Affordable workforce housing will play a key role in the post-recession economy, with demand in both high- and lower-cost markets driven by demographic and population shifts, and the continuing effects of the housing collapse and slow job growth, according to ULI chief executive officer Patrick L. Phillips.

Phillips was among the speakers at a workforce housing forum hosted earlier this month in Orlando, Florida, by the ULI Terwilliger Center for Workforce Housing. According to Phillips, the shortage of affordable housing that is close to employment centers is not just a problem for the nation’s most costly and resilient markets; it is an issue that is also affecting markets with a high rate of foreclosures and plummeting home prices. “The issue of workforce housing is not about a shortage of housing in urban areas, he said. “The challenge is the distribution of affordable units, in terms of where they are located versus where they are needed.”

Community building – including the development of workforce housing – for the next economy should consider the negative ramifications of the pre-recession rapid growth of the exurbs, driven primarily by workers seeking housing they could afford, Phillips said. “These far-flung locations cost workers more in total living expenses, because the savings in housing costs have been offset by transportation costs – money spent commuting, getting to shopping and other areas of activity,” he explained.

The ULI Terwilliger Center has looked at this mismatch in three metropolitan areas – Washington, D.C.; San Francisco; and Boston. In each case, it found that the combined housing and transportation costs were highest (as much as 65 percent ) for the outlying neighborhoods; in D.C., where many jobs remain in the urban core, the 15-mile-out (24-km-out) point is where transportation costs exceed those for housing. However, while high overall living costs might be expected for these high-cost markets, a similar cost burden is evident in lower-cost markets as well, Phillips said.

He pointed to research from the Center for Neighborhood Technology, which has analyzed housing in terms of location costs for hundreds of urban areas. The results are strikingly similar in the outlying suburbs of many cities: 1) homeowners and renters are spending more than 45 percent of their incomes on housing and transportation; 2) most people are driving more than 18,000 miles (28,800 km) per year for work and errands; and 3) most have seen their auto fuel costs double, or even quadruple, since 2000.

“This is not a sustainable urban growth model for the post-recession economy,” Phillips said. “The most effective way to change this model is with more mixed-income housing development that is closer to transit and jobs than traditional moderate-income housing.”

While mixed-income housing is “still the exception rather than the rule,” Phillips predicted that it will become more mainstream, primarily due to a rise in demand from both echo boomers and aging baby boomers. The housing needs and preferences of these demographic groups are likely to differ from the prevailing choices of consumers in past decades, he said, in that the decisions of these two groups will be influenced by non-traditional behavior, lifestyle changes, and the long-term financial impact of the recession.

These “forces of change” suggest a greater need for affordable workforce housing that is close to employment centers and transit in more centrally located neighborhoods, Phillips said. “One challenge to infill development that is fading is the lack of demonstrable demand. The market is there. Suburban development in the 21st century is not about sprawl. It’s about reconfiguring development patterns to accommodate more people in closer-in neighborhoods. Clearly, workforce housing has a role to play in all of this.”

Forum speaker Gregg Logan, managing director of RCLCO, pointed out that 30 to 40 percent of all jobs in most urban areas are located in downtown cores and centrally-located neighborhoods, with the highest-priced housing typically located in those places. This was documented by RCLCO in a series of reports prepared for the ULI Terwilliger Center; the research showed a shortage of affordable housing near major employment hubs in D.C., Boston and San Francisco.

Despite public policies that are shifting more toward infill development rather than greenfield development, substantial incentives are still required to develop housing in close-in locations that is affordable to mainstream workers, Logan said. “The workforce is priced out of employment-rich locations–but what it costs to produce housing [in these areas] is difficult to deliver at a price the workforce can afford.”

Speaker Paul Bishop, vice president of the research division at the National Association of Realtors (NAR), provided some context for the current state of the housing market. The data show a market far less predictable and more prone to sharp fluctuations than in decades past, Bishop said. Among the key statistics he cited:

  • Home mortgage debt as a percentage of home value exceeded 60 percent on average in 2010, up from just over 30 percent in 1980 and just under 40 percent in 2000;
  • Home prices over the past decade have fluctuated at unprecedented levels, with the national median price rising as high as 12.8 percent and falling as much as 11.9 percent; in the 1990s, the maximum increase was 5.4 percent; the minimum increase, 2.7 percent; and
  • Home foreclosures topped 2 million nationally in 2010; in 1980, there were approximately 10,000; in 2000, approximately 400,000

While such statistics suggest continued uncertainty for the housing industry, Bishop pointed to some positive signs, such as improved housing affordability (in 2010, the national average monthly mortgage payment represented 14.3 percent of household income; in 1981, it was 37.2 percent); and stabilizing home sales (there were 4.3 million existing single-family home sales in 2010, nearly the same level as 2008 and higher than any point between 1980 and 1997).

NAR’s prediction: a slow recovery for housing, as markets hard hit by the recession continue to work through the fallout. “The economic recovery is fragile as far as housing is concerned,” Bishop said. While the current numbers suggest that the market is returning to what it was like prior to the boom, “how fast it will get there depends on the job market and consumer confidence,” he added.