Clark County needs to develop more than 50,000 units of low-income housing by 2044 to keep up with the state’s projected housing needs.
With high rents and housing prices, the county doesn’t have enough affordable housing for everyone that needs it.
One reader submitted a question to The Columbian’s Clark Asks portal asking why every new residential project seemed to be expensive rather than affordable housing.
The city of Vancouver doesn’t have easily attainable figures on how often expensive versus affordable housing is built, partially because what’s considered expensive or affordable varies depending on a person’s income. However, experts do know that affordable housing is a lot more difficult to build than expensive housing.
The reasons behind that are varied, nuanced and discussed in Michael Wilkerson’s real estate development class at Portland State University over an entire quarter.
The simplest answer to this complicated issue: building affordable housing is often unaffordable.
A lack of financial incentives
One of the major challenges keeping more affordable housing from being built in Clark County is that there are almost no financial incentives for doing so.
The cost of land, building and operating affordable housing is the same as market-rate housing. It can even be more expensive if there’s a specific population being served, such as seniors, that need accommodations built in, said Victor Caesar, chief real estate officer at Vancouver Housing Authority.
Once the housing is built, rents flowing in are supposed to cover the expenses. With construction and development costs rising, it’s difficult to make a profit if rents aren’t high enough to offset the costs of building and maintaining the housing.
Private developers often have investors that help give them equity for a loan, but that can leave them beholden to the investors, who want to make returns on their investment, Caesar said.
“If something goes wrong during construction, you might need to charge a higher rent than you were originally planning,” Caesar said.
With bills to pay, the rents go up — that is, if the housing isn’t using public funds and required to have lower rents.
The financial incentives that do exist to create housing, like Vancouver’s multifamily tax exemption program, typically focus on workforce housing, or around 80 percent of the area median income ($90,200 for a household of four in Clark County), said Wilkerson, also a senior economist with ECONorthwest.
Cities can waive some charges associated with building, like system development charges, that can make building affordable housing more affordable.
Peggy Sheehan, vice president of Prestige Development, which builds affordable homes for seniors, said Prestige Development has never had system development charges waived for its affordable housing projects in the county outside of Vancouver.
Prestige Development’s most recent project, an affordable, 60-unit senior housing project in Battle Ground, is estimated to rack up over a million dollars in city fees, Sheehan said.
“There’s a need for housing in every part of the county,” she said.
Costly strings with public funds
In order to affordably build affordable housing with less money coming in from rents, developers usually need assistance from public funds and waivers of some development costs.
However, public funds are limited, time consuming to acquire and come with strings attached.
Some examples are the Low Income Housing Tax Credit program, state of Washington Housing Trust Fund, the city of Vancouver’s affordable housing fund, and Vancouver and the county’s HOME and Community Development Block Grant programs.
To get these funds, developers must navigate an application process and wait for governments to approve their use of the funds before starting any work on the affordable housing project.
Not everybody can access some of these public funds. For example, only governments and nonprofits are eligible for Washington’s Housing Trust Fund.
There’s also a limited amount of funds to go around.
“For example, take 9 percent (Low Income Housing Tax Credit) credits. If you doubled the amount of 9 percent (Low Income Housing Tax Credit) credits, you’d see double the amount of the affordable housing that was built,” said Wilkerson. “It’s just a resource constraint.”
If a developer is selected to receive public funds, there are extra steps required during the project’s construction and operation.
The use of public funds means that workers building the project must be paid the prevailing wage — a wage rate that’s set by a government agency for publicly funded projects that’s frequently higher than standard wages. This makes building more expensive.
When the project is up and running, developers have to prove they are in compliance with the funds’ conditions. That can include documenting applicants’ income and changes to their financial situation once they’re tenants and inspections for livability of housing with minimal notice.
“It’s just a constant process of recertifying the ongoing eligibility of the property for the subsidy,” said Phil Wuest, chief development officer with Ginn Group. The company is private, but it has a separate nonprofit and often works with community partners to create affordable housing projects in Vancouver.
Vancouver Housing Authority has a whole team dedicated to compliance, with property management staff that take specialized trainings to ensure the project complies with the requirements.
“A lot of even smaller nonprofits and private development companies aren’t really set up with a full-scale compliance team to that caliber,” Caesar said.
Higher costs of construction mean higher prices
One reason why this reader might see more expensive housing in the county is because more land is zoned for single-family homes, which is more expensive than higher-density residential areas, where affordable housing projects can be built.
Building costs are going up for a variety of reasons, including inflation, which makes homes even more expensive in lower-density zoning. But there’s still a market for those homes.
“In Vancouver and Clark County, we just have a lack of housing, so I think anything added to the market is going to get leased up,” Caesar said.
Although affordable housing is needed, it’s still important to have a full spectrum of housing available in the county. Having market-rate housing helps fill in that spectrum.
“We need to be adding a little bit of affordable, a little bit of market-rate housing, a little bit of homeownership, all at the same time to make the system work,” Caesar said.
The state estimates Clark County needs around just as much additional housing units above 80 percent of area median income by 2044 as affordable housing units to keep up with housing needs.
Over time, market-rate housing can evolve into “naturally occurring affordable housing,” which is when the costs of housing go down due to a building’s age or other factors. But that can take decades.
Affordable housing developers, not often driven by any financial incentives, recognize the need to build more affordable housing. There are many affordable housing projects being planned and built in the county right now. But it will take longer than other kinds of development to become operational.
“We still operate in the same sandbox that market-rate developers do,” Caesar said. “We just have a lot more constraints, and it takes us a little longer to bring a deal to fruition … we’re looking for the same land.”
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