Is building more the only way out of the housing crisis?

Dr. Eric Anthony Johnson, President and CEO, Aeon. Image courtesy of Aeon

Thanks to the relocation of businesses and residents from coastal metros, the Twin Cities housing market has seen healthy fundamentals in recent months. However, the growth in activity has also put increased pressure on the metro’s affordable housing stock. According to Dr. Eric Anthony Johnson, President and CEO of infinite timeevery corner of Minnesota needs additional affordable housing, from urban cores to suburbs and beyond.

“Incomes are not keeping pace with the rising cost of housing, and it is difficult to find the resources to alleviate the housing crisis,” he said.

Recently, Johnson took over as head of Aeon, a nonprofit developer, owner and manager of affordable housing in the Twin Cities. He took over the leadership role from Alan Arthur, who served as the organization’s president and CEO for 33 years. In the interview below, Johnson talks about the challenges of building affordable housing in the Twin Cities, but also discusses ways to protect the Metro’s existing affordable housing stock.

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What are your priorities in your new role at Aeon?

Johnson: Build on Aeon’s success as a developer unafraid to tackle affordable housing issues. I believe we can continue the great work by developing and implementing a powerful 10-year strategic plan focused on developing and preserving over 10,000 units over the next 10 years.

What can you tell us about Aeon’s philosophy of developing and operating affordable housing communities?

Johnson: It’s very simple: to create a home for individuals and families who need access to quality housing that meets them where they are financially.

Local and state legislators are working to implement policy changes to spur housing development. What policy changes could most stimulate the development of affordable housing?

Johnson: We need access to lower-cost capital, aligned financing, zoning that supports the creation of affordable housing, development tools, and regulatory relief from cities. All of these things can stimulate and support the production of affordable housing.

Do you expect to see positive changes in terms of new housing policies in the near term?

Johnson: I believe that we are beginning to realize that what we have done in terms of housing policy does not correspond to the reality of housing needs in American communities. Once we have more clarity on the magnitude of the gap between income and housing costs, and its impact on our communities from an economic perspective, I think we will begin to see a shift in housing policy.

Blooming Meadows in Bloomington, Minn. Image courtesy of Aeon

Tell us about the affordable housing projects you are currently working on in the Twin Cities. What sets these projects apart?

Johnson: We recently opened a new 172-unit property in Bloomington, and we opened another 70-unit property in Edina at the end of March. Soon we will be breaking ground on the renovation and addition of a property in Brooklyn Center that will have 171 units when complete, and we recently received funding from Minnesota Finance for two properties with a total of 162 units in downtown St. Paul and Big Lake, Minn.

What this tells us is that every corner of our state needs more affordable housing – the urban core, the suburbs, the suburbs and beyond. All of these properties include housing for low-income households, many of whom have experienced long-term homelessness or other issues requiring support services. While funding for the development of these homes is essential, it is also important to have long-term, predictable funding for the support services residents need to thrive.

How has the pandemic influenced your approach to affordable housing development?

Johnson: Together with our funders and other stakeholders, we strive to innovate every step of the way. From big changes like how we underwrite reserves, operating calculations and construction pricing, to small things like how we had to quickly adapt approval and closing processes with public bodies that have legal requirements. We have been challenged by the uncertainty and the speed of change that has occurred. Yet we and our investors and community partners have risen to the challenge because COVID-19, along with the consideration of pervasive social and racial injustices, has shone a light on the importance of having a place to call home.

These unprecedented times have made it clear that housing is part of our public health care system, an extension of our schools and is essential to keeping much of our workforce working. More and more people and organizations are engaging in the conversation about the need to solve our housing crisis.

How do you deal with issues related to supply shortages and rising construction costs?

Johnson: It’s been an incredibly difficult dynamic. We used contingencies and reserves to cover costs and, in some cases, lent money to projects. As long-term owners, we will recoup those dollars even if it takes a full life cycle for the property. We also have great gratitude for Hennepin County and others who provided grant funds to help with cost overruns.

In order to reduce project completion delays as much as possible, we have worked with contractors to order products well ahead of normal lead times, and have created a depth of alternative products and supplies to have on hand. hand, in the event of the closure of supply chains. .

Remember that our projects are priced at the time we seek funding, but awards can take longer than six months, with closings expected six months or more later. This is a delay of more than 12 months. Normally it would suffice to include an inflation factor in our budgets, but these are not normal times. Prices have changed rapidly on commodities like wood, steel and resins. And some products, like appliances and bathtubs, simply become unavailable months after an order has been placed. All of these issues mean that, in some cases, contractors don’t lock in prices or commit to schedules until the materials arrive on site.

Ring the 76th in Edina, Minn.
Its on 76th in Edina, Minn. Rendered courtesy of Aeon

How do you think supply chain and construction challenges will impact affordable housing development in the coming year?

Johnson: We are starting to see supply chains calming down as the impacts of COVID-19 abate, although COVID-19 shutdowns beginning again in Shanghai may portend further disruptions to come. We will need to continue to innovate, which could include increasing affordable housing industry programs for the purchase and storage of shared inventory.

Additionally, the greatest impact we can have is to focus more on preserving natural affordable housing that is being lost faster than we can build new properties. Each year in the Twin Cities, investors quickly purchase and upgrade about 6,000 NOAH units, moving families overnight to a market that is, for all intents and purposes, fully occupied.

Statewide, we only have enough funding for about 2,000 new affordable housing units per year. Historically, it has been twice as expensive to build new than to preserve NOAH – a premium that will only increase with the volatility of construction prices. Simply put, the best way to protect ourselves from price and supply volatility is to not just look to get out of the housing crisis.

What are the top three trends that will shape the Twin Cities housing market in 2022?

Johnson: The ongoing pandemic and its impact on residents, the mismatch between income and the cost of housing, and limited capital at the right price to support the preservation and production of affordable housing.