Understanding housing need

Overview of housing needs

An important foundation for setting affordable-housing-related goals and choosing a development model is to understand the unmet housing needs in a community or housing market. Housing needs can take a variety of forms. Some factors that you might want to consider include:

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Income levels and price points. As discussed in Chapter 1: Introduction to Affordable Housing Development, developers interested in improving housing affordability typically target specific income ranges they plan to serve with their development (generally expressed as a percentage of Area Median Income). Understanding the income ranges for which there are a lack of affordable housing options in the community can help you determine what development models may be feasible and what sale prices and rents will be affordable.

Some populations may have housing needs related to factors other than income. There may be a shortage of accessible housing for people with disabilities or older adults; a need for housing that has specific services associated with it or that provides other forms of support; or a lack of temporary or transitional housing for homeless individuals and families. There are often substantial gaps by race and ethnicity in housing outcomes such as homeownership rates, so there may be needs tied to closing these gaps. Other populations that may be emphasized include veterans, families with children, individuals with a criminal legal history, intergenerational households, and agricultural workers. Each of these needs may be specific to particular populations but are part of the broader community need for housing and offer significant opportunities to advance racial and social equity in the community.

Supply and demand mismatches. In healthy housing markets there is an alignment between housing supply and demand. If population growth is occurring faster than new housing units are being built, this shortage of units will cause home prices and rents to increase. In markets with a stable or declining population, the challenge may be more about aligning the replacement or rehabilitation rate for older housing that no longer provides a good living environment. In either case, this relationship is a key driver of local housing needs.

Housing type. Some communities have a need for housing with larger or smaller numbers of bedrooms to better align with the demographics in the market. There may also be community priorities related to specific structure types. For example, many communities have recognized a lack of small multifamily properties and may have an identified need related to this. Lastly, there may be a need related to the availability of units for rent or sale that could impact development models and priorities.

Housing quality and resilience. Some communities and markets may have housing health, safety, and quality challenges. The presence of lead paint or other toxins, for example, can be significant in neighborhoods with older housing stock. Overcrowding may be a concern in communities with high housing costs relative to incomes. Some communities may also have needs related to their housing stock’s resilience to weather and natural disasters.

Location. Any of the above challenges can also vary by location within the market. Some needs may be more significant in specific neighborhoods rather than being city- or market-wide needs. For example, there may be a shortage of affordable rental housing in neighborhoods with predominantly owner-occupied homes.

Systemic factors and constraints. Finally, there may be housing needs related to local housing development capacity, land availability, water access, or other systemic factors. These may be important factors to understand about the market context you are working in, and there may be opportunities to address these needs through non-development activities.

Housing needs assessment

To better understand the housing needs in the market your organization plans to serve, consider utilizing a local housing needs assessment. Housing needs assessments document the unmet housing needs in a housing market, community, or neighborhood. This is typically accomplished by comparing the overall housing needs to the current supply of housing to determine what portion of the needs are unmet. In addition, local stakeholder and resident input can be used to identify needs not captured in the data. In the absence of a dedicated housing needs assessment, there may be other local plans and studies that document unmet housing needs in the community or region.

Housing needs assessments do not serve the same function as market studies (discussed in Chapter 6: Market Feasibility), though the two are often confused. A market study is an in-depth analysis of the market feasibility and demand for a specific type of development and potentially in a specific location within the community. A market study is used to build an understanding of how your project site will fit into the community and what needs will be met. A housing needs assessment is a more global and comprehensive assessment of the housing needs and conditions in the community but is not focused on assessing the feasibility of a specific development or type of housing.

Fortunately, housing needs assessments are not generally something you, as a developer, will need to do yourself. Many local governments, nonprofits, and philanthropies publish their own housing needs assessments that likely contain much of the information your organization will need. They may not always be titled a “housing needs assessment” and can be published in a variety of forms such as independent reports, dashboards, websites, and presentations. They may also be components of broader planning efforts such as comprehensive, fair housing, or small area plans. This information can help provide a good sense of the perspectives and priorities of key community stakeholders in addressing local housing needs. This will help you understand how best to present your development to these audiences when applying for funding or submitting your development plans for public review.

If there is not a housing needs assessment for the community in which you plan to develop, you may consider reaching out to these groups to ask if one may be conducted. They may even be eligible for funding to do so, such as through CHFA or the Colorado Department of Local Affairs’ Planning Grant Program for local governments.

Because housing needs assessments vary in their level of stakeholder engagement, you may consider supplementing the information you find by talking with community stakeholders to hear a wider range of perspectives. See Chapter 4: Engaging the Community for more information.

