Navigating Affordable Housing Development Challenges

Scott Baumberger: Hello and welcome to the creative viz podcast, where we discuss topics in architecture, development, and visual design. Today, I'm thrilled to have Landen Burcham. He is a development manager with Denton Floyd real estate group in Louisville. Welcome Landen, it's great to see you.

Landen Burcham: Hey, Scott. Good morning. Thanks for having me.

Scott Baumberger: Absolutely. Thank you so much for coming on.

 I understand you do a lot of work in multifamily development. I was intrigued by your background in city planning and how that took you towards the development side of things. Can you walk us through that a little bit?

Landen Burcham: Sure, I have an interest in city planning. I took a course in undergraduate called urban economics. I was studying public policy and economics at the time and started looking into a graduate program and city planning and urban planning. I decided to apply for it, and to do a dual program.

I got a master's in public policy, and a master's in city planning. Learned the ins and outs of land use, the history of housing, housing policy, and some real estate development. I took a few internships and one of those was at a local nonprofit that, was a affordable housing developer.

I started there last year of my planning program, and really enjoyed the process of developing housing. Never really thought that I would be a real estate developer or a practitioner. I always thought that I would go work for a municipality, or HUD more on the policy side of things. But, really fell in love with real estate development. I've been doing that for the past decade.

Scott Baumberger: That's great, thank you. That's super interesting. You mentioned affordable housing, that's such an important topic. Such a dire need for affordable housing throughout the country. Tell us, how's it going? What sort of initiatives do you undertake as you're developing affordable housing?

Landen Burcham: In my world, affordable housing is mostly created through the use of state, federal, local, funding sources that lend themselves to a capital stack to develop the actual housing. Then on the back end, the income is restricted. It's restricted to certain area needed income.

It creates a 30 year period in which the project has to be restricted to those income groups post construction and lease up. There's naturally affordable housing as well. Housing in markets where, rents are just kind of naturally affordable. It might be an older product, older building. For the most part, I deal in new construction or adaptive reuse of structures, and we use those resources to put together funding source to get projects done and then they're restricted to an income group.

Most of that is through the federal program that's allocated by state agencies called the, Low Income Housing Tax Credit Program. It's a very competitive program. There were 4 percent and 9 percent tax credits that are allocated in Kentucky through the Kentucky Housing Corporation.

Every state has their own agency that allocates these credits. The federal government allocates the credits to the states, based on a per capita calculation. I believe that just increased, which is good news. That means more credits are coming to the states for the development of more projects.

The 9% credit is hyper competitive. There's a competitive application that's usually annual. The 4 percent is starting to be more competitive, especially in coastal markets. These credits are awarded to developer to use for a specific project. partner with somebody who needs those tax credits because they have a tax liability.

It could be a bank, insurance company, private investor, syndicator, they purchase the credits and then they give you equity, which you use to put into the project to build the project. It's a pretty complicated finance source and it's very competitive. For the past, you know, since the late eighties, that's really our most affordable housing in the United States has been built.

Kind of gotten away from the federally funded housing projects through HUD. It's more of a viewable public, private, endeavor now. That's how we build most of our affordable housing. On the local side, a lot of municipalities have been funding and creating local affordable housing trust funds.

In Kentucky, I believe there are two largest cities. Those are extremely valuable. Most of the projects that we've been building lately have utilized those funds and they're usually in the form of a grant or a loan, in their low interest or, zero percent interest. Extremely valuable resources to help with tax grant developments or to subsidize just straight affordable housing developments using trust fund monies.

Scott Baumberger: Nice. You have projects in Kentucky and Indiana?

Landen Burcham: That's right.

Scott Baumberger: Do they look very different in terms of different state funding, local and funding trusts.

Landen Burcham: They do. That's one of the challenges of trying to apply a broad approach to affordable housing. Every state has different rules or preferences. Every municipality has different rules and preferences. Kentucky has a very specific type of housing that once built they detail those in their rules called a qualified allocation plan.

