How To Build Low Income Housing
While the process itself isn’t complicated, there are a number of factors that go into building and developing successful low income housing. These factors include the region of the country you are looking to build a low income housing complex and whether it will be a single family or a multi family building project. The total development costs (TDC) is also a factor that you should consider. As you start working on your plans for new low income housing, keep these aspects in mind.
Region of the country
New York, California, Florida, Missouri, and Texas have the most low income housing projects in the country. The eastern half of the country has considerably more housing projects than the western half with very limited numbers in Idaho, Montana, Wyoming, and South Dakota. The South has the largest share of Low Income Housing Tax Credit (LIHTC) projects at 39 percent and units at 43 percent. The Northeast and Midwest each have approximately 22 percent of the projects and 20 percent of the units.
It’s important to research the projects and units in the area where you plan to build to make sure that you won’t over-saturate the market. You are better off finding an underserved area than building where there are already a sufficient number of units for the low income population.
There are three primary types of locations for low income housing projects and units: central city, suburban, and non-metro. Central city buildings are located in a main city or a city directly connected to a metropolitan area. Suburban buildings are located within a greater metropolitan area but not in the central city itself. Non-metro consists of all locations outside of metropolitan areas, the majority of which are rural.
Most low income housing is situated in “tough” neighborhoods in metropolitan areas, primarily central cities. Many of these neighborhoods suffer from extreme poverty and have substantial development challenges. Over the past three decades, the number of low income housing projects built in central cities has increased. This increase is largely due to the major decline in the primarily rural Farmers Home Administration (FmHA) program. Over the past decade, the number of low income housing projects in Difficult Development Areas (DDA) has remained largely unchanged. These areas have high land, utility, and construction costs in relation to the region’s median gross income. low income housing projects in DDAs are eligible for a 30 percent increase in financing.
It is up to you to determine which type of location makes the most sense for your low income building initiative. While many inner city neighborhoods have the highest needs for low income housing, you shouldn’t feel limited to these options. Explore all potential locations in your region before settling on a place to build.
Single family vs. multi family building project
Three quarters of all low income housing consists of multiple building projects with everything from smaller structures with a limited number of units to large multi-unit structures that can house dozens of families. Typically buildings in central city locations are notably larger than buildings in the suburbs. On average, central city buildings are also more than twice the size of buildings located outside of metropolitan areas. This statistic surprises some people, largely due to the fact that land in urban areas is limited and quite expensive.
It’s also not uncommon to find more variety among low income housing in central cities. In non-metropolitan and suburban areas, you will almost always have the choice of a one or two bedroom unit. In central cities, as much as 20 percent of the low income housing consists of large units with three or more bedrooms.
Think about how you will be able to best serve the given population. Would these people rather have the highest number of units possible for the allotted low income housing space? Or would they benefit from a fewer number of larger units?
Total development costs (TDC)
The total development cost for a project consists of the net equity, first mortgage, and gap financing. There are a number of amenities offered in many low income housing complexes such as community centers and swimming pools, all of which must be factored into the TDC. In some instances, a developer may be able to include these amenities when determining tax credit amount. One reason that many people opt to build multi family low income projects as opposed to single family projects is to cut down on costs. Typically as the size of the project increases, the per-unit cost decreases.
Hope Housing Foundation (HOPE) is a nonprofit corporation headquartered at 7290 Virginia Parkway, Suite 2300 in McKinney, Texas. For the past decade and a half, we have been creating and preserving affordable housing for mid to low income individuals and families throughout the entire state. To learn more about our initiatives and how you can get involved with our organization, give us a call at (214) 842-8075 orContact Us via email.