Impact Investing: Leveraging Tax Credits for Affordable Housing

Can innovative urban development turn the tide on housing scarcity? Through an engaging discussion on public-private partnerships and debunking myths of unattractive low-income housing, we explore tax credits and other effective tools for structuring successful affordable housing investments. In this week's episode, we're delving into one of the most pressing issues of our time and discussing innovative funding methods for those looking to make an impact.

Transcript

Rachel Oh 0:04

Welcome to Peaks and Portfolios, presented by PEG Companies, your go-to podcast for all things commercial real estate investment. I'm Rachel oh, and together we're diving into current events, trends, issues and opportunities impacting the CRE investment space, from dissecting the latest market moves to sharing insights on today's commercial real estate landscape. It's time to maximize portfolios here in the peaks of the Mountain West and beyond. Welcome everybody from the peaks of the Mountain West high up here on the Wasatch Front. We are excited to talk again real estate, a little bit about the economy and anything else that might pop up. We thank you again for joining us for this week's episode of Peaks and Portfolios by PEG Companies.

Rachel Oh 0:50

For today's episode, we are going to dig into an area that we hear a lot about in the news but not a lot of solutions, often referred to as the affordable housing crisis in America. We know that housing costs are rising, but wages are not rising at the same rate. It's also interesting how quickly the affordability crisis has gotten worse, with the pandemic and remote work having shifting people, where people live and what type of homes they're looking for. We know that median home prices have surged across the country in comparison to median household income and estimates of how many more housing units we need nationwide vary, but according to Freddie Mac, they put it at nearly $4 million On the real estate investment front, or development front, I think one thing that impacts this is modern zoning laws that have been in place since the 1980s or earlier.

Rachel Oh 1:42

I think it's really become more of a problem as metropolitan areas have filled out both their urban centers and their suburbs and, thanks to remote work, many smaller cities, including Salt Lake City, are suddenly seeing an influx of people from larger metropolitan areas. So to help better dissect this and to help better explain this, what better way than to consult with an expert? What better way than to consult with an expert? And I am so delighted that I actually have a very good friend and former colleague who is I'll call him a bit of a genius and is also a doing good champion, if you will Mike Akerlow, who is the current Director of Housing and Community Development for the Mayor of Salt Lake County. Welcome, mike.

Mike Akerlow 2:21

Hi Rachel, Thanks for having me.

Rachel Oh 2:23

Thanks so much. How are you, since you've left the corporate world?

Mike Akerlow 2:28

I'm doing very. I'm doing well. I'm doing well. I've made the transition okay.

Rachel Oh 2:33

And you're feeling good about doing good. How's that?

Mike Akerlow 2:35

Yes, I do love this kind of work. It's really good work. So yeah, I'll be back in it.

Rachel Oh 2:40

No, it's so good. Just a little bit of background for listeners who may not know. Mike AKerlow was with PEG just until about, I think, six months ago and he was a development director here and we actually had brought him from the affordable housing space. He is currently the director, as I mentioned, of housing community development for the mayor of Salt Lake County. Previous to that he was with PEG for about a year or so and then, previous to that, he was the CEO of the Community Development Corporation of Utah in Salt Lake City and in these different roles he has overseen housing neighborhood development. He's currently working with the county's federal grants provides leadership and it was so interesting because in Salt Lake City we have both a Salt Lake City mayor and a Salt Lake County mayor and I was just asking Mike in our prep session about what the difference was. And, mike, could you kind of describe your role and what you do?

Mike Akerlow 3:34

Sure, yeah, so, as you mentioned, I'm the director of housing, community development, and our division oversees pretty much all things housing for the county. It's a little different from a county versus a city perspective, in that cities are much more localized. They have their own zoning ordinances. The county is a higher level organization. We have some unincorporated areas where we assist them in their housing policy and funding programs, but generally speaking, we're a higher level where we're just looking at countywide policy. We can't really tell cities what they have to do, but we can help guide them with good information. One of the biggest things we do, though, is provide funding, so either through our federal grants or through our housing trust fund, we can help provide funding for the development of housing, but also community development projects like infrastructure or services for lower income households. So that's kind of what I do in a nutshell.

Rachel Oh 4:33

That's amazing. I mean, the fact that you're able to, you know, get access to those types of resources and then contribute them or making sure they're being put to good use across the state. That's amazing, super impressive. Okay, so I kind of did a little bit of an intro and it was just based off of what my team was able to put together, but I'd love for you to, if you could maybe, in more practical, real terms, just kind of describe the current housing situation and again, we always hear about this affordable housing crisis, but could you kind of, maybe, from your perspective, describe what it really is, from your perspective, nationwide and maybe even locally?

