Why Is 'Affordable' Housing So Expensive to Build?
citylab.com
citylab.com
Let's be frank, affordable housing typically isn't expensive. Construction costs around the country and indeed the developed world aren't too far apart. In the US it's about $100-200 per square foot, in Western-Europe it's €1000-1500 per square metre.
The problem isn't really in construction, typically. Of course, there's always room for improvement everywhere, in construction too. But the big culprit are land prices. Take the Mission, they quote units costing $600k each, not affordable housing. But you're talking about a place where you need to pay $1.5m to just buy the piece of land on which you then build three small $100k units, for an average of $600k each.
Completely different story from the $100k unit in 'Portland', which was actually Gresham, east of Portland, where the average square foot price to buy land+home is <$200. Oh and the units were 375 square foot... $100k is expensive, if anything. The author completely ignores the market realities, again, mostly of expensive land prices.
And this creates the debate as to whether we should subsidise such housing. After all, if you put the same quality house in another city with cheaper land, you could build 4x as many homes, or twice as many that are twice as big or twice as luxurious. Why should we subsidise a fraction of our poor people to live in the most expensive place on the planet with public money that could go towards helping a larger fraction of people?
That's a though question to answer, I find... and I struggle with it, especially because I'm one of those guys who's in favour of these subsidies. Economic segregation is damaging in many ways, plenty of sociological studies have shown. It's important to keep our cities accessible to everyone and create a healthy mix of people from all socioeconomic backgrounds, as opposed to rich enclaves and poor ghettos. But, finding the balance is hard. I don't live in the US but we have similar problems here in Western-Europe with subsidised housing, at the end of the day it's an issue of land prices skyrocketing, it doesn't have as much to do with construction costs as we tend to think. And it's really hard to find the right balance of using public money to buy expensive land for a small group of people.
quick conversion, because i had to google it: there's ~10.5sqft in a square metre, so those costs are roughly equal.
So, a 500 sq. ft home at $50k to $100k is considered affordable?
If I was raising a family, 500 sq. ft. gets cramped real quick.
As long as we are housing gainfully employed single people, no problem.
I suspect the way around this is to require the first X floors to be affordable housing without subsidy, and then let people build as many expensive floors above this as they want. This attacks the problem from both ends by reducing the impact of land prices, avoiding blighted areas, etc. But, avoids directly handing money to developers which is a clear avenue for corruption.
Also not everyone who needs affordable housing is a working class family that is trying to pull themselves up by their bootstraps. You can get a lot of "less desirable" residents like current and recovering addicts or people with mental illnesses. They obviously deserve affordable housing, but you will find that plenty of people who buy luxury apartments don't want to share the elevator with them.
You can just check the Yelp reviews of any building that has a mix of luxury and subsidized housing to see examples of these issues. Buildings like this always attract bad reviews, suffer from high turnover, and therefore have low occupancy rates among their luxury units.
And those are at least as worthy of direct attention and some solution.
If someone cannot handle themselves, maybe they shouldn't be given a subsidized unit in a fancy expensive city, but maybe society should help them by maximizing the help they get, and that is probably somewhere where simply being costs almost nothing, and where employing caretakers wouldn't cost two arms and a leg per hour, and so on. (And of course this doesn't mean ship all the addicts to Alaska/Wyoming.)
If you think about it in another angle, the governments aren't subsidizing to help the tenants as much as they are subsidizing the companies that have to hire people at not executive or programmer wages.
I mean you might get a few people who are willing to commute 4 hours a day, but certainly not enough to satisfy SV's needs. I doubt a company would pay their janitorial staff enough to live there without being forced.
Of course they would if they had to --- supply and demand. Do you really think companies would not find a way to solve the "my office is a pig sty" problem?
Even if it were $100/hr that still doesn’t mean the housing supply would be adequate for the demand.
The only short-term solution that would give sufficient housing supply to the Bay Area would be a massive loss of jobs.
Either way, SF is having the issue they are having because SV had the exact same problem 20 years ago. Everyone knew this was going to happen.
Think people in Tokyo living in "cages". It starts as people renting a 2 BR apartment putting two sets of bunk beds in each room and now you have 8 young wokers playing ~1/5 of a 1br price for the area. But, now you add bunk beds to the living room, or beyond that people hot bunk so someone in the night shift sleeps during the day etc. However, this tends to unsanitary conditions and adds externalities.
It will be smaller than a typical American apartment but at least you won't be sharing with roommates.
I think buildings with both subsidized and market rate units are a great idea. (Segregated subsidized buildings seem to be strictly worse.) But as others mentioned subsidized can mean either "low wage normal folks" or "hardcore bath salts addics living on tree bark with 10 dogs and sold the bathtube for drugs years ago, so they smell worse than their dogs". And they need different kind of help. The former can probably be perfectly happy with their current job thanks to the rent subsidy, whereas the latter category is very likely actively harmful to the community and needs serious (expensive) intervention.
