> Developers struggle to break even on rental projects for the poorest Americans.
https://www.bloomberg.com/news/articles/2016-07-26/why-it-s-...
This is without even discussing the macroeconomic effects of central banks attempting stimulus by printing money, driving up asset values artificially.
http://www.economist.com/blogs/graphicdetail/2016/08/daily-c...
"WHAT a difference a decade makes. In 2006 house prices in America hit an all-time high, after rising unabated for the previous ten years. The crash that followed brought the entire global financial system to its knees. As our cover leader this week explains, despite efforts to fix the plumbing of the American mortgage market, housing in the United States remains a dangerous menace to the world economy. In the meantime property prices in the country, underpinned by low interest rates, forge ahead. On average, American home prices have recovered nearly all their losses from the 2006 crash, but when adjusted for inflation they are still 20% below the 2006 peak."
I'd thought that real-estate developers were that scarcity in the housing value chain, but this article suggests that they struggle to break even. Who is it? Construction and real-estate brokers can make a lot in boom times, but they tend to lose it to the cyclical nature of the real-estate industry, so I don't normally think of them as the ones getting rich. Is it Caterpillar, making the heavy equipment used by construction? Land owners, who can keep land supply off the market? (But then, the price of raw unimproved land basically tracks inflation, indicating a competitive market.) Property managers? Is there artificial scarcity enforced by transportation infrastructure - the article indicated that one of the developer's primary constraints was the need to build near light rail?
The simulator mentioned in the article says it costs $9 million to construct 50 units. That's $180,000 per unit, which seems like it must have some regional peculiarity to it (you can buy a new 3 bedroom house for less than that in many areas). Hopefully they are at least pretty nice apartments.
Housing is especially expensive in Denver, and likely even more so near public transport. I'm sure the building boom going on there has some impact on all construction costs.
Before I posted I did a sanity check. You can buy a decent new house in the Orlando area for $120,000. That's with a lot and so on.
A better study would examine the cost of housing across a variety of job markets, not pick 1 and make units with high proximity to mass transit the only units they talk about.
In Berlin you generally can't buy a 3BR anything (house, condo, whatever) for less than $400k (aside from terrible/out-of-reach neighborhoods), and even that would be on the cheap-side.
(You can jump the reply restriction by clicking on the comment timestamp; The delay in showing the reply link is there to provide some friction when threads are going too fast.)
In other words, a house and a house are two different things.
Builders also cut corners. Example, my 1974 home has the AC condenser on a concrete slab. My new 2015 home it's on a piece of plastic supported by dirt. Guess which one is noisier.
Garage doors are now styrofoam, unlike solid wood in the doors of the past. Hence its cheaper, and your garage opener doesn't need to be as strong so that is cheaper too.
Hardwood floors can be engineered hardwood, while the past was only solid wood. Significant savings in material and installation.
Land lots are getting smaller too...here in Atlants, developers are buying up older homes and putting up several home, dividing the lot up.
http://www.aei.org/publication/todays-new-homes-are-1000-squ...
Also, see UK and most of Europe, shrinking is a common trend for a very long time http://www.dailymail.co.uk/news/article-2398714/The-incredib...
"The average new British home is now just 925 square feet – barely HALF the size they were in the 1920s"
I'd place a lot more faith in the quality of a building from a century ago than one from a decade ago.
Every once and a while I run across a home from the 1800s that probably shouldn't have survived, and the shortcuts the builders took are similar to today's shortcuts. Improperly sized beams, improperly spaced rafters, etc. In some ways, you could consider an 1800s rubble foundation and irregular framing spacing worse than today's shortcuts.
This is true looking at all land, as recent articles by Robert Shiller indicate[0], but especially valuable land has outstripped inflation by many, many times-- in the Bay Area, for instance, land value has increased by a factor of 10X in recent decades (or significantly more, depending upon neighborhood). The only thing that keeps land in check is the ability for land to sprawl out into previously marginal land, and our ability to commute from where we are sprawling to is reaching a breaking point. (I know people commuting from Tracy to SF, which is hell.)
[0] http://www.nytimes.com/2016/07/17/upshot/why-land-may-not-be...
Another large proportion of potential profits are destroyed by the regulatory process because by-right approvals are often extremely limited and easily challenged by third parties. I'm a huge fan of communities being able to shape their built environment, but making most development approvals into a lengthy, expensive series of challenge/response hurdles rarely leads to progressive outcomes.
Lastly, project delivery timelines can de-sync with economic cycles due to long developent periods and the timeline of construction itself. Since construction starts typically lag economic booms, people take losses due to this off-cycle behavior more often than they realize unusual gains.
