The National Association of State and Local Equity Funds’ (NASLEF) 29th Annual Conference drew a great crowd of people passionate about affordable housing at the Sheraton Grand Nashville Downtown in Nashville, Tennessee. The three-day event in September was led by Michelle Foster, NASLEF’s very first executive director. Our own Bobby Bean, managing director, regulatory advisory of FORVIS, sat on the Low-Income Housing Tax Credit (LIHTC) Equity Market panel and covered various topics within the affordable housing industry, including the impact of the recent banking crisis and federal interest rate hikes.
Here are some of our takeaways from the event:
LIHTC Equity Market Panel
- The market can absorb more credits. The market is currently down on supply; the challenge, however, is building more units due to escalation in construction costs and supply chain issues on electrical components. Demand for the credits is high and having them is good for corporations and investors and paramount to helping solve the housing crisis.
- Are we past the regional banking crisis? The past crisis was a wakeup call that prompted liquidity and investment review. There is a good chance that we’ll see a lot of consolidation of smaller banks. The crisis was a bit of a fallout due to the soft landing as the Fed eases up on rate increases. The industry is healthy, but inflation and rising interest rates are still concerns.
- Community Reinvestment Act (CRA) regulators – If the new regulations take place, banks are going to have to hire more people and the high cost will be a burden, especially with smaller banks. CRA builders are walking away from larger deals that would have normally attracted them in the past, due to being full. Banks have been filling their CRA buckets and stopping. Larger institutions still have a desire, but it’s all about telling that story. CRA has no metrics for a bank, so banks can’t determine how much CRA they need. They don’t want to go over their bucket because that becomes the expectation for their future exams.
- There is so much demand for environmental, social, and governance (ESG) compliance that the large institutions need to have a viable ESG program and meet the national standard. LIHTC fits perfectly into the ESG space. Larger institutions are getting a lot of calls about LIHTC to help their ESG. Smaller institutions are hit or miss, depending on their culture, but ESG and LIHTC go hand in hand.
Opportunities for Growth & Impact: Alternative Business Opportunities
- NASLEF syndicators listened to community groups and staff members for new ideas on how to best meet housing needs. Examples included affordable gap financing for rehabs, preservation, emerging developers, workforce housing, and solutions for homelessness.
- Participants were interested in scalable ideas, fit with mission, risk mitigation, reputation impact, staff capacity, whether to service or be a capital provider for new ideas, outsourcing to consultants that understand new lines of business (like lending or new market tax credits), and partnering with like-minded groups.
- Some participants have an innovation office to research ideas and best practices seen around the country before presenting a summary to leadership for approval.
Emerging Insurance Crisis
- We’re in the longest hard market that we’ve seen in a long time. It’s a seller’s market with increased pricing, increased deductibles, and restricted coverage. It really started in 2017 and has recently exploded in the multifamily industry because property general and umbrella insurance is primarily what we deal with. Previously, it had been a long time since the market had been hard. The four main reasons for the hard market are increased losses from catastrophes, fewer insurance carriers, inflation, and investment returns.
- One strategy to help mitigate risk and control your insurance costs is understanding your losses and telling your story to your underwriter.
Construction Innovations for Affordable Housing: Modular Construction
- With modular construction, you can save on labor, negotiate better contracts on supplies, control costs, and control quality of installation. Timeline for construction is much shorter. One negative is that a lot more equity is needed upfront to reserve a spot with the builder as all supplies have to be purchased in advance. Modular builds don’t always make financial sense, but if you have a large project with a uniform design, you can gain a lot of efficiencies with modular that could save you a lot of money in construction costs.
- The focus was on how to make workforce housing (“the missing middle”) numbers work, which is currently tough to do despite large incentives.
- Modular housing was discussed as a way to cut construction costs in the multifamily housing industry.
- There was some discussion on the New Markets Tax Credit (NMTC) Program and Historic Tax Credits (HTCs), but the group consensus was to focus on what they know best (LIHTC) and address the housing crisis that way.
If you have any questions or need assistance, please reach out to a professional at FORVIS.