Mike Akerlow 5:10

Sure, yeah, and I think you did a great job of introducing that. I mean, we've heard, like you said, we are hearing a lot about the affordable housing crisis, both on a local and a national level. So much of housing is localized. You know, cities across the country are experiencing very similar things, but when you really look at it, we have similar issues but we have some different issues. We look at Salt Lake County's population and it's grown really rapidly over the last decade and so we're seeing a lot of influx. We're seeing natural growth. And how do we manage all of that and provide housing for all the people that are coming here but also who live here? Salt Lake County and Utah has actually been making some headlines not for great reasons over the last little bit of being one of the most expensive places to live or to buy housing.

Mike Akerlow 5:57

A recent report came out and said we're the third least affordable place to buy a home in the country.

Rachel Oh 6:02

Which is crazy.

Mike Akerlow 6:03

That's not a great headline you want to have.

Rachel Oh 6:06

So when we look at homeownership, but isn't that like for Salt Lake? I mean, just so people understand, it's not like the Bay Area where you have, I feel like the Bay Area housing affordability versus Utah. I mean Utah it's just like a, it's a supply issue, right, Like there's literally nowhere to build. It's really tough, or is that wrong? Is that a misnomer?

Mike Akerlow 6:23

Sure, I think it's no, no, no, that's definitely part of it. We have a supply issue.

Mike Akerlow 6:32

We also, it's just and supply is different than prices. There's a ratio that we look at that is a price to income ratio. So what is it? What was that ratio between your income and what it costs to buy a home? And we're at about six. So that means a house costs six times the median income household. That number should be like two to three. So we're like double what we should be. So yeah, it just makes it. You know, with the lack of supply, prices are higher, which means a lot of people cannot get in the space to buy a home. We're also impacted in our rental market. We're also impacted in our rental market and at my office we focus a lot on the very low income, on the lower incomes on their access to housing and Salt Lake County.

Mike Akerlow 7:16

We have a shortage of about 35,000 rental units for people who are making $31,000 or less a year Statewide. That doubles it's almost $70,000 for people in are making $31,000 or less a year Statewide. That doubles it's almost $70,000 for people in that income. Yeah, so that doesn't necessarily mean that we need to build 35,000 units. It may mean that people are in housing currently, but they are cost burdened. They just can't afford it. So they're paying like 50% of their income is going to their housing costs, where the best place to be is about 30% of your income going to your housing costs.

Mike Akerlow 7:53

So yeah, we're kind of getting hit on all sides, both the homeownership and the rental side. Wow.

Rachel Oh 7:59

Yeah, no, because I, you know, we talk about housing affordability and there's two veins to that. Right, like just the average not average, but maybe a healthy income earning person it's hard, it's more difficult to buy homes, and then you've got the lower income, as you mentioned, who just don't have any access to good housing, which is important. Right, it's important for our communities. They often service so many of the places that we need, like everyone needs, and then I know a big thing too is making sure that they are able to live in the communities that they serve. And I'm thinking, you know, even like police officers or nurses or whatnot, like it's, it's, it's too much of a burden for them to live super far away just to afford something, but they need to be in the county, you know, closer, and all that.

Rachel Oh 8:44

So I think there's so many tracks that we could go down, but, um, but, okay, but what I, what I love about what you're doing and just about you in general um, I've always always been impressed is you are always focusing on solutions in, in, in how you're working to tackle this, versus, you know, just going on and on about the crisis, like I, what I love is that you're more solution oriented. Can you talk to me about some of the current solutions that you're really focused on and how that's changing, and and maybe even describe something that you're super excited about right now?

Mike Akerlow 9:18

Sure, yeah, I think. Um, let me hit a few points. I think one thing you said earlier on was, you know, wages are not keeping up with housing costs and that is fundamentally one of the biggest issues we have. I can't do a lot about that in my position here, but there are things we can do and we can try to provide access to housing. So there's also you mentioned, zoning is a big, big part of this.

Mike Akerlow 9:40

It's a big factor and years ago, when I was at Salt salt lake city back in 2017, we wrote the city's first housing plan in almost 20 years and we did a lot of research, a lot of data gathering, a lot of work to pull that plan together and what came out, you know, in addition to hey, we need to provide maybe we need to provide better subsidies, but a lot of what came out was the impact that zoning has on the development of housing within our cities. It's a really interesting topic because, you know, we talk about density. We talk about where density belongs and where it doesn't belong and how it impacts neighborhoods. But when you look at a lot of our really successful neighborhoods that have been around for a long time, you look at them and they have a nice mix of density and then a lot of the time it's these established neighborhoods that are the ones coming out opposed to increased or changes in zoning laws. So there's kind of this.

Mike Akerlow 10:35

It's kind of an interesting thing to watch, but certainly density is a part of this conversation. How do we get more units out there? You know, we've seen downtown Salt Lake really explode in multifamily. We've heard a lot about missing middle, which are the kind of medium density like town homes or smaller apartment buildings, and that's kind of making a comeback. We're starting to see more of that. We've seen a lot of town homes be built.