Of course we can debate the problem of injecting even more money into a market with already limited supply, and its fairness.
You need to solve the problem with your plan where the person who gets labelled "cannot handle themselves" is diverted into an isolated setting with much less stimulation/opportunity. You did say you weren't proposing to "ship" "addicts" to Alaska/Wyoming but there's a much higher level of responsibility than that -- you mustn't write them off / throw them on the scrap heap / set them up for an isolated dependent life by your own standards. It could be you one day.
It's a little discomforting how few people seem to care about that.
Why? Barring someone forcibly injecting me with opiates repeatedly or the same with crack, it is beyond unlikely I will ever become addicted to either substance. I don’t think addicts are “bad people”, but once they’ve hit a certain point their physical desire for drugs overwhelms their ability to be present in polite society.
People should be treated with respect and humanity, but they also should not be given a free pass to do anything without consequence. If you’re shitting in the elevator or passing out with a needle in your arm in the restroom in the building it presents a clear problem with the plan of mixing luxury housing with subsidized housing.
I will never be in that situation because I won’t allow myself to be in that situation. I might become poor, I might need to rely on subsidized housing, but I will never be “someone who can not handle themselves” as the GP referenced.
I get that you’re trying to evoke empathy, but there’s a sea of difference in behavior and capability of accepting social norms between your average mentally ill substance abuser and your average poorer person who can’t afford housing. These situations are not the same and there does need to be a filter to ensure that the working poor do get affordable housing without reducing them to having to live alongside “people who can’t handle themselves”.
It’s not a nice thing to realize, but it’s the hard truth. We, if anything, should start providing state run mental facilities for long-term patients again. There are a lot of people who through circumstance or birth simply are not capable of coexisting with polite society.
How do you intend to accomplish that? Remember we live in a world where people have accidents with cars, guns, and preparation of prescription medicines. You do not control everyone else, yet everyone else has the potential to alter your lifestyle in a few moments of recklessness or distraction.
Force majeur exists in contract law for a reason.
Accomplishing this is simple, but not necessarily easy. You make a choice.
As I mentioned, literally barring someone physically overpowering me and forcibly injecting me with addictive drugs, I will never be a drug addict because I simply refuse to take addictive drugs. Yes, that includes painkillers that may be prescribed. I took none of the hydrocodone tablets I was prescribed after my wisdom teeth extraction. I'm currently using non-pharmaceutical approaches to managing chronic back pain from an injury rather than relying on opiate painkillers which doctors are happy to prescribe.
I am not blaming people for their choices, but I am recognizing that externalities that feed into our choices don't excuse the outcomes.
Opportunity is relative. By giving it to one person, you're taking it away from another.
Currently substance abuse is either actively criminalized with enormous costs to humanity (probably millions dead due to the various criminal organizations participating in the trade of prohibited substances) or at best relegated to intervention reality shows.
Furthermore, treatment of most mental illnesses are very superficial nowadays, we have a few volunteer/charitable organizations acting as support systems, but mainly it's pills and some expensive counseling and you're good to go, right back into your old environment, old social circles, old habits, old context.
I'm not saying it should be state mandated, but it could be a lot more state supported.
I can see both sides of the argument, but we need to figure out how to build cities that work or we are in for a lot of chaos.
Don't you have to figure out the overall proportion of affordable housing to regular housing?
Why is this the obvious solution? Why not spread people out instead of trying to cram as many as you can into the same place?
At the end? Normal people fled. Because more often than not. People living from state are... not really nice neighbours...
I lived in such a "planned" Village.
It started as an expensive nice village. With swimming bath. Saune, bowling etc.
Now it a Ghetto, because everyone with money fled.
So until there are systems in place that are stronger and longer lasting than the economic, educational, and cultural problems which that would create, I think it remains an immoral choice.
True equal access to top tier education (and not watered down education for all), a true living wage and/or guaranteed income, and some way to break through the cultural issues, including prevalent violence and drug use* that such a solution would perpetuate need to come first to all cities. Only then would that become a practical solution. So yes, in theory. But it is at best decades away as a solution, and realistically probably closer to a century away.
* since among the poor, there would be a higher concentration of drug addicts than elsewhere, and they would then have a greater influence on others.
But rather, that it's hard to find the balance. Particularly because you've got genuine concerns from the hundred thousand poor people who weren't able to get in on those sweet but few 100 subsidised units in the mission who have their minds blown that their municipality spent $600k a unit for them with public money that should go to their quality of life, too. What do you say to them...
Sounds to me like if land, not construction, is the dominant factor in cost, luxury and affordable units should cost about the same amount. Unless the affordable units were higher density.
BART plans a billion dollar bandaid by digging out the other side of the station to allow boarding from both sides of the tunnel. But that billion dollars doesn't buy any additional tracks, just an extra exit from the sides of the trains.
Even the new 6+ billion dollar transit center is only going to have 3 platforms and 6 tracks for Caltrain and HSR. In comparison, Penn Station has 11 platforms & 21 tracks.
