Tag Archives: affordability

The challenges of adding housing in single family neighborhoods

Too often, news articles on housing prices fall into easy traps and cliché, whether in discussing gentrification or city vs. suburb tropes. But Conor Daugherty’s piece in the New York Times (The Great American Single Family Home Problem) hits all the right notes.

In it, he tells the tale of a modest redevelopment proposal to redevelop a single family home into three units on the same lot. The political opposition is fierce, leading to years of delay and legal proceedings. And this is for a parcel already zoned for additional density; this particular saga doesn’t even touch on the challenges of rezoning an area currently occupied by single-family homes.

A couple of things stand out to me:

The missing middle: The author frames the cost trade offs well. Lots of cities allow downtown and highrise development, but this requires expensive construction techniques, and thus requires pricey rents to pencil out. Smaller-scale development (low-rise apartments, duplexes, townhomes, etc) can pencil at much lower prices – the thorny issue is the politics of building in existing single-family neighborhoods.

The problem is that smaller and generally more affordable quarters like duplexes and small apartment buildings, where young families get their start, are being built at a slower rate. Such projects hold vast potential to provide lots of housing — and reduce sprawl — by adding density to the rings of neighborhoods that sit close to job centers but remain dominated by larger lots and single-family homes.

Neighborhoods in which single-family homes make up 90 percent of the housing stock account for a little over half the land mass in both the Bay Area and Los Angeles metropolitan areas, according to Issi Romem, BuildZoom’s chief economist. There are similar or higher percentages in virtually every American city, making these neighborhoods an obvious place to tackle the affordable-housing problem.

“Single-family neighborhoods are where the opportunity is, but building there is taboo,” Mr. Romem said. As long as single-family-homeowners are loath to add more housing on their blocks, he said, the economic logic will always be undone by local politics.

Capital-A Affordable, vs. affordable: The three units proposed for the lot wouldn’t be cheap, but (crucially) they’d be cheaper than a re-habbed SFH on the same lot – and there’d be more of them.

They are estimated to sell for around $1 million. But this is an illustration of the economist’s argument that more housing will lower prices. The cost of a rehabilitated single-family home in the area — which is what many of the neighbors preferred to see on the lot — runs to $1.4 million or more.

The “economist’s argument” might be sound, but it’s a hard sell for the neighbors.

This kind of evolutionary redevelopment would’ve been completely natural and non controversial before the advent of zoning.

It’s always worth remembering how different the Bay Area’s housing market dynamics are. Daniel Kay Hertz notes that many of the same issues are in play in weaker regional markets, though the way things play out is quite different:

Aaron Renn doesn’t think much of the Bay Area’s strategy of generating affordability through redevelopment of single-family housing:

https://twitter.com/urbanophile/status/937159416847175680

First, it’s hard to say this is a cogent strategy; the vast majority of single family homes aren’t going to be rezoned anytime soon.

Second, Renn is correct, historically – at least since the advent of zoning. This was true for the Bay Area, too – suburban development offered a then-cheap and cost-effective way to add housing to the region’s supply. But that was decades ago (the NYT article includes maps showing the expansion of the suburbs over the recent decades), and the region has run out of room for new/expanded suburbs within a reasonable commuting distance.

Renn’s implied regional strategy isn’t going to work well in the Bay Area, either. Consider the recent articles on Bay Area super commuters. Relying on Stockton to be San Franscisco’s bedroom community has severe costs, after all.

There goes the neighborhood

enyplannyc

There Goes the Neighborhood is a podcast series from The Nation and WNYC.

It provides a look into the public perception of rezoning East New York. The reporters and producers get the emotional response on tape in a way you can only accomplish on radio, complete with all of the vocal inflections and intonation, putting a human sound on a complex set of issues.

However, a few criticisms:

For a podcast series about gentrification, the hosts don’t ever actually define what it is. This isn’t a knock against the producers, as gentrification doesn’t have a universally agreed upon definition to point to. By keeping things nebulous, the producers are able to capture the responses and reactions from New Yorkers without putting their thumb on the scale. They range from concerns about housing costs to new restaurants that don’t feel like they’re ‘for us.’ Cultural changes, economic changes, social changes – it’s all there.

However, much of the show focuses on the city’s response to this trend – NYC’s push for inclusionary zoning. Without defining the nature of the problem (gentrification), it’s very difficult to evaluate the effectiveness of the city’s response. Programs like IZ are focused on providing a specific kind of ‘proper noun’ Affordable Housing; newly constructed housing units offered at below market rates. The particular mechanism of IZ builds these units in exchange for additional development. IZ is predicated on a change to the physical environment of the city.

While the podcast talks a lot about race, class, and the challenges of a changing city, it never quite rounds the corner and asks the next question – if change is inevitable, what kind of policy response is appropriate (and is New York’s response adequate)? How should communities look to manage change?

