What makes affordable (and green!) housing work?

Bob Simpson, Founder and CEO of the Multifamily Impact Council (MIC), spent 20 years at Fannie Mae running its affordable housing and green finance businesses before starting MIC, a nonprofit that sets impact-investing standards for the multifamily sector. He also writes the Affordable Housing Handbook on Substack, which is well worth your time.

He joined me to talk about why “nobody wants to rent” is a myth, why affordable housing is often a better investment than market-rate, how affordable and green go together, and what local communities can do right now—without waiting for Washington—to make housing easier to build.

0:00—Meet Bob Simpson and the Multifamily Impact Council

Bob built MIC on the premise that affordable multifamily housing can be profitable as an investment, and we don’t need to be shy about it. Ideally, what is good for a community is the same as what is good for investors. (We sure don’t want them investing in stuff that’s bad for a community, like payday loans.)

• MIC’s mission is to make it easier for private and public capital to invest in affordable and sustainable housing. They do this through standards (the first-ever impact investing standards specific to the multifamily asset class, download here), research, and a collaboration platform

• About 600 organizations across the US have now adopted MIC’s standards

• The key: investors in affordable multifamily do well when tenants are stable, pay rent on time, and stay longer—which happens when housing is actually affordable and well-run. You don’t have to choose between doing good and doing well

• Bob: “We don’t care why you care. We just want you to put good long-term capital into affordable housing.” The question of motive, he says, is between you and St. Peter 😇

9:25—“Nobody wants to rent. The American Dream is homeownership”

This bit of received wisdom doesn’t survive contact with reality (or Bob’s patience).

• About 35% of Americans rent. Americans have rented, as Bob puts it, “since the dawn of time” (or at least the dawn of American housing)

• When you hear someone claim that nobody wants to rent: “What I can probably tell you is true is this: that person lives in a home, and they may know a Realtor”

• Renters aren’t a monolith: some rent by choice, some by necessity, and many (like my spouse and me) start off as renters, then buy when circumstances change

• The goal isn’t homeownership for everyone; it’s choice, which requires enough housing to be built for everyone at a variety of prices and sizes

• Bob on clever ideas: “Remember shipping containers? We were going to solve homelessness by creating all these new shipping containers.” Alternatively: “Maybe we just make it easier for people to build a home?”

~16:00—Why LIHTC deals aren’t penciling

LIHTC—the Low Income Housing Tax Credit—is the largest affordable housing program in the US. It works by providing tax credits to investors who finance affordable housing, thereby making it more attractive to private capital. It has been, by most measures, a success. But now even LIHTC deals are struggling to close. Bob describes “a perfect storm”:

• Construction costs have gone up sharply—concrete, wood, steel—and those are fixed costs

• Approval timelines are too long. A two-to-three-year approval process means two to three years of pre-development loan costs, consultant fees, and carrying costs before a shovel hits the ground

• Subsidy levels have remained flat, so developers (facing cost increases) are either building fewer units or stretching subsidy further—both bad outcomes

• The rate environment has normalized. A 10-year Treasury at ~4.5% is historically unremarkable, but many deals were underwritten in a world of 1–2% rates. “Those 300 basis points make a big difference” in what pencils

• The result of all this: it can now cost $500,000 or more per unit to build affordable housing in many markets—a figure that shocks people when compared to their own home’s value

But unlike a home sale, a multifamily building generates steady money over time. And one underappreciated bright spot: once built, affordable housing outperforms market-rate in terms of financial stability: lower turnover, lower vacancy-related costs, and fewer concessions. The income-restricted rents are good for the tenants, too. The problem is getting it built in the first place.

We also talked about evictions. Rental housing always carries the risk of eviction, which is obviously terrible for the tenant and also costly for the landlord: landlords can lose $10,000–$12,000 per eviction, including legal fees, unit turnover, and vacancy. Bob says eviction prevention programs help tenants and landlords alike; a program that costs $3,000 per unit and succeeds 50% of the time still makes financial sense. Conversely, the cascading social costs of eviction—to the evicted family, to the school system, to local services—are enormous and fall on the whole community. “Nobody really wants to evict anyone,” he says.