What the bay area needs is a regional government that could set reasonable housing and transit policy instead of dozens of disjointed communities that only want office space and no housing and stand in the way of transit improvements.
There's no single solution that will solve the housing problem -- it'll take more housing closer to jobs, and better transit. (I purposely left out traffic improvements since that's a short-term bandaid)
China is spending trillions on infrastructure and trains and we whine about 6b for a huge train station in the center of a hundred year old city, while we give $1.5 trillion tax cuts to corporations
The city people are too rich to have to associate with the poor. They'll send their kids to private schools, etc. They eat at different restaurants, shop at different stores.
They (the people in charge of cities like Mountain View) mostly don't want it both ways, they'd rather have the status quo go on, which is why they throw up these requirements in the first place.
This is exactly what cities should be doing to grow in a smart way: collect those fees to improve city infrastructure, to accommodate the new housing (and business). Improve transportation! Widen roads, add bike lanes. Add schools and parks and libraries. Add water/sewer/electrical/internet that connect to the developments -- that isn't free. How else are these paid for?
One interesting starting point is a study called 'are ghettos good or bad?'. It's a little dated, 20 years old now, especially with economic segregation on the rise since then and a sharp increase of academic interest in the topic. But it sets the tone and introduces a little bit of theoretical history, provides empirical evidence for the notion that economic segregation is damaging, as well as its causal direction (ghettos create bad outcomes, rather than vice versa), although it lacks in explanatory power. The NBER is typically well-respected. You can find it here: http://www.nber.org/papers/w5163.pdf
For something more recent, this report is another good place to start. The Urban Institute is quite liberal though, so its research is a bit more partisan than a typical academic piece, but it's still good stuff. This research, and others, suggests that it's not just low-income groups who suffer from economic segregation, but that it affects all residents negatively as well, on average. (mostly for two reasons: one is that when low-income groups are worse off, their issues e.g. with crime or drugs spill over to non low-income communities, and two that, simply said, a Google engineer is more productive if he doesn't have to spend his day preparing food and doing laundry, so you need a healthy mix of people and proximity matters).
https://www.urban.org/research/publication/cost-segregation
Hope to be of more help next month.
Here is one perspective on "why urbanization" - https://graylinegroup.com/urbanization-catalyst-overview/
Fifty years ago, if the husband gets a job offer in a town of 10,000 people with one main employer, he'll take it and relocate the family there. It doesn't matter that there's no career prospects for the wife, because she isn't likely to be working in a career job.
Today, the husband (or wife) gets the same job offer, but the family doesn't take it because the other spouse works in public relations (or whatever) and there are no good jobs of that type in the small 1-industry town.
Thanks!
End tax breaks for real estate owners and end the ability to speculate on home prices on a large scale, and housing will become much more affordable.
Or institute a Land Tax, which incentivizes high levels of housing density and housing availability. A land tax is also the most efficient type of tax that exists, and acts as an moderate wealth equalizer.
The other thing the argument does is assume we have an "expensive land" problem. We don't. In most cases it's construction costs that are unacceptably high, not land costs.
In Philly and Baltimore, the situation is the same as described in the article. The estimates for building new low cost housing are up to 10 times the cost for private development, so it does not get built - and the land goes back to private developers, and sold to the wealthy. This has been a constant issue for as long as I have lived in these cities.
The rents in Philly are higher, but nowhere near those of the Bay Area. Here is an article about the local market: https://www.google.com/amp/s/cdn.relaymedia.com/amp/billypen...
People are angry that although they can afford a perfectly standard apartment, they can't afford new construction. Apartment developments being abandoned before completion due to low demand. Market distortions caused by development restrictions during the 90s.
If this is what we get as an answer to such an important question, I can't really trust them to really be forthright when it comes to understanding the issues of cities. When people complain about the media, this is the kind of sloppy thing people complaint about.
The commonly perceived idea that land prices invariably increase when upzonings occur is only true in the context of how they occur today: very slowly, in extremely limited numbers, after years of lobbying the government for changes. Land prices are determined by their highest best use, and right now, with extremely scarce housing supply, that highest and best use will always be the most dense possible development imaginable. But that isn't guaranteed to be true.
What would happen if all of the land was developable at density? It certainly wouldn't be scarce, and with heavily increased competition it likely wouldn't be very profitable to build either. Seattle's 83 sq miles of land, at the midrise levels of central Paris, would accommodate 4.6M people, 25% more than the entire 8000 sq mile metro region currently houses. It would take an inward migration of several millions of people before the highest and best use of most land parcels would be to build extremely densely everywhere. There just would not be enough demand to justify midrises everywhere.
So while most centrally located land (like the handful of neighborhoods directly adjacent to downtown) might result in land price increases (because dense developments can actually attract enough demand to fill them), it would likely end up with lower land prices in neighborhoods further out like Beacon Hill or Ballard.