Rachel Oh 11:01

Oh, I've seen tons. I feel like they're everywhere. Tons of towns.

Mike Akerlow 11:04

Yeah. So that's, you know it's a good option that kind of provides that middle, that middle area which and, and and a lot of the times those are for sale. So that also gives people an opportunity to get in some home ownership. And we're seeing townhomes also be built as rentals, which is really exciting.

Mike Akerlow 11:19

So, we're seeing this but again, you know there's a lot of cities out there that are really resistant to any zoning changes. People, communities, really come out and oppose this. I think there's some ideas that, hey, if I get affordable housing in my neighborhood it's going to bring down my property value, and there's a lot of data behind that. The Kempsey Gardner Policy Institute here locally up at the University of Utah did a study on that which showed the opposite, that that that does not decrease property values and in some, in many instances I think, like the majority of instances, actually increased property values because it brought, you know, the higher values or it just helped. It helped the neighborhood in different ways but really could not prove out that it decreased the value.

Urban Development and Affordable Housing Opportunities

Rachel Oh 12:02

So I know we're getting super local here and maybe only local listeners will completely understand. But, for example, I, you know, I used to live in Sugar House which is, at one point, I believe, garnered the highest rents in the area. It's where all the younger folks, I think between, I think the, you know the young singles plus maybe the young marrieds tend to like I mean, it's a cute neighborhood, it's got access to the eight, you know the Beltway, you know the park, it's east side, so it's close to the slopes and close to the University of Utah. And then there was that development there on the corner of 21st and 21st, and I know it's a huge issue, but now I've seen it, it's been built. There's also a bunch going on down in the downtown area of sugar house and whatnot.

Rachel Oh 12:48

But, and so I'm just saying, is that like an example of some changes to some zoning laws? I mean, did that? And again, that's just a something I can think of, and it's more of a prestigious neighborhood, right, we're not talking about way out someplace. I mean, this is real development happening in a real neighborhood. That's actually, you know, desirable. So thoughts on that.

Mike Akerlow 13:10

And.

Rachel Oh 13:10

Mill Creek, by the way. So just curious if you can comment on that.

Mike Akerlow 13:13

Yeah, spot on. I mean you are seeing those are great examples of where zoning has allowed for greater density in a neighborhood, the one on 21st and 21st that you just mentioned. It's a nice medium density on a busy corner, so it's not in the middle of a neighborhood, so it makes sense on its location. It was, I believe it was, or right nearby adjacent to the property are some smaller apartment buildings, so it fits in nicely. Mill Creek is doing the same and it's kind of in its capital area where its office city offices are. They're bringing in. In fact PEG has a multifamily project right there.

Rachel Oh 13:53

It's opportunity zone too, like, I think, all of Mill Creek is an opportunity zone, so tons of capital came in right during 2019, 2020 ish.

Mike Akerlow 14:02

Yeah. So it's good to see that kind of response happening. I think what's hard these are typically market rate units and a lot of that is driven by other forces such as land costs yeah, not cheap. Construction costs no, it's not cheap to build there. So unless you get a subsidy it doesn't make sense, it doesn't really pencil for you to make those affordable. I will tell you, just down the street from Mill Creek, just a little bit north, it's on Richmond, so it's literally just on the street there from the city offices there in Mill Creek. It's on the border of Salt Lake City and Mill Creek.

Mike Akerlow 14:42

My company that I was with before PEG, it was a nonprofit, a portable housing nonprofit. We built a 55-unit apartment building there and it was a low-income housing tax credit project. So it has lower incomes there. It fits in nicely into the neighborhood and it's providing what you just said a minute ago. It's providing housing to the people that live and work in that community. But it required a partnership with Salt Lake City for assistance on the purchase of the land. It required tax credits, which is a federal program we can talk about, and some very patient capital from government entities to make that project work. But you're getting some nice lower incomes in there. You're getting a place for people to live in an established community with access to services. So it's a good example of what can happen in a community.

Rachel Oh 15:34

So is it on Highland. Where is it?

Mike Akerlow 15:36

It's on Richmond, so Richmond is the street west of Highland.

Rachel Oh 15:40

Okay, okay, again, I used to kind of live around there. I love this story that you just mentioned and I feel like and we'll talk about, I think, some of the things that we've done, just because I think it's interesting to share as well. But what I love is that, well, it reminds me to the point where you want area a residence in with the intent to convert, and at the time the city was super opposed because they didn't want quote, unquote you know class B workforce housing in that area. Buckhead is kind of prestigious. I don't know if you know this, but about six months after they sort of initially denied us, they actually came back to us.