It’s clear that the reporters are interested in telling the human story of people facing eviction, watching their neighborhoods change before their eyes. But in discussing a major change to the city’s zoning policy, the podcast series has very few interviews with the public officials involved in crafting that policy (I only recall one quote from Vicki Been referenced in the final wrap-up episode).

Perhaps my background as a planner tunes my ear to things like this, but there are other small mistakes regarding the policies that shape a city’s housing stock. Zoning is the big one. In episode 4, they discuss New York’s 1916 zoning code, noting the results proved so popular, and property values increased – “and developers have been manipulating the zoning process ever since.”

I might argue with the greedy developers vs. civic minded interests framing; but the broad intent of zoning to preserve and increase property value isn’t wrong. However, they then add this: “DeBlasio’s innovation is to use zoning not just to facilitate growth, but to control it. That’s new.”

No, it is not. That is the very idea of zoning.

There are numerous references to a housing shortage and a housing crisis, but the entire series elides the overall demands for growth. They clearly document the change in the kind of people moving into the neighborhood, but don’t ever address the broader question of how to increase the housing supply in the face of growing demand. How should the city grow? If not here, then where? If the city doesn’t engage in shaping this physical growth, that won’t prevent the social fabric of the neighborhood from changing.

Despite these frustrations, these are important conversations to have. Taking action to fight gentrification will require building a political coalition; one that’s bigger than just the market urbanists or the anti-displacement activists:

https://twitter.com/surlyurbanist/status/738021367610671104

https://twitter.com/surlyurbanist/status/764599887908380672

https://twitter.com/surlyurbanist/status/745623354153959424

There’s potential to form a political coalition around these issues; this podcast series is a great look into the kinds of issues such a coalition would need to address.

Housing prices vs. land prices – Vancouver, BC

One chart to note in discussions of urban housing affordability, from Vancouver, BC.

vancouver housing prices

The chart is from The Globe and Mail, looking at the changes in housing prices by the type of unit in Greater Vancouver. While condo prices have increased substantially, that increase is nothing compared to the boom in single-family detached house values.

“It’s really the value of the land that is driving prices higher for detached properties and widening that gap,” said Darcy McLeod, president of the Real Estate Board of Greater Vancouver.

Emphasis is mine. This demonstrates a few things:

  • In high-demand areas, new dense construction can and does improve affordability by making more productive use of expensive land. As the adage goes, a skyscraper is a machine to make the land pay.
  • Defining affordability in big cities solely in terms of single family home prices is misleading. Focusing on those prices also might skew potential policy solutions, which could focus on making housing units more affordable instead of making scarce land more affordable.
  • Given the scarcity of land, it’s hard to imagine a set of policies (barring a regional economic decline) that would ever make single-family detached homes affordable. Most developable land would be a candidate for denser development.
  • Skyrocketing values for single-family detached homes in Vancouver’s core indicates they would be good candidates for more intense development; if such evolution were allowed by zoning.

Zoning restrictions on housing supply catch the White House’s eye

In case you were wondering, the White House grounds are technically unzoned - as is a lot of federal property in DC. Screenshot from the DC online zoning map.

In case you were wondering, the White House grounds are technically unzoned – as is a lot of federal property in DC. Screenshot from the DC online zoning map.

Zoning has been on the national stage in the past few weeks, starting with this paper (just hovering on a link to whitehouse.gov is good to see) based on remarks delivered to the Urban Institute on Nov 20 from Jason Furman, chair of the White House Council of Economic Advisors:

In today’s remarks, I will focus on how excessive or unnecessary land use or zoning regulations have consequences that go beyond the housing market to impede mobility and thus contribute to rising inequality and declining productivity growth.

For more in-depth commentary, I’d recommend the following:

  • Joe Cortright at City Observatory: “these observations show the pervasive and powerful effects of what we’ve called the nation’s shortage of cities.”
  • Matt Yglesias at Vox: “for younger people, for renters, and for the overall cause of social and geographical mobility it’s a disaster.”
  • Gillian White at the Atlantic: Rent seeking “often means that changing zoning laws or other supply-constricting regulations is in the hands of those who stand to collect on those economic rents in the first place, which can make change slow and difficult, if it happens at all.”
  • Paul Krugman at the New York Times: “Rising demand for urban living by the elite could be met largely by increasing supply. There’s still room to build, even in New York, especially upward.”

I had two immediate reactions to the paper: first, it’s great to see the White House recognize the importance of issues like this. Getting an issue like this on the national stage, linking it to a salient national political issue such as inequality is important. Getting someone like Paul Krugman to devote his NYT column to the subject is great to see (note that Paul Krugman is no stranger to urban economics: he won the Nobel Prize for his work on economic geography and agglomeration economies).

