In this second of a two-part interview, Connect CRE sat down with Aaron Pechota, NRP Group’s Executive Vice President of Development and Head of Affordable Housing. The topics addressed included challenges inherent with development more affordable housing.

The first interview was published in the June 17, 2023 Weekender and is available here.

Connect CRE: How much does NIMBYism and zoning or entitlements play into affordable housing development or renovation?

Aaron Pechota: There are some municipalities that have seen a lot more multifamily development in the past couple of years because of population growth and mass migration. These municipalities understand that economic growth and success mean a need for more housing. The issue is that single-family homes and market-rate rentals are getting built – but not as much workforce and affordable housing.

The zoning and entitlement process is long either way because of community interests and zoning and entitlement. For example, we were just approved for a market-rate apartment development in a suburb outside Charlotte (NC). It took us close to three years to get through zoning and other entitlements. In another example, we have an affordable housing development in McKinney (TX) which took two to three years to get approval. In that case, we didn’t have everyone on board which made it difficult, but we did have a lot of support regionally and from different levels of the city to get it done.

Connect CRE: So the challenges tend to be geographical?

Aaron Pechota: Yes. The urban cores, the center cities are thinking about it. They understand that higher housing density is necessary, and they’re welcoming. Also, because of cost increases in building over the past several years, there are financial gaps in development, so a lot of these cities and regions are putting substantial gap financing towards affordable housing; they’re issuing bonds and becoming partners and investors in deals to make sure the deals are getting done.

That’s in the urban cores, but it’s a mixed bag when you get out into suburban locations. These are areas that are experiencing their first significant amounts of growth, and they’re not quite sure what to do. They’re not quite trying to stop multifamily development, but they’re not quite so supportive.

Connect CRE: How does NRP get around these issues?

Aaron Pechota: There’s a lot of community collaboration in the affordable housing world. Because housing is a highly local situation we work with local developers. We go in and form relationships with the communities, with the policymakers and the key leaders, and we make sure that communication is a two-way street. We listen to what the communities have to say, what their needs are. At the same time, we’re giving them feedback, based on our expertise. We can explain what’s working well and what’s successful in other regions and communities.

But there are still issues. The federal government has done a lot within the past few years to provide resources to increase production of affordable housing, but between entitlements, zoning regulations, and other issues, requirements are added at every level – local, state and federal. The more requirements that are added at each level, the higher the costs.

Taken by themselves, these requirements don’t mean much – they’re well-intentioned. For example, building energy-efficient housing is important, but when you start to layer on these constraints, it becomes unbelievably complex and inefficient. While we’re putting resources into affordable housing at every level, every time you attach strings to it, you’re delaying the process and making it more expensive.

Connect CRE: What could happen if the housing shortage isn’t addressed?

Aaron Pechota: What’s likely to happen in this situation is an increase in displaced families and homelessness. That’s already a reality in some places. In the Northeast and Midwest, there’s a lot of housing stock that’s older. It’s not necessarily good quality, but it’s there. When you get into the Sun Belt areas where there’s massive growth, you don’t have that older stock. You don’t have enough supply to meet demand. You’re starting to see a significant increase in homelessness.

Another issue is that you’re going to see prices escalate, which will put a strain on working families and low-income families across the board. Rents are already escalating significantly and it’s going to continue. I’d be hard pressed to go into any city in the country and not say they have a critical shortage of affordable housing. If we sit back and do nothing, it will just get worse.