So if you want to lower the costs of affordable or transitional housing development, you gotta do the same exact thing that you would do to lower the prices of market rate housing.
Exactly, which is why there is zero mystery here. This is an entirely artificial, legal challenge. We already know what happens if we let cities develop organically, because we've already built places like Brooklyn and Queens.
But then with NYC densities would NYC prices follow? Put it this way, do we have examples where higher densities didn't lead to unexpected higher prices due to critical population mass being achieved?
Induced demand, or something with a similar effect, seems to apply to housing at least as much as it does to traffic.
And before we dismiss it entirely as "coasts are more desirable than landlocked middle America," let's take a look at both various coastal cities of varying density in California[0] and various less-desirable (Houston is technically coastal, I suppose, but not in the "good weather" or "pleasant" way) Texas[1]. San Diego is cheaper than SF or LA, but also much less dense. Fort Worth is cheaper than Dallas, but also much less dense, and pretty much right next door in the middle of a bunch of flat land.
Maybe we should start knocking down a bunch of non-affordable housing, run off the people with enough money to move away, and watch that affordability go up? ;)
[0 ] https://www.apartmentlist.com/rentonomics/california-rent-re...
[1] https://www.apartmentlist.com/rentonomics/california-rent-re...
Because affordability is inversely proportional to demand, and higher-demand areas tend to have more dense housing.
The same way "add another lane to the highway" doesn't fix traffic.
Rents haven't always been as high in NYC as they are now. It's not as though the city's history is one of inducing demand that it can't meet with adequate supply.
The city has always been expensive, but not in the ridiculous way it is today. I'll leave the inflation calculations to you, but this demonstrates my point:
http://www.millersamuel.com/change-is-constant-100-years-of-...
Sure the same pattern of induced demand may occur with housing development, but induced demand in urban development a bad thing? There is evidence that if actually accommodated that induced demand over the last half century, instead of suppressing it, that our national economic growth would have been 50% higher than it actually was.
What is the correct density? It's the exact density that existed when I bought in. That's what people -- incumbents, I mean -- are really saying.
That could very well be because growth in demand has outstripped increase in supply without any sort of feedback relationship, but that itself raises interesting follow-up questions. Is rapid growth undesirable for everyone not directly benefiting from higher salaries from the growth, which is probably most people? Do developers have an incentive to keep growth in supply lagging, since it means they can get a lot more return on investment for what they do raise funds to build? Even for homeowners, your property values go up, but so does everyone else's, so you're not relatively any better off/able to upgrade. What are the political implications of that, if so?
In the past, productivity was not so concentrated in a handful of cities, making me skeptical of that linked model. Big confounding factors there in the death of industries across most of the country happening at the same time as increased global prominence and money concentrating to more and more first-and-second-tier cities.
What that sort of model also misses is that you have at least as many people preferring low density to high density as the reverse (based on empirical trends in the post-car US), and you also have a lot of people who won't be happy with a solution to job distribution that's just "pull up your roots and move to a better city, sorry." It doesn't seem to result in constructive policy recommendations that have a snowball's chance of being welcomed.
China has seen unbelievably explosive growth in its cities and has also seen 1 billion people lifted out of poverty during exactly the same time period. Coincidence? People flock to cities because they can get paid five times more than they could back in their home village – they're not cavorting, scheming millionaires. Trying to strangle your cities because cities are bad is the dumbest thing you could do in terms of economic growth other than than trying to strangle trade on the theory that those scheming foreigners are going to take all of our money away.
I'm sure downtown Shenzen is more expensive today than it was when it was a small fishing village. Would the world be a better place if it had been kept as a small fishing village?
Wait, you don't think China has been doing this too?
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The US has had decentralized economic booms in the past; even China's current one is based around several cities and regions, and China continues to build outwards, not simply make Beijing and Shanghai ever denser inside the same radius. They do it at a higher density than we do in the US, sure, but other than that the strategy doesn't seem completely unfathomable - I think the Chinese-style answer to the Bay Area is less likely to be "make SF denser" and more "move a bunch of development to the East Bay or Dublin or something and make new companies start up over there."
Expanding on what I said in a separate comment (sigh, I was headed to bed, maybe after this one), we are currently in the US letting many of our cities die while putting a ton of eggs into NYC/SF/etc baskets. I don't think further density in just a few places is going to fix anything price-wise or have any superior outcomes than reducing those bottlenecks would.
If Bay Area governments were as NIMBY about desks as they were about beds, we might not be in this mess. Now that we've built the desks, we need the beds to go with them. (Or burn down the desks? The sheer comedic value of a government on an explicit job-destroying program might be worth it).
Because density and affordability aren't really related. The only thing that really affects affordability are supply and demand. As a proof of this, feel free to peruse the Journal of Housing Economics for empirical housing price models. Almost none of them show density as a significant factor, and almost all of them demonstrate the dominance of one single metric: the vacancy rate. Literally, the vacancy rate is the only thing that matters. And density is only related in the sense that it is one of the possible ways to increase the vacancy rate.
