The Importance of P3 to Affordable Housing Financing
- Feb 03, 2016
Every year, the world’s most influential leaders gather in Switzerland for the World Economic Forum’s annual meeting. Topics range from climate change to technological advances and everything in between in an effort to shape global, regional and industry agendas. Prior to this year’s meeting, Andrew Liveris, chairman, president & CEO of Dow Chemical, penned an open letter, with 78 other CEOs, describing what he believed was the driving force behind the 2016 theme, “The Fourth Industrial Revolution,” and how it must be values-driven to produce solutions to the world’s greatest challenges. Liveris is clear in his vision that the private sector has a key role to play in solving problems and driving progress by meeting demands. However, it is not something that business can do alone.
In the United States, the Low-Income Housing Tax Credit (LIHTC) program is an excellent example of a successfully coordinated and robust public-private partnership structure. This federally supplied and state-administered program works exceptionally well because private investors provide all the equity and bear the financial risk. Grassroots advocacy group Affordable Rental Housing ACTION notes that since its creation, LIHTC has successfully financed 2.7 million quality affordable apartments. The development and preservation of those apartments support 96,000 American jobs annually, producing significant local income as well as local, state and federal tax revenues.
Just as Dow Chemical has a role to play in bringing forward a new age of industrial revolution, so too do all the sectors of the affordable housing industry to enhance this program. The combination of budget constraints, extremely high demand due to more rent-burdened households and the potential for tax reform creates the opportunity to further inject the LIHTC program with values-based innovation. Incorporating proven strategies, such as a service-enriched housing model that supports tenants’ well being through onsite social-service programs, only strengthens the positive outcomes that the program is already producing.
As individual state housing and finance agencies continually strive for increased rental production and improvements in their application processes, the private sector can, and should, provide a platform based on best practices that can collectively achieve those goals. Numerous studies have been conducted to show that rental demand is set to skyrocket in the coming years. In December 2015, the Joint Center for Housing Studies of Harvard University released its Biennial Rental Report under the headline “Record Number of Renter Households Face Severe Affordability Problems,” showing that, nationally, rental vacancies are at their lowest point since 1985 and pointing to a dire lack of quality affordable housing supply. With this information and historical performance, affordable housing is well positioned to leverage its public-private partnership success and advocate for the program’s expansion to meet the demand.