The Austin Housing Conservancy, a real estate investment fund aimed at keeping the city affordable for middle class workers, is busy drumming up support from prospective investors as it aims to expand.

The effort, steered by some of the biggest names in town including former state senator and Austin mayor Kirk Watson and Heritage Title Company President Gary Farmer, continues as apartment leases and home prices skyrocket, outpacing the wages earned by much of the city’s workforce.

Housing affordability is one of Austin’s defining issues, with households at 80% of the median family income level struggling to afford apartment rent or a mortgage payment — edging the city toward standards seen in places such as Boston and Seattle.

Launched in 2018, the Austin Housing Conservancy owns and leases out 1,200 apartments, providing about 1,800 people with affordable housing at five properties spread from South Austin to Wells Branch.

Five years into its operations under the nonprofit Affordable Central Texas, the fund is approaching $25 million in commitments and has established an ambitious roadmap to raise at least $60 million more, which would enable the conservancy to acquire 10,000 more rental units and provide affordable housing options to 15,000 to 18,000 people. The conservancy has previously stated its goal is to add 1,000 apartment units annually.

“People are recognizing there is a dramatic need in town for affordable multifamily housing and our fund will provide stable housing for individuals and provide a stable and compelling vehicle for investors,” Affordable Central Texas founder and CEO David Steinwedell said.


Working for Austin’s ‘missing middle’

Unlike traditional affordable housing efforts supported by the local and federal government, the conservancy works to support middle class households left in a crunch due to the scarcity of available housing. The situation has come to be known as the “missing middle.”

The fund purchases Austin apartment complexes and rents units out to those making 60% to 120% of median family income as defined by the U.S. Department of Housing and Urban Development. MFI was $89,000 in Travis County for a family of three last year.

The effort is made profitable with state real estate tax abatements and the fund only borrowing through the Federal National Mortgage Association, commonly known as Fannie Mae.

Like a traditional property management firm, prospective tenants must apply for a unit, although to be accepted they must have an annual income level that meets program requirements.

The conservancy currently operates the Preserve at Wells Branch, Melrose Trail Apartments, The Bridge At Northwest Hills and The Bridge at Terracina, all located in North Austin, and Agave at South Congress.

With apartment leases in Austin averaging $1,733 per month, Austin Affordable Housing Conservancy offers income-restricted units with an average rate of $1,068, nearly 40% below the market rate.

The conservancy has a goal of renting out at least half of its units to people living at 80% of medial family income level or below. As of April, about 77% of its residents were at that level.

Bringing relief to Austin’s housing crunch

While wages in Austin have increased about 2.5% a year over the past 10 years, rental rates jumped more than 20% in 2021 and are expected to climb another 15% this year, according to data shared by Affordable Central Texas.

The rising cost of living has taken such a toll that Live Music Capital of the World has been dethroned of a top five position on the U.S. News and World Report annual list of the best places to live in the county.

Touted as a one-of-kind effort, the Austin Affordable Housing Conservancy combines real estate investing and housing relief in a single social entrepreneurship enterprise.

“This is Austin doing what Austin does best, which is coming up with new ideas and bringing them to scale,” Watson said. “I come at this not just as an investor but someone who looks very hard about how the community addresses affordable housing. We are very successful and because of that, we have a market issue. We as a city and as a community need to come at this issue. Our creativity needs to be relentless in how to address this. The conservancy invites people to invest in the future of the city and our essential workers and their housing.”

The conservancy offers a solution that can benefit both the short-term housing needs of the people that build and protect the city and its overall economic health, said John Berkowitz. He is on the group’s advisory board and is also co-founder and CEO of OJO Labs, an Austin startup that uses machine intelligence to provide services to prospective homebuyers.

“Austin Housing Conservancy’s approach of aligning investor incentives with addressing the housing needs of the community solves an incredibly important and complex problem in a really efficient way,” Berkowitz stated. “It bridges an investor’s focus of getting an investment return while also allowing them to make an impact on the community to ensure Austin continues to grow in the right direction. We are raising kids in this community, have employees in this community, and if you don’t have a plan in place for the people that build the city, protect the city, and make the city inspiring and enjoyable, the city as we know it will not be here. The ecosystem of Austin is a flywheel that requires a lot of different people in it and if you lose a group of those people because they can’t afford to be here, the city will change.”

While the conservancy raises capital to expand, the ACT works as the management arm of the fund and provides services to the residents of each property, including courses in financial literacy and healthy eating. In 2020, 53 programs or events were held with approximately 2,500 participants, according to the organization.

“These are the folks that make Austin the place that we want to live in,” Steinwedell said. “If those folks can’t live here, we will lose that edge that makes Austin the special city that it is.”

The fund aims to support those who would not fall under traditional affordable housing programs supported by the government.

“For teachers, medical workers and first responders and musicians, and some jobs that people thought were better paying like bank tellers and even people in the tech industry, it can be a challenge to afford the rent each month,” Steinwedell said.

Phyllis Snodgrass, outgoing CEO of Austin Habitat for Humanity, said the city’s spiking cost of living has caught the eye of the community at large

“It has bifurcated the economy,” she said. “Employers are losing employees. We are seeing more people struggling. Incomes have just continued to rise astronomically for the highest income [homeowners], but for most of the people, incomes have not risen at that rate. The median income person cannot afford a median-priced home. We are doing everything we can to double and triple the homes we are building and even doing that is not going to solve the problem.”

There is urgency in Austin to apply an “all of the above” strategy to deal with the housing shortage. Last summer, Austin Habitat for Humanity completed 11 townhomes near the Mueller neighborhood, partnering with the Austin Community Foundation to collect $1 million in private funds to support the construction.

“There are a lot of people trying to do things and it is all necessary,” Snodgrass said. “We need multiple strategies and that does include bringing in some private equity dollars. More people are wanting to try to help right now. We are going to have to think differently about housing. We are not a little town anymore. We need to build the housing to support the families that live and work here. We need more housing. Period. None of us are providing it as fast as we want to.”

HousingWorks Austin, a nonprofit organization that aims to increase the supply of affordable housing in Austin, found in a 2021 study that 34% of Austinites were cost-burdened, which is when a household spends more than 30% of income on housing. A total of 16% were extremely cost-burdened, paying more than 50% of income toward housing. The city outpaces the state as a whole, which saw an average of 28% cost-burdened households and 13% extremely cost-burdened.

“Affordability is affecting everyone,” said Nora Linares-Moeller, executive director of HousingWorks Austin. The conservancy takes existing rental stock and keeps it “affordable in perpetuity.”

“That is unique in and of itself and something that we absolutely need,” she said. “The people who are investing care about our community. We are lucky to have them because they provide affordability where no other developers are.”

HousingWorks’s research found that, since 2011, home prices have spiked 138%, while household incomes have only grown 38%. The annual income needed to buy the average home in the Austin region is $150,013, while the annual income required to afford a two-bedroom apartment is $64,040.

HousingWorks emphasizes that the average salary from many occupations is well below those benchmarks, with teachers making an average of $56,030 and administrative assistants earning an average of $42,010.

The current situation is part of an ongoing trend that has impacted the city’s economic base for at least three decades. Another study carried out by researchers at the University of Texas at Austin, found that between 1990 and 2019, the quantity of affordable single-family homes fell from 20% of all homes to only 2%

“What we want to ensure is that Austin remains an incredibly attractive place to start a business or move a business,” Steinwedell said. “What we want to make sure is that there is a way to continue to support why people come here, including a place for their employees to live.”

The Article is from Austin Business Journal, copyright belongs to owner

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