Jobs create demand. Jobs bring skilled workers. The presence of skilled workers itself attracts more employers. Maybe the employers move in faster than upzoning happens. Maybe it happens slower. Whether or not this increases or decreases price is just a question of the coefficients on the various inputs. I'd still propose that the missing piece is geographic - cities that can absorb this by growing outward in a decentralized way will stay cheaper than ones that can't, where things get nasty.
But, to move the discussion along, let's just call it demand outrunning growth in supply, dropping the precise role of density (or replacing density in my original post with "geographic constraints which necessitate increased density" or something). Either way the result is the same thing. Do we have ideas that we could try to get turned into policy for stopping this sort of thing from happening? It's a really common pattern, not just in SF but everywhere that's ever seen someone complain about gentrification, so it would be a useful thing to have a politically feasible solution for.
EDIT: it's getting late out here, so I'll add one last bit then probably retire for now. I personally am not a fan of remote work, or cross-timezone collaboration. But I think the people pushing it need to win out in the long run. When it comes to massive density increases, or de-densifying the country by spreading work back out thanks to technology allowing better and better telepresence, I think the latter is far healthier in the end. It de-SPOF-ifies industries, which is good when considering natural disasters, potential climate impacts, or war/terrorism. It levels out costs - you now have the whole country (world?) to choose from - while also massively increasing your hiring pool. It evens out opportunity - you don't have to be able to afford to take a gamble on moving across the country to chase your dream job. It saves a shit-ton when it comes to energy used for commuting.
And if you ask me if a less dense, remote-friendly world is more likely than getting people to reverse course on a hundred-year-old car-powered trend towards suburbanization, I'd wager yes. Especially because the arguments for the latter are pretty unconvincing so far for people who don't want to live somewhere massively denser and who are able to afford their current living situation.
What it also shows is how open to changes a given market is; if there's too much vacancy (think Detroit) then it's clear that something went VERY wrong in the market.
If there's too little vacancy (think SF, Seattle, etc) then what went wrong is mostly NIMBY and regulations failing to pair jobs and housing increases together. The result is a lack of flexibility and skyrocketing prices.
The SF bay area seems to have finally hit that point where the restaurants and so on are being forced to raise their wages because they can't hire people, and that generally seems like a good thing. It's better if the wages reflect the costs.
We have a housing glut in this country, most of it is just in places that are far from jobs, services, transit, and community amenities. If we created more moderately sized, walkable, transit friendly cities this problem wouldn’t be so bad.
Everyone wants to cram into SF, NY, and a handful of other places because of the access to economic opportunity and urbanist lifestyle. If they could get some measure of that elsewhere, even a not as good but okay enough version, many would gladly move and alleviate the pressure. But because of how we do our built environments these dense cities are islands of urbanism in an ocean of sprawl.
That means investing not all in one spot. You're only making these spikes bigger: http://2oqz471sa19h3vbwa53m33yj.wpengine.netdna-cdn.com/wp-c...
Municipalities should lead the charge, but together with companies. Proximity to jobs is incredibly important. If anything, it could be good for companies too. You don't need to compensate a software engineer to the extent that he can afford >$1k per square foot prices.
What we don't really bluntly talk about is this: tech companies are spending more on real estate via their HR budgets than on actual talent. After all, we compensate similar talent very differently depending on the local cost of living which is a variable mostly dominated by housing costs. That means HR budgets are in large part dominated by housing costs.
Obviously this is not uncontroversial. Many in the 'receiving' community will hate to see cost of living rise when SF Jr. and its Tech Jr. companies move in, particularly those who aren't the owner class but the labourer class. It reeks of gentrification. But there has to be a way to make that work better than it does now, which is investing everything in a small radius, attracting all companies and all people, and making it wholly unaffordable while the rest of the country is drained of talent, jobs, economic activity and becomes extremely affordable in terms of land but unable to support any population. There has to be a middle-ground between the two positions.
The affordable units is a clever scheme to block construction.
E.g., is the question really "why is affordable housing so expensive?" or is it "why is housing so expensive?" They hint that publicly funded housing might be more expensive, with a mealy-mouthed "the case has been made". But they give just one apples-to-oranges comparison, and, worse, one hypothetical comparison. Where's the statistical data?
It also doesn't look at all at why we need affordable housing. E.g., with rapidly spiking inequality (in the US generally, and especially in SF), demand for affordable housing is going up.
In talking like we can't afford it, it doesn't put numbers to that, either. For example, in 2015 the US spent $71 billion on the mortgage interest tax credit, 90% of which went to households making over $100k/year. If we stopped subsidizing the housing of rich people, could we afford to subsidize the housing of poor people? And might that giant subsidy be part of why housing is so expensive?
So A+ title, D+ content.
We've reached a point where certain places - London, NYC, San Francisco, Singapore, Hong Kong and perhaps even Shanghai - are so large and economically important that the idea they should include affordable housing, when there are alternatives that are much more financially effective, seems a little off to me.