I work in a small construction market though, so my experiences may not carry well to the more populous parts of the USA.
The real-estate developers are still the scarcity in the chain. They make the money -- and lots of it.
They just don't make that money on affordable housing for the poorest of people without government subsidy. Which is why that stuff almost never gets built.
But they make a good chunk of cash on government subsidized housing (anything with Brownfield credits, for instance) and they make a lot of cash on luxury units. I'm in a small city in the Midwest, and condos here are selling for $300k - $600k despite way-below-average land and labor costs. There's 20-40% profit margins in those units, no one is loosing any money there.
Any taxpayer-based bond issuance for infrastructure of water, wastewater, roads, electrical, data, and emergency services is a giant externality that developers pay only a tiny fraction of by comparison, and the developers capture a big bite of the profit up-front on the initial sale. Taxpayers end up footing the risk cost of anticipating the network effects of the build out will pay off the projects. This is compounded by the car-centric American culture imposing infrastructure costs that go up as the square of the expansion, but by and large cost recovery and operational costs are comparatively linearly composed because American suburban and exurban developers tend to sell low-density in the first pass greenfield development (large lots, fewer people per acre) to sell their book and cash out fast. NIMBY politics then gridlock densification later, so you get all this infrastructure that is now spread among fewer taxpayers than you need to effectively not only pay it back, but properly maintain it as well.
The real estate industry enjoys enormous subsidies that really distort the market, and if you aren't in the industry this basically translates as monotonically increasing land prices (which most people interpret as constantly-increasing housing prices). Much of the dysfunction is likely to entrench and get much worse in the future, and won't stop until a really ugly, sharp dislocation happens.
In a lot of ways the US real estate market is similar to luxury consumer goods markets. People are willing to pay a big percent of their income to live in SF or NYC because those cities have a strong brand. There's a perception of value that goes above and beyond quantifiable quality of life measures. It's not radically different from how people will pay a premium for an iPhone over an arguably equal or better Android phone. Landowners and homeowners can benefit from owning property in a location that commands a brand premium not unlike shareholders in a company.
I'm not sure why you think that.
Unlike manufacturing cars or silicon, housing has very poor economies of scale. Building 10 houses isn't a whole lot cheaper than building 5.
It's also a lot harder to make more efficient. Housing isn't manufactured in large factories where you can optimize every step of the process—instead, it's done by lots and lots of local firms. This leads to vast differences in the level of efficiency.
There's also the problem that there is still a social stigma against "generic" housing. Having the same phone as everyone else isn't looked down upon, but mass-produced homes carry a definite negative connotation. People look down on cookie-cutter condos or manufactured homes.
> But then, the price of raw unimproved land basically tracks inflation, indicating a competitive market.
Where on earth are you getting that from? Raw land in the middle of nowhere might track inflation, but land near any jobs center certainly doesn't. That's also the explanation of where most of the profits go: to owners of appreciating land in desirable areas, which is a mix of professional speculators/investors and existing homeowners.
Source: Spent Thanksgiving hearing about the frustrations my architect relatives have dealing with different contractors around the country.
True it isn't, in large scales but it could be. Both for single family homes (manufactured homes) as well as for high-rises (PoC in China: https://www.theguardian.com/world/2015/apr/30/chinese-constr...) or apt bldg. in Brooklyn http://www.forbes.com/sites/erincarlyle/2014/04/16/building-...) but most people aren't just into "utility" and want something which projects themselves and their values and sensibilities.
The same can be said about Hong Kong [4] and Singapore [5].
[1] https://en.wikipedia.org/wiki/Panel%C3%A1k [2] https://en.wikipedia.org/wiki/Million_Programme [3] https://en.wikipedia.org/wiki/Banlieue [4] https://en.wikipedia.org/wiki/Public_housing_in_Hong_Kong [5] https://en.wikipedia.org/wiki/Public_housing_in_Singapore
Ehm, no.
Those prefab buildings are the immediate definition of "housing for unemployed immigrants". The social stigma is so bad, when I was in elementary school, I lived right next to one – and my grades were horrible. Some day, my parents told the teacher we actually owned a house right next to the bloc (the teacher had thought we lived in the bloc), and suddenly my grades jumped from D to A. All of them.
The stigma is massive, and it will affect your life massively.
