In the spring of 2023, Richmond declared a housing crisis caused by a dearth of inventory and rising prices for residents.
In the months since that declaration, the city has found itself – due to a variety of factors – in what is arguably a boom of affordable housing proposals that could bring thousands of new income-based units to the area.
Local and out-of-town players alike have filed plans for at least 2,800 units for lower-income renters in recent months. That’s after years of market-rate apartment developments being far and away the most common type of new multifamily construction in the city.
One example of the trend is Nashville-based developer Elmington’s proposal to build 266 low income units in Swansboro and 400 in Northside.
Another national developer, Standard Communities, is planning 236 income-restricted rental townhomes in South Richmond near the Chippenham Parkway-Midlothian Turnpike interchange, and an additional 124 units are in the works about a mile away.
Locally based Lynx Ventures is looking to round out its phased New Manchester Flats development with a 127-unit building for renters with lower incomes, while also planning 400 affordable units elsewhere in South Richmond and finishing work on 200 such units near Chippenham Hospital.
Though the boom has been happening mostly in the city limits, Henrico County is also in on the trend, most notably via Spy Rock Real Estate and Crescent Development’s planned redevelopment of the 32-acre Glenwood Farms complex into around 1,000 low-income units. That’s in addition to the nearly 350 units that Spy Rock and Crescent, two developers that have historically built market-rate apartments, are planning in South Richmond.
Several factors are driving this influx of affordable developments, but chief among them might be the very thing that’s been slowing down market-rate projects: high interest rates.
Many developers began to hit pause on their plans for market-rate apartment buildings in the Richmond area in the face of rising interest rates over the past two years.
Dale Wittie spent 25 years at Virginia Housing, the public-private entity that administers the state’s low-income housing tax credits program. He recently joined John B. Levy & Co., a local investment banking firm that historically has helped market-rate developers finance their deals. Wittie will lead an affordable housing financing department the company recently created in response to the uptick in developer interest in building housing for people with lower incomes.
Wittie said he’s seen this sort of cycle happen in the past. When interest rates go up and stall out market-rate projects, deals for income-restricted units tend to pick up.
“There is sort of an ebb and flow. There are times when affordable deals are very much viable and there are times when they aren’t as viable,” Wittie said.
The complexity of arranging the capital stack for an income-based development might also drive away some would-be developers, further impeding momentum in the sector.
While standard apartment developers rely on more traditional financing setups involving equity and bank loans, income-restricted housing developments typically have a much wider variety of funding sources, which make such projects more viable in higher interest rate environments.
Developers of lower-income projects can get funding from city, state and federal programs in the form of grants, housing vouchers and tax credits, along with philanthropic donations. Those sources, sometimes called “soft funding,” often don’t need to be paid back, or if they do, they have favorable financing terms.
Piecing together these capital stacks is a complicated process, one that requires specific know-how.
Lynx Ventures has been building mixed-income housing developments since its founding in 2018. Firm principal John Gregory, whose father Rick developed such projects in the area for decades, said it’s hard to do income-restricted housing projects, and their complexity keeps some players out of the game.
“These deals sometimes end up with 10 or more sources of financing in a capital stack, and each of those pieces has its own process, application steps and timing cycle,” Gregory said.
“People might start looking at this, get into it, and then realize the complexity and how long it takes and drop off.”
New tools and grants have helped reduce the hesitancy around piecing together affordable deals, according to Jovan Burton, executive director of the Partnership for Housing Affordability, a regional affordable housing research and policy organization.
Burton said he’s noticed more interest in affordable housing from for-profit, market-rate developers.
“They’re saying, ‘Yeah, we can. We can be a part of this solution. And we can still stick to our business model and not stray too far from that, while also providing a critical resource for the community,’” Burton said. “There’s just more tools available than there were, say, five years ago that make it much more incentivizing for developers to get involved.”
Rising public awareness of the region’s need for more affordable housing is also helping drive the uptick.
JD Bondurant, Virginia Housing’s managing director of Rental Housing Programs, said when he started working in affordable housing nearly 20 years ago, it garnered much less of public attention than it does now.
“Those of us that have been in the affordable housing arena have known there’s been a shortage for quite some time,” Bondurant said. “Recently it’s become much more in the spotlight. Honestly, you hear it spoken about by (political) candidates now, which, when I started 19 years ago, is something you really did not hear.”
That political willpower is starting to materialize into actual initiatives.
Earlier this year, Henrico County hatched a plan to address its housing affordability problems by using $60 million in tax revenue from data centers in the county to establish a new housing trust fund. It’ll be used to create grants and other incentives available to developers who build affordable housing.
Last year the City of Richmond received $14 million in federal funding to help address its housing crisis, and, most critically, it rolled out a new grant program that allows developers to save on real estate taxes.
The city’s new Affordable Housing Performance Grant program is a tool that allows developers to pay taxes for up to 30 years only on the assessed value of the land on which they build a new affordable housing development. The amount they pay on the assessed value of the residential improvements is rebated to them via a grant administered by the city’s Economic Development Authority.
For example, Lynx’s recently built Noon Hioaks complex in the Southside is eligible for the performance grant program. The 218-unit complex has a total assessed value of $25.7 million, including $24.5 million for the improvements and $1.2 million for the land.