Rachel Oh 16:23

Do you know this story? Denied us, they actually came back to us. Do you know this story? Because they did a study, an independent study from another arm, another branch of the city government, that did a study on traffic congestion and the findings found that this increasing congestion, which the business owners were complaining about because it prohibited people coming to the area, and the takeaway was you need to build more affordable housing options because the people can. Part of the congestion was all these workers coming into the area and flood, you know, flooding the streets, and so that's why if you built more affordable housing options in the city center, then you would alleviate traffic and you would bring more commerce to the area. And then so after that, they granted us approval approval for multifamily.

Mike Akerlow 17:07

I don't know if you knew that story no, that's fascinating, though yeah, I could see that.

Rachel Oh 17:12

I could totally see how that would work yeah, so I guess I just bring that up because I feel like this private and public partnership is so important. Let's talk about these tax credits, because this is an area I know nothing about and I also know didn't you do something in downtown salt lake city, right there when you come off the freeway on 6th? Wasn't that one of your guys' projects as well? It's a super nice multifamily, but it's low income, am I right?

Mike Akerlow 17:36

I didn't have any involvement with anything there.

Rachel Oh 17:38

I thought you told me Okay, meaning I think people have the misconception that low income housing is kind of ugly and it's like it looks like the old. You know government housing units back in the day on the East Coast and whatnot. But it's not that case. Right Like they fit, like you say, nice in the neighborhood, you wouldn't even know per se that it's lower income housing. So yeah, talk about that, talk about tax credits. I want to hear all that because this is an area I'll admit we're a little bit more for profit.

Rachel Oh 18:08

So I'd love to know how these not so profit oriented, but you know providing good housing options, how that works and what that looks like.

Low-Income Housing Tax Credit Programs

Mike Akerlow 18:15

Yeah, I will explain that to you, let me. Let me comment quickly on your what you said about the quality of housing going in and I think I remember the project you're talking about. It's on. There's a project we helped fund. It was on 6 South and Main and it was an affordable housing project. They use they use low-income housing tax credits. We actually gave them some funding to buy down some rents so they had done a tax credit project that was more around kind of a workforce housing type project. We went to them and said, hey, if we give you additional funding, could we help buy down some of those rents, which we did, so we were actually able to get some lower income levels in that same apartment.

Mike Akerlow 18:59

It was really interesting.

Mike Akerlow 19:00

It was kind of a little trial project we did and it seemed to work well.

Mike Akerlow 19:02

And before I jump into the tax credit as part of this, I will comment that you're so correct on saying what affordable housing used to be and what it is now.

Mike Akerlow 19:12

Back in the days it used to be public housing, public housing got a really bad name and we've shifted away from that through the tax credit program, and tax credits generally like to push a mix of incomes in a building so you can get very deeply affordable all the way to market rate, oftentimes in a single building. And the other thing is when I was mentioning earlier that study done that Kim Garner did about how it affects property values, the things that it comes down to are really good design and good property management. So if you bring in a building that is nice looking, it has nice amenities and features, but it's also managed really well, there's no negative impact on the community. And that's the same with any kind market rate or affordable housing. We should always be looking at bringing things into communities but build them rather than take away. So let me just quickly give you a really brief tutorial on tax credits, low-income housing tax credits, or we call them typically the LIHTC, their acronym just because it's easier to say.

Mike Akerlow 20:17

LIHTC is a federal program. Each state is given a certain amount of tax credits based on its population, and then the state disperses those tax credits to developers. Typically, developers who get tax credits are housing authorities or nonprofits. Sometimes for-profits will do it, but there's not many of those and a lot of the time when a for-profit comes in to do it they will partner with a nonprofit. But tax credits are a way to provide a lot of equity for affordable housing. Gotcha.

Mike Akerlow 20:52

There are two types. There's a 9% and a 4%, and I'm not going to get into the details of those because it's a little bit technical, but essentially a 9% tax credit project will give you a lot more equity than a 4%. Okay, so when you let's take a 9%, for example A 9% you can typically get about 70% of your project in equity. So you've got to come up with the other 30%.

Mike Akerlow 21:15

Okay, and that's where developers look to governments in particular to help provide that gap, and the reason why is because oftentimes our money is more patient, we don't mind subordinating, our interest is much, much lower and deferred. In fact, the county did about just put about $25 million out and we had simple interest, one-time payment deferred for like 20 years. So it's you know, we're really we have much more flexibility on that gap financing which is needed to make these projects work. In tax credits you don't really look at down like you do at PEG, where you look at a rate of return. It just doesn't. It's not the same.

Mike Akerlow 21:58

Developers get into this because really where they make their money is out of their fees, their development fees, and then there may be some cash flow. There's typically not a lot of cash flow on high-tech projects. There may be some. So you're not really looking at cash flow as the way to run a rate of return. But you don't really have to because the credits are set up differently. So let's take, for example, my last nonprofit. They would come in and they would apply to the state for tax credits. If they're awarded those tax credits, they then sell those to an investor and the investor gets the credit for a period of 10 years. So let's say, we apply for 750 000 worth of state or of these, these low-income housing tax credits, and we're awarded those, we get those and then we go sell them to an investor, and an investor typically is like a lot of the ones we worked with are large banks like yeah chase bank or morgan stanley goldman sachs, they all.

