Closing the Housing Affordability Gap

by Alec Gorynski

With the need for affordable housing on the rise, advocates from across our community continue to sound the alarm and call for solutions. Our business community calls for more housing to provide a place for their employees to sleep at night; our government officials recognize the role housing plays in recruiting and retaining people in our state; and human service organizations advocate for safe and stable housing environments so that families can live healthy lives. 

With a chorus of voices calling for action, we wanted to help folks in our community participate in the discussion by clarifying the current challenges and laying out potential solutions. And the biggest challenge, as we see it, is something called the affordability gap. 

The concept of the affordability gap helps us embrace the idea that access to housing for low, moderate, and even middle-income families is not feasible in the free market given some common realities. A universal standard is that a family, regardless of income, should not need to contribute more than 30% of their income toward housing, otherwise they are considered housing cost burdened. 

For example, the amount needed to build a very modest, single-family home is hovering around $300,000. At $76,000 per year, which is 80% of the median family income in Lincoln, a moderate-income family could only afford to borrow around $200,000 to be able to afford the monthly mortgage payment with escrow. This leaves at least a $100,000 gap between what is affordable for this moderate-income family and the cost to build the home.

The cost to develop housing, single family or multifamily, does not permit low-, moderate-, and middle-income families the ability to afford the rent or the mortgage of those homes given that universal standard of 30%. This is not a new problem, yet the problem has gotten significantly worse with rising labor and material costs. 

A higher income certainly means an increased ability to afford, but it is not until a family reaches closer to $100,000 per year, 120% of our median family income, that they can afford a nonconventional mortgage with only 5% downpayment on that $300,000 home.  

A multifamily development creates a similar gap between affordability and cost of construction. For example, a family earning $58,000 per year, or 60% of the median family income in Lincoln, which is a pretty common affordable housing beneficiary, can only afford a monthly total housing cost of $1,300, which includes rent and utilities; and many housing advocates feel this number is still too high given the rising costs of everything else in our life. However, the rent the developer would need to charge to cover operating expenses and their annual loan payments on the building would need to be much higher. 

As noted, both cases above create an affordability gap that leaves thousands of Nebraskans with limited and poor options for housing. In fact, 44% of Nebraska’s low-, moderate-, and middle-income families are housing cost burdened and fall into the affordability gap. The gap needs to be filled with some form of subsidy which can either be directly applied to the cost of development, which ultimately is passed onto the family in the form of an affordable purchase price or rent payment, or is also directly applied to owner, which then is passed onto the developer by paying them what it costs to develop.

This is not altering the market, and rather is funding participation in the housing market, a human need, for families that simply cannot afford to participate. 

Private philanthropy, from individual donors, foundations, and even corporations, has been investing in affordable housing to close this affordability gap. Charitable grants from these private institutions are used to contribute directly to affordable housing in several ways. 

At LCF, we recently awarded a grant to fund a portion of the development costs for a 10-unit housing for refugee families. Our grant was paired with other grants that will reduce the cost of the development so that only an affordable rent is charged to these families. We also awarded a grant to fund down payment assistance for a low-income family, so they can afford the monthly mortgage payment on the home while the developer is able to recoup its full cost into the home.  

These are of course just two examples of many instances of private individuals and institutions funding the housing affordability gap. Generous individuals and organizations are investing in housing development costs across the state. More is likely to come as our community continues to work towards solutions that make housing affordable for all.