as a residential neighborhood built around a farm to facilitate food production, that used low-income housing tax credits. The development ultimately became The Village, an expansion of A New Leaf, a nonprofit organization that provides horticultural-related job training to adults with developmental disabilities. “The Village was not the type of property we ever saw utilizing tax credits before, but it really is a great development. The housing agencies understood that this type of creativity is necessary because the project met a necessary goal,” said Gillman. “So if it takes tax credits to get a development over the finish line, then we’ll figure out how to do that.”
When Ard and Gillman’s branch was first announced, JLL stated that they planned on growing the team to reflect market demand for their valuation services, and apparently the market roared because the team has already doubled in size. JLL’s Affordable Housing team is just barely four months old and now has 8 analysts searching to find projects in key target markets. “We just added an associate in L.A., which is a huge market for us to start getting some affordable movement in,” said Gillman. “And we’ve got a new analyst up in the Northeast.” As of now, Ard and Gillman are looking to get more analysts for their Florida and California counts, two states particularly plagued by affordable housing deficiencies.
The U.S. is undoubtedly in an affordable housing crisis. A house is more than just a building. It’s a place that shelters, nurtures, and protects. A house provides a safe environment for those inside to flourish and aids in both their personal and professional growth. Seeing that JLL, an industry giant that has long positioned itself as the source for strategic investment advice in the property industry, is providing a hand-up to expand affordable housing across the country will hopefully usher in a new wave of other companies doing the very same and getting creative themselves. Ard and Gillman’s division is only in its infancy, but it’s thriving at a blink-and-you-miss-it pace.