It might seem like common sense. If there's such a high demand for affordable housing, then shouldn't developers be scrambling to supply it?
The Charleston region has become one of the most expensive places to live in the Southeast, and home prices continue to climb every month. People are moving to the outskirts of town seeking more affordable rents and mortgages, adding longer commutes to their jobs, doctors appointments and schools. Some are being priced out of town completely.
To stop the trend in its tracks, the region needs more housing that most people — not just the elite few — can afford.
But it's not as simple as the supply-demand theory we learned in high school.
For one thing, it's just as expensive to build affordable housing as it to build market-rate housing. The land costs are the same. Building codes are the same. Construction costs are the same.
To put it in the simplest terms: In a market-rate project, you can get a loan from a bank to build it if you can generate enough rent revenue to pay it off. You'll might even take a decent profit once you sell it off to an apartment company.
In an affordable housing project, your tenants will pay only a certain amount every month, and it's probably not going to be enough to cover the interest costs on a bank loan, much less the land, the construction and the property taxes.
To make it work, you've got to cut corners in a lot of different ways, and it's not like you can just hire a smaller construction crew or use inferior materials (there are laws against that). So what do you do?
There are a number of options, none of them perfect. But there's one you'd probably look into first.
By far the largest funding source for affordable rental housing developments in the United States is the Low Income Housing Tax Credit program. It's often referred to as LIHTC, so when you hear people pronounce it "Lie-Teck," this is what they're talking about.
President Ronald Reagan created the program to give companies the option to save a substantial amount of money on their annual tax bills — if they invest some of their profits in affordable housing developments.
They buy housing tax credits from developers, and the developers use the cash to build their projects.
But it's not a direct exchange. Each state receives a certain amount of the credits from the federal government every year, based on the state's population.
In 2018, South Carolina received $13 million; the annual average has been about $11.7 million.
The State Housing Finance and Development Authority is in charge of deciding which developments get a share of the money every year using a scoring system called the Qualified Allocation Program, or QAP.
The 40 to 60 developments that apply for tax credits every year are judged on one set of criteria. The closer you are to a full-service grocery store or pharmacy, the more points you get. If you're too close to a bar or an industrial site, such as a port, you lose points.
Only about 20 projects are chosen each year.
Recently, affordable housing developers, particularly in Charleston, have raised concerns about South Carolina's QAP.
They say the one-size-fits-all scoring system doesn't work as well for cities like Charleston because they're dealing with unique factors, such as limited space and high land costs, which aren't in play in smaller markets.
Charleston has the state's largest population, and its housing prices right now are higher than anywhere else in the state except for Hilton Head Island, a resort community.
Yet the tax credits — considered a cornerstone of any new affordable housing development — are primarily going to places with much less severe affordable housing shortages.
'A balancing act'
From 2015 to 2017, housing tax credits funded 56 projects totaling 2,558 affordable units in South Carolina, but only one 38-unit project in Charleston.
In that same time period, three projects were awarded tax credits in Florence, creating 140 new affordable units in the small town with a population of about 38,000. Market-rate rents hover around $1,200 a month in Florence, while average rents in Charleston are at $1,600, according to online real estate platform Zillow.
The area with arguably the most dire need for more affordable housing — the Charleston peninsula — hasn't seen a tax credit development in 15 years.
The city of Charleston got voters' permission in November to borrow $20 million to create more affordable housing, but that money won't go as far if the developments can't qualify for tax credits.
One80 Place, a nonprofit organization serving the Lowcountry's homeless population, is based on Meeting Street on the upper peninsula. To help meet the need for housing in that part of town, the organization is stepping into the development realm for the first time to build a new 80-unit complex to serve people with low incomes.
Executive Director Stacey Denaux explains why it's so critical.
"In Charleston, on the peninsula in particular, we are just not building housing for the people who actually make Charleston work," she says. "The people who work in the restaurants and hotels on the peninsula are priced out of living anywhere near where they work."
Developers say it's extremely difficult for a downtown Charleston project on the peninsula to meet QAP's requirements. For one thing, tax credit developments can't have more than 72 units.
Land is very expensive on the peninsula, but if you can only going to charge so much for rent, then you'd need to add more units to generate enough rent revenue to cover your costs.
In Columbia, for instance, it can be easier to meet the unit caps because land there isn't as expensive.
Since the housing tax credit program was created, Columbia has developed 71 projects and a total of 3,188 units. About half as many have been built in Charleston: 37 projects with 1,663 units.
Tracy Doran, president and co-founder of the Mount Pleasant-based Humanities Foundation, has been a leading developer of affordable housing across the Southeast. It's been years since the foundation could build anything in Charleston, she said.
"We have not done anything in the last five to six years here because of the structure of the Qualified Action Plan at the state level," she said. "We have to compete with other areas that don’t have the same challenges and increased costs like we have here in the Lowcountry."
A few years ago, foundation officials planned an affordable housing development in the East Side neighborhood in downtown Charleston, but it fell through because they couldn't secure tax credit funding. In the scoring process, the project lost too many points for being within a few hundred feet of a bar.
"In an urban setting, you’re going to have a dive bar somewhere," Doran says.
The QAP is an ever-evolving document, so there are opportunities for developers, government officials and others to suggest changes. Last year, after hearing some of these concerns, the board created a separate pool of money for developers in urban areas.
Clayton Ingram of the state housing authority says Charleston developers aren't taking advantage of it.
"So far, only the city of Columbia has applied for this," he says. "There has been no interest, that we have seen, from either Charleston or North Charleston."
Doran says the Humanities Foundation did work out a site in Charleston to apply for urban pool funds, but the deal fell through just before the application deadline.
In general, though, Doran thinks a system like Virginia's might work well in South Carolina. That state directs most of its tax credits to the areas where the population is growing.
Ingram isn't sure that would work here, since South Carolina gets a smaller share than states like Virginia and North Carolina.
"There are rural areas that need them, as well as the population centers. It’s a balancing act with limited funds," he says.
Time to make changes?
Geona Shaw Johnson, director of the city of Charleston's Department of Housing and Community Development, says she'd like to see the state housing authority consider raising the cap on units so that denser projects could be built on the peninsula.
Charlie Irick and Hollis Fitch are co-owners of a development group based in Charlotte, but they've built many affordable housing projects in South Carolina.
They say while tax credits present a wide range of challenges, there are things municipalities can do on the local level to make developing affordable housing easier.
"Typically, in the more urban markets, we’re seeing design requirements that are adding to the cost," Irick says. "We’re seeing that in Greenville, Columbia, and definitely in Charleston."
Some communities waive property taxes or impact fees for affordable housing projects, they say. Others, such as Charlotte, have fast-track permitting processes. Charleston is considering the same thing, which could possibly lift some design review requirements as well.
Ingram says the state authority wants more input from anyone concerned about the tax credit program. The authority holds a round-table meeting with developers in September to discuss the next year's QAP, then there's a public hearing in October.
Once the next QAP is finalized by the housing authority's board, it goes to Gov. Henry McMaster to be signed by year's end.
And then it goes out into the marketplace, helping to create the affordable housing projects that give some people — but not all — a price range they can live with.