Once you have collected enough information about local housing needs, you can present information relevant to your organization’s mission and development intentions to your broader staff and board. If there are key populations or issues that your organization serves that are not emphasized in the documents you find, you can try contacting these organizations to see if they may have supplementary data to share that can fill in these gaps. Or, you may choose to supplement this information yourself.

Creating a development model

Once you understand local housing needs and your own capacity and priorities for development, you will have a good basis for deciding what types of housing your organization should consider developing. What needs do you plan to address? For whom? With what kind of building? In what location? There are many decisions to make to determine your development model, and it will be useful to consider the following criteria:

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• How does each option relate to the housing needs in your community?

• Which will advance your organizational goals? Which are consistent with your values and direction?

• What financial implications might each option have for your organization and for the residents who will be living in your development?

• What additional zoning and regulatory burdens might each option create?

• Will each option be valued by the broader community or will some be more likely to face opposition or lack of support?

• Do you have experience with any of these options that you could build on? If not, do you feel you could develop the needed expertise to pursue this option?

• Do you know of specific location, site, or relationship opportunities that could favor one option over another?

The sections below outline key decisions to make when defining your development model. The Development Model Self-assessment provides a structured way to think through the options and considerations.

Housing affordability

Your development model should account for your housing affordability goals. Although you may need to make some adjustments based on the results of your feasibility assessments, having targeted income ranges or AMI levels will ensure you remain aligned with your goals and help you make other development model decisions.

Affordable housing for your target income ranges can be achieved using a variety of approaches described throughout this guide, but your targeting will influence the tenure and help you determine if you will need a subsidy to achieve and maintain affordability.

Tenure

Will your development be rented to tenants or sold to homebuyers?

For-sale. When considering a development that will be sold to homebuyers, the relationship between the expected sale price and the cost of development will be a critical feasibility concern. Loan eligibility requirements for the targeted population and the estimated time the house will be on the market before sale should also be considered. Housing and financial counseling services, including first-time homebuyer training, may also be warranted if your organization is targeting first-time homebuyers. CHFA partners with local HUD-approved housing counseling agencies across the state to provide homebuyer education. In addition, CHFA partners with a network of more than 100 Participating Lenders to provide 30-year fixed-rate mortgage loans and down payment assistance to eligible borrowers. Consider reaching out to CHFA for more information if desired.

Rental. For a development that will be rented, the financial feasibility will depend on the cost of development, rent levels, taxes, maintenance, and other costs associated with operating the development. See Chapter 7: Financial Feasibility for more information. You will likely consider zoning with rental developments, since multifamily rental buildings can be higher density and/or taller than other residential structures, which may impact the areas they can be built in or the related approval process. See Chapter 5: Predevelopment for more information.

Alternative tenure models

In addition to renting and owning, which are the most common forms of tenure in the U.S., there are other models to consider, including those intended to maintain affordability in perpetuity.

Lease-to-own (also called rent-to-own) models are arrangements that provide the option for a tenant to purchase the unit they are living in at the end of a specified period. A portion of the rent payment is typically applied toward the purchase so that when the renter is ready to purchase the home, the price is more affordable, and they may have had time to accumulate more savings. This creates the possibility for more affordable homeownership. The tenant and landlord will have both a lease and a separate agreement that details the terms of the lease-to-own component.

There are some challenges that you should be aware of with a lease-to-own model. Rents for lease-to-own units are often higher than comparable units to account for the fact that a portion of the payment is lowering the future purchase price. If the tenant does not ultimately purchase the property, the model does not provide the intended outcome. Also, contracts can sometimes take advantage of tenants. For example, instead of an option to buy at the end of the lease period, the agreement may impose a requirement to buy, which could put the tenant in a challenging financial position. However, when designed to work well for both landlords and tenants, lease-to-own models can be beneficial structures for both parties. This model has also been used to rehabilitate properties in some areas.

Community land trusts (CLTs) are affordable homeownership models that enable affordability by removing the cost of the land from the purchase price of a home. The home is owned by the household who lives there. The land, however, is owned and managed by a community-based nonprofit organization called a community land trust and is leased to the homeowner, typically with a 99-year renewable lease. This arrangement allows the homeowner to have many benefits of homeownership without some of the costs. For example, they are free to make modifications and accumulate home equity. In return for this arrangement, the homeowner typically agrees to a maximum appreciation rate when selling the house to ensure that it remains affordable to the next buyer. In addition to developers forming CLTs, existing CLTs may partner with developers for construction or improvement on owned or soon-to-be-acquired land.

