Nudge down the design and development fees, pay the construction workers less, drop the interest rate as low as it will go, spend nothing on maintenance, even assume that someone gave the land for free — and the buildings still aren't feasible. A 50-unit apartment is still millions short.
"Even if you try to tweak a lot," Poethig says, "for people of extremely low incomes, there’s just going to be this gap to the cost of development and production of housing."
— washingtonpost.com
A very enlightening (and depressing, but with tentative solutions!) interactive from the Urban Institute uses data from Denver, Colorado's housing market to show how building affordable housing just doesn't "pencil out"—meaning, as Emily Badger puts it for the Washington Post, "The costs of building them outstrip what the people who may live in them could afford to pay in rent."
As Badger explains it, this is mostly due to an imbalance between public and private involvement in the affordable housing system. It isn't profitable for developers to make affordable units, because the tenants just can't pay enough, but public subsidies often can't bridge the gap either. She sums it up:
To the extent that government should step in when the private market can't, affordable housing is a prime example. The larger problem, though, is that we hardly devote the kind of public resources to this market failure that it demands.
Denver was chosen because "It doesn't have a white-hot housing market like Washington, but new housing construction there is healthier than in many places, and it's not overly regulated. Denver is like Minneapolis or Charlotte." While developers in many U.S. coastal cities claim that luxury units are the only ones that they can actually make money on nowadays, Denver still has a feasibly profitable market for affordable housing.
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its just not feasible - 10- 20% tops for affordable - most developers just can't afford it
"its going to take a whole new type of housing typology and we just aren't there yet "
typical developer rsponse
^ Typical Architect response.
One needs to turn a decent profit for investors. Once the development has factored in ancillary revenue sources, such as retail and at a long stretch - income from flexible use e.g. Airbnb, government subsidies is the only way. If crowdfunding ever becomes a legitimate source of financing, perhaps that could make project financing more efficient than the current investor-developer model is - but that kind of progress is still years ahead.
The problem is a simple one: Land is finite, but more people want to live on said piece of land. The only solution is to build tall.
Is the economy creating enough good jobs even for supposedly "affordable housing?" Probably not
My client just paid $22,000 for a building permit in a good but not great suburb of Chicago and can look forward to a $25,000 / year property tax bill, this after paying $421,000 for the lot. That's just a single family home so extrapolate from there.
Question: If there are only 29 decent affordable rental units available for every 100 low income households, where are the remaining 71 low income households living? I ask that in all seriousness because I don't know the answer, but I suspect that there is more affordable housing than what the article is implying; however it may not be exactly in the city center or wherever the powers that be say it should be. People tend to move where they can afford the rent. Too often these issues that scream for more public subsidy mostly benefit the developers who game the system to line their pockets with taxpayer money.
where are the remaining 71 low income households living?
In Rent-burdened situations, which is commonly defined as >30% of household income spent on housing.
For the curious: http://apps.urban.org/features/ncdb/rent-burden-high-in-us-cities/
Obviously land prices have way overshot their real world value and a correction is do. If this many people cant afford basic housing despite working and the rest of the people can only afford housing at historically and artificially low interest rates, the adjustment is simply a matter of when. I know in rural America you can give away housing but I cant believe the current disparity between wages, availability and cost is purely a symptom of demand alone.
Land is mostly owned by very wealthy investors who can afford to let it sit around for 20 years to get the profits they want. Housing is sold by regular home owners where time is of the essence and value is determined by the current market trends. It's not uncommon that raw Lots in desirable suburban areas are more expensive or equal to ones with homes on them. I call every time I see one for price...haven't found one yet that makes financial sense to develop a small-med sized house on...which is why developers try to squeeze their profits by building large and cheap McMansions...small and quality doesn't make financial sense in most cases...which sucks.
When you've got a huge class of people unable to afford even one $100k house, and small class of people who can afford $10 million each for a dozen houses, I find it hard to believe there will be a market correction anytime soon.
If we're going to live in a market based society, we should recognize the areas where the market fails to provide a necessary ameniity (in this case, a place for citizens to live), and use our collective wealth (government/taxes) to fill the gap.
We call this waiter and bartender housing.
The market does provide housing for low income families...just not in rich areas. There are plenty of cities with housing available at a good price.
The govt has no place correcting gentrification...but it could stay the fuck out of helping to create it through zoning, blight studies, etc.
What's "a good price"?
I'll try to pull some data later, but based on everything I've seen in the past, if you're looking for housing for someone in the 30% Median Income range, towns with low cost housing are going to have a correspondingly lower median income.
A few quick numbers:
The maximum rent to be considered 'not burdened', if you're making the federal minimum wage of $7.25/hr, is $377/month.
As far as I can find, the American city with the lowest cost of living is Harlingen Texas. A cursory Craigslist search shows exactly two rentals within that budget. One with a roommate, and one tiny efficiency (and it seems two more that are obviously scams). Not bad for a 19 year old single person, but what if you have children? 2BRs in that area are around $1000 on the low end.
So, again, what's "a good price"? And where are the economic opportunities in these areas?
A good price is a price that you can afford on a livable wage.
Minimum wage does not = living wage. Raise min wage to a livable rate. Adjusting prices to accommodate the problem is counter productive. Its too easy to pass the burden onto the tax payer...while the corporations get away with paying 7.25 an hour....a fair living wage solves many problems...
I'd take it a step further and propose a flexible min wage that self adjusts every few years relative to some factors...inflation, wheat prices, housing prices, whatever the experts see fit...
I think the larger question needs harder answers than just throwing more tax dollars at the issue. For instance, in my town of Detroit, we have a glut of vacant houses, but as one of the links above points out rents are relatively high for a large low income population. Instead of using millions of dollars to subsidize development of new low income rentals, pair demand with supply. Find a way for low income people to move into vacant housing at a fraction of the cost of building new. In our Greater Downtown, where we have projects that are subsidized with 40% low income units, the market rate units fill up within days and the affordable income-restricted units sit empty. Interestingly the City is trying to fill the vacant housing by having the land bank put city-owned vacant homes up for auction. Homes are sold for as little as $1,000/house. I'm not sure how successful the program is, but it is a local solution at a fraction of the cost of federal development subsidies.
gentrification is what we called segregation in the past; this model of walled communities (virtual or physical) can't last - I grew up with all levels of income around, it was safer, lively and peaceful - shit started flying when the lower income families were moved 60 miles away without transportation, basic services and nearby jobs.
its possible but the reality is that investors are used to 20-30% returns for non-affordable housing, and finding someone to park their money in a project with 5-10% returns is very difficult.
jla: I agree the minimum wage should be a liveable wage.
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