Mike Akerlow 22:53

They need a reason, they need a credit for their taxes.

Mike Akerlow 22:56

So they will go buy these, they'll buy these tax credits and they get it for a period of 10 years. So that $750,000 that I got awarded will actually give me $7.5 million in equity because it's that 10-year time period. So if my project is a $10 or $11 million or $12 million project, now I got to come up with that remaining balance in debt. But because my debt is such a lesser amount and, like I said, oftentimes more government financing, that is patient and I don't have to make debt service payments.

Mike Akerlow 23:24

It means my rents can be lower.

Rachel Oh 23:26

Gotcha and so the whole building. Then, is this lower income? It's not like you were mentioning earlier, how there's like a mix, no, there's, so that's a great question.

Mike Akerlow 23:36

Um, there is a mix and typically, when you apply for your credits, you go through a point system and you try to meet as many things as you can to get the highest amount of points, cause then you'll be awarded. It's very competitive. A lot of projects don't get awarded every year, um, so you really want to do as much as you can to get the most amount of points. So one of the things is that you provide a mix of incomes. Okay.

Rachel Oh 23:59

So that's attractive then, and that helps to win the grant or the grant with this credit or whatnot. These credits Got it Okay. Okay, that's very smart.

Mike Akerlow 24:08

Now, sometimes that doesn't happen and you'll see that rarely, but in the cases that it doesn't, it's usually for very deeply affordable housing. Rarely, but in the cases that it doesn't, it's usually for very deeply affordable housing. The Road Home, which is one of the largest homeless service providers here, did a tax credit project in Salt Lake I want to say four years ago maybe and it was 100% affordable for people experiencing homelessness. So 65 units, no mix of incomes. It was a 9% tax credit project.

Rachel Oh 24:34

Okay, and that's downtown Salt Lake, probably somewhere or something. Yeah, okay and successful, yeah. Doing well and servicing the lowest of the lowest of the lowest, I feel like right Like these have no income, they're not working, they're homeless right, absolutely yeah, yeah, which is important right. It's super important, absolutely.

Mike Akerlow 24:53

And they are often supported by vouchers. So that's a different conversation, but we've talked. We've probably heard of section eight, vouchers or housing choice vouchers, and those are allocated through our housing authorities. They're given to either a project or a person, and they can use it then to help subsidize their rent. Gotcha.

Rachel Oh 25:11

This is super interesting because I know that you know on our side so with PEG and you were here, we didn't do any light tech or whatnot, but what we did do was, I think, similar to kind of some of the things you're talking about is. I don't know if you you weren't here when we did paper box apartments, but paper boxes in downtown Salt Lake City. It's actually in a super nice part of downtown, right there by the arena where the Utah Jazz play and and the soon to Utah National Hockey group that's coming. But that one was in an opportunity zone so we were able to raise equity through that. But it was also land that was given to us by the city of Salt Lake in exchange for lower income units, I think up to 20%, and, as you were mentioning before, and I don't know if you've seen it, it's beautiful. I mean it's smack right there. It's beautiful design. It even has that Tetris vending machine car thing going on for the parking garage.

Rachel Oh 26:06

It has super high-end units, but I know that 20% of the units are lower income and I always thought that they put like those lower income units in like the corners and the dark parts that you know no, no view, and they don't allow that. It is a mix of high top floors, beautiful views with lower ground. You know it's a total mix and what I didn't know about this is that that multifamily is performing very well. One of the reasons why, in kind of our higher supply situation that's going on right now, because of all the kind of a lot of the building of units, so a lot of deliveries, it is almost 100 percent occupied all the time because the 20 percent that's always filled Right. So the lower income units are always there and it's a great location and it's a good, so meaning it's doing very, very well. And I think it's a great location and it's a good, so meaning it's doing very, very well and I think it's a great example of a public private partnership.

Rachel Oh 26:58

We didn't get any tax credits or whatnot for that. We did use Opportunity Zone dollars, which is just an interesting pool of capital back then when it was announced and I and you might know more about it because you were here. You might've heard about it, but my understanding is it's it's become a very successful development that we did, because actually having the lower income units in there helps with the occupancy and it's been tremendous. From my understanding, I could have that a little bit wrong, but I think I'm right.

Mike Akerlow 27:22

I think I'm right on that You're spot on, and that is. I love that you bring that up, because so much of what we talk about in affordable housing development is around light tech, and so developers are like I don't really want to get into that, but what can I do? What you just described is a perfect example of a private-public partnership to get more units in a building. So there's a couple more examples. Cottonwood Heights is doing some interesting things with density bonuses, which is another great tool of saying, hey, we're going to give you the ability to build more units in exchange for some affordability. So there you've got a couple multifamily projects coming into their city that they did that. They give them more density in exchange for some affordable units Nice. So I love that there's not just a one-size-fits-all to this. We've got to be. I mean, like you said at the beginning, our country is facing this crisis, right.

