Overwhelmed

Low-income seniors experience years-long waiting lists, and the problem is primed to get worse before it gets better.

By Jeff Shaw

There’s one feature of affordable seniors housing that nearly all developers agree on: The nation needs a lot more of it.

Affordable housing for seniors is largely built through the Low-Income Housing Tax Credit (LIHTC) program, an indirect subsidy that allows investors to reduce taxes in exchange for putting their dollars into affordable housing. In this context, “affordable” means government-subsidized housing for residents that meet both age and income restrictions, usually as a percentage of the median income for the area.

However, the LIHTC program simply isn’t large enough to provide the amount of housing needed, according to many of the developers.

Nearly 5 million households headed by persons between age 50 and 65 are “severely burdened,” spending over 50 percent of their income on housing, according to LeadingAge, the nonprofit seniors housing advocacy organization based in Washington, D.C. 

Nearly one-third of households headed by a person over age 65 (9.7 million people) spend more than 30 percent of their income on housing, according to Michael Morey, vice president and director of portfolio management for affordable housing developer Boston Capital.

“Incomes tend to fall as households grow older,” says Morey. “Because of the increasing cost of housing coupled with the number of baby boomers approaching their late 70s, there will be a growing demand for affordable housing for seniors, with more emphasis on housing coupled with services for its tenants.” 

Seniors overburdened by housing costs have less money to spend on food and healthcare, leading to deteriorating health overall. This is what makes the shortfall in affordable seniors housing an urgent issue, says Linda Couch, LeadingAge’s vice president of housing policy.

“Waiting lists are usually two to five years long, and some are nine years, for HUD 202-subsidized units,” says Couch. “In many places you can’t even get on the waiting list for an affordable seniors housing community until the eligibility age of 62 years old. If they’re on the list for five to six years, that isn’t where people thought they’d be as they head into retirement.”

In many cases, units are not built for accessibility, failing to take mobility restrictions into account. That is to say, the units aren’t really built with a senior’s needs in mind.

“Accessible units are needed so the physical space meets residents’ mobility needs,” says Couch. “Without the right physical space, we’re not aging in place, we’re stuck in place.”

Michael Wohl, an affordable housing specialist and partner with Florida-based Coral Rock Development Group, echoes the concern.

“There’s an enormous need for affordable seniors housing — it’s almost a tsunami in terms of demand,” says Wohl. “The tax credit program permits you to build housing for seniors over 55, but without any mandate for any services for those seniors on site. There’s no real opportunity to age in place and provide those types of amenities, like rehab facilities, nursing assistance and other things that you see in market-rate developments.”

Hard costs exacerbate challenge

As if the supply-demand issue weren’t enough, there’s also the challenge of increasing construction and labor costs. This issue is affecting the entire seniors housing industry, and affordable housing is no exception. Even market-rate seniors housing is almost impossible to pencil out at current prices, according to Matt Benwitt, an associate with commercial real estate services firm Lee & Associates — LA North/Ventura Inc.

In light of the rising construction costs and land costs, most developers can only afford to build Class A properties, says Benwitt. “It’s really hard to build a Class B or workforce property.”

Unfortunately, one constant in building affordable seniors housing is that it only gets harder over time, according to Michael Costa, CEO and president of affordable housing developer Highridge Costa Cos.

“I’ve been in this LIHTC business for 25 years, and I wish I would’ve known then what I know today,” says Costa. “I would’ve built twice as much back then.”

“Right now, we are seeing a lack of subsidies to build affordable housing — whether through grants or subordinate debt,” adds Pharrah Jackson, managing director with Greystone. “Today, expenses are outpacing AMI (area median income) growth, which is putting more pressure on the capital stack. With increasing construction costs, materials and labor costs, it is becoming more difficult to build affordable housing. This is putting more pressure on agencies to bring products to the table to help subsidize the financing of affordable housing.”

So what’s the solution? Several affordable housing experts have called for increased government subsidies to make more of these projects financially feasible for developers. Although funding is equally as easy to get now as in recent years, this means that funds aren’t increasing to match demand, according to Leonard Lucas, senior director of originations for Love Funding, a HUD lender with specialties in both affordable and seniors housing. 

“The ability to get funding has not changed but this is in the face of rising demand,” says Lucas. “The boomers exhibit many outward appearances of affluence — nice house, pool, multiple late-model vehicles, vacations, kids in college, et cetera — but do not have the savings/retirement income necessary to support the $5,000 to $10,000 a month for assisted living or memory care.”

LeadingAge is leading a push to increase government funding for affordable seniors housing. The organization even led a rally at the Capitol Building to fund the HUD 202 program for housing very low-income seniors, which went unfunded from 2010 to 2019.

The program defines seniors as persons over age 62. Residents are defined as “very low-income” if they fall below the federal poverty line or 30 percent of AMI.

“As construction on the private side tends to favor projects that make a profit like luxury condos, the government subsidy is critical,” says Couch. “There’s no draw for a developer to get involved in affordable housing on its own.”

“While LIHTC is indexed to inflation —it goes up a little every year — other sources of funding have dried up,” continues Couch. “When the HUD 202 program wasn’t funded, LIHTC had to absorb those needs and others.”

States step in

Not every bit of news is completely dire regarding affordable seniors housing. Several states are creating their own recipes for success that could mean a brighter future for this underserved housing niche.

