How can the United States make housing more affordable to lower- and middle-income households?
Experts discuss the growing crisis of housing attainability for lower- and middle-income households across the United States, including ways the private and public sectors could help increase housing production, preserve existing affordable housing, and give more people access to housing; strategies for encouraging communities to accept more housing construction; and other related trends.
Has there been a significant shift in the conversation about the housing attainability crisis across the United States?
Christopher Ptomey: Housing attainability has become a higher-profile item in the media and among policymakers at all levels of government. It takes a long time to get housing on the ground, so it’s going to be a long time before we see the numbers change in a substantial way. But the first step is to have the issue on people’s radar screen and get serious about what’s driving the cost of housing.
Stephanie McFadden: The discourse on affordable and attainable housing shifted during the pandemic and beyond as interest rates rose and inflation became a significant issue. Mainstream media reported in a deeper way on housing issues, including racial equity, eviction, and the unhoused. This allowed the conversation to get more refined and include housing supply and housing preservation as topics for a general audience. Production will increase the supply of housing, but preservation ensures that we’re not losing existing attainable housing to high-end housing, which is often what happens.
Adam Ducker: There is more awareness of the issue both as a social problem and as a business opportunity. Attainable housing is a huge market waiting to be served, but there is little activity in that space. The obvious barriers are the high costs of construction and government regulation. But there are other reasons, too, and one is a lack of knowledge. People will accept living in smaller, simpler, higher-density homes, but there is not an existing body of knowledge that lets developers, investors, and municipalities make this conceptual jump.
David Dworkin: Each market has its own unique story, and more markets than ever are struggling with this issue. This is not just a question of big cities on the coasts: we are seeing the housing attainability challenge appear in communities across the country. Even some Republican representatives, who may not always have assumed affordable housing is a core issue from them, are hearing more and more often from their constituents in red states that this is a problem.
What are some immediate changes that the public sector could take to step up housing attainability?
Ducker: A lot of cities and towns are grappling with getting rid of single-family zoning, which would allow density in places where the land values are still meaningfully lower, where a developer can build a smaller home for a middle-class household with a construction type that is more affordable, such as threeplexes and fourplexes, or a three- or four-story townhouse. That’s the sort of public-sector move that would be the most impactful in opening up a new business opportunity.
Dworkin: I am hopeful that we will see action soon on reform of the Section 8 program and the HOME Investment Partnerships Program. Both programs have years of layered regulatory protections that protect the government from fraud so well that they protect American citizens from actually using the programs that are paid for with their tax dollars. It’s time for the U.S. Department of Housing and Urban Development to create an advance notice of proposed rulemaking so we can gather feedback and better implement these programs. Also, in the most recent budget, Congress didn’t extend the 2018 12.5 percent increase in the allocation for the Low Income Housing Tax Credit, which effectively cut the program 12.5 percent at the worst possible time. This is one area of government spending where more spending means less inflation.
McFadden: Streamlining the approval process at the local level would really facilitate building
housing more quickly. The public sector also has access to data that could tell us about residential developments that are at risk of converting to market rate, whether because of expiring regulatory agreements or expiring Low Income Housing Tax Credit partnerships. Sharing that data would help with preserving existing naturally occurring affordable housing, which is extremely cost-effective compared with new construction.
Ptomey: Single-family exclusionary zoning, in particular, is a barrier to both housing production and attainability in lots of places around the country. But eliminating zoning doesn’t put units on the ground; that has to happen over time. We’re just starting to see some developers focus on adding density to areas that were previously zoned only for single families. Addressing land costs can be another important part of the equation. Governments can look for ways to provide tax abatements or fee waivers or other cost reductions that can enable developers to build units and charge lower rents.
What about the private sector?
McFadden: We need to focus on cost reduction. Using off-site construction models, such as factory construction of modular units, or panelized flat packs for assembly on site, could provide speedier production timelines and cost savings. So far, it’s been challenging to capture these benefits for a variety of reasons, including difficulties with financing this kind of production, because it’s new and different.
Another idea is to look for more sustainable and less expensive building materials. We’re starting to see engineered timber as an option for high-rise construction, and there’s some great potential there.
Ptomey: Businesses are seeing how the lack of housing production and the increased costs of housing are impacting their ability to hire and retain employees and build the customer base that they need. Now businesses are starting to invest in housing development. Hospitals in many areas of the country began doing this and, increasingly, large technology companies are, too. Amazon has made some big splashes in some of their housing work.
