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How Developers Can Tackle Affordable Housing, with Jeff Gelman

Jeffrey H. Gelman, Partner at Saul Ewing, Arnstein & Lehr brings three decades of experience in the real estate industry to his work crafting and structuring deals for developers, investors, lenders, and asset and property managers. His work for his clients often includes legal advice and practical considerations on the nuances of the law and the facts that often determine successful real estate transactions and investments, including how to address complex regulatory, programmatic, and policy issues. He has testified before governmental bodies dozens of times advocating on behalf of the real estate community on important issues and he has led and participated in dozens of task forces, working groups, and conferences seeking solutions to industry challenges.

Recently, we asked Jeffrey to share his perspective on D.C.’s affordable housing problem.

Evergreen Private Finance: Why does D.C. have an affordable housing problem?

Jeffery Gelman: The government—at the federal and local levels—has done really well with the resources they have to create and preserve affordable housing. But there are not enough dedicated resources, and there is a gap in policy.

Almost all affordable housing programs support families that earn 60% of the area median income or less. But that abandons a whole category of residents who earn 60-80% of area median income. They don’t offer a continuum of affordable housing programs to help families move up the economic ladder.

This locks people into a lower income category. If someone earns 57% of the area median income, and they are either up for a promotion at work, or have the opportunity to obtain a higher paying job, they are forced into a terrible position. They can choose better employment and better income, but they would lose their (and their family’s) housing.

There just aren’t good programs for supporting a continuum of housing assistance that would allow individuals and families to improve their economic situation.

EPF: Is this issue entirely due to federal and local policy?

JG: No. Affordable housing is no different than any other social challenge—whether it’s better education, employment opportunities, or healthcare. It’s not unique to D.C., or even to housing. There are many factors in play.

For example, when you look at income levels in D.C., you see we live in a city of mostly rich and poor. And for many people, their incomes have not kept pace with the cost of their major living expenses. So it isn’t necessarily the issue that something has gone wrong in the housing market. The issue may be that incomes have not kept pace or improved for many people.

EPF: There’s a lot of news about the affordable housing issue. Is it getting worse?

JG: The income problem is accelerating. But I don’t know if the housing problem is getting worse. There have always been large numbers of residents in great need. Years and years ago we had “the alley system”, where people were living in alleys. So this isn’t an accelerating problem; it’s a continuing problem.

In fact, we actually have more good, quality affordable housing today than ever. But access to information about the remaining affordable housing problem is accelerating. We now have better data collection, people in need are more vocal, and there are more people focused on the problem. People are waking up to the extent of the problem.

EPF: Some argue that developers just need to build more buildings. Is that true?

JG: Most prevailing views say if the supply of housing increases enough, the costs will come down. But that’s not necessarily true for our city. D.C. has a very small landmass. And with a city like D.C.—that is a highly desired destination for people to live and work—there’s always going to be great demand for what’s available.

So there probably won’t be a time when supply is so great that it materially reduces costs. As we approach that point, developers will spot the trends and slow down development. A developer’s goal is not to create excess supply to decrease prices. Their goal is to create enough housing supply to meet current and projected demand.

But it would be helpful to create a greater range of housing choices so a wider range of families can find what they’re interested in, or in need of, at various price points.

EPF: Affordable housing is often considered the city government’s problem. Why should a member of the private development community consider it “their” problem too

JG: For those who are not in the development community, it’s a misconception that developers make a huge profit on every project. This is far from the truth. There is no assurance that any one project will be a financial success. Instead, developers hope to create an overall portfolio that sustains them.

Now, the success of a project or a portfolio depends on the health of the overall neighborhood or community. So—especially when it comes to repeat development— a developer’s financial success often depends on building within a vibrant community of residents who come from all backgrounds and income levels.

And for most developers, this isn’t all about the money. Most developers take to heart the social objectives behind their work. Their mission is not just to build and make a profit. They take great pride in creating a very good product that supports a living, sustainable neighborhood. Many developers will opt to build a more socially and economically sustainable mixed-income property, rather than maximize their potential income on any one property.

In addition, the government is leading with more requirements that align with an economically diverse value model. No developer will survive in our system very long unless they build sustainable, affordable, high-quality communities. Those developers who do their homework on the overall impact of their projects, and who work patiently with the government, are the ones who are succeeding today.

EPF: What could the government and developers improve to better address our affordable housing problem?

JG: At the government level, I have seen cycles of progress being made, and then that progress regressing, due to the regular change of elected officials and staff. During these transitions, there is often a loss of experience and historical knowledge, and a lack of continuity of tackling issues through evolving and continuously improving programs. I would encourage elected officials to perform good due diligence to select good staff with a considerable amount of experience and long-term institutional knowledge of where things are, where they are going, and how to advance without attempting to reinvent the wheel every few years.

For private developers, I recommend taking the governmental and regulatory side of their work very seriously. You could be a great builder, but that’s only part of the equation. Every major urban center has a lot of regulations and governmental involvement. You need to devote a good part of your company to focus on working through the regulatory process, and to ensure you avoid inadvertent errors that could throw you off for months, or worse. Unless you study the regulatory process, master it, and really commit a lot of energy in your business to working within it, it will wear you down and defeat you.

EPF: Thank you Jeff. Do you have any last thoughts on how we can all solve this problem together?

JG: Right now, we see in the news so much ideological separation between people. But often, when you talk about different issues, you find that both sides want the same outcome—they just disagree on the path to that outcome. For quite a few years I’ve seen ideological discussions undermine reaching compromise and practical solutions. The compromise outcome has to become the rule, and not the exception. We have many problems we can address and resolve, but we all need to be willing to compromise, and work together.