That sets kind of the scoring and the rules for year or a two year period. Indiana has their own. Florida has their own. Every state really has their own. We're also looking in Florida, so I'm more familiar with their rules now as well. It's very different from state to state, even from city to city.

Scott Baumberger: Right, then I guess pulling back a little bit as you compare affordable housing development versus your market rate. Do you go in at the outset knowing, okay, this is going to be an affordable project we're pursuing from the get go, or is that something you decide later on?

Landen Burcham: It's usually from the get go. Whenever you're looking for a building or a piece of land or a property it's very intentional and you know that it's going to score a certain way for those resources. So it's usually very intentional when you're looking for a particular affordable, property.

Scott Baumberger: Then as a result do you tend to identify different sites? Okay, these sites lend themselves more to the affordable market even before you move forward, you do it with that in mind?

Landen Burcham: That's right, and occasionally we'll find a site and we'll look at it through both lenses, both scenarios. For the most part, when you're looking for an affordable site it's for that particular purpose. Just fits those parameters outlined by the state.

Scott Baumberger: Absolutely, then there are distinctions in how they're financed but not necessarily how they're built. Do the projects themselves turn out different sizes that quote, unquote, kind of a sweet spot for affordable versus market rate within the same community.

Landen Burcham: Yeah, there are. Just given the finite nature of resources, the tax credits, for a 9 percent project, you're kind of capped just based on the available subsidy. In Kentucky, for example, on a nine percent project you're really only getting enough subsidy to do a maximum of like 90 units or so. For Taxes and bond deal it's much greater. I think in kentucky we've probably had upwards of 300 unit new construction projects, financed with the four percent tax credit bond program. It's not as limited, but just given the nature of the availability of the funding they're not as large as market rate projects.

The end product, the housing itself and the buildings are very comparable to market rate, if not better than some market rate in the same market. Just given the requirements of the state housing finance agency, they have pretty strict design requirements.

Scott Baumberger: Absolutely, that's very interesting. It's a changing landscape. Do you feel like the availability of funds for affordable housing is there? Is there still Significant pipeline to encourage that type of development moving forward?

Landen Burcham: Yeah there is, and there's a lot more advocacy for those resources than when I started a decade ago. It seems like more folks are familiar with these resources and the impact they can have in the community. So there's, organizations and individuals lobbying and advocating for these resources.

I think people realize the need. It's just still not enough resources. I can go on to another component of increasing housing supply and more affordability, by speaking to zoning and land use reform, which is another kind of hot topic. It's another area in which people, housing advocates are pushing policy.

Several states and municipalities are looking at their land development code to look at ways in which they can increase density. Jefferson County in Kentucky for example, I think 75, 80 percent of the land in the county is zoned for single family, which explicitly prohibits development of multifamily housing.

So it limits the available land for development. Certain cities have either totally eradicated their single family zoning requirement or they've increased the availability, or made the process to rezone or upzone easier. On the state level in Florida, they recently passed a bill called the Live Local Act, Senate Bill 102, and it's really interesting.

It allows for land that's being developed to seek the highest density of that municipality. So essentially does away with any zoning restrictions. So if you find a piece of land and you're going to build for multifamily, you can work with the local municipality and get it built without going through the zoning process.

It just automatically has the highest density of that municipality, which is great. 

Scott Baumberger: Affordable isn't necessarily multifamily. Are there affordable single family developments, that you guys are involved with as well?

Landen Burcham: I'm not as involved personally with those but in the past I have been. Especially post 2008, there were quite a bit of government programs, neighborhood revitalization programs available to kind of revitalize the single family market and homeownership.

There were quite a few subdivisions being built early 2010s that I worked on that had an affordability component, either subsidy to develop the infrastructure for the housing and income restrictions for sellers. We don't see as much of that these days. In fact, I don't think our state even has tax credit resources for single family development.

Just on the back end. If you're a homeowner, can homeowner down payment assistance.