When I moved in, the owner had just refurbished everything a bit (as they always do when a new tenant moves in). The ingrain wallpaper [1] on the walls and ceiling painted plain white, the linoleum [2] floors freshly cleaned, and the jambs of the interior doors had been replaced by new ones. If you don't know what linoleum looks and feels like, imagine a typical office floor, but with a faux parquet pattern instead of these generic blue-green-grayish dot patterns. The linoleum shows a bit of wear (you can see where the previous tenant had put their furniture), but I don't mind.
Apart from that, I've got radiators (connected to district heating) in both rooms, water and sewer pipes leading into the kitchen (but the kitchen furniture and plumbing needs to be supplied by the tenant), and a fully-furnitured bathroom with tiling all around, toilet, sink and bathtub. If anything from that list should ever break, I call the landlord and a craftsman will be on site to fix it the next day or so, at their cost.
That's the state if the building is well-maintained. Some of these "Plattenbauten" (German for large-panel system buildings) have been privatized and sold to investors. These are usually the only ones which haven't gotten a makeover since the iron curtain came down. Rent is about the same, though. The situation is better for me since my apartment is owned by a housing cooperative which dates back to GDR times. They don't have to pay any interest or dividend, so all the money can go into maintenance, modernization, and sometimes new construction when they can get their hands on a nice plot of land.
[1] https://en.wikipedia.org/wiki/Ingrain_wallpaper [2] https://en.wikipedia.org/wiki/Linoleum
That's similar to cars. The economies of scale are there. You just need to sell 500,000 a year like a car manufacturer does.
Also, cars have customers which will pay many multiples the normal price for new technology, and that market that lasted for a century.
If you want to mass-produce housing, you have to get around two very big barriers:
1. Most of the market looks down on mass-produced housing thanks to its association with trailer parks and/or identical condos.
2. Housing is mostly produced locally. Shipping large homes would be extremely difficult and expensive.
> Also, cars have customers which will pay many multiples the normal price for new technology, and that market that lasted for a century.
Sure, but that's equally true for housing. There are plenty of people who will pay a significant premium for a "smart home" or houses with energy efficient built in. This doesn't make mass-manufacturing easier.
You don't need to ship the whole house in one piece. If you ship premanufactured panels (which is the common method), the price of shipping should be comparable to shipping the "ingredients" to the construction site.
The smarthome market is just not in the same league as cars when it comes to an subsidizing technological development. There is no Formula 1 for housing.
> There's also the problem that there is still a social stigma against "generic" housing. Having the same phone as everyone else isn't looked down upon, but mass-produced homes carry a definite negative connotation. People look down on cookie-cutter condos or manufactured homes.
Agreed on both points.
The firm Elemental Architecture utilizes 'incremental building' to help improve the efficiency of housing construction while simultaneously attempting to address the homogeneity of low cost housing projects. The idea is certainly in its nascency, but it seems like a novel approach. In short, low cost housing is constructed such that occupants are able to expand and adapt the lodging to their needs later on (paying for the materials and labor themselves).
This approach was featured in Urbanized [0] (a documentary on urban design) and later in an episode of 99% Invisible [1], among other places, I assume.
This might be a stupid question; is it not possible to min-max apartments for overall cost of maintenance or cost/person so it's easier to break even despite a possible higher initial cost?
Are we designing low income housing wrong? Is anything getting in the way?
Also, many communities have zoning codes, many fifty years old, that make it difficult to build low-income projects by restricting unit sizes, mandating minimum lot sizes, etc.
There are cases of communities being sued over discriminatory zoning, but the typical impact is that the communities add flexibility for less expensive single family homes, but the dense housing and multi-use neighborhoods that work well for low-income communities are not incentivized. I know Massachusetts allows zoning to be overruled if a community lacks affordable housing (40B?), but it is still a fight.
Lastly, between two developers, one building high end and the other building low-end, who is going to pay the land owner the most money if there is the same amount of units allowed by-right? If the low-end developer pays high-end land prices, where does the extra money come from?
I'd argue yes. We should be building housing for working class / middle-class residents (sometimes called "missing-middle" housing, although developers often abuse that term to include luxury units) That's where demand is greatest while still having reasonable budgets and modest-but-workable profit margins for developers involved.
> Is anything getting in the way?
Yes, developers. (Occasionally zoning/historical associations/local laws in places like San Francisco or NYC. But primarily, it's developers)
Instead of building where demand is greatest, developers build only where profit is greatest -- almost every developer focuses solely on ultra-luxury housing (with ultra high profit margins) or low-income housing (where margins are reasonably good due to government subsidy).
If there was new working-class housing construction, their old units would filter down to low income households, because there's enough middle-class people for that impact to be felt in a market. But the margins there are lowest, so no company chooses to do that.
