Housing shortage triggers skyrocketing rents, but construction costs slow affordable housing projects

A housing shortage is fueling skyrocketing housing costs in rural areas and elsewhere. But rising construction costs—especially for lumber and petroleum-based products such as asphalt—make it difficult to build more housing and ease the crunch, and federal laws make it hard to apply pandemic aid to the problem, Kristian Hernandez reports for Stateline.

"For developers of market-rate apartments, [cost increases mean] charging higher rents. For those building rent-restricted projects using tax credits or other government aid, the rising costs could quash an entire project. And the construction slowdown is coming at a time when there is a desperate need to increase the nation’s supply of affordable housing," Hernandez reports. "The stock of low-cost rentals has been shrinking for some time: In 2019, there were 3.9 million fewer units renting for less than $600 than there were in 2011, according to the Joint Center for Housing Studies at Harvard University. The overall rental vacancy rate in the fourth quarter of 2021 was just 5.6%—the lowest figure since the mid-1980s—evidence that there is an extremely tight supply."

Average rents have gone up more than 17% in the past year, and tenants' income hasn't kept pace, and neither have government housing programs, Hernandez reports. About half of the nation's renters are paying more than the recommended limit of 30% of their income in rent, but government rental assistance has remained essentially flat for the past 20 years, according to Ingrid Ellen, director of New York University's Furman Center for Real Estate and Urban Policy.

Though the federal government has allotted billions in aid for the pandemic, its rules bar the money from being used for the Low-Income Housing Tax Credit program. LIHTC is the largest source of affordable housing financing, and has an outsized impact in poverty-stricken rural areas. "The problem is that, under the current rules, recovery funds must be spent by the end of 2026. That means the money can’t be used for long-term loans to help finance LIHTC developments," Hernandez reports. "Some state housing agencies have found a way around the restriction by mixing federal coronavirus aid and other funds ... Some agencies have been able to use recovery funds to cover up to 75% of the cost of a loan with these workarounds, but the process is complicated and adds costs to a project." A bipartisan bill would let states loan pandemic aid for LIHTC sites.