I'm not sure why anyone would want to live in affordable housing in SF, when everything is so expensive. Wouldn't it make more sense to move whole family groups to Portland, for the same prices as one of those families could live in SF? Not even that far, to Oakland maybe, or the outskirts.
And why is the right abstraction one house? A policy of whole family moves, or community moves so people keep their connections, would seem like a more sensible idea. People stay in areas that are awful often because they don't want to lose those connections - which I 100% get. So why not move groups of people - willingly - so they have the best of both worlds?
So there is precedent for what you’re proposing.
But the argument against it is that people have some sort of right to remain in their “homeland”. And that a city whose “native sons” can’t afford to live in it isn’t a healthy city. That a healthy city has places for both rich and poor. For owners and operators. For speculators and locals.
Your theory that we should move all the poor people in groups to less appealing areas to make room for the incoming rich is horrific to me. Especially since, in America at least, this will often effectively be government-sponsored ethnic cleansing.
tl;dr: city specific zoning laws.
To be fair, the post is specific to LA, but it makes me wonder what legal hoops developers have to jump through to build in other cities and how expensive those hoops are.
https://www.reddit.com/r/LosAngeles/comments/6lvwh4/im_an_ar...
But what about the land? I don't think that has to be the major cost, at least in San Francisco. There are a plenty of vacant lots owned by the city, and in a recent case the feds sold land for $1 to the city for pre-fab condos near the court house for 'formerly homeless'. Indeed, if you have an apartment, you are no longer homeless.
And this is where we start talking about the real expense -- union labor. The pre-fab units clock in at under 250k each, but they are built over in Vacaville with non-union labor. Anything else needs highly paid craftsmen which goose a market rate unit over 700k+. If the lot needs to be abated for pollution, usually for former gas station sites, the price goes even higher plus delays. Want steel framing for going over 7 stories? The price goes up. Not that SF Planning's zoning will allow 7 stories, even near BART.
The solution to affordable housing is to just build more housing -- just regular housing. Built it tall, 100 stories or more, and right on top major transportation lines like BART stations -- on all 4 street corners. We'll need to overcome labor costs and zoning before we can get there.
Meanwhile, in Mississippi.... regular brand new houses (not "affordable" housing) are actually affordable at $150k, or less than a down payment in any west coast US city.
https://www.zillow.com/ms/new-homes/
Or check out a brand new 2200sq ft house in Indiana for $200,000 that would sell for about $2.5 million in the Bay Area, or about $1.5 million in Seattle or Portland
https://www.zillow.com/community/harrison-lakes/2095745355_z...
Sometimes I wonder why people aren't more willing to move to new states. I realize that Indiana and Mississippi aren't particularly "cool" and certainly not trendy, but what matters more in life? Being in a trendy spot, or actually being able to afford a reasonable lifestyle?
The price per square foot with the exact same materials, finishes, construction quality, etc - not including cost of land - is 1/5 or less in a state like IN, MS, WI, MN, etc than CA, WA, OR, why is that?
These states are in the same country with the same first world amenities.
Just because you can buy cheap house in Mississippi is not going to cause young doctors, engineers, lawyers, other professionals and graduates from top schools to start migrating there. It's just not worth it for them, they are looking at their long term career prospects and can do the math.
But really, even at the much lower income levels of the south the money goes so much further.
I'm not a homeowner, but being near NYC, if I manage to get myself into buying a home, I would probably be inclined to support any measure that ensures that the demand for my home—and therefore its price—continues to rise at as great a rate as possible to make sure that I wasn't on the hook for a large depreciation on my mortgaged property. This is the reverse of my current desire, which is for housing to be affordable enough for me to get into so I don't have to rent and can provision that part of my income toward building wealth and not someone else's wealth. The moment I become a homeowner, those motivations flip.
If the median home price were closer to the median income in a given area, I surmise that the desire from homeowners for increased demand and value would abate, because homeowners would stand to gain or lose less in their house vis a vis their income. Instead, you have folks who may gain more value in their homes in one year than they would make in salary. And conversely, price correction at such a great disparity to median income would mean that you now owe the bank a year or more's salary more than what your home is worth.
Yep, people are using houses as investments instead of just places to live. When a person is invested in something they will willingly engage in behavior that leads to harmful outcomes to everyone, even themselves long term.
A corollary of this is summed up in this famous statement
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” -Sinclair
I assume this is one reason we have zoning rules -- so you know what your neighborhood will look like in 10-20 years. Important with a 30 year mortgage.
(If your point was those with 2nd homes or investment properties that they don't live in -- that's an issue. See Vancouver, and various Bay Area cities.)
Edit: by "investment", you might mean someone seeking an appreciation of $500k vs $300k. I was thinking of $0k vs losing $200k. It happens.
In the end,if sanfrancisco got its act together and build 100,000 units, the city would transform tremendously, with a flush of people, of jobs, of prosperity. The city strangles economic development.