Instead, property developers focus soly on high end. Technically, those filter down eventually too, but by definition, there will never be enough high-income people for those properties to filter down to middle class folks in amount meaningful enough to help the market (so in turn, their properties can't filter down to low income households)
This breaks the entire market. High-end construction costs soars (because they want it and can afford anything). Middle-class properties become psuedo-high-end (for no other reason than lack of middle-class product) which creates this weird distinction between rich middle-class people who bought before the bubble, and poor middle-class people who have healthy wages, but burn 50+% of their income on rents (and so are effectively poor, even though they are on-paper upper-middle-class), and now you have an ever-growing group of "low-income" people who can't afford anything.
If we prioritized middle-class working-class housing, we could get units going without major government subsidy, and the old housing could become affordable to low-income folks (also without subsidy). But that would require companies to not prioritize profit over everything else, so it won't happen.
I would rather argue that government regulation is definitely the problem on multiple levels. For one you probably have to deal with state and federal regulations making it very difficult to get economies of scale. Does every state/city really need to define the bare-minimum requirements for a house differently? Is there really nothing they can agree on so we can have standardized housing rules? That alone should limit housing costs significantly but if you also limit the power of local government to restrict growth and force it to accommodate new citizens rather than try to block them would also be a very good way to reduce a lot of the costs of new housing. I wonder how much developer money is spent litigating in places like New York and San Francisco that should be seeing most of the growth in housing.
Notice that this is not a problem In most of the US. Most housing in the US is still probably cheap it's just nobody wants to live in the middle of nowhere. Housing is very expensive in a few critically important areas that have largely failed to accommodate the influx of immigrants.
> Yes, developers. (Occasionally zoning/historical associations/local laws in places like San Francisco or NYC. But primarily, it's developers)
No, it’s primarily zoning.[0][1] To neglect the vast middle of the market is economic insanity. If some developers build only luxury housing, then they’re leaving money on the table; some other developer will build and sell. When Domenico Crolla can sell a pizza for $4,000, that doesn’t mean Pizza Hut stops selling $15 pizzas. In a well-regulated market, somebody will fund and build middle-class housing.
The problem is that luxury car-oriented regulation has made practical housing near jobs impossible to build.[2][3][4] Occasionally, hyper-local objections to affordable housing.[5] But primarily, it is misguided regulation.
[0]http://www.theatlantic.com/business/archive/2015/11/zoning-l...
[1]http://www.citylab.com/housing/2016/01/how-zoning-restrictio...
[2]http://www.citylab.com/cityfixer/2015/05/how-parking-keeps-y...
[3]http://www.spur.org/publications/spur-report/2006-06-01/redu...
[4]http://www.citylab.com/politics/2012/06/birth-zoning-codes-h...
[5]http://www.sfchronicle.com/bayarea/article/In-a-wealthy-SF-n...
We're designing it for people with no money. Hard to make a consistent profit that way.
Typically developers reap management fees in the low income house arrangements and sign away LIHTC (the tax credits) to their partners. LIHTC are a pretty complex topic and there are a lot of operators in this space making a lot of money. I might be paranoid, but something feels fishy about this.
I remember my neighbour many year's back being blocked, by his town, for building his own shed in his backyard.
I have travelled around the world and seen many homes people live in that they've built themselves. I have never seen that in the US.
http://tinyhousetalk.com/category/tiny-houses/
In this respect it is we Euros who should be getting off our butts.
If it's about not housing enough people in the major cities, then yes, it can probably solve that. Providing some quality level of housing for every pricing point ... well sure. That can be done by deregulating. We all know we will NOT like quite a few of those quality levels though, and some will be bad enough to make actual victims. For health reasons, for preventable accidents reasons, for crime safety reasons ...
If you're talking about doing that while maintaining current standards of housing and standards of traffic, crowdedness of the streets, etc - of course not. Can't be done, of course.
Housing everyone at a decent standard, lower than now, but decent ... well regulation (ie. shifting regulation from local to federal) can do that.
I think that that is by far the best option. Shifting permitting from local level to at least state, better yet, federal level.
The best option would be to provide distributed jobs again, of course. But that can't happen because, well it's complicated [1].
State-wide is a bit problematic for a state as large as California.[1] The problem is there is no intermediate level of regulation between the county and the state.
Federal regulation of housing has been terrible.[2] Even before you consider Ben Carson as Secretary of HUD. It’s impossible for a small group of people working in a swamp to create all the necessary regulations ranging from Appalachian cabins to high rises on landfill in an earthquake zone.[3]
There is an ideal size for each form of government and regulation. I think for housing, the ideal size is probably slightly bigger than the well-connected metro area. So, the entire San Francisco Bay Area should be one unit, but not all of California; and the Northeast Megalopolis from Virginia to Massachusetts, but not the entirety of those states, should be one unit.[4]
[0]http://www.citylab.com/housing/2016/01/how-zoning-restrictio...