Joe Eicheldinger, vice president and senior relationship manager for KeyBank Community Development Lending and Investment, praised New York State for its efforts to subsidize construction costs for affordable housing. The state recently implemented a program to invest up to $5 billion in affordable housing, including projects reserved for seniors.

“The state’s current administration is very aware of the growing needs for seniors housing,” says Eicheldinger. “They have put in place programs to provide long-term mortgage financing with construction subsidies to handle the growing need for that type of property.”

Costa of Highridge Costa noted that Arizona saw a spike in affordable housing development when the state removed a variety of requirements — such as energy standards and service offerings — from affordable housing subsidies.

“States have started to put requirements on affordable housing that are even beyond what they ask for market-rate developments. They put on so many ornaments that the Christmas tree falls over,” says Costa. “It increases the cost of affordable housing, whereas if we could cut back on those requirements we could build more housing.” 

Costa is also working on a massive development in Honolulu that the State of Hawaii is helping bring to fruition. Facing a massive affordable housing shortage, the state created a housing trust that receives money from all other new developments, says Costa. 

Named Kulana Hale, the $130 million project will consist of two 13-story affordable housing towers — one for seniors and one for families — along with a variety of other mixed-use functions such as ground-floor retail.

“My administration has been working hard to expand affordable rental housing options across the state for seniors and families who struggle to find homes they can afford,” said Hawaii Gov. David Ige at the groundbreaking ceremony in October. “Kulana Hale is a great example of using state funding to attract private investment in our communities.”

Costa notes that while it’s unusual to build a high-rise for affordable housing, the style will match what already is built throughout Hawaii.

“There are some efficiencies to developing a high-rise. Density is way up, so land costs are way down,” says Costa. “From the governor down through the mayor, they’re really excited about affordable housing programs, so we’re looking to do a lot more in Hawaii. There’s a senior community we’re developing on Maui, and we’re looking at another high-rise opportunity in Honolulu.”

Boston Capital’s Morey noted that there are several states thinking outside the box.

“One of the creative solutions that we’ve seen is with states providing incentives to develop intergenerational housing to serve a unique population of seniors raising their grandchildren,” says Morey. “Another is supportive living facilities, which are an alternative to nursing home care for low-income seniors who qualify for Medicaid.” 

Get in the zone

Opinions vary widely on the usefulness of Opportunity Zones, a program packaged along with President Trump’s Tax Cuts and Jobs Act of 2017 that intends to encourage real estate development in economically depressed areas through tax breaks for developers. Some see great promise for developing affordable seniors housing under the program, while others see a dead end. 

What all agree on, however, is that it’s much too early to know what impact, if any, Opportunity Zones will have on the affordable seniors housing sector.

KeyBank has invested in an Opportunity Zone fund. “The consensus of opinion on Opportunity Zones is they sound good, but the rules are regularly being updated,” says Eicheldinger. “The idea is marvelous. As the rules become more clear, the program could be a force in seniors housing.”

Boston Capital sees the Opportunity Zone program as one piece in a larger puzzle.

“Opportunity Zones will be a factor in the affordable housing sector, but I’m not sure how soon,” says Morey. “The program needs to be leveraged with other resources, such as LIHTC, to maximize its effectiveness. There is certainly a lot of industry buzz around Opportunity Zones, but it’s still not entirely clear how all the funding will fall into place to meet the goals of the program.”

Coral Rock is one of the few developers already working on an affordable seniors housing project in an Opportunity Zone. In partnership with Arena Capital Holdings, the company acquired the 17-story, 208-unit Prospect Towers in the Tampa suburb of Clearwater for $13.5 million.

The new owners plan to implement upgrades that should qualify for Opportunity Zone benefits.

“Because of the tax benefits, it provides a capital infusion that’s less expensive than a normal investment,” says Coral Rock’s Wohl. “In addition, in Florida, for development plans that are considered a community benefit, the state provides a lot of subsidies — reduction in development costs, sales tax waivers on building materials and a partial real estate tax abatement.”

Many believe this hybrid funding and development approach is the future for seniors housing, as LIHTC funding alone has not been enough to keep up with demand. 

For instance, Lee & Associates recently brokered the $8.7 million sale of a 132-unit affordable seniors housing community in Lancaster, California. Not only does the property benefit from LIHTC financing, but it’s also located within an Opportunity Zone and within the city’s Amargosa Creek Master Plan, which envisions a mixed-use, pedestrian-friendly district with retail and medical amenities.

“With the expiration of the 15-year initial operation period, the new buyer is able to sell new LIHTC tax credits,” says Benwitt. “The buyer, Afton Properties, will also benefit from the property’s location in an Opportunity Zone. Recent installation of solar electric and water heating systems by the seller presented an attractive package.”

The idea of having intergenerational and mixed-use functions nearby, plus a confluence of different tax and subsidy incentives, is exactly what the affordable housing of the future looks like, according to Boston Capital’s Morey.

“All levels of government should be working to address the growing need for safe, accessible, affordable housing for our seniors,” says Morey. “Various incentives and support programs need to be proactively enacted today to address future demand. We also need to study and identify trends in the housing market to address the specific needs of our seniors.

“Obviously, the type of demand will vary among different markets. There won’t be a one-size-fits-all solution.”