Today's luxury housing is tomorrow's affordable housing.
The position, "I'm not a NIMBY, I just don't like greedy developers getting whatever they want. I would support this project if it were affordable housing" is a common tactic for people who are ostensibly liberal to appear less craven about their home values then they actually are.
Issuing building permits to 100% of the tiny drip of funded affordable housing projects won't change a thing, and they know it.
The challenge really is that people block this kind of development. Most of San Francisco is 2-3 stories with 3-6 units per building. Given the value of the land beneath, that sets a floor on pricing greater than $200k per unit. Then you have to pay for all the legal and development fees to push this through the planning process, and work with the community. The reason developers make small buildings is that they don't stand a chance at getting larger buildings through community input, discretionary reviews and so on.
It's not clear to me that this new bill attempts to address that angle. FAR (floor area ratio) isn't nearly the burden the article makes it sound like, but DR (discretionary review) from neighbors certainly is, and often rightly so. Presumably having a transit bonus on the books will encourage planning to tell people "tough shit" if they're trying to oppose larger projects in transit dense areas. Expect bigger projects in SOMA and the Mission :).
* Affordable Housing returns are always below market-rate housing. * Requiring a percentage of building to be affordable housing is a tax. Builders have an interest in avoiding taxes. * Acquiring an affordable housing unit is a long term benefit. Those advocating for housing have an interest in acquiring benefits. * Long term housing prices are driven by regional economics. * Short term housing prices are can be manipulated. Solving manipulations like the simultaneous remodeling of large complexes; raising rates with too little notice to effectively move; or jumping rates by high percentages in a year have different solutions.
Thinking in these terms separates concerns of equity in society; the high cost of service workers in congested areas; the rise of empty buildings; the gouging of existing tenants; and subsidized housing for some workers.
Recognize this debate has been going for a while. On could argue that providing cheap housing for the Phoenician immigrants would make Athens better for Athenians, or that people like Plato need an affordable place to live to make our city-state great!
Here's why they make sense:
1. They can be cheap because they can be built in places with low land prices and low regulations. These are the chief factors in why housing is so expensive.
2. They can solve desirability by building together that stuff that makes a city desirable - other people, businesses, walkability, modern design.
3. They're more feasible than ever because remote work is so practical that you don't have to live in the middle of a city for a job.
4. A model for bringing people who have this goal together has been recently validated on a large scale (kickstarter type systems).
So I'm left wondering - am I just not seeing the projects or why have I not heard of them?
Remote work isn't actually feasible for most people. It's feasible for software engineers, and some other high-paid jobs, that don't have much of a problem paying high rent prices.
The things that make a city desirable (and supportable) are largely natural features of its location, which you either can't currently practically engineer (pleasant weather) or which are very expensive to engineer (like access to fresh water supply). Places that are currently unpopulated and have low land prices are usually lacking these things.
Massive Winter Storm Hits Northeast - https://www.npr.org/sections/thetwo-way/2018/01/04/575643483...
Because those places have desirable geographical features, like access to fresh water (flood plains tend to have this in spades), access to arable land (doesn't always support high density, but supports at least people to farm and support farming, because people living elsewhere need to eat), access to natural features that are convenient in trade (like navigable waterways and natural harbors), access to valuable natural resources, etc.
The problem is that human beings generally hate them.
For a good example of this (and why), check out (http://slatestarcodex.com/2017/03/16/book-review-seeing-like...).
Income source strikes me as the most significant challenge. How will the citizens of these communities earn money? In addition to remote work, local manufacturing, education, healthcare, public safety, tourism, and service industry can help fill the gap. Quite a master planning challenge though!
Access to natural resources is a challenge, but that challenge might spark solutions we’ll need other places on Earth and as we colonize the Moon and Mars. People already choose to live in many inhospitable regions, depending on purchased water or routinely damaged by predictably destructive weather patterns (I’ve often wondered why wealthy New York financial firms don’t relocate somewhere sunny).
Sustainability is another question I have. Is it more sustainable for us to build up in cities than to set up distributed towns? Do we need to pivot how we aspire to live and what we aspire to own from standalone houses to dense high rise units?
I mean that's Miami to NYC in less than 2 hours.
And then the city paid a variety of contractors to build studio apartments which would rent for $500/month without any commitments, deposit or credit score. With 2-4BR for families.
The thought is the city, community & companies build up immense value for real estate owners. It's somewhat unfair to create this fantastic system we have in the Bay Area, where all these smart hardworking people gravitate to work on new, sometimes transformative ideas but then we channel lots of the profits to early real estate holders who effectively got lucky. While unnecessarily adding a ton of stress to people's lives.
Of course, it would never be implemented. But the basic idea is that all apartment rentals would be through an open system via local government and all condos & homes would require the owner to live in them.
If by a miracle this hump could be got over, it would also lead to massive problems of supply. 100% of new developments having to be sold to owner occupiers, or be paid for by the government, would make it hard to impossible for either side to build much more supply. I can't start a new development unless I am sure I can sell 100% to owners, or the government buys some of the units. Hello massive corruption!
