The Bay Area’s Experimentation with Solving for Housing Affordability

Could a 220-square-foot (20 sq m) apartment be a housing solution for low- and middle-income residents in high-cost cities? What about modular housing on city-owned land? Or single-family homes reengineered to house more people? These were some of the possibilities discussed by a panel of experts at the ULI Fall Meeting in San Francisco last week.

“The Bay Area is the center of innovation for dozens of industries,” said Patrick Kennedy, owner of micro-apartment developer Panoramic Interests of Berkeley, California. “Why not housing?”

Moderated by Douglas D. Abbey, chairman Swift Real Estate Partners, the discussion provided insight into some solutions such as micro-apartments and pairing low-income housing with market-rate condos.

“There is no one right answer, no silver bullet,” said Ann Silverberg, executive vice president of Bridge Housing Corporation, a San Francisco–based nonprofit developer of affordable housing. “Bridge’s strategy includes multiple approaches in high-cost markets where we face continued challenges from high costs and a highly competitive environment.”

U.S. cities must emphasize denser multifamily developments and eliminate parking requirements, said Kennedy. Three years ago, Panoramic built a multifamily project in San Francisco on a 3,750-square-foot (348 sq m) block that created 23 micro-apartments of 295 square feet (27 sq m) each—about 216 units per acre (534 per ha). “It’s the type of densification we’re going to have to do to help solve the problem,” he said.

Another project, the Panoramic, has 120 micro-studios of about 274 square feet (26 sq m) and 40 micro-suites of 540 square feet (50 sq m) each—766 units per acre (1,893 per ha). “Two hundred and seven-four square feet is adequate for a studio for one person or two people in early stages of their romance,” Kennedy joked. “They’ll need more room later on. Inside the micro-units are large windows, high ceilings, and high-end finishes. Here’s the secret sauce: the dining table converts to a queen-size bed. It’s critical to get rid of the bed because it is intrinsically depressing to look at your bed all day long.”

Carol J. Galante, faculty director and distinguished professor at the Terner Center for Housing Innovation at the University of California, Berkeley, took a different view, noting that between 2006 and 2014, most of the growth in occupied housing was in rentals: the number of homes occupied by single-family owners declined 0.4 percent while those occupied by single-family renters rose 34 percent.

“There is no slowdown in this trend,” she said. “It’s a major change in housing stock. We need to think about how we use single-family houses, single-family lots, and single-family neighborhoods to intensify the use to house more people.”

Seventy percent of all housing stock in the United States is single-family detached homes, Galante pointed out. “Those single-family homes are not going anywhere,” she said. “People are not going to tear them down, so we have to find a way to add to the housing supply, centering on single-family homes as an added tool.”

Creative financing is another way to solve the housing crisis for low- and middle-income individuals in high-cost cities and locations, said William A. Witte, chairman and chief executive officer of Related California. He noted that Related’s Ocean Avenue South development in Santa Monica, California, is a mixed-income, mixed-use development that includes the Waverly, with 65 market-rate condos; Belmar Apartments, with 160 units designated as affordable to people earning 30, 50, and 60 percent of the area median income (AMI); and the Seychelles, with 93 market-rate condos.

“At Ocean Avenue, 65 luxury condos shared a podium with 160 affordable rentals, and we are now 85 percent sold,” Witte said. “We’re on a 99-year prepaid ground lease. The $24 million we paid the city for the lease went into subsidizing the affordable housing, and we got a loan from the state through its multifamily housing program. The colocation of affordable with market-rate condos has had no discernible impact on the market-rate housing.”

In New York City, size matters, and that could be a key to developing more affordable units, said James Patchett, chief of staff, Office of the Deputy Mayor for Housing and Economic Development, city of New York.

“Cities are where the action is,” said Patchett. “Some 90 percent of GDP happens in cities, which have only 3 percent of the land. Reducing [the size of] residential units by 25 percent could decrease total development cost per unit by 15 percent and increase NOI [net operating income] to allow deeper affordability. And in New York City, having fewer parking requirements could substantially reduce development costs further and allow more affordability and less subsidies.”

To support location affordability, New York City recently announced rezoning around major transportation hubs in six neighborhoods planned for growth. “We’re trying to create a new financing model for low- and middle-income housing,” said Patchett. “We believe we can provide more low- and middle-income housing with less subsidies.”

Silverberg noted that Bridge has built 16,000 homes and apartments in California and the Pacific Northwest over the past 30 years, including the acquisition of multifamily units that are rehabbed.

“We’re also using new and efficient capital sources to target middle-income residents,” she said. “We’re looking at various cost-containment strategies, including modular construction, participating in housing partnership equity funds, and even trying to put together a fund ourselves.”

While the situation for low- and middle-income residents is dire, no one solution will solve the problem. “It will take all of them, perhaps,” said Silverberg.