Second, given the scale and importance of the issue, the list of administration actions is underwhelming. Affirmatively working towards fair housing, offering incentives to localities to loosen zoning, and HUD’s program to lessen lending risk for multifamily housing development are all good ideas, but seem small in comparison to the scale of the issue.

It’s hard to say if there’s more that could be done administratively at the Federal level. In the absence of additional legislation, it’s hard to make the case for federal interference in an ostensibly local issue like zoning (no matter the national interest). Perhaps there are additional tools available that build on new rulemaking enabled by existing fair housing laws (perhaps involving litigation in the courts as well) in the same vein as New Jersey’s Mount Laurel doctrine.

Even with the national scope of housing supply constraints and their clear impact on the national economy, Pete Saunders at Corner Side Yard is quick to point out that housing demand is far more varied across the US. This presents yet another issue in raising housing supply as a national issue – it’s not a uniformly national issue. Relaxing the restrictions on housing supply only matter in the face of demand pressure – and many markets in the US don’t have the kind of demand to drive up housing costs in the first place.

Rising housing prices impact all incomes

In cities with strong real estate markets, affordable housing is a big problem. And it’s not just a problem for those with lower incomes, it’s a problem for everyone. The problems aren’t even limited to just their own metro areas.

Note: in this case, the term “affordable housing” refers to the plain meaning of the word: housing that is affordable (not Affordable Housing, in reference to a set of programs designed to subsidize the cost of housing – see this from Dan Keshet on the difference, as well as a better way to think about it: abundant housing).

Expensive housing is squeezing people at all income levels

The DC Fiscal Policy Institute documented the disappearance of DC’s market-rate affordable apartments in a report: Going, Going, Gone. And while the focuses on the dramatic decline in apartments available for an inflation-adjusted $800/month between 2002 and 2013, rents are up for all incomes in that same time period – and they’ve increased faster than income growth.

DCFPI_rents1

Rising rents for those with higher incomes presents less of a challenge, since these households can afford it. But simply because higher income households can afford higher rents doesn’t they want to pay more than they have to.

It’s not just a phenomenon in DC, but in lots of strong real estate markets. Richard Florida summarizes some research from Todd Sinai at the University of Pennsylvania, noting that rents in many cities have been outpacing income gains for more than a decade. Like DC, rents are rising and requiring a larger portion of income for a wide range of income brackets:

pennrentstrends

The upward trend for each of these lines represents a larger and larger portion of household incomes spent on rent in cities across the US. Sinai suggests that any policy response would require a large increase in the supply of market-rate housing (as politically challenging as increasing housing density can be). Because even a large increase in housing units would merely moderate prices, Sinai recommends a targeted program of housing subsidies, as well.

Even with these potential remedies in mind, Sinai isn’t optimistic: “It is hard to conclude that there is an affordability cliff from whence we can step back from the brink.  Rather, the threat to housing affordability in this country is much more fundamental, and more economically pervasive.”

The higher rents are hurting the economy

It’s not just an inconvenience to pay a lot to rent an apartment, even if you can afford it. As Sinai argues, this added rental cost is “economically pervasive.” Put another way, the failure to add housing supply in strong markets is a huge drag on the economy. Kriston Capps summarizes research by Enrico Moretti and Chang-Tai Hsieh:

Hsieh and Moretti came up with a way to measure what local output and national growth would look like if wage dispersion were equalized. They proposed a model that lowered the regulatory housing constraints in New York, San Francisco, and San Jose to the level of a median city. If workers were able to cross over from low-wage cities to high-wage cities—that is, if New York, San Francisco, and San Jose were to lower barriers to new housing and let them in—then GDP could rise by 9.5 percent.

Easier said than done, but it does show the magnitude of the problem. More people would move to these productive metropolitan areas if the housing prices were more affordable.

Affordable Housing vs. affordable housing

Part of the reason to illustrate rising housing burdens for all incomes is to help define what “affordable housing” means. The plain English meaning is simply housing that is affordable. Relative to a household’s income, how much can they afford to easily pay for rent or a mortgage?

Then there is Affordable Housing (capitalized here), referring to a whole host of programs that subsidize housing for lower-income households. Labeling these subsidies under the umbrella of Affordable Housing is an effective bit of rhetoric to earn support for these programs (who would possibly be against affordable housing?) in light of the sullied reputation of public housing.

You can see the confusion in some of DC’s recent debates about the impacts of rowhouse pop-up expansions on housing prices. The DC Zoning Commission recently tightened rules on development in these zones, with one commissioner unconvinced that additional housing units would create more affordability:

But Anthony Hood, the chair of the commission, pushed for the restrictions, saying that he didn’t believe that pop-ups and condo conversions helped bring down housing prices.

