Looking to address the problem of Austin’s diminishing supply of middle-class housing, the head of the area’s lead real estate trade group is rounding up investors more interested in social good than eye-popping returns.
David Steinwedell plans to leave his position as executive director of Urban Land Institute-Austin in September so he can lead Affordable Central Texas, a private equity fund that will purchase and hold multi-unit properties in the middle-class price range, the market for which earns between 60 and 120 percent of Austin’s median income of $55,000.
As Austin grows, those types of developments are attractive to developers who buy, renovate and resell or price units at upper-class or luxury rates. That buying spree has created a shortage of housing for job classes such as teachers, civil servants, tradespeople and artists, who are increasingly having to look outside of Austin for housing options.
Steinwedell told the Austin Monitor he and a small group of investors expect to announce closure on one or two properties with between 150 and 300 units each in the fourth quarter of this year and will use the attention from the purchase to begin recruiting investors to fund more acquisitions.
If the plan is successful and the fund delivers modest but reliable returns to investors looking to solve Austin’s middle-class housing crunch, he said Affordable Central Texas could grow to control more than 12,000 housing units over the next decade.
“It will provide a modest return but the more important thing is doing something that has a larger benefit to Austin,” Steinwedell said. “As opposed to investing in another mutual fund this gives you a benefit that helps nurses, teachers, musicians and bank tellers by preserving their housing options in the city near transit corridors. The buildings we’re looking at are those built in the ’80s or ’90s, that have been there a long time and you drive by but might not even notice until one day when they’re gone so the property can be redeveloped.”
Steinwedell said he became interested in the workforce housing issue in 2015 when the Urban Land Institute completed a study on the growing problem of working-class living options that prescribed many actions for the city of Austin to take but found the private development and real estate sectors had little incentive to target middle-class housing. He said the issue was severe enough to require large-scale attention since nonprofits geared toward cheaper affordable housing demographics didn’t have the resources to fully address middle-class housing on their own.
“This is an innovative and somewhat unique approach that takes some explaining when you take it to investors,” Steinwedell said. “The advantage is the risk is very low because demand is strong and the turnover will be low, so the quality and consistency of the revenue is similar to what you see on more typical core investments.”
Steinwedell said individual investors who are open to unorthodox opportunities will make up much of the early money in the fund. If it can deliver reliably, he said, he’ll then be able to present it to pension funds and other groups that can commit larger sums to fund bigger purchases.
Asked about the city’s role in addressing the problem, Steinwedell said he’d like to see middle-class projects fast-tracked for permit approval and given reduced fees to remove some of the burden developers face when building in Austin.
He said the evolution of CodeNEXT will play an important role in where middle-class residential units will be built in Austin over the next 20 years, and that a city land bank that reserves property for workforce housing and potentially reduces property taxes and other carrying costs would help as well.
“Housing is a like a multi-layer cake, and the city has to serve all of the layers,” he said. “To drive more construction of the missing middle, you need to fast-track those projects or eliminate fees and do other things to put them at the front of the line.”
Mayor Steve Adler has made workforce affordability a priority since his election, pushing for more training and job opportunities for middle-class workers, with the hope that increasing those workers’ incomes will address one end of the cost-of-living problem. He said Steinwedell’s effort is needed, and he hopes the approach works so more investors become interested in preserving middle-class housing. Adler announced the creation of the Austin Affordable Fund in January.
“It’s an interesting concept they’re trying to prove up and the effort is critical, because just providing subsidized housing that is affordable is not enough,” he said. “The question will be what scale can you do that at to meet the municipal challenge we face, and will it be sufficient to make a difference and preserve what is special about this city.”
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