Tap to get financing
HUD Loans
HUD Loans
Loan Programs
FHA & HUD LoansHUD 221(d)(4)HUD 223(f)HUD 223(a)(7)HUD 241(a)HUD 232/223(f)
Calculators
Break-Even Ratio CalculatorCap Rate CalculatorCash-on-Cash Return CalculatorCommercial Mortgage CalculatorDebt Yield CalculatorDSCR CalculatorLoan Repayment CalculatorLTV CalculatorNOI Calculator
Resources
BlogLoan DocsHUD REAC InspectionsHUD Section 202 Supportive HousingHAP Contracts2021-2022 HUD Multifamily Basic Statutory LimitsFrequently Asked Questions
About
CompanyLeadershipTeamWe're Hiring
Contact Us
Get financing
Was This Article Helpful?
Newly Published
Oct 5 at HUD Loans
HUD’s New Surplus Cash Distribution Changes
Oct 3 at HUD Loans
What Are Replacement Reserves?
Sep 12 at HUD Loans
Is HUD Financing Available for Assisted Living Facilities?
Explore the Janover Network
Feb 2 at Multifamily Loans
Top 10 Fannie Mae Multifamily Lenders of 2023
Jan 31 at Commercial Real Estate Loans
Top 10 Commercial Property Management Companies of 2023
Jan 30 at Commercial Real Estate Loans
Top 5 Markets for Medical Office Investing in 2023
HUD Multifamily Loans Blog
Last updated on Dec 8, 2022
3 min read
by Jeff Hamann

Rising Construction Costs' Affordable Housing Impacts

Labor shortages, supply chain issues, and rising material costs are all impacting the development of new affordable housing nationwide.

Get Quotes ← Apply for a loan in minutes and get multiple quotes today

In this article:
  1. Impacts of Current Construction Costs on Affordability in Housing
  2. Possible Solutions for the Affordable Housing Sector
  3. Get Financing

Image by Ricardo Gomez Angel from Unsplash.

Despite the shortage of affordable housing units nationwide, many developers are working hard to create new units in heavily undersupplied markets. However, rises in construction costs have made the situation difficult for many contractors: The Associated General Contractors of America pegged increases at 21.4% from March 2021 to March 2022. And that figure excludes increases to labor costs, owing to a severe labor shortage in the construction industry.

Energy costs for construction shot up by 53.3% during this same period — and 36.3% since December last year — owing to the ongoing war in Ukraine. But just as damaging is the increase in steel prices, which climbed 42.9% year-over-year through March.

Impacts of Current Construction Costs on Affordability in Housing

It’s no surprise that these increases are significantly impacting affordable housing, regardless of market or property size. While market-rate multifamily developments can respond to higher costs by increasing rents, affordable assets — particularly those backed with HUD-insured loans — have much less flexibility to do so. And, what’s more, rents for ongoing developments are generally set well in advance, meaning these additional expenses aren’t factored in.

As a result, development activity for affordable housing is slowing. The National Association of Home Builders reported in February that multifamily construction starts declined 0.8% in January. And while it’s impacting nearly all regions in some way, the Midwest in particular noted a 37.7% decrease.

The Pew Charitable Trusts published a piece in late April highlighting the impact that timber cost increases, combined with all other aforementioned factors, have stalled many projects. Timber, the article notes, last year hit a price three times greater than the pre-pandemic high.

As a result, even many of those projects approved to receive tax credits through the LIHTC program have been forced to hit the brakes. Even with these credits, developers say, many projects are no longer financially viable.

Image by Barthelemy de Mazenod from Unsplash.

Possible Solutions for the Affordable Housing Sector

Few short-term solutions seem to be apparent for affordable housing developers and general contractors. The NAHB is calling on the U.S. government to remove tariffs on timber, while also pushing for career programs to encourage and prepare future construction workers. Additionally, the association is lobbying Congress to pass the Ocean Shipping Reform Act, which the group posits would drastically help reduce supply-chain bottlenecks that further drive costs up while slowing construction down.

The Pew article discusses another possible avenue to ease the pain of rising costs — utilizing some of the billions of dollars earmarked for COVID purposes to deepen the pockets of LIHTC programs across the country. A bill proposing to do exactly this, named the LIFELINE Act, was introduced to the House of Representatives in mid-March and awaits action at the committee level.

In this article:
  1. Impacts of Current Construction Costs on Affordability in Housing
  2. Possible Solutions for the Affordable Housing Sector
  3. Get Financing

Getting commercial property financing should be easy.⁠ Now it is.

Click below for a free, no obligation quote and to learn more about your loan options.

Get financing →
Janover logo

HUD Loans is a Janover company. Please visit some of our family of sites at: Multifamily Loans, Multifamily Today, Commercial Real Estate Loans, SBA7a Loans, CMBS Loans, Apartment Loans, HUD Loans, HUD 221d4 Loan, HUD 232 Loan, HUD 223f Loan, HUD 223a7 Loan, SBA Express Loans, SBA 504 Loans, and OpportunityZones Help.

Janover Inc.

6401 Congress Ave
Ste 250
Boca Raton FL 33487

hello@hud.loans

Site Information

Privacy Policy
Terms of Use

This website is owned by a private company that offers business advice, information and other services related to multifamily, commercial real estate, and business financing. We have no affiliation with any government agency and are not a lender. We are a technology company that uses software and experience to bring lenders and borrowers together. By using this website, you agree to our use of cookies, our Terms of Use and our Privacy Policy. We use cookies to provide you with a great experience and to help our website run effectively.

Freddie Mac® and Optigo® are registered trademarks of Freddie Mac. Fannie Mae® is a registered trademark of Fannie Mae. We are not affiliated with the Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA), Freddie Mac or Fannie Mae.

Copyright © 2022 Janover Inc. All rights reserved.