Dworkin: In addition to implementing more employer-assisted housing, which is a great way for employers to reduce turnover, we need to do a better job of focusing our industry’s resources on first-generation homebuyers. That will help us narrow the racial homeownership gap. Lenders need to do a better job of incentivizing loan officers to make smaller loans by having them work on salary rather than on commission. Homebuilders need to direct more investment to starter homes. That’s where the market is. If you’re building homes on spec in the single-family market, there can be a lot of volatility, but the market for building moderately priced homes for first-time homebuyers is not going anywhere.
Ducker: Private investors and institutional investors would be very open to investing in strategies like this. The constraint on the private-sector side is not one of capital, it’s about capacity. It’s hard to buy land, entitle it, work with contractors, and interact with consumers for every single house. If you build an $800,000 house and there’s a 10 percent margin, that’s $80,000. With a $250,000 house, 10 percent would only be $25,000. So there’s a perverse incentive to build more expensive housing, and there’s just not enough execution capacity in the industry. We need to increase the supply of people who are producing housing.
How can the industry encourage community members to accept more new housing construction in their area?
Dworkin: We need to take zoning and permitting out of the political process and make it part of a professional decision-making process. Californians have the option of overruling a city or county council or zoning commission through a ballot initiative, and there are many cases where ballot initiatives are successful in killing affordable housing deals. Communities are charging impact fees that can exceed $100,000 per unit. This is a huge disincentive for attainable housing.
McFadden: All of us doing affordable and attainable housing work know that there’s a chronic NIMBY issue that is rooted in white supremacy. We need to be better at communicating the benefits that housing can bring to a neighborhood. There’s an opportunity for companies in the attainable housing sector to work together to build a marketing strategy to combat outdated ideas that are often racially biased. Let’s give people the facts about housing and what benefits it can bring to a community.
Ducker: As an industry, we’ve done a good job trying to reframe the discussion around housing the workforce. But it hasn’t changed the discussion. Maybe the intransigence of human nature not wanting change is too strong. The impact of increasing density on vehicular traffic or school systems has been noticeable to people, and it’s given cover for what might otherwise be an ugly decision. Nobody wants to say, “I don’t want housing for firefighters and teachers and nurses,” but nobody has any misgivings about saying, “The traffic is terrible,” or “Schools are bursting at the seams.” I had expected that we would have made more progress against NIMBYism than we have.
Ptomey: In some cities with a higher cost of living, you’re seeing a countermovement to NIMBYism rise up—YIMBYism, or “Yes in My Back Yard.” The industry needs to provide better information to the public about the actual costs of delivering housing units, so that the YIMBYs can add substance to their arguments. One of the strategies that helps address NIMBYism is to have very extensive public engagement that happens long before the approvals process for a particular project. You need to have conversations about what people envision for the future of their neighborhoods and communities, so that by the time you get to talking about a particular project, it can reflect their interests. By-right development strategies can be highly effective, providing developers with predictability—if they know exactly what they can build by right, and what the expectations are for units targeted to a certain income level, then they can be really creative.
What other innovations or trends are you excited about in this arena?
McFadden: I’m hopeful that we can start to solve some of the problems that have slowed down adoption of modular housing. There are structural and financial hurdles that HUD [the U.S. Department of Housing and Urban Development] is starting to research and hopefully address. Hopefully that will break some ground for banks and conventional lenders and all of the other parties to allow the modular business to be more institutionalized and standardized across the market. Also, as a lender, the Low Income Investment Fund is focused on the preservation of naturally occurring affordable housing and developing quick and accessible financing tools for mission-aligned owners. Supporting existing projects and getting them into the right hands will quickly pay dividends by providing attainable housing where it already exists, and not losing that attainability if a property changes hands.
Ducker: I’m cautiously optimistic. I don’t think we’ve made a lot of progress in repurposing land devoted to retail into housing in the last 10 years, but maybe we will in the next 10 years. There has been a lot of discussion around office-to-residential conversions, and I don’t imagine that that will solve the attainable housing challenge. But as an industry, we’re getting better at marshalling creative responses to changing demand. It’s not going to change overnight.
Ptomey: We’re going to have a better ability to deal with the labor shortage and high costs of constructing housing through some of the technology innovations that are happening. But it’s not clear yet which of these off-site manufacturing and production approaches are going to take hold in a way that is more than local or regional. The transportation costs are a major barrier, and building codes can vary widely in different places, making it complicated for a company to provide manufactured housing to more than one region.
Dworkin: I think we will see interesting innovations in special-purpose credit programs, loan programs that can help members of economically disadvantaged communities purchase homes. I’m also fascinated by the new ways we can use manufactured housing and component-built housing to lower the cost of construction, both for single-family houses and multifamily residences. There has been a lot of advancement in this area, and we need to talk about it more. I believe the technology for doing this is going to increase exponentially.
RON NYREN is a freelance architecture, urban planning, and real estate writer based in the San Francisco Bay area.