Mike Akerlow 28:13

And we can't keep doing things the same way, so to provide some more density in exchange for units is a great way to bring developers who may not want to do LIHTC to the table, to get some of those affordable units into the community.

Rachel Oh 28:27

And then with that, so what area of Cottonwood Heights? Just so that, because I you know I live down ish that way. And how much density are we talking? And was there opposition from the city? Is the city in support? Did you have to, or does the group have to get variances on height? Is there you know? Tell me a little bit about that too.

Mike Akerlow 28:45

Yeah, great questions and I don't know the specifics on those two. I just know that they were given. One is up by the gravel, yeah, up there on Wasatch, there's one going in there and I'm not sure where the other one is going. But yeah, two projects there. But yeah, I mean there are. Yeah, to your point, there are. It's not always a slam dunk type of thing, but typically a lot of this I mean many times it's by right anyway, because it comes with the property. The zoning's already there, the city may just be able to allow greater densities. I don't know if those two projects received any resistance to the zoning or the approvals of those, because that is, I mean, that is east side, I mean, that is, you know, east Bench.

Rachel Oh 29:30

They were okay with it.

Mike Akerlow 29:31

Yeah, yeah, they got it approved. Two projects yeah, both were approved. That's amazing Moving forward. But you bring up a good point, it's not always a slam dunk.

Mike Akerlow 29:43

These things do take work and many times there is opposition to this and unfortunately that is an ongoing battle within cities. Now the state legislature last session did start talking about overriding some of these zoning laws in cities, and that's going to be a really interesting thing to watch this upcoming session to see if they do that, because the argument can be made that it's taking away the rights of cities to implement their plans. On the other hand, if there's a lot of cities who will not bring in any affordable housing, they see density as kind of opening the door to. You know, now we're also going to get all these apartments and then our property values go down or our crime rates go up and all these things that they believe will happen. And so the state, I think, is starting to push this conversation of hey, if you guys don't do it, then we may have to.

Rachel Oh 30:28

So they will usurp the cities like they'll just come in and they'll. Can they do that? I mean, does the state have the right to do that? I don't even know how that works, but I think through legislation they could.

Mike Akerlow 30:40

I don't, you know, I it was. It was a discussion that started last session but didn't really go anywhere. But I wouldn't be surprised if you start to see that rise to the table or rise to the top of some of these conversations about housing. Interesting. You know, the state did something interesting too this last session. They created this starter home fund.

Mike Akerlow 30:59

This would be Steve Waldrop, who is a former legislator developer. He created a really great program for workforce housing in the northern part of the state very successful. And then the governor brought him on to oversee affordable housing efforts statewide and they created this program where there's about $300 million set aside for developers to use to build starter homes. The goal to increase supply, provide access for lower incomes to get into some housing, and then they also funded a down payment assistance program so people who can get in these homes can also apply for some assistance in getting funding for a down payment. So we'll see. We'll see how that happens, but it's nice to see the state take, you know, pushing some things that are going to help hopefully help alleviate the pressure that we feel. Yeah.

Investing in Affordable Housing Opportunities

Rachel Oh 31:50

No, I love that. And this idea of starter homes. I mean I think of you know we did the build for rent David Bourne was on our other episodes and that's exactly what they're doing. Right, they're building smaller homes as an alternative to your traditional stacked apartments, but it sounds like and those are probably too small. Honestly, I think these starter homes are probably slightly larger. You know people.

Rachel Oh 32:13

I think a lot of people would rather or maybe when they're a little more mature in their relationships or they're, you know, if they're married and they're starting to have children probably do want, in addition to your high rise or stack departments, is the ability to live in a home. And so what? I? What? I'm so amazed. So I'm, you know I'm not a local, but I've been here now over 10 years and I did go to school here. The valley has completely changed, right, like there used to be copper mines I don't even know. I don't think they're there anymore. Like it's. We've completely built all the way out west. It's crazy to me and the density all along State Street, and I think you mentioned earlier that your office supports Magna, which I always feel like Magna's in Timbuktu. But if you're doing stuff out there, I mean that means there's communities being built way out. I mean right Like this is everywhere.

Mike Akerlow 33:08

It's happening and it's exciting to see our state grow like that. But you look at the projections and we're on track to continue this kind of growth. The reality is do we have the housing and the services in place to accommodate that growth? And we don't. We don't have it in place, yeah. So we've got to start having the hard conversations about what does that look like for communities in terms of density and access to services.