“This connection to affordable housing? I’m sorry, I haven’t seen it yet. I’m still waiting for it. It’s not a reality.”

If Hood is thinking of capital-A Affordable Housing, then he’s correct. But that’s not the only meaning of the term; it’s not the only measure of affordability. And while additional market-rate housing units might not directly help lower-income households, they can make a big difference for those middle-income households feeling a squeeze.

Flipping Houses, Zoning Codes, and Building Codes

DC row houses - the first CC image hit for "dc house flips" on Flickr. Photo from Elvert Barnes.

DC row houses – the first CC image hit for “dc house flips” on Flickr. Photo from Elvert Barnes.

Earlier in May, local public radio station WAMU aired a lengthy three-part report on the collateral damage involved in house flipping in DC. Martin Austermuhle’s series offers a window into the nightmare for buyers of newly renovated homes – often converted from single family rowhomes into multi-unit buildings – who soon learn that their dream home is actually a nightmare of shoddy work and potentially illegal construction.

The three-part series focuses on buyers, developers, and the city’s regulatory response.

As horrifying as these stories are, Austermuhle correctly focuses on the challenges of enforcing the building code as the root cause of these problems, rather than the zoning code.

Small-scale development is an important tool in strong markets (like DC) to respond to demand for new housing. So many opportunities for small-scale urban development have already been regulated out of existence in American cities. The people buying these flips aren’t suckers taken by con men; they represent the market for additional housing in a city like DC.

Shoddy flips shouldn’t put those remaining opportunities for small-scale development in DC at risk, because the problem here is with building code enforcement and inspection, not with zoning. But whenever there is outrage, there is a strong urge for the city to do something, even if it doesn’t address the stated problem.

The zoning code is not the building code

Tales of illegal construction in flipped houses might stoke the fears of development opponents, but the problems described in the series involve errors in construction.

Too often, cities attempt to use the zoning code as a catch-all regulatory structure, encompassing economic development goals, social policy, etc. Part of this is out of convenience (I did have at least one proponent express support to me for DC’s recent zoning code changes in rowhouse neighborhoods due to the challenges in enforcing the building code – both for approvals and for construction inspections). I suspect part is also a confusion of the issues, thinking that because zoning deals with the city therefore zoning is an appropriate place for regulations about the city.

This series helps clarify the differences; Austermuhle correctly gives zoning only a cameo appearance.

Pop up limits

Even with the focus on building code enforcement, that doesn’t stop public calls to address development issues via zoning restrictions. However, it’s not clear that zoning would stop the flips. House flips are hardly limited to structures with the opportunity to increase the total number of units.

Enforcement matters:  One example of shoddy construction also includes blatant violations of the zoning code. What good will modestly tighter zoning regulations do without basic enforcement? Perhaps zoning isn’t the root problem; enforcement is.

Building codes matter

While zoning codes often get the attention, this doesn’t mean building codes aren’t important factors in determining the shape of the city. Houston famously (or infamously) lacks standard, use-based zoning codes. However, Houston’s building code and other regulations still mandate many of the aspects commonly found in zoning codes: minimum on-site parking requirements, minimum lot sizes, etc. It’s not a regulation-free environment.

Even when the building code sticks to more traditional subject matter, there can still be a tremendous impact on the financial feasibility of certain types of construction. In February, Let’s Go LA featured a guest post from LA Architect Tom Steidl about local differences in LA’s high rise building codes that make Vancouver-style towers less financially feasible:

Towers in Los Angeles tend to have significantly larger floor plates than those in Vancouver and US cities that have embraced high-rise design. The primary reason for this isn’t differences in land use or zoning codes. It’s mainly building code and fire department regulations that require additional floor area be added to the core of the tower. In addition to making our towers more bulky, this added floor area increases construction cost and reduces affordability.

One of LA’s quirks (now removed from the code) was a fire department mandate for rooftop helipads. But, as Steidl notes, each requirement that reduces the efficiency of the floor plate adds to the total cost. High rises are already expensive to build and will only pencil out under certain circumstances. Adding costs on the margins only makes the developer’s pro forma more challenging.

The building codes matter. But, LA’s quirky code provides a cautionary tale on policy relying on high rises alone to absorb housing growth. As Payton Chung has written, achieving mass market affordable housing via expensive construction types is a challenge – particularly in DC.

A comprehensive approach to affordable housing in strong markets like DC and LA can’t ignore the key role of small-scale, low-rise development in providing affordably built housing. This means projects of the type taken on by house flippers; smaller scale projects that increase a single lot into 2-4 units.

Poor construction risks eroding confidence in small-scale construction that is vital to meeting housing demand. Likewise, a strong, predictable, and nimble team of inspectors needs to effectively enforce DC’s building codes to manage this period of change.

Lawsuits: the American Way.

