Fundamentals of Affordable Housing Development and Feasibility

Vocabulary flashcards covering core real estate development concepts, operating and development budgets, feasibility metrics, and site analysis from NeighborWorks America course AH101vc.

Affordable Housing

Decent, quality housing that costs no more than $30\%$ of a household's gross monthly income for rent or mortgage.

Naturally Occurring Affordable Housing ("affordable")

Housing that is naturally affordable without public subsidies, open to anyone who satisfies the landlord's screening checks.

Subsidized Affordable Housing ("Affordable")

Housing built or operated with local, state, or federal funds that carries legally binding restrictions on maximum tenant incomes and maximum rents.

Permanent Supportive Housing

A cost-effective, outcome-driven housing solution combining non-time-limited affordable housing assistance with wrap-around support services to end homelessness for individuals and families dealing with mental health, addiction, or disabilities.

Pre-Development Phase

The development period lasting $2\text{ to }5$ years that covers forming the project concept, acquiring site control, assessing feasibility, and securing funding commitments through loan closing.

Construction Phase

The development phase lasting $1\text{ to }2$ years that encompasses demolition, foundation and ground work, site improvements, and physical building erection ("sticks and bricks").

Operations Phase

The ongoing stage of real estate development lasting $40+$ years that involves leasing units or selling homes, property management, and long-term asset management.

Development Budget

A budget outlining total project development costs, categorized into Sources (debt and equity) and Uses (acquisition, construction, soft costs, developer fee, and capitalized reserves).

Operating Budget

An annual operational projection categorized into Income (rents, laundry, parking) and Expenses (taxes, insurance, utilities, maintenance, management, reserves, and vacancy).

Basic Feasibility Rule

The core real estate rule stating that total Income (or Sources) minus total Expenses (or Uses) must equal a positive number.

Net Operating Income (NOI)

The net cash flow generated by a project, calculated as total income minus operating expenses, which determines project viability and supportable debt.

Effective Gross Income (EGI)

Total rental and other operating income minus a minimum vacancy allowance of $5\%$, calculated prior to subtracting operating expenses.

Debt Coverage Ratio (DCR)

An underwriting ratio established by lenders (typically between $1:1$ and $1:5$) used to determine maximum debt service via the formula: $\text{NOI} \div \text{DCR} = \text{Maximum Debt Service}$.

Loan to Value Ratio (LVR)

A risk metric set by lenders to determine maximum loan capacity, calculated as: $\text{LVR} = \frac{\text{Loan Amount}}{\text{Fair Market Value}}$.

Site Control

The legal mechanism granting exclusive rights to a development parcel, secured via an Option to Buy/Lease or a Purchase and Sale Agreement.

Contingencies

Protective contractual conditions in a site purchase agreement that must be met before closing, such as board approval, due diligence, environmental reviews, zoning approvals, or receipt of financing.

NIMBY

An acronym for "Not In My Back Yard," referring to resident opposition to new local development proposals.

LULU

An acronym for "Locally Unwanted Land Use," describing proposed projects or facilities that encounter community pushback.

NIMTO

An acronym for "Not In My Term of Office," describing political hesitation by elected leaders to approve controversial real estate projects while in office.

Area Median Income (AMI)

A baseline median income metric calculated by HUD adjusted for family size, used to determine eligibility thresholds for programs at $30\%$, $50\%$, $60\%$, and $80\%$ of median income.

Replacement Reserve

An ongoing operating expense line item of at least $\$300$ per unit per year set aside to fund the long-term repair and replacement of major capital components.

Operating Reserve

A liquidity reserve maintaining $6\text{ to }12$ months of operating expenses to protect against unforeseen operational deficits.

Maintenance Expense Baseline

The standard rule-of-thumb operating expense allocation of at least $\$500$ per unit per year for routine property maintenance.

Management Fee Benchmark

An operating expenditure typically requiring $5\text{--}10\%$ of gross income when professional property management is contracted.

Soft Costs

Non-physical development budget expenses including architectural, engineering, legal, appraisal, permitting, and financing fees.

Hard Debt

Conventional borrowed funds requiring mandatory, periodic principal and interest debt service payments.

Soft Debt

Subsidized or subordinate funding sources with flexible terms, such as deferred debt service or repayment contingent upon available cash flow.

Request for Qualifications (RFQ)

A competitive procurement process used to evaluate and shortlist prospective development partners or consultants based solely on experience and professional capacity.

Request for Proposals (RFP)

A formal procurement solicitation requiring competitive bidders to submit specific technical proposals and cost estimates.

30-Year Proforma

A long-range multi-year cash flow spreadsheet reflecting income and expense escalations over time to demonstrate project sustainability and debt repayment capacity.

Windshield Survey

An observational field assessment conducted by driving or walking through a neighborhood to gather preliminary data on physical structures, amenities, and community conditions.

Core Development Team

The central group of professionals managing development, specifically comprising the Development Coordinator/Project Manager, Architect, General Contractor, Construction/Rehab Manager, Project Attorney, Asset Manager, and Service Provider.