Rachel Oh 33:33

Yeah, okay. So then let's back up a little bit. So tell me your role in the county then. What are you like? I think you've kind of dabbled in on it, but maybe be more specific. What are you folks doing to kind of lead the housing efforts? What are the tools that you're tapping into efforts? What are the tools that you're tapping into? What are some of the innovative or interesting things that your office is doing specifically to help alleviate? And I know you've kind of mentioned a few things, but maybe whittle it down to some very specific initiatives that you folks are working on.

Mike Akerlow 34:03

You know I mentioned towards the beginning that we have a gap of about 35,000 rental units for people at about $31,000 or less a year when you look at the demand or the need for units based on income levels. The higher the income, the lower the need. So what we've decided in our office for the next five years is to really focus on the deeply affordable. That's where the greatest need is and it's really where government dollars can make the most impact. So over the last year we have put out through our housing trust fund $25 million. This came through the federal government. It was some of the Recovery Act funding that came to the county and we put it through our housing trust fund and did these loans to developers.

Mike Akerlow 34:53

And out of that 25 million we got about just over about 1550 affordable units in the county. So really great impact. But what that really was is leveraging. We were just part of a larger capital stack, which is a really important role that we play. So that's what we did there. And those projects are, you know, some are already in construction, some will be in construction soon, but we'll see over the next couple of years another 1500 units come online.

Rachel Oh 35:23

That's amazing. And this is for the deeply. What did you call it Deeply?

Mike Akerlow 35:28

So this is mostly deeply affordable. It's about. I'm getting a little technical here, but when we talk about income levels we talk about area median income. So AMI, and so our AMIs, that we focus on that. $25 million. The majority of that funding went to 50% of area median income and below. A good chunk went to 30% of area median income and below. Wow, Okay, that good chunk went to 30% of median income and below.

Rachel Oh 35:52

Wow, okay, that's amazing.

Mike Akerlow 35:53

But we also, we look at it. It is, it's good, but some of that funding went into mixed income projects too. So you can say, hey, you know, we did some 50%. We also did some 60 and 70%, while getting some 30%. So I think what it's impressive what we did with that money. So we've got that.

Mike Akerlow 36:10

We also oversee several federal funding sources. In fact we're releasing an opportunity for funding just under $5 million and this is some short-term funding for developers to come in to acquire land or to do pre-development work. Even in construction costs. Three to five-year term, the goal is to just get some projects off the ground and get them into production. But that will be also focused on. The goal is below 50% of area median income. On that funding.

Mike Akerlow 36:39

We're exploring some different options too. We met with a group out of New York who is funding some affordable housing through a partnership with the. I think it's the state. I can't remember if it's the city of New York or the state, but anyway they are doing. I think they're using their balance sheets of the government entity to help borrow funds, which is, I think, a really interesting idea we're exploring. Right now.

Mike Akerlow 37:02

We've kind of put together our first draft of looking at a community land trust. So this is the way to take publicly owned properties, put them into a trust that then can be put out for development, and the really cool thing about that is that the way it increases affordability is that that property always stays in the trust but the building is owned by either a household or a developer. But because the land doesn't have to go in at a cost, it makes it affordable. So really great. These are done all over the country and typically by nonprofits. But we're looking at one. I started one when I was at the city and now we're looking at one countywide. So another way to start getting properties in holding those while some affordable housing goes on top. So doing that, that, we are looking at some. Um, we're helping bluffdale city with their accessory dwelling unit toolkit, so helping them develop a toolkit so that people know how to build adus and they've, and utah has lifted that need for permitting on earth.

Rachel Oh 38:06

Is that right? Like you can, anyone can build an adu anywhere yeah, yeah, well, well, yeah, well you still have to get them permitted. Okay.

Mike Akerlow 38:15

But you do, yeah. Yeah, you still would have to get them permitted. It's just making them easier to do so yeah, there were some barriers to that. Cities had some barriers.

Rachel Oh 38:23

Yeah, those have been lifted right.

Mike Akerlow 38:25

Yeah. Yeah, there's been some legislation passed for internal ADUs. So if you want to do like a mother law apartment, you could do that. The external ADUs so if you want to do like a mother-in-law apartment, you could do that. The external ADUs is a little more localized, but more cities are coming online and that's kind of a zoning thing, because you're talking about now like putting a new building on a lot. So what does?

Mike Akerlow 38:42

that look like in terms of setbacks and your neighbors and things like that. So cities are working on their ordinances, like I said, bluffdale did theirs. So we're in the process.

Rachel Oh 38:52

I can't believe Bluffdale is a city. I just have to tell you. I just cannot believe that's a city. But I drove through there and it's nice. You know they've done a nice job, that's great. I mean, and it's pretty dense, so I can see how they're offering affordable for all income levels. But yeah, bluffdale is a thing now, right.

Mike Akerlow 39:10

Yes, it is, and it's growing like crazy. I mean, like you said, I grew up in the Sugarhouse area, that's what I was used to, and now you drive to South Jordan or to Bluffdale and Harriman and it's a whole different. I mean, it's just crazy.