Maybe they will help. Writing about some of the same flippers as Austermuhle (and working in parallel), Ian Shapira at the Washington Post notes that some of the same flippers have been sued by DC’s newly elected Attorney General. A more robust consumer protection watchdog can’t hurt, and could even help jump-start a more robust system of code inspections.

Pop-ups – what counts as ‘reasonable?’

Beware the imperative that we have to do something.

Despite protestations from DC’s former planning director Harriet Tregoning, the preliminary vote count on the plan to limit rowhouse pop-ups in DC is poised to pass, 3-2 (note that two of the zoning commissioners tentatively in favor are the federal representatives to the commission; see this Washington City Paper profile of commissioner Peter May for more about the federal role in local decisions in DC).

Among the local media, the Washington Post editorial board came out against the proposed regulations. Other local papers, such as the Northwest Current, are in favor. The single biggest reason for supporting the proposed changes is that they seem ‘reasonable.’

IMAG2257

It’s not hard to see why many DC residents are eager for ‘reasonable’ restrictions on pop-ups. There are quite a few ugly ones out there; some include suspect construction. However, the proposed changes in the zoning code won’t outlaw ugly additions and the zoning code doesn’t regulate construction methods or enforce the building code.

Part of the challenge with ‘reasonable’ restrictions on new development is that many of the impacts aren’t intuitive. Consider the aesthetics of pop-ups: Just as zoning code parking requirements won’t solve on-street parking hassles (you must manage those parking hassles directly), a small reduction in the allowable height and shifting certain elements away from by-right construction towards requiring a special exception won’t address concerns about design. Implement these changes to DC’s zoning code and many will still complain about pop-up development.

Pop-ups need not be ugly. Nor are they a new phenomenon.

Part of the concern about overly restrictive regulations is that limiting small-scale development is a serious constraint on the market’s ability to provide housing that is affordable to a wide range of incomes (here’s a perfect place to shift the narrative away from the nebulous ‘affordable housing’ and instead focus on providing abundant housing instead).

Still, without that background knowledge, it’s not hard to think that these restrictions won’t harm the District’s progress towards abundant housing. Proponents of allowing more growth argue pop-ups provide an opportunity for families and individuals to live in desirable neighborhoods at a lower price point. Meanwhile, the Northwest Current editorial board isn’t convinced that allowing additional housing supply helps ease the supply crunch. Instead, they would wish housing prices would drop naturally:

IMAG2256

However, the flip side of the “we’d rather just see the existing houses priced more affordably” coin is essentially an argument to lower property values. I don’t think we’ll see such an editorial from the Northwest Current anytime soon. Why? Because I doubt neither the editorial board nor the paper’s readership would consider advocacy to lower property values to be ‘reasonable.’

So, what are options to regulate pop-ups? A few ideas, keeping in mind the differing perspectives and scales)

  • Recognize the value of by-right development and the path of least resistance. Similarly, the idea of negotiating every single building project on a case-by-case basis might also seem reasonable, beware the unintended consequences of this approach.
  • Consider a form-based approach. The Coalition for Smarter Growth suggested an approach that mandates a setback for true pop-ups (those that retain the existing facade) or some other design treatment to minimize the visual impact. The challenge for this approach would be in enforcement. The advantage is that the regulatory authorities can offer clear guidance for this form of ‘lite’ administrative design review. It also avoids the perils of full-scale design review; a process that doesn’t keep the desired outcomes on the path of least resistance.
  • Remember: one of the goals of DC’s pending zoning code re-write was to reduce the burden on the BZA’s case load. Simply adding more cases to the pool of potential special exceptions is a step in the opposite direction.
  • Build more rowhouses. Part of the rationale for regulating pop-ups is a desire not just to preserve the urban design of DC’s rowhouse neighborhoods, but also to preserve larger housing units for families. If this is indeed a goal for the city’s housing strategy (and consistent with the desires for abundant housing), then the goal shouldn’t just be about preserving rowhouses, but encouraging the construction of more of them in existing single-family detached areas. This is also consistent with the city’s goals for accessory dwelling units as a part of the zoning re-write.
  • Build more multi-family housing. Work to relieve development pressure from the other end by allowing the construction of more small-scale apartment and condo buildings. DC has many of these grandfathered into existing R-4 (rowhouse) zones. While the Comprehensive Plan does prioritize the preservation of rowhouse areas, the existing zoning clearly allows multi-unit buildings. While much of the commentary focuses on micro effects and ugly additions, lurking beneath the surface is a clear bias against additional dwelling units. This backlash mirrors other DC planning debates about accessory dwelling units and growth in general.
  • Develop a market-based housing plan for the city as a whole. Collect and distribute data on the overall housing market to better inform decisions on demand as well as new supply.
  • Shift the narrative around housing discussions away from ‘affordable housing’ and towards ‘abundant housing.’ Hopefully this shift can help avoid the counterfactual trap of new supply that is still expensive, yet cheaper than it would’ve been. Consider this: if car manufacturers could only build a limited number of cars, they would likely focus on higher-margin luxury models. The same is true of housing; yet this doesn’t disprove the impact of supply.  Just because new condos in popped-up buildings aren’t always cheap, that doesn’t mean the impact on the overall market isn’t real.

