Builder: Without new affordability bonds, projects would be ‘few and far between’

The new round of bonds providing $350 million to fund affordable projects couldn’t have come at a better time for developers of affordable housing in Austin. The combination of fierce land costs locally, inflation increasing construction costs on all housing projects by around 14 percent and interest rate increases making borrowing more expensive has made it tougher than ever for affordable projects to “pencil out” as financially viable, said Nick Walsh, an executive at Cleveland-based NRP Group.

NRP’s Bridge at Estancia project in Southeast Austin closed its financing late last year, allowing the 318-unit project to begin construction without the added costs of higher interest rates. While the project received city assistance in the form of $48 million in private activity bonds in addition to $20 million in state tax credits, Walsh said interest rate hikes would make some of the new affordable housing bonds a necessity if he were starting to assemble financing now.

“If we try to do the same transaction today, we wouldn’t be able to, just because of where the market is and what’s happening. We would probably be looking at a need of millions of dollars from the city,” he said. “I’m certainly glad with the passage of the housing bond that more funding is going to be available, because these types of projects are going to be few and far between moving forward. … If I were to start this today, I would be begging for millions of dollars from the city to even try to do something like what this project is.”

Walsh said the city may have to move quickly to deploy the money and avoid further financial uncertainty with land, construction and borrowing costs. To the south, leaders in San Antonio have accelerated their rollout of a $150 million affordable housing package approved in May. Initially planned to last five years, roughly half the funds have been committed to affordable housing projects that were submitted in a recent request for proposals.

While praising Austin leadership for policies like Affordability Unlocked that remove several planning and approval obstacles for low-income housing, Walsh said the often-acknowledged slow pace of city permitting is making his company look toward mixed-income projects that are easier to finance and cover the holding costs that come with the year-plus wait from the city.

“The problem that we have as affordable developers is we’re on strict timelines from the state and by the federal government. We get the bond reservation that comes from the Texas Bond Review Board, and we have a 180-day clock to close by that expiration or the whole project goes away. It blows up,” he said. “Sometimes it’s 18 months to even put a shovel in the ground. That’s challenging because we can’t be waiting 18 months and we need those things under construction now. Those delays could potentially kill deals.”

Related to Austin’s housing difficulties, last week the Housing Authority of the City of Austin approved the release of $90.2 million in housing vouchers that will be distributed as 300 vouchers toward projects intended to house the previously homeless. The vouchers will be split into two groups: 200 for general housing choice projects and 100 related to addressing homelessness in veteran populations.

The project-based vouchers are funded from the U.S. Department of Housing and Urban Development and will allow HACA to designate units for homeless assistance for 20-year terms. The new assistance brings the total number of project-based vouchers managed by HACA to 691.

To move forward with their distribution, HACA will open a request for proposals to qualified developers who can receive up to 50 of the regular vouchers and 25 of the veteran-specific vouchers. Eligible properties will need to demonstrate the capacity to manage housing programs and meet the compliance standards of each of the groups of vouchers.

Rendering courtesy of NRP Group

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