Rachel Oh 39:23

The nice thing about new is everything just looks nice. So yeah, there's something to be said. And I will say on that side, on the west side, they get the beautiful Wasatch Front as a view. It's incredible. Like, our views aren't as good if you're on the east, like the ochres are so far away, but if you're looking east, it's beautiful.

Mike Akerlow 39:41

It's amazing. Yeah, I totally agree with you. It's incredible, the views of Mount Olympus. I mean, it's majestic.

Rachel Oh 39:46

It's really beautiful, ok, so one last question my investors, my listeners, whatnot? You know they're all about real estate for different things. Help, just if you could maybe just briefly kind of explain what are opportunities for investors in affordable housing? I imagine a lot of that is through like impact funds and you mentioned patient capital, but is this just a carve out where they can get a steady return, or is it mainly just its impact, like they know they're doing some good? Or how can investors approach affordable housing?

Mike Akerlow 40:20

Great question. I think you know there's. Like I mentioned, there's always the opportunity to be an investor on a light tech project and that would be something I would never try to even counsel them on. That is, they've got to go to their attorneys and help figure that out because that's just kind of its own animal. But there is opportunity there if they want some credits. I think more in line with what your investors are looking for is what you said is what's more of this impact investing? Can we fund projects where there's increased densities for affordable housing, or even on projects where we don't get increased densities for affordable housing? Or even on projects where we don't get increased densities? Is there a willingness to maybe not get as high of a return in exchange for some community good putting more making, like you said, 20% or 10% of your units affordable? So yeah, it's a really tough conversation because at the end of the day, investors put their money out to get a return, and that's what they want.

Mike Akerlow 41:15

And so when you start talking about lowering rents, then you start talking about decreased returns. It's just simple math, so I guess there's got to be. Is there an appetite for lower returns? If so, what kind of lower return?

Mike Akerlow 41:30

would we be talking about? Is it 2% lower? I don't know. But it's kind of playing with those numbers and seeing what would be acceptable. I think if you can look at increased unit or you know increased densities so you don't, so you make up some of that difference is another great way to do it. But we have to start pushing. We just have to start asking the questions and maybe get out of the comfort zone of a. You know, this is our project, this is the standard project we do. We've always done it. We know our return. That's very safe. Yeah.

Mike Akerlow 41:55

If we want to help contribute to the affordability in communities, we have to get a little more creative. Yeah. And see if there's different ways to do it. I think also you know you mentioned on Paperbox you got the city to participate. Yeah, you got them to put in the land. That makes a huge difference. So again at PEG, going to the cities and saying what would you guys give us in exchange for a dozen affordable units in this building construction costs?

Mike Akerlow 42:28

we know what we can lease them for, and now we just have to decide what is that delta? What's that difference? That we need to still get a decent return but also provide maybe some affordable units to a project yeah.

Rachel Oh 42:40

No, I, yeah, that's so great. I appreciate that. Again, I think it's just like anyone's allocations right and they've got their investment goals, and I always feel like it's just maybe bringing that into sort of your allocation and just knowing, hey, this little chunk may not be getting the outsized returns that we're looking for in different areas, but it is the area where I can feel good Right, and so I to your point. I think it's rethinking and I do think this next generation is. They are so focused on doing good, you know, and being so open and welcoming, and maybe they're the ones that will think less about maybe what the previous generations and really carve out more of that doing good.

Mike Akerlow 43:18

So so maybe, maybe. I mean I have kids in that generation and they've all said to me dad, we have no hope of buying a house. Yeah.

Mike Akerlow 43:26

We have no hope of a house and we are even concerned about being able to rent. We're going to have to rent with friends. You know there's got to be a lot of people in there just to even afford the rent and live in a community where we want to live. And so, yeah, there are some. They're facing some pretty tough challenges and I think you're right, they may look at some things differently than we do. Well, and we should help them.

Rachel Oh 43:46

We really should. We can do that and I know you are. You're such a good dad. Okay, well, mike, thank you so much for taking time out of, I know, your very busy day and schedule and responsibilities.

Rachel Oh 43:58

I learned so much and it actually makes me I don't know, just makes me kind of rethink things. So I really appreciate your time. I'm hoping maybe we can have you on a future episode. You can kind of give us maybe more of a progress report about how some of those projects are doing. I would love it, We'd love to hear, have a check in.

Mike Akerlow 44:14

So maybe we do something after the session next year and talk about some updates and funding, or there's new zoning or something that we can do a little update. Yes, perfect, okay, well, thank you, well, thank you so much.

Rachel Oh 44:26

So. Thank you, mike, for joining us. Your insights have been amazing. In the meantime, thank you to all our listeners who have joined us today. Again, from the peaks of the Mountain West, I am Rachel Oh, your host for Peaks and Portfolios by PEG Companies as we dig into all things real estate and today, maybe just a little bit of doing good too. Thank you all for joining.