Any other ideas?

Decreasing opportunities for incremental development in American neighborhoods

Several months ago, Charlie Gardner had an excellent, thought-provoking post asking why have American cities seen the demise of the duplex? In a time when growing cities are bursting at the seams and facing severe affordability challenges, an incremental kind of development might be welcome in many cities, offering new housing while allowing an evolutionary pace of change to a neighborhood’s physical fabric, instead of the abrupt transition of large-scale redevelopment. So why don’t we see more of it?

Consider international comparisons of small-scale incremental development: Charlie Gardner compares the built form on both sides of the US-Mexico border, noting how on the Mexican side houses grow incrementally over time, often adding new uses along the street. The net result is a slow transformation of the entire neighborhood, evolving towards denser development patterns. Gardner speculates on reasons for the difference with standard American development patterns (including finance and regulation), noting that the small-scale development open the door to homeownership at a much lower price threshold.

Conversely, there are examples of American neighborhoods adding units on a relatively small scale. Let’s Go LA has been tweeting highlights from Wallace Frances Smith’s “The Low-Rise Speculative Apartment,” published in 1964. The book documents the replacement of single-family homes with low-rise speculative apartments (often in the form of dingbats), concluding that this small-scale, relatively low-cost form of construction plays an important role in adding housing supply to the market. Without requiring challenging lot consolidation or more-expensive construction methods, this kind of incremental, small-scale development allowed neighborhoods of single-family homes to evolve into denser places – even without large incomes in the neighborhoods to afford expensive new construction.

Despite the small scale of each individual building, the net result was a substantial increase in housing production overall.

So, why don’t we see more of this today? While various New Urbanists might not like the specific dingbat product, the idea of small-scale urban density is still appealing. The so-called ‘missing middle’ forms, such as townhouses, flats, and small apartment buildings are all lauded as contextually-friendly ways to add housing and increase density in already developed areas. So, why are these housing types missing?

As Let’s Go LA points out, much of this kind of development has been regulated out of existence. In LA, large portions of the city have been downzoned; the newer zoning no longer allows for by-right development of dingbats and other small-scale apartment buildings. In aggregate, the result is a huge decrease in the potential development allowed in LA.

Much of that LA zoning potential would’ve been in the hands of small-scale landowners rather than large real estate development firms. One consequence of removing that development potential is to erode the ‘franchise’ for incremental development. Let’s Go LA notes that “by zoning small developments out of existence, we’ve made land development a much less democratic process, in the sense that far fewer individuals in the community are able to participate economically.” Instead, 20% of LA’s recent growth has been absorbed in the relatively small confines of downtown. While this is good for downtown (thanks to regulatory changes such as LA’s adaptive re-use ordinance and relaxation of off-street parking requirements – discussed previously here), limiting growth to such a small area of the city has consequences: “when growth is restricted across so much of the rest of the city, there will still be pressure on regional housing prices, and gentrification will continue.”

The phenomenon isn’t limited to LA or to dingbats. Stephen Smith, writing at New York YIMBY, looks at the demise of small-scale development (buildings smaller than five units) in New York: “Put simply: New York City’s small builders have been nearly eradicated. The segment of the market that normally produces about half the city’s new building stock has all but vanished.”

New York City building permits, by number of units. Chart from New York YIMBY, data from the US Census Bureau.

New York City building permits, by number of units. Chart from New York YIMBY, data from the US Census Bureau.

Smith considers several hypotheses for this decline in small-scale development, including the end of some tax abatement programs and weak markets in some parts of the city. Smith also hypothesizes that New York’s recent ‘contextual rezonings’ removed development potential from areas ripe for small-scale development:

The result is that many neighborhoods that were once full of redevelopment opportunities are now closed off to anything but the smallest of one- or two-family projects on vacant lots. This sort of redevelopment was largely banned after the implementation of the 1961 zoning code, but throughout her tenure Amanda Burden closed off the last few areas where it was still allowed.

DC is seeing similar conversations. Demand for additional housing often leads to ‘pop-up’ development, often in the form of vertical additions to existing rowhouses. The term even gets used as a catch-all for any kind of smaller scale infill development. Many existing residents are concerned about the changes (though others are supportive).