[1]http://www.spur.org/news/2016-06-02/governor-brown-s-solutio...
[2]https://www.recivilization.net/TheCatastrophe/331thedepartme...
[3]http://www.newser.com/story/234803/leaning-tower-of-sf-is-si...
This is driven chiefly by their confucian societal value system rather than economics though. The wives (who are almost always the ones who have to "move in" to the family) mostly hate the experience.
Living with family while single (regardless of age or gender, but especially if you are female, since gender equality in the workplace still has a long way to go) on the other hand is primarily economically driven.
The whole concept of moving out for no reason at all is super weird and confusing for most cultures, and borders on a sense of abandoning one's parents.
I dont get the mindset at all. I dont want to live in a shitty small apartment or something shared with strangers just _because_.
> You don't like your own independence?
i dont see how this is in conflict with living with my parents.
> Living with other people your own age?
Nope. Done that, wont do again.
Disclaimer: I dont live with my parents anymore but wouldnt mind going back. My parents are also cool, its respectfully living together, more than i ever had when living with people my age.
There is no reason there can't be more Portlands or Minneapolises in the Midwest, for example. You take all those 2,500 to 40,000 communities and build around one or the other and soak up the surrounding communities to make bigger and richer communities.
Are you suggesting we should give up our right to chose where we want to live so you can have more small cities?
Perhaps there is compromise? Perhaps this is really only a real problem in SanFran and NYC. Even NYC has The Bronx and good rail service.
The problem isn't sparseness or density, it's a combination of readily available fossil fuels and mindset, I believe.
If the position is simply to oppose cars altogether, then I don't know where you can go. But I suppose you can find a bus to take you there...
And sure, some people do like living closer to nature. I acknowledge we have a nice core of people who love nature and land and cultivating the earth, what have you --they can still have their smaller ag-centered communities.
In theory, sure. But in practice, there are a lot of reasons why there aren't (or won't) be more of those types of places.
The Midwest is strongly anti-city. In terms of culture, lifestyle, economics, politics, etc. Even self-described "urbanists" in the midwest are typically strongly anti-city (their goal is usually to reproduce the problems of existing cities, not to attempt any solutions).
It's not like there is a shortage of small cities in the Midwest. There's a reason no one is excited to move to Toledo, or Lansing, or South Bend.
I think if we look at what made these cities we can understand their current standing --but with effort they can change. Portland was not always Portland; Austin wasn't always Austin. People need to invest and put in effort to drive these places to where they want them. They sure don't have to be replicas of NYC or LA, or SF. They can bring to them what they find valuable while at the same time changing with the times to accommodate and attract or keep their youth as they move into the workforce from Uni.
They can transform these small-to-mid-sized cities into attractive cities with (youthful) Midwestern values.
As a rule, larger population center enables more and better cultural options, more and better education options, more and better industries and choice of jobs - There's a zillion of things that aren't feasible in a 100k city simply due to lack of scale.
In absolute dollars, especially on the order of decades, medium density (3-5 stories, depending on foundation needs up to 10) is the "maximally" efficient housing right now. As building materials and efficiency improve, denser structures become more economical, but the fundamental reality is that the cost of the infrastructure to support rural or suburban areas are gigantic, on such an order that while building wood houses in the forest is cheaper in the immediate term than concrete, supplying it with infrastructure access is dramatically more costly.
But we subsidize private real estate with public infrastructure paid for by not-the-developer. It biases the market towards less dense housing because the costs are absorbed by either an entire township, the entire state, or the entire country.
India also. I visited a few years ago and was totally "wierded out". They call it "Joint family" there. Several cousins and uncles living under the same roof. Lots of drama in the kitchen :)
So the biggest problem is the government does NOT think there is a problem. And those people should try and work EVEN harder to afford a basic housing or mortgage.
I find the living with parents issue to be an odd one because the period where that wasn't the case doesn't seem to be so long ago. There is a strong push toward independence of self in the US and that may have pushed people to seek their own homes a lot earlier than elsewhere but to sustain that needs a vibrant economy up and down the economic scale. To get back to that would require lessening the burden of regulation and taxation, something never happening in Japan and resulting in their stagnation for decades. You cannot spend borrowed money for so long to get out of the rut
Which is heavily dependent on housing regulations.