As fears of COVID-19 began spreading across the United States in early 2020, many state and local governments made the uneasy choice they felt necessary to keep citizens safe – shut everything non-essential down. Home was the safest place for people to be. These stay at home orders, though, brought renewed focus on the need for affordable rental housing options for low- and moderate-income families.

“This is something I don’t think anyone could have predicted and it’s hard to say if it could have happened at a more pivotal moment in the affordable rental housing industry,” said Gayle Ellis, Manager of Origination for PNC’s Tax Credit Solutions team. “Certainly, this pandemic presents the immediate challenge of keeping people in their homes, but it more broadly exacerbates a capacity issue that already existed.”

Lessons from the Past

Pandemic aside, affordable rental housing is in high demand, but often in short supply. According to a recent report titled The Gap: A Shortage of Affordable Rental Homes by the National Low-Income Housing Coalition, the U.S. has a shortfall of 7 million rental homes for low-income renters. There is no state with enough capacity to fulfill its demand, the report says. Continuing to build affordable housing and multi-family housing units is of critical importance. Despite the challenges of shutdowns and stay-at-home orders, PNC is working to keep the pipeline of new affordable housing projects moving.

“There were a lot of fears about what the COVID-19 pandemic would do to progress on affordable housing projects, but we haven’t nearly experienced that in the way we thought we might,” Ellis said. “The industry has shown tremendous resilience much like it has for the last 35 years.”

For instance, Ashlie Johnson, the director of Asset Management in PNC’s Tax Credit Solutions Group, said the Great Recession of the late 2000s posed similar, and in some ways more severe, impacts to the affordable rental housing market. During that time, work on affordable housing developments nearly stopped with the loss of capital investments from major contributors. Eventually, the market picked back up, the investor pool in affordable housing grew and the industry stabilized.

In its early stages, the global pandemic has presented many of the same challenges of past periods of economic uncertainty. Fears that tenants would be unable to pay rent necessary to cover the costs of the properties they call home posed a threat to existing affordable housing communities.  Work stoppages, uncertain supply and pricing for building materials and loss of potential investors threatened to bring new projects to a halt. And while some of these fears have been realized over the last 12 months, the industry continues to push forward thanks to the commitment of stakeholders and COVID-19 relief legislation.

Addressing Unique Challenges

Each period of economic uncertainty poses its own unique challenges. One immediate fear in response to COVID-19 was how to keep construction moving despite shutdown orders that halted commercial projects in most states. In many instances, though, state and municipal governments declared affordable housing “essential construction,” allowing work to continue and, in some cases, attracting additional workers from projects or industries on hold. Additionally, many state-level agencies adapted quickly to the realities of remote work, which meant limited delays to tax credit allocations for affordable housing projects.

State governments weren’t the only ones to take action. The Internal Revenue Service relaxed deadlines for time sensitive actions such as placed-in-service and income-compliance certifications – in addition to its much-publicized change in filing deadlines for taxpayers.  These changes provided relief from concerns of completing construction in accordance with the program’s timelines in addition to moving residents into newly constructed apartment units amidst the pandemic.

Those regulatory adjustments along with restrictions on the types of work that could be performed meant that developers could reorganize and, as necessary, prioritize cash flow to keep affordable housing projects on track.  With interest rates at all-time lows, the opportunity to refinance also allowed developers to free up cash previously tied up in loan agreements. PNC-backed projects alone experienced more than 50 refinance agreements between August and year-end 2020.

This was an opportunity for our clients to keep working and employ a workforce. Just as important, it was necessary work to bring housing options on-line that will have an impact far beyond when the pandemic has subsided.
— Ashlie Johnson, director of Asset Management, PNC’s Tax Credit Administration Group

Keeping the Lights On

The proof of that impact has borne out in the number of new projects completed and under way in the last year. More than 125 PNC-funded affordable housing projects are currently under construction or have finished construction since March of 2020. That continues the bank’s commitment as one of the largest investors and largest affordable housing syndicators per the National Multifamily Housing Council’s 2021 Annual Survey.[1]

Additionally, progress has been made in keeping those affordable housing units that are already on-line open, available and accessible for tenants. With little dip from subsidized family housing, rent receipts in unsubsidized properties have been better than expected – especially in senior housing where fixed income has remained steady.  Operating reserves and cash flow distribution deferments have, in many cases, helped general partners cover losses from lost rent. Federal stimulus assistance has, for now, eased pre-shutdown concerns about keeping renters in their homes.

General partners and property managers have also worked to limit the pandemic’s spread in affordable housing communities through adjustments like virtual inspections and enhanced cleaning and sanitation efforts. Those changes could carry forward after the pandemic subsides.

“Despite what has been and continues to be a tremendously challenging time for our communities, there have also been signs of encouragement,” Johnson said. “There’s still a lot of work to do and a lot that is unknown, but we’re ready to continue facing this challenge head-on.”