Responding to political pressure and resident requests, the Office of Planning proposed their own version of a contextual rezoning.However, during a hearing on the measure, one of the zoning commissioners expressed deep concern about the overall impact of reducing this development potential in a city with a growing population and decreasing housing affordability. Greater Greater Washington’s summary of the exchange captures the concern: “I just don’t think we have a comprehensive housing policy in this city and I’m worried about all the unintended consequences of [this proposal].”

While Charlie Gardner contrasted American urbanism to Mexico, there are other options as well. This paper from Sonia Hirt looks at German land use regulations. German zoning is guided by federal standards, localities have some flexibility within those standards but cannot add restrictions to the basic zoning classifications. One end result is that there is no such thing as a residential zone devoted solely to single-family homes. Likewise, even residential zones must accommodate commerce to meet the “daily needs” of the neighborhood.

In outlining potential routes for zoning reform in the United States building off of lessons learned from Germany, Hirt suggests that instead of relatively small areas of mixed-use zoning, planners could focus on a wider area of limited flexibility for residential development – something that might not look that different from the small, speculative apartment developments of the 50s and 60s; or of duplex development.

Affordable housing and the law of supply and demand

CC image from Thomas Hawk.

CC image from Thomas Hawk.

Some great articles on the challenges to affordable housing in high-demand cities over the past few days, worthy of some reflection:

Kim-Mai Cutler’s epic Tech Crunch article addresses all sides of the affordability problems facing San Francisco: noting that the situation isn’t unique to the Bay Area nor is it caused solely by tech-industry demand; the regulatory and political constraints to growth not just in the city but in the entire region; rent control, Prop 13, evictions, etc. After thorough documentation of this complex and multifaceted issue, Cutler circles back to the core issue of supply and demand:

[W]ithout serious additions to the entire region’s housing supply, these crisis measures just make San Francisco’s existing middle- and working-class a highly-protected, but endangered population in the long-run. With such limited rental stock available on the market at any time, what kind of person can afford to move here today when the city’s median rent is $3,350?

For the more extreme groups, you cannot logically fight both development and displacement. The real estate speculation running through the city right now is just as much a bet on political paralysis in the face of a long-term housing shortage as it is on San Francisco’s desirability as a place to live.

Cutler’s article lists a whole host of other potential actions, but concludes that any path forward must work towards adding more housing units to the region’s overall supply.Unfortunately, even this broad conclusion isn’t shared by everyone. In section #5 of Cutler’s article, she notes “parts of the progressive community do not believe in supply and demand.”

Ryan Avent notes that this denial of the market dynamics, no matter the motive, is not only misguided but also counter-productive: “ However altruistic they perceive their mission to be, the result is similar to what you’d get if fat cat industrialists lobbied the government to drive their competition out of business.” This extraction of economic rent from those that own the land and embrace tight land use regulations only aids those with capital: 

The housing dynamic in San Francisco raises the capital intensity of consumption. That contributes to an increase in the capital share of income and to the stock of wealth in the economy. Zoning restrictions are a tool of the oligarchy, effectively. I’m only one-fourth kidding. But they are; they are a means by which owners of capital extract an outsized share of the surplus generated by job creation.

Emphasis added. Yet, not everyone is convinced.

This exact denial of economics confounds Let’s Go LA:

It’s important to recognize that the “supply and demand doesn’t apply” argument is wrong, because if we don’t identify the right problems, we can’t develop solutions that work. And in fact, the housing markets in places like LA and SF are operating pretty much how you’d expect them to work if you accept the basic principles of supply and demand as constrained by the regulatory environment.

For example, why are developers only building markets for the high end of the market? Well, the zoning and permitting requirements make it difficult, time-consuming, and costly to build. Therefore, only a little new supply is going to get built every year.

This point is particularly important, because without agreement on the nature of the problem, it’s hard to even talk about potential policy solutions. And there are a whole host of potential policy solutions once we get over that hump. Unfortunately, discussion about supply constraints in cities (via exclusionary zoning, high construction costs, neighborhood opposition to development, etc) means the conversation naturally focuses on the constraint. Advocating for loosening the constraints can easily be mistaken for (or misconstrued as) mere supply-side economics, a kind of trickle-down urbanism.

This doesn’t need to be the case. Let’s Go LA writes:

Admitting that supply matters doesn’t mean you have to favor unrestrained urban development…

Admitting that supply matters also doesn’t mean you have to favor eliminating existing rent-controlled or rent-stabilized units, and it doesn’t mean that no government intervention is necessary…

Finally, this doesn’t mean that we don’t understand and appreciate the efforts of affordable housing advocates and planners operating within the current zoning and regulatory environment, trying to make sure that low income folks have at least some access to the opportunity of the city…

Another definitional problem when talking about affordability is the very term itself: are we talking about affordable housing? Or are we talking about Affordable Housing? As Dan Keshet notes, affordable housing (lowercase) refers simply to housing that people can afford at market rates – it is both relative to a household’s income (and therefore represents something slightly different for everyone) and also the kind of affordability important to the middle class. Affordable Housing, however, refers to a broad set of subsidized housing programs, ranging from rapid rehousing for the homeless to inclusionary zoning to housing units available for families at 80% of the Area Median Income ($68,500 for a family of four in DC).