~33:00—Green housing is just good business

People tend to think “green” and “affordable” are in tension. They’re not, and Bob spent 20 years at Fannie Mae running a green finance program that showed how efficiency makes housing “green” in two ways.

• Sustainability in multifamily comes down to two things: energy and water. Both are measurable, manageable, and directly affect operating costs

• One of the most underrated green interventions is just fixing water leaks. New AI water monitoring systems can detect unusual usage patterns in real time and save both money and the precious resource that is water1

• Renewable energy is efficient energy. Wind and solar are now cheaper per kilowatt hour than nearly everything except natural gas—it’s good news that the economic case and the environmental case point in the same direction

• Resilience matters too: climate-proofing buildings reduces insurance claims, which matters as severe weather events become more frequent and less predictable

• I told Bob that I toured a LIHTC building under construction in Los Alamos with minisplits (for heating and cooling) in every room, which struck me as curious because my friends are spending big bucks to retrofit minisplits into their single-family homes. The developer’s explanation: “It’s just much cheaper” to build minisplits in to begin with

~45:00—What local communities can do to help affordability

Los Alamos is in the middle of updating its comprehensive plan and development code, so I asked Bob what each local community can do to help. He said the good news is that communities don’t have to wait for federal action—they have the tools at home. And his list of state/local action was longer and more practical than I expected:

• Property tax abatements: align the amount of foregone tax revenue with the affordability you want to create, and make sure the restriction lasts long enough to justify the subsidy

• Be smart about available land: identify every scrap of underutilized land; e.g., stack parking in a garage to free up surface parking lots for a more lucrative and productive use: housing development

• Standardize funding applications: developers waste enormous time filling out different forms for different programs that ask for the same basic information. Bob’s analogy: colleges managed to create a common app for 500 universities. Why can’t housing programs do the same? Colorado’s state housing authority has been a leader here

• By-right approval: if a project meets the rules, it should be able to proceed without a lengthy discretionary hearing. This alone removes enormous cost and uncertainty. (I wrote about this more here)

• Shot clock: give approvals a deadline—90 days, say—and if no problems are identified, the project is approved

• Remove duplicative regulations: if it’s in the building code, don’t make developers certify it separately through three additional forms

• Design programs that don’t need technical assistance: if a program requires a separate TA budget to navigate, that’s a sign the program needs to be redesigned

• Don’t claw back: if you create a bad program with a loophole, close the loophole—but don’t retroactively take back money from investors who played by the rules. Punish investors for your mistake and you’ll dry up investment for years

The bottom line of what I learned from Bob: We don’t have an innovation problem when it comes to affordable housing so much as a will problem, compounded by a process problem. The math is tough but manageable, the tools exist, and in most communities, the land is there. What’s missing is the political courage to cut the procedural thicket that makes building unnecessarily costly.

The federal government isn’t going to save us—it’s up to each community to muster up the courage to fix its own housing problems. That’s either discouraging or encouraging, depending on your temperament.

Multifamily housing doesn’t have to be a consolation prize for the unfortunates who can’t get into a single-family home. Most homeowners started as renters at some point. Some people choose to rent forever for many reasons. Multifamily housing (and rental housing generally) is a necessary rung on the housing ladder.

Affordable housing is not a financial sinkhole for communities or investors, either. It can be a smarter investment than other types of housing (luxury apartments, single-family rentals) because tenants stay longer. Investing in the lives of affordable housing tenants not only helps each tenant but also pays off financially for the investor: a win-win.

And finally: multifamily housing of all kinds (from luxury to low-income) is inherently greener housing than single-family. Even if you don’t do anything fancy to it, multifamily housing is environmentally more sound. Whether you want to save the planet, help lower-income families, or just make a buck, investing in multifamily housing pays off.

Bob’s organization, the Multifamily Impact Council, is at multifamilyimpactcouncil.org. Subscribe to his Substack, Affordable Housing Handbook, to learn more about what makes multifamily housing a good investment and how to overcome the challenges of building affordable, resilient, and sustainable housing.