3 Essential Ways to Solve the Housing Affordability Crisis
To say we are facing a housing affordability crisis is an understatement. The percentage of overall earnings that Americans spend on housing has never been higher, and it’s getting worse.
Bottom Line, we need cheaper units delivered, and fast.
I’ve developed both affordable housing, using Tax Credits, and market rate, traditional garden style 3 story, as well as more urban product, and realize that the trends in multifamily real estate development need to shift.
How many more luxury urban loft type product can be absorbed? How many more $2+ / sqft rents can be afforded if wages are barely budging?
Since rents are affected by so many factors, the way to solve this riddle can be approached from many angles.
- MICRO UNITS
An emerging trend that has gained a lot of momentum in the last several years, especially in the highest priced cities, such as New York and San Francisco has been the rise of Micro Apartment Units. Units anywhere from about 250–600 sqft.
The days of the good ole Studio Apartment are… somewhat... back…
See, in the millennial generation, we are eschewing all the physical goods that our parents typically had to lug around and take up space.
We don’t have walls of books; we have a smartphone or tablet.
We don’t have CDs or records taking up an entire entertainment cabinet and wall! Well we actually do have some vinyl… but that’s another matter. Again, we use a smartphone for music, and play it on a bluetooth speaker.
We have so many items all wrapped up in a smartphone that does so much for us and allows us to have so little physical possessions.
The whole apartment unit size dynamic is rapidly changing.
People don’t need as much space; we don’t need McMansions in the burbs.
We need CHEAPER PLACES TO LIVE.
A micro unit of 500 sqft, at $2 / sqft rent is $1000 a month.
An 1,100 sqft typical apartment like the one I lived in for years, would be $2,200 a month.
Its simple math, and many times in the renters eyes it’s the ultimate deciding factor: Can I cover the rent? What unit is cheapest that is in the area that I desire and has some walkability?
Smaller unit sizes will give you the advantage over your competitors.
This is a trend i’m really encouraged by and think we are at early stages of a general shift to smaller, more walkable units.
2. MORE MODEST UNIT FINISHES
We’ve all been to parties at the trendy exposed brick, high ceiling, industrial, large balcony, fully decked out kitchen apartments that have been the rage in the last decade.
The crazy interior finishes in most of these expensive urban loft style units is the stuff you find in MTV Cribs or Real Housewives of Whatever homes.. its insane.
We need more modest finishes. The technology of materials has advanced so much in the last 10 years, it’s incredible.
Vinyl Plank flooring that looks like real hardwood, with amazing durability for prices sometimes barely above carpet! Amazing new kitchen surface finishes that provide the durability of granite at laminate prices, the list goes on and on.
Developers and investors should think long and hard about the interior finishes and how this affects people making their rent payment.
You can get to about 90% of some of these insanely nice units, at close to half the cost in some areas.
A lot of money will be made by savvy developers and investors that see that having units that are more modestly finished, will be safer when the inevitable market choppiness rears its head.
3. OVERHAUL GOVERNMENT REGULATIONS
Approaching affordability of new apartments must also consider that the local municipalities that govern the development of new units have a huge bearing on how affordable the units are.
Promoting higher density and more walkable communities goes a long way in assisting private developers to get more units into desirable areas and creates a great synergy.
Charlotte is a great case study, there has been good cooperation with local municipalities to designate large tracts and regions as live, work, play hubs, centered around transit and location to jobs, along with typically entertainment focused retail, shops restaurants, bars.
The number of luxury, loft type, mid-rise apartment communities popping up anywhere and everywhere they can possibly get the density is staggering.
Local Governments need to play a role and work to get zoning and regulation in place to promote more density and cheaper units, while preserving the infrastructure of the community.
The more money people have left over after paying rent, the more that money will funnel into the local businesses and economy, it's as simple as that.
Most municipalities I know will bend over backwards to accommodate anything that will spur economic activity in their own back yards and keep the money in their district to increase tax revenue etc. They need to take a long hard look into helping developers deliver cheaper rental units.
Look, we all know that apartment rents are too damn high, to quote a prominent political movement and politician from NYC.
Getting housing rents lower is long past due, and needs to happen fast.
There are unfavorable ramifications for the entire economy if people are so rent burdened, it DIRECTLY takes money out of circulation of the local economies these new structures are built in.
Both private developers and local municipalities should get together on methods to produce a lower cost housing units. More and more developers and municipalities are waking up to this crisis and we are starting to see real progress.
But we need a little less talk, and a lot more action.
As for the housing status quo: THE RENT IS TOO DAMN HIGH!