Heya folks - as many of you know, I've steered clear of engaging in the forums for reasons stated a number of times, but this happens to be a subject of which, I have deep knowledge. In addition to affordability being one of the greatest issues facing almost every community in which I work (mixed-use real estate development and consulting work, the latter usually for municipal clients), I recently completed a 40 page white paper on the affordability crisis for a client detailing the causes, and potential strategies to overcome, this issue.
Yes, I am known for lengthy posts, but I'll try to keep this under 40 pages (if folks want a link or copy of the report I'll be happy to send via email, just PM me... and I have written probably a half dozen articles/blogs including a 5 part series on this issue).
A few top line thoughts:
Yes it's a crisis. Undersupply and growing demand
1. It is absolutely a crisis. We have under produced housing by nearly 7.5 MILLION units from 2000-2015.
2. To exacerbate the lack of overall production, much of the existing product is not suited for what today's consumer wants. There is increased demand for rental apartments that is even further lacking than for sale single family... and both product types are in even greater demand (with less relative supply) in walkable, urban, locations (center city cores, mixed-use suburban nodes, smaller cities, and historic downtowns).
3. This is economics 101 - there is a SEVERE lack of demand. Overall, and moreso for the aforementioned market segments/geographic locations.
Causes of the crisis: We ain't building enough (Duh)
1. The primary reason for housing affordability crisis is lack of new supply of new housing, especially those offerings that meet today's demand. This is due to a number of factors
2. The biggest factor is local resistance to almost any type of development, ESPECIALLY any development with density / rentals / multifamily (the most constrained and in demand product types as compared with demand... not saying there is more demand OVERALL for these typologies, but we have more single family homes compared to demand than we do for an albeit smaller overall market segment in rental apartments or condos, but there is such a dearth of the latter that there's a greater relative imbalance). NIMBYism is especially acute in the very areas that have the greatest demand such as the Bay Area.
3. For a confluence of factors, including NIMBYism and local resistance, there is even GREATER lack of supply not only for rentals in general, but for attainably priced rentals. The same can be said for single family homes. For rental/multifamily, there is such risk involved in the process that only large, very well capitalized developers can take the chance that a project might take 5, 7, 10 years to get approvals. And some, never gain them at all. This also results in only very large scale, institutional sized development as opposed to a range of building sizes. It doesnt make sense to built 30, 70, 100 units. So you see all these "similar looking" 250-350 unit buildings, often taking up an entire block for effenciency sake... but degrading the overall urban experience, walkability, and overall value of an area long term. In terms of single family homes, who is going to build a 1200 sf house when any number of factors (including prohibitions on small scale multifamily like a four-plex or six plex, or lack of legal ability to build and accessory dwelling unit) make it far more profitable to build 3,500 sf. So, if you only want/need/can afford the typical house of 30 or 50 years ago, there's very little new supply - often none.
Long story short: our system is so difficult for developers to build, it only makes sense to build BIG... and to aim for lux and super lux segments. As noted, there are affordable housing programs such as Low Income Housing Tax Credits (LIHTC) and other public programs, but that often means you can build for the poor or the rich, but not the vast majority of people in between.
Some strategies to address the issue (basically, make building more housing and more varied housing legal)
1. Most of all... WE NEED MORE SUPPLY. So we need to create an environment where there is more development - of all product types, within all communities, at all scales. Small, medium, large. Attainably priced through luxury (fyi, building more luxury, contrary to the complaints of the un/misinformed, actually helps LOWER the overall cost of housing for an area/region through increased supply, even if that new supply is too expensive for most, as other existing product then drops a rung on the "lux" meter)
2. Build a lot more "Missing Middle" product - by making it legal Missing middle usually connotes anything from accessory dwelling units to two-six or even 12 plexes. These building types used to be found in almost every neighborhood... but neighborhood resistence/NIMBYism, often fueled by classest/economicist/racist underpinnings has resulted in almost no new product of these types being built. These are simply ways to "gentle densification" of existing neighborhoods, and has been embraced by areas like Oregon and Minneapolis, that have made it all but illegal for local municipalities to have single family home ONLY zoning.
3. Allow and incentivize more 30-100 unit developments. This is a key factor in smaller urban areas, historic downtowns and suburban locations. As I will get to in my final point, below, we need to create an environment where local and regional, smaller scale investors/developers, can make money building smaller scale apartment complexes. We can't survive only building 250+ units at a time, by a handful of the same companies - who are the only ones that can sustain the economics and/or have the political connections to get things done.
4. Streamline the approval process: Not only do we need to make it legal to build these housing types - we need to DRASTICALLY reduce to risk (both time and cost... not to mention overall uncertainty) of the entitlement/zoning process. Make the process clear, transparent, and fair. Have what is legal clearly defined... as opposed to today where many/most municipalities have vague or none-existent multifamily zoning where it really comes down to the whims of the city council and mayor to approve or decline each individual project. The result of how we do it today is a lack of certainty, the ability for only politically connect developers to succeed, and too much leverage on behalf of elected boards to try to get a pound of flesh (or multiple pounds) from a developer in the form of additional requirements that the developer has to provide (more affordable housing, more parks/amenities for the public, ridiculously high impact and connection fees that render all but super lux developments economically infeasible).
5. Proximity, transit, and walkable, mixed-use development: Far too often, we look at the cost of housing as just that: housing. It's really the cost of housing in terms of its effect on the cost of living. The average car costs about $9,000-10,000 A YEAR to own and operate. Not to mention time lost to commuting. For those who must drive 45, 60, 90 minutes from their place of employment because they can't afford anything closer, those costs climb higher... for those who can least afford it. If we build more housing near employment centers and also provide non-auto only options to commute, we can provide significant cost relief to families. I'll have to confirm, but if a family can go from two cars to one car, they gain something like $150,000 more in ability to pay for a mortgage, and something like $1000-1,500 more in their pocket for rent. Those are HUGE costs, and absolutely dependent on where housing is located.
Hope this first (and classically lengthy) post is informative. Feel cute, might delete later (or rather, may or may not check in, as I don't want to get wrapped into the other threads here for aforementioned reasons). I will check my PMs though either way.
I could literally go on for pages here, but those are the basics. TL;DR - we need to vastly increase supply of housing of all types, but especially multifamily and missing middle product types to counter the vast imbalance between growing demand, and stagnant and mis-purposed supply.