CLTs are one of the most common examples of shared-equity models where equity in a real estate project is shared between parties, which are usually a homeowner and another entity. This results in an arrangement that involves some aspects of both owning and renting a property. There are other types of shared-equity models that go beyond the scope of this guide but are worth researching further if this is a direction your organization is interested in. Housing cooperatives and resident-owned communities relevant for those living in manufactured housing are both examples. The Grounded Solutions Network has published guides and other resources related to these models.

Co-housing models are designed to foster communal living. In these models, each household has their own private unit but shares communal areas such as kitchens, dining spaces, and recreation spaces with other households. These models are common in other countries and are gaining traction in the U.S. These are especially common in housing designed to be multigenerational or for older adults, since they create communal living situations that increase the opportunities for social interactions. Co-housing models may be particularly attractive for adaptive re-use sites since some buildings may already have common spaces.

Existing site use

New construction. Acquisition and development of undeveloped land provides developers flexibility on what can be built, but also means they must pay the cost to build from the ground up. New construction developments may benefit from being built using current materials, building codes, and design standards that may have higher, improved performance compared to those used historically.

Redevelopment is new construction that occurs on a site that has an existing building or other designated use. Redevelopment of a site requires accounting for the existing use and associated infrastructure.

Rehabilitation (also known as rehab or preservation) focuses on improving an existing housing development to create or maintain affordable housing. This eliminates the cost to develop the building from the ground up as infrastructure is already in place and the entitlement process is already complete. While preservation is often less expensive than building new, rehabilitation of existing buildings can still be a costly endeavor. The developer must pay to acquire and improve the building, which may entail hidden costs to bring property features up to current code. Paying for the removal of asbestos or lead paint, for example, or dealing with radon, major building systems, or improving accessibility can all add substantially to the cost of rehabilitation, but the building’s sustainability and energy efficiency can be improved. It is therefore critical that developers interested in rehabilitation thoroughly investigate the characteristics and needs of a potential site to avoid costs they may not be equipped to cover.

Adaptative reuse is similar to rehabilitation in that a developer is modifying an existing building but focuses on adapting the building’s use from one to another. For example, a hotel or office building could be converted into affordable housing. The building may be in good condition or in need of rehabilitation at the same time, but in most cases substantial interior modifications and creativity in design will be needed to accommodate the new use. Adaptive reuse can also be an important historical preservation approach to enable buildings that are not serving their historical function to remain useful to the community.

Like rehabilitation, adaptive reuse may involve a range of hidden costs and concerns, including issues resulting from the original use. For example, in addition to asbestos and lead paint removal, a building that originally served industrial purposes may have old commercial waste that needs to be cleaned up. Fortunately, there are public resources available to help with the redevelopment of Brownfield sites like this. See Chapter 5: Predevelopment for more information. Other issues that may be relevant for adaptive reuse projects include zoning and building codes, the differences in parking requirements for housing compared to the original use, and, once all factors are considered, whether demolition and new construction might be more cost-effective.

Accessory Dwelling Units (ADUs) are a form of affordable housing in which a smaller, independent residential unit is developed on the same lot as an existing single family home. You may also see these referred to as “granny flats” or “accessory apartments.” The structures for ADUs can be attached, detached, or integrated into the primary building. ADUs can be both a form of affordable housing for the person renting the ADU and a source of secondary income for the owner of the lot. ADUs may be relatively inexpensive to develop if the existing home is already well-suited for the purpose, or may be costly additions that involve substantial new construction and rehabilitation activities. In addition, financing, zoning, building codes, and parking requirements are considerations when adding ADUs on existing lots. Some communities have revised their codes to promote the use of ADUs.

Structure type

Single family structures are those designed for only a single family or household to occupy the building. Many single family homes are developed to be sold, but they are also an important source of rental housing in many communities. Single family structures can be attached to other adjacent buildings or detached. They can be developed individually or together with other housing as part of a multi-building development.

Tiny homes are a type of single family home that is less than 400 square feet that seeks to reduce construction and operating costs and environmental impacts through building a smaller structure. Tiny homes can be developed individually but are often developed in groups as a tiny home community. Tiny homes are often subject to different treatment in local zoning and building codes than single family homes that are larger than 400 square feet. Some communities have explicit or effective bans on these types of homes. Tiny homes that are prefabricated offsite may be regulated differently than those built onsite. See Chapter 8: Project Construction for more information.

Multifamily structures have multiple housing units within the same building and on the same lot. Multifamily units can be renter-occupied (apartments) or owner-occupied (condominiums) and can range from small (two- to four-unit buildings) to large (50 or more units). Multifamily buildings create more housing units on a single site and typically result in greater density compared to single family construction. Multifamily buildings larger than four units will likely require different types of financing than single family and one- to four-unit multifamily buildings.

