Supply Side On a national level affordable housing units have been disappearing at the rate of over 100,000 units a year. As the federal government cuts back on national aid for the development of new affordable housing units, or the continuance of existing affordable units, the burden falls on local and regional private and public entities to continue and support affordable housing programs. On a local level, as the sunset hits the country on the section 8 program and HUD encourages the mark to market program, more and more apartment communities are moving towards market rate transactions. In the last 18 months, Grubb & Ellis|Lewinger Hamilton has analyzed over 3,500 low income to moderate income units in the state for potential purchasers who would renovate these communities with anticipation of leasing them at competitive market rates. 1,316 of these units are located in Albuquerque or Rio Rancho, including a 558 unit community that is currently on the market and has an application in for bond enhancements to preserve affordable housing. A narrow window existed in the 1990s that allowed local communities to take advantage of the downturn in the market and the repossession of apartment communities to the Resolution Trust Corporation. On a national level, the RTC was mandated to offer the property first to local communities and non-profits, then on the open market. Due to limited resources and interest, the City of Albuquerque and local non-profits were only able to purchase approximately 300 units while an additional 2,400 units were fed into the private sector. Although those units that made it into the private sector has some set asides (usually 30%), significant rent increases on the balance of these units allowed these purchasers to resell the properties to national institutions. In the apartment development business, there are thee basic costs that are immutable: 1. The land costs what it costs 2. The construction costs are floating (and rising) 3. The developers profit is the smallest percentage of total costs and represents a fair equity for the risk undertaken in developing the community There is no secret to apartment development and unfortunately the costs associated with development are continuing to outpace rents. As the future continues, there are three basic ways for a community to preserve affordable housing: 1. Local governments - build and subsidize housing. 2. Offer development incentives to developers through land write down, property tax abatements, bond enhancements 3. Via zoning or other laws, legal requirements for development set asides. Demand Side Basic Demographics According to the Census bureau, on average, 2.65 people live in a household, and 35% of the population rents. The attached page demonstrates the current breakdown of income levels for the greater metro area. Market Rents Like many southwestern markets, Albuquerque has witnessed incredible rent growth during the last few years. Albuquerque rent levels before 1990 were below $.50 per square foot. Current rent levels fluctuate between $.72 to $.75 per square foot (while some communities are maintaining rents in the $.85 to $1.05 range). That represents an increase of 150%, and unfortunately, job income levels have not sustained this kind of growth. How much difference can $.10 actually make What does it mean if a local community offers an incentive to a developer that allows a community to rent for $.10 less? According to the attached page, 35,411 people could afford an apartment community that rents for $.75 than $.85 per square foot, and that number doubles as you decrease rents by $.10 per square foot. Basic tenements of thought: 1) Every dollar not spent on affordable housing today will cost more in the future, in fact if one extrapolates the past rent growth, a dollar not spent today will cost you $2.00 in four years. 2) Affordable housing is not a single family vs. multifamily issue. Both housing products are needed, and local studies and demographics should indicate the appropriate ratio. 3) Not all residents want to buy. In fact those at the lowest end of the income scale, even when they are given their down payment for housing, cannot afford basic maintenance and upkeep, and are often back in 5 to 10 years asking for renovation money from the local government to take care of basic infrastructure items (i.e. roof, air conditioner, hot water heater, etc.) 4) Renting is an acceptable practice in Europe and the balance of western civilization (where a majority of the population rents their cars, houses, apartments, and even their TVs). Americas manifest destiny and freedom are intertwined with home ownership, but as the recent changes in the tax code indicate, home ownership is down as a percentage of the total population (across all levels luxury to affordable) 5) Affordable housing is needed and if our community does not deal with it the next closest one will (i.e. Valencia, Sandoval, Torrance and Santa Fe counties). In the long run this encouragement of sprawl costs the owner (in the form of increased auto usage), the community (increased wear and tear on traffic infrastructure, and increased pollution), and the tax payers (who subsidize the costs associated). 6) As rental growth continues to outstrip income growth, more and more individuals will not be able to afford to rent, much less purchase. 7) Incentives offered to new business that have high wage paying jobs is another form of affordable housing subsidy (i.e. the residents earn more, and can afford more). 8) The lack of federal subsidies puts pressure on local governments to offer solutions including: a) Bond enhancements b) Tax Credits c) Property Tax Abatements d) Land costs write downs e) Modification of zoning ordinances to encourage higher densities f) Development of infill sites and the encouragement to live where you work or establish public transit linkages between work and residential areas. 9) Preservation of existing housing is much more affordable than new construction. On average new construction costs $65,000 to $85,000 per unit, while the average apartment community sales for $30,000 to $40,000 per unit.