Perhaps it’s because of a desire to frame these various subsidy programs more favorably (“affordable housing” sells better than “public housing” or “housing subsidies” – who would be against housing that is affordable?), but the same language that frames subsidy policies favorably can confuse the issue analytically.

The same can be said for housing supply in cities – perhaps the analytic focus isn’t a great selling point or a way to frame the issue.

A machine to make the land pay

Cass Gilbert's Woolworth Building. CC image from Wiki.

Cass Gilbert’s Woolworth Building. CC image from Wiki.

Cass Gilbert famously defined a skyscraper as “a machine that makes the land pay,” the kind of structure justified (and often required) by high land values. Gilbert’s distillation of the logic behind these buildings is inherently economic (hat tip to Kazys Varnelis):

Speaking of such enterprises from the financial aspect it is a rule that holds almost invariably that where the building costs less than the land, if properly managed, it is a success and where its costs more than the land it is usually a failure. The land value is established by its location and desirability from a renter’s standpoint hence high rentals make high land values and conversely. The building is merely the machine that makes the land pay. The more economical the machine both in construction and operation provided it fulfills the needs the more profitable the land. At the same time one must not lose sight of the fact that the machine is none the less a useful one because it has a measure of beauty and that architectural beauty judged even from the economic standpoint has an income bearing value.

The economic logic still holds. For private development, you need a building that can make the land pay. The challenge, however, is when such a building isn’t feasible – or isn’t allowed. Consider the dilemma of high land prices, high construction costs, and zoning that constrains the allowable building space. Payton Chung raises this issue, investigating why DC doesn’t see more affordable mid-rise construction:

The Height Act limit for construction in outlying parts of Washington, DC, enacted back in 1899, is 90′ — effectively 7-8 stories. This particular height poses a particularly vexing cost conundrum for developers seeking to build workforce housing in DC’s neighborhoods, since it’s just beyond one of the key cost thresholds in development: that between buildings supported with light frames vs. heavy frames…

In most other cities, the obvious solution is to go ever higher. Once a building crosses into high-rise construction, the sky’s ostensibly the limit. In theory, density can be increased until the additional space brings in enough revenue to more than offset the higher costs. As Linsey Isaacs writes in Multifamily Executive: ”Let’s say you have a property on an urban infill site that costs $100 per square foot of land. Wood may cost 10 percent less than its counterpart materials, but by doing a high-rise on the site, you get double the density and the land cost is cut in half.”

In other words, the cost of building taller is not linear. Once you enter the realm of Type I construction, the marginal cost of an additional floor is relatively low. However, Type I construction is substantially more expensive in DC than the mid-rise methods; and many of the 7-9 story buildings ubiqitous in DC fall into the range that require more expensive construction methods, yet do not allow for the kind of height/density those structures can achieve.

The challenge, Payton notes, is where land is pricey enough to justify high-rise densities, but rents in that area cannot support the construction cost. It’s DC’s version of ‘the viability trap.‘

There are a few options to break the logjam: lowering construction costs, and adjusting policies. Payton makes the case for new building technology to lower construction costs – prefabrication, new materails, and so on. Each holds the promise of decreasing construction costs. In the policy realm, reducing the required parking can also substantially reduce costs, providing a pathway out of the viability trap.

For real-world examples, consider Metro’s recent request for development proposals for station-adjacent land the agency owns. Metro’s requirement that the developer replace 422 parking spaces at Fort Totten (in addition to parking required by zoning and/or demanded by the market) likely pushed any development proposal beyond feasibility. That parcel didn’t get any bids. In practice, this isn’t any different from a large minimum parking requirement via the zoning code.

Another policy change is increasing the allowed height and density. In DC’s consideration of altering the city’s height limit, the benefits of scale with taller construction become apparent:

Per square foot construction costs for new office and apartment buildings at 130, 160, 200 and 250 feet peak at 200 feet but begin to decrease at 250 feet due to cost efficiencies that occur at taller heights. Beyond the cost of construction, other conditions need to be in place to make it financially attractive for a developer or property owner to be willing to tear down an existing building with tenants and build new and taller. These conditions include a substantial increase in rentable space due to taller height; the potential for higher rents; major leases expiring or the opportunity to attract a new anchor tenant; or the need for major investment into an obsolete building. There are also a number of constraints that affect new construction, such as the need to pre-lease a major portion of a new building to obtain financing and the inadequacies of existing transportation and utility infrastructure.

A few feet of height can make a big difference.