Building use

Single-use residential buildings are devoted solely to housing. A single family home or an apartment building are examples. These are the most straightforward approaches for developing affordable housing. There are fewer actors and public service provisions required. The feasibility assessment and financing will likely be more straightforward than if the building has other uses, as those uses will also generally need some assessment of feasibility to secure funding.

Mixed-use buildings or developments combine housing and other uses within the same building or site. A common example is a residential building with retail or other commercial spaces on the ground floor so that businesses are accessible from the street. Mixed-use developments involve a range of factors that go beyond the scope of this guide relating to commercial real estate development. Many communities have mixed-use development manuals, such as the Colorado Springs Mixed Use Development Design Manual, which may be helpful if this is a model you are considering.

Building your development team

Once you have defined your development model, it is time to build your development team. Your team consists of the partners and consultants you will need to work with to complete your development. You, as the developer, will play a pivotal role in bringing these stakeholders together, ensuring they have what they need to complete their work and are consulting one another when needed, and holding them accountable for delivering a high-quality product within the time and budget constraints.

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When choosing what roles you intend to hire or partner for and which organizations to work with, consider your own capacity and the gaps you seek to fill through partnership (discussed in Chapter 2: Organizational Considerations and in the Development Capacity Self-assessment). What skills, knowledge, and resources will be required for this development that your organization currently lacks that you could fill through partnership?

Also ensure that you are working with consultants, contractors, and partners who are capable, have any required certifications or licenses, and will deliver what you need. If you have established relationships with partners you trust, this is a great asset. If you need to hire organizations you have not worked with, this guide includes some considerations for interviewing and vetting new partners. See Selection Considerations for Key Contractors for more information.

In addition, choosing a partner or consultant can be one way to advance diversity, equity, and inclusion (DEI) in your development. This could include considering the race, ethnicity, gender, disability status, and other diversity-relevant dimensions of an organization’s owners, leaders, and workforce, as well as their own commitments to DEI-related work.

An additional consideration that may be required by certain funding sources is a preference for hiring local firms and workers (discussed in more detail in Chapter 4: Engaging the Community). Even when local hiring is not required, it may be important to your organization and may help to build community buy-in. It may even result in a better project if the people contributing to your development see themselves as having a more direct stake because it impacts the community where they live. Regardless of preferences, it is important that you hire qualified partners and consultants who can help you complete and/or operate your development. Specialized skillsets, technology, or experience may not always be available from local organizations, so you may need to compromise on preferences.

Development partners

Developing affordable housing often means combining resources and experience from multiple organizations. In some cases, a partner may play a direct role in the development process by informing decisions, completing tasks, and bringing unique experience or capacity to the process. In others, a partner may contribute a resource such as land to enable greater affordability, but not be directly involved in the development.

Many types of organizations can be development partners, including:

Other developers may be interested in forming a development partnership. This could include nonprofit developers who have aligned development goals or for-profit developers who want to take advantage of the unique strengths and funding eligibility that nonprofit organizations bring. Depending on the nature of the partnership, this may result in the partner having an ownership stake in the development.

Public housing authorities have a stake in creating more affordable housing and often have land and/or existing housing stock that may need to be rehabilitated or redeveloped. However, they may lack the capacity to take on development themselves. Public housing authorities also bring unique financial tools to the partnership with their access to federal funding programs and tax-exempt status. They may also administer local housing programs such as vouchers that could be relevant to your development. See Chapter 7: Financial Feasibility for more information.

Local anchor institutions such as healthcare organizations and universities have large economic potential with substantial assets and revenue they can leverage. They also have a stake in creating more affordable housing in the communities in which they operate to serve their patients, students, employees, and other stakeholders. These institutions may not have housing development experience and need to partner with a housing developer to accomplish their goals.

School districts also tend to have a stake in housing outcomes, both for students and employees. They may have land or other financial resources they may be willing to provide.

Employers have an interest in affordable housing given its role in helping to attract and retain workers. By partnering with them, you may identify opportunities to leverage land, funding, and/or community support.

Community champions include people in the community who represent and/or advocate for the needs of the populations you intend to serve. These partners can act as intermediaries between the community, city government, foundations, and other community organizations, both to help you understand how best to address the community’s needs with your development and to help the community understand the value of your development. They may have specific recommendations for physical design features, community amenities, resident programming, or other aspects of your development. Note that in many cases, the other development partners listed above can also act as community champions. This guide’s case study of The Bridge Shelter highlights the importance and value of community champions in development.