Lastly, https://pics.me.me/the-30-second-guide-to-government-spendin... is an example of how people buy. A Government run rental market would have ridiculously impractical houses, as now governments would have the ability to manipulate the housing market for votes. "X government built practical, affordable no frills units, but you hate them. We'll build you all places you love". Disaster number, what, 7?
It is just a disaster from every possible, conceivable angle.
Every new house built is larger than traditional smaller/starter homes. My 30-year-old 1200 sqft home isn't produced anymore here. I'd say, on average this has turned into a 1600 sqft, 3-car, multi-level (or more) home. New starter homes (in traditional terms) are really just for senior-age targeted clientele which forgo more bedrooms for a larger bedroom size (empty nesters target possibly?).
We're having fewer and fewer kids (on average - I've got 3, which presents its own issues in the house hunt), but we're needing more and more square footage for everything. There's a slight adjustment for this by what seems to be a reduced lot size, but this is only marginal, and allows maybe one or two houses on the street than previous standard lot size 40-50 years ago.
Every apartment complex that goes up has to be "posh" and include shopping underneath. (There's very little multi-family units going up, most are 30 years or older). Most of the rents for a 1 or 2 bedroom in these developments in already the cost of my 15-yr mortgage.
This is just what I experience, but it seems relatively the same, in every suburb surrounding my relatively large city, including inside city limits itself.
Welcome to the USA, where taxes are spoken for before they are even levied.
Because the places are either (or both) unattractive to live for environmental/geographic reasons or have an economy that can offers few (if any) additional decent paying jobs and can support few (if any) additional people without jobs.
Prices reflect the market’s assessment of value, and usually there is a reason for that assessment.
We can build 800sq. ft. (75 sq. m.) apartments in 3 story buildings for about $40,000, not counting land.
But we don't. Because most Americans don't want to live in 800 sq. ft. and most builders want to cater to the middle standard deviations of the population. They make more money selling to people who make more money.
https://www.eastbaytimes.com/2017/10/11/emeryville-affordabl...
It's not exactly located in cheap area either.
https://www.google.com/maps/place/3706+San+Pablo+Ave/@37.832...
Building up makes sense, but considering complete lack of undeveloped land in this area, that's not really feasible.
In some countries, residents of a city block can work with real estate developers to build-up, and as long as 80%-85% agree, the project proceeds. Not sure if equivalent mechanism exists in CA.
1. We need to compare price per Square Foot or Square Metre. Not One / Number Bedroom housing that (Strong Words Deleted) used when comparing. I pointed this out in the previous Founder salary article when they mention New York has a slightly more expensive One Bed Room Flat rent then Hong Kong or Tokyo. Well, the NY One Bed room flat's bathroom is properly bigger then the actual one bed room flat in Hong Kong.
2. When we say building cost, i tend to separate building and finishing. As mentioned in other comment, construction costs around the world isn't that far apart. After all metals, cements, etc are pretty much the same level of pricing everywhere. The Cost of material dont differ much, it is the labour cost that has higher variation, but even so the difference in labour cost of developed countries Vs the differences in total cost of the apartment / housing is negligible.
3. While we have tech and Automation to make building cost cheaper, finishing cost scales linearly with the area you are selling. Floors, Electric Wires , Waters, Pipes, etc all these are still labour intensive. And we have no way of bringing this cost down.
4. Not that any of the above matters, because when we have limited supply of land due to politics, prices of land will shoot up. The only places I know that is immune to this blood sucking property investment bubble is either Germany or places where population density is very low.
5. Take Hong Kong for example, you could literally buy up every single Flat on sale in the market, protest on every government land proposal due to environmental concern or what ever, and you have a Housing Market that only goes up.
The creation of fiat currency and money supply with limited land means in some places in the world we are forever slave of rent or mortgage.
The quote about reducing the regulatory burden for but only for affordable housing to cut down on the cost seems telling - essentially admitting that at least some portion of the regulations in place aren't necessary and are simply a waste of money.
It is not such an admission, because it could just as well view the regulation as generally beneficial but in tension with the goal of providing affordable housing.
You are viewing desirability of regulation in an unreasonably context-blind and binary manner.
https://www.youtube.com/watch?v=iGbC5j4pG9w
* Land owners have an absolute right to develop their own land - neighbors can't block you. * You can build a 60 m^2 x 3 floor house on 100m^2 of land, or more.
So basically they build way denser, and reduce opportunities to block/rentseek.
There are two reasons: one is that the units are built out more luxurious than they need to be. At least 30-40% higher.
The second is union labor (or prevailing wage) you're spending three times the amount on labor as hiring local, cheaper labor.
Please tell me where these are, I’d love to know so I can redevelop them and make a few million.
As soon as the political gain to block construction dissapears, developing anything will be much cheaper and changes into policy will come with popular demand both by renters and landlords.