As part the grant program, Lynx would pay the full $259,000 tax bill for 2025 that takes into account the land and improvements, and then will later receive a rebate check through the EDA for around $244,900 – the amount of the tax bill that comes from the assessed value of the apartment buildings.
That means Lynx would pay only about $14,100 in real estate taxes on the property and illustrates how the program is likely to save the developer millions over 30 years.
The rebate amount is based on a few factors, including how many units in the development are income-restricted and what percentage of the area’s median income, or AMI, one must earn to be eligible to live in one of the units. Many of the aforementioned developments have units available to those earning 80% of the AMI.
Lynx Ventures’ Noon Hioaks is one of the first completed developments to utilize the city’s Affordable Housing Performance Grant program. (Mike Platania photo)
AMI itself is dependent on the number of people in a household. According to the most recent data from Partnership for Housing Affordability, the AMI for a one-, two-, and three-person household in the region is $77,300, $88,300 and $99,300, respectively.
The performance grant program was introduced in 2023 after the General Assembly passed legislation allowing municipalities’ Economic Development Authorities to create grants for affordable housing developments.
Industry representatives say the introduction of this grant program has been a driver of the recent affordable housing influx.
Preston Lloyd is a land-use attorney with Williams Mullen and said he’s represented developers on about a dozen affordable housing proposals in the city since the program was rolled out, including the 266-unit project from Elmington near Manchester.
Lloyd said the program was set up to work in conjunction with many of the loan programs offered by Virginia Housing and, as a result, it has allowed developers to offset the costs that typically come with higher interest rates and rising construction costs.
“The city was very intentional in making sure that this program could be overlaid with the existing programs through Virginia Housing in order to enhance the economic viability of projects proposed in the City of Richmond,” Lloyd said.
“The ability to reduce the cost of a project through (the performance grant program) has become really instrumental in trying to offset some of those other factors that have made it difficult, if not impossible, for many market-rate projects received in the current environment.”
Burton, at the Partnership for Housing Affordability, said the program is an “illuminating example” of the types of incentives that can be offered at a local level.
“It works because it’s consistent. It’s reliable. If you’re a developer and you want to take advantage of the program, you know what you will get based on what you put in,” Burton said.
“Having that predictability is always going to be a solid foundation for any affordable housing program, and I think that’s why it’s been so well used thus far.”
The program, though still in its infancy, is not without its detractors, though.
One critic is Jon Baliles, a local commentator and former city councilman, who said he believes the city should be offering only 15-year tax abatements with an additional 15-year option – a structure that’s allowed by state law.
He argues that the city is giving away too much potential future revenue with the 30-year abatement deals it’s been providing through the performance grant program.
“I think everybody agrees that we need more affordable housing, but I’m pretty sure this is not the way to do it,” Baliles said. “There are better ways to incentivize affordable housing than giving a 100% abatement for 30 years. This is robbing future residents from general fund money that can be used for roads, schools and public safety.”
Some grants through the program have already been rubber-stamped by City Council.
In September, council approved grants for Lynx’s latest New Manchester Flats phase, Standard Communities’ townhome development in the Southside, a pair of developments from Bristol-based Surber Development and Consulting in Bellevue and near Broad Rock, a 66-unit development along Brookland Park Boulevard, and a 56-unit development from Commonwealth Catholic Charities and the Catholic Diocese of Richmond near Highland Park. The grants will kick in the year after the projects are completed.
Many of the new affordable housing proposals have been in the city’s Southside. (SkyShots Photography)
Even if interest rates come down and construction of market-rate multifamily projects picks back up, Wittie at John B. Levy & Co. is optimistic that affordable housing developments will continue on their current trajectory.
“There will continue to be affordable housing development because the economics are right for it, the localities are increasingly supportive of affordable housing, and the NIMBY issue is starting to go away, or at least it’s getting better,” he said, referring to the acronym for the anti-development sentiment “not in my backyard.”
“The other thing is that developers diversify their investments among a number of commercial real estate classes,” Wittie said. “Within housing you can further diversify with market-rate housing and affordable housing, and that shields your portfolio against the ups and downs of the market.”
Despite the recent momentum, data from the Partnership for Housing Affordability shows the region still has a way to go to satisfy demand for affordable housing.
The data shows that about 3,200 affordable units are in development or under construction throughout greater Richmond, but the region needs an additional 40,000 such units to get out of the housing crisis. About 18,000 of those are needed in the City of Richmond specifically, Burton said.
Lloyd at Williams Mullen said that ultimately affordable housing is a supply-based challenge.
“The solution, broadly speaking, is that there has to be an increase in the supply of housing at all income levels,” Lloyd said.
Bernard Harkless, another principal at Lynx, said finding ways to affordably build and rent out units is only half the solution.
“It’s a wage problem, fundamentally. Whether it’s us or another developer, we can build units pretty efficiently. But what good is the unit if the person living in the unit doesn’t have a job that can support them?” Harkless said.
“That’s what people lose sight of. People are like, ‘We’ve got to build more units,” but that’s one side. The other side is, ‘Well, what are wages doing and what are employers doing to support their workforce?’ You have to look at it a little more comprehensively.”