Scott Baumberger: You're making a much bigger impact with the multifamily side. Something else that I thought was really interesting. We were talking about a little while ago was that your group has in house architects. I'd be curious to know how that shapes your development process and how you potentially learn lessons from one project to the next.

Landen Burcham: Certainly. I'm fairly new to this role so having an in house design team is certainly much different than the way I've operated for the past nine or ten years. Typically a developer has an architect or design team they like to work with that they don't always work with.

You have a project and you pick a design team, then work through the contract process. It's a very slow process. You know, architects are very busy. They don't always prioritize your project. And that's difficult when you have various deadlines, especially with public resources, you have very hard deadlines to meet with different phases of design document completion.

So having an in house architect it standardizes that process. You really don't have to worry about getting the ball rolling. We have prototypes that we can amend and adjust, modulate, that makes the process much easier. So we have a standard product. That, of course, is going to change based on side characteristics or, code requirements or different municipality preferences.

But they're easy to amend in the field as we move along, or during the pre development process. It makes that part of the development much easier.

Scott Baumberger: Interesting. Is it challenging to innovate within that space? How do you avoid the tendency to just do what we did last time?

Landen Burcham: I don't think just given the competitive nature of the markets we're in. There's really no such thing as being complacent. It seems like every new project we have to add something to enhance the product, amenities or just better materials. You learn lessons as you do these projects.

So I don't think there's room for complacency. I always have to be innovator or you won't be competitive in the market.

Scott Baumberger: The challenges come from outside and that forces you to be creative. Can you tell us what are some of the biggest challenges you're seeing right now? Current market.

Landen Burcham: Yeah, obviously availability of land that's entitled. If you find a good piece of land, a market or property you always have to get it rezoned and that's just time and time can kill deals. It seems like even if you're prepared and you have a local government that's supportive and residents and neighbors who are supportive there's always something that can pose a challenge. Then just the interest rates, financing, getting equity together, we're just finding it challenging to get deals closed, even if you do have a fully entitled deal.

Interest rates are still very high right now, and the supply chain still isn't totally normalized. Construction costs are still very high, materials are high. 

Scott Baumberger: It's challenging for sure. Are there recent projects that you can share with us? Love to hear about what's working well. Give us a quick win! 

Landen Burcham: The biggest win I've had recently was probably my last job. We did a historic adaptive reuse of an old warehouse that utilized 4 percent tax lot of local subsidy and historic tax credits and also vouchers for residents. It's a senior project and every resident received a voucher.

I think it really speaks if you can get project based vouchers. It really enhances the economics of a deal and allows you to rely on less subsidy. It's guaranteed income and it's a win for both the developer and the residents because they all get rental subsidy on other side.

I think that's a great model if municipalities have vouchers available. It's a really good model. And also just the historic tax credit is pretty lucrative right now. It's very difficult, very challenging on the design end. You always run into challenges with historic buildings.

You think you can predict all the issues with a particular structure, and really until you're in the building, you just don't know. So it's challenging, but it also is a really good tool.

Scott Baumberger: For sure. Is that something that your team is looking at moving forward? Adaptive reuse? I know, that's a hot topic for a lot of residential work right now.

Landen Burcham: We don't have too many in the pipeline right now, mostly new construction.

Scott Baumberger: Is it challenging for the affordable grants to sort of get their heads around adaptive reuse? 

Landen Burcham:  Yeah, it's difficult. It's kind of managing some paradoxes because there's different design standards for each that the state housing agency has pretty rigid design standards. Then the National Park Service and the State Historic Preservation Office have their design standards. It's just a matter of trying to trade horses and, you make compromises on both ends. You do have to seek waivers really through both processes because are just not designed to work together.

Scott Baumberger: Awesome. Well Affordable housing is very near and dear, I really appreciate your insights into this really important aspect of development and definitely want to stay tuned.

Thank you, Landen.

Landen Burcham: Thank you for having me.

Scott Baumberger: Absolutely. With that we'll wrap things up. Thank you so much for listening and we'll see you next time