When we talk about "affordable housing," what comes to mind? For many people, it's low-income housing or subsidized units. But in today's market, affordable housing has taken on a whole new meaning—and with it comes some exciting opportunities that more people should know about. I recently discussed this evolving landscape with Jerry Dunnavant of Covenant Real Estate Services, and what he shared could open doors for buyers, sellers, and investors alike.
Redefining Affordable Housing
Here's something that might surprise you: affordable housing in today's world increasingly means middle-market housing for the workforce. We're talking about housing for teachers, firefighters, police officers, nurses, and other essential workers who form the backbone of our communities.
Jerry shared an example of a project right here in the Roanoke Valley at the Old Norwich Foundry site. They're developing townhomes—attached, beautiful units—specifically geared toward this workforce demographic. These aren't the stereotypical "affordable housing" units you might picture. They're quality homes designed for working professionals who are being priced out of the current market.
The Tools Making It Possible
So how are developers making these projects financially viable in an era of high construction costs and elevated interest rates? Jerry highlighted several creative approaches that are gaining traction:
Low to Moderate Income Housing Tax Credits (LIHTC)
These tax credits are being used to help finance workforce housing projects. For developers and investors, these credits can make projects pencil out that otherwise wouldn't be feasible. If you're involved in real estate development or investment, understanding how these tax credits work could open up new opportunities.
Employee Assistance Programs
Jerry mentioned that employee assistance programs for down payments are becoming more common. If you're employed by a company or organization that offers these benefits, it's worth investigating. These programs can help bridge the gap between what you've saved and what you need to purchase a home.
Creative Financing and Structuring
Beyond traditional financing, Jerry noted that there's increasing creativity in how these deals are being structured. From partnerships with local governments to innovative use of tax credits and incentives, the landscape is evolving to meet the workforce housing need.
Proposed Legislation to Watch
One of the most intriguing things Jerry mentioned was proposed legislation that could have significant implications for both buyers and sellers. A local representative has proposed that if someone who is 65 or older sells a rental property to a first-time home buyer for less than $500,000, there would be no capital gains tax on that sale.
Now, Jerry was quick to clarify—this hasn't passed yet, and I want to echo his caution: don't call me asking for that deal just yet! But it's an example of the kind of creative policy proposals being floated to address the housing affordability challenge.
If this or similar legislation does pass, it could create a unique opportunity for older property owners to exit their rental properties while helping first-time buyers enter the market. It's worth paying attention to as these proposals develop.
Tax-Advantaged Strategies for Real Estate Investors
Beyond these workforce housing-specific opportunities, Jerry reminded us of some established tax strategies that can help make real estate investments more viable and improve cash flow. These are tools that every real estate investor should understand:
1031 Tax-Deferred Exchanges
If you're selling a property and want to reinvest in other properties, a 1031 exchange allows you to defer the tax component of the transaction. Jerry's company, Covenant Real Estate Services, serves as a qualified intermediary on these exchanges, partnering with IPX 1031.
This is one of the most powerful tools in real estate investing. The ability to defer capital gains taxes while building your real estate portfolio can significantly accelerate wealth building. We've covered 1031 exchanges in previous podcast episodes, and they remain a cornerstone strategy for serious real estate investors.
Cost Segregation Studies
On the commercial real estate front, cost segregation studies can dramatically improve the cash flow characteristics of a property. By accelerating depreciation on certain components of a property, you can generate substantial tax savings in the early years of ownership.
These studies have become increasingly sophisticated and are being used more frequently in commercial transactions. If you're acquiring commercial property, a cost segregation study should be part of your consideration set. Jerry noted that he sees these studies within transactions on the commercial front, and they actually make things work from a cash flow perspective.
Making Projects Pencil
Jerry emphasized that when you consider all these tools together—tax credits, cost segregation, 1031 exchanges, and creative financing—you can find ways to make projects cash flow and work financially that might not otherwise be feasible. This is particularly important in today's environment of higher interest rates and construction costs.
Why This Matters Now
The convergence of high construction costs, elevated interest rates, and strong demand for workforce housing is creating both challenges and opportunities. For the right projects, structured the right way, these conditions can actually work in your favor.
If you're a developer, understanding how to leverage tax credits and creative financing can make previously unfeasible projects viable. If you're an investor, these workforce housing projects may offer attractive returns combined with meaningful community impact. And if you're a potential buyer—particularly a first-time buyer or someone in the workforce demographic—there may be more options available than you realize.
The Importance of Local Knowledge
One thing Jerry emphasized is the importance of paying attention to what's happening in your local market. National news and trends are one thing, but the specific programs, incentives, and opportunities available in your area can make all the difference.
In the Roanoke area specifically, Jerry noted that low-income housing tax credit projects haven't been prominent historically, but that's changing. We're seeing more creative approaches to addressing the workforce housing shortage, and those who are aware of these developments will be best positioned to take advantage.
"I think there's some creative things happening around these types of projects that we'll see more of in our footprint," Jerry said. "I'm encouraged about that."
Looking Forward
The affordable and workforce housing landscape is evolving rapidly. Between changing market conditions, creative financing structures, potential legislative changes, and established tax strategies like 1031 exchanges and cost segregation, there are multiple levers to pull when structuring real estate transactions.
At Brown Edwards, we work with clients across the spectrum—from first-time homebuyers to sophisticated real estate investors. What we've learned is that understanding the full toolkit of available strategies is essential to making informed decisions that align with your financial goals.
Whether you're looking to sell a property, invest in real estate, or purchase your first home, I encourage you to explore all the options available to you. The traditional approaches may not be the only—or even the best—path forward in today's market.
Taking Action
If any of these topics resonate with you, now is the time to start exploring your options. Connect with qualified professionals who understand both the real estate and tax implications of these strategies. Ask questions. Do your research. And don't assume that the way things were done in the past is the only way forward.
The workforce housing challenge is real, but so are the creative solutions being developed to address it. By staying informed and working with the right advisors, you can position yourself to take advantage of the opportunities that exist—or that may be coming soon.
For more information on 1031 exchanges and cost segregation, please check out our earlier podcast episodes where we dive deeper into these strategies. And if you're considering any real estate transaction and want to understand how to structure it for maximum tax efficiency, reach out. We're here to help you build your customized tax planning playbook.
Evan Ross is a Tax Director with Brown Edwards & Company based in Roanoke, Virginia. For more information about real estate tax planning strategies, including 1031 exchanges, cost segregation, and structuring real estate transactions, contact Evan or visit the Brown Edwards website. To learn more about Covenant Real Estate Services, contact Jerry Dunnavant at jerry@covenantreal.com or 540-529-2231.