In addition to the development partners that you choose, you will work in lockstep with staff from local government agencies and should consider them to be partners in your work. They can help you understand the process and requirements your development will need to meet to get approval for construction, occupation, and operation. Most local governments recognize the need for more affordable housing options in their community and will want to help you succeed.

Core contractor team

Core contractors are those who will play a substantial role in your development and have a significant impact on its success. Although it is important to ensure that all the contractors you are working with are capable, trustworthy, and able to deliver what you need, it is particularly critical for these groups.

Your general contractor (GC) is responsible for providing the equipment, materials, labor, and other services necessary to complete the construction of your project. Your GC will also play a key role during the predevelopment phase of your work in helping you estimate costs, determine implementation strategies for your designs, and understand the implications of your design and material choices. An initial contact list of potential GCs could be built from local chapters of trade and/or professional associations, such as the Associated General Contractors of America (AG­C). Contacting developers of successful similar projects in the area to understand their experiences working with their contractors may also be helpful. It is critical that selected general contractors have experience in managing a development of a similar scope. If this is not possible, you could consider contracting with another GC who has such experience to act as a consultant to your primary GC. This was the approach taken in the construction of The Tabor Grand Hotel Apartments profiled in this guide.

Service providers are also key partners to begin discussions with during predevelopment. Service providers help residents with a wide range of support needs, such as healthcare, financial counseling, and education services for children. Services can take many forms, including occasional activities open to all residents to more intensive services targeted to specific needs. If you are considering providing onsite services, it will be helpful to understand the space and privacy requirements that service providers have for delivering their services effectively. For example, some services may require a space for storing equipment, larger spaces for group activities, spaces with design features for children, or areas where privacy can be assured. Understanding these needs can help you design spaces to accommodate them. Service providers may already have funding to provide the services and merely require the space and connection to residents or may require compensation for their service. The case study of The Bridge Shelter in this guide provides a good example of how service provision can be considered in development.

Once your development is complete, you will need to hire a property management company unless you plan to have an in-house property manager. Property managers can help you plan for marketing and leasing up your development. In exchange for certain funding, properties must comply with requirements that may include rent and income restrictions, health and safety measures, and other regulations and policies established by the funding program. If your property will be monitored for compliance, it may be helpful to ensure your property manager has experience providing the type of compliance monitoring required. Because you will be working with your property manager for many years and they will be a key partner in managing the success of your development, it is critical to select a manager in which you have confidence. Property managers may charge a flat fee or a fixed percentage of the rents collected.

Other consultant services

Consultants may be brought into your development process to serve a variety of functions, as their expertise may be needed at any point in the process.

Real estate agents and brokers can be helpful in identifying land or existing properties. They can help you sell affordable for-sale homes or rental developments, should you decide to sell your property at some point. They can also ensure that transactions are properly reported to state and local agencies. They are good to build relationships with even before you have a fully developed concept, as they may help you identify new sites that become available.

Grant writers and affordable housing finance consultants can help you identify and apply for financing opportunities related to affordable housing, including helping you understand whether your project is likely to be competitive for funding sources. Because many financing programs have lengthy application processes and requirements, this type of consultant may be helpful in freeing up your staff to focus on other aspects of your development.

Architecture and design services, including landscape architects, will be necessary to help you design your development and translate your needs, the conditions of the site, and the local building and land use regulations into a plan that your general contractor can use to make your development a reality. An architect can also be involved throughout construction to help address issues that arise and ensure that there is alignment between design and construction.

A market analyst will be an important consultant to help you understand the demand for your development model in a given location through production of a market study, discussed in more detail in Chapter 6: Market Feasibility.

Construction or engineering consultants can help you to solve for challenges that your architect or construction team may not have adequate knowledge or experience to handle. This type of contractor can also provide a second opinion in decision making during the process. The Tabor Grand Hotel Apartments case study highlights an example of this role.

Lawyers and legal consultants can be helpful contractors at a variety of points in the development process. It will be helpful to have a legal professional review and provide advice on the wide range of legal contracts, agreements, and other documents that you will encounter.

A local land use expert, such as someone trained as a city and regional planner, can help you understand and navigate the entitlements process (discussed more in Chapter 5: Predevelopment). Those with prior experience working in the jurisdiction will be particularly helpful since every jurisdiction can have their own approach and process with respect to land-use regulation.

A green building consultant will recommend approaches and practices to improve the economic efficiency and health and environmental impacts of your development. These consultants should be engaged throughout the process, from considering the site and designing the building, to advising on construction site management, and eventually building operations and resident education. For more information, see the Green Building and Sustainability Brief.

A marketing consultant may be helpful in leasing up your development by creating marketing materials and advertising your development once it has been completed.