Covid-19 And The Future Of Affordable Housing
The Urban Land Institute recently hosted a webinar on the future of the affordable housing market. The discussion panel included Xavier Jongen, Managing Director at Catella Residential Investment Management; Marcus Cieleback, Chief Economist at Patrizia; Nicolas Bearelle, CEO of Revive; and Claire Flurin, Director of R&D and Innovation at Keys AM.
Here is our analysis on this illuminating exchange.
Half of the world is currently confined to their homes, and questions about housing are flooding in. What will the real estate market look like post-COVID? What happens when millions are struggling to pay rent? How can we adapt living spaces to respect sanitary measures and alleviate isolation?
Many predict that this pandemic will completely transform how society operates. The fact is, big societal shifts were already underway. 2019 was a turning point in climate awareness, and accommodation was evolving to reflect changing lifestyles. Now, 2020 has become a defining moment for social disparity. The demand for cleaner, more affordable, more diverse and more flexible housing conditions is becoming more important than ever, and innovative new models are offering promising solutions.
The Path To Diversification
Even before the epidemic, there was already a problematic discrepancy in the housing market between rising prices and the rigidity of available offers, especially given the rapidly changing lifestyles of our time. Specifically, four main trends appeared:
1 — Traditional household structures are changing.
This is, in part, due to a growth in solo living. The French National Institute of Statistics and Economic Studies (INSEE) found that the majority of France’s citizens are separated or single and, according to Eurostat, one-third of all European residents are single adults without children. A NewCities report posits that some of this demand is generated by the growing number of women who are attending university and living alone for the duration of their studies. NewCities also notes that even families with children are operating differently, as they increasingly rely on two incomes instead of one to make ends meet. These modern households need more flexible housing options in terms of size, layout and pricing. Yet a TerraNova study from 2019 found that housing design hasn’t changed in 25 years.
2 — The way we work is evolving — and it’s affecting our home life.
The digital revolution has given rise to teleworking, turning our houses into offices. 29% of French employees work remotely, according to a 2019 report by Ifop for Malakoff Médéric Humanis. What’s more, the same percentage of young Parisians — and 27% of Parisians over 60 — have more than one abode, reports INSEE. These demographics require more than one “primary residence” and the ability to use their private property commercially. Unfortunately, French laws still have a very rigid definition of housing that is quickly becoming outmoded.
3 — There is a real need for human contact.
The amount of time we spend in front of screens combined with the individualization of the concept of “home” in recent decades have created widespread isolation. The WHO listed loneliness as one of the top 3 illnesses in 2016, a problem that, according to JCDecaux, afflicts 36% of French citizens. This unhealthy solitude can be found in all generations, but disproportionately affects seniors; Many of the people JCDecaux studied were over 65. A quarter of France’s population is already over 60, says INSEE, and the ONU predicts the number of seniors worldwide will grow to 3.1 billion by 2100. Senior residents will surely see a boom yet a 2019 TerraNova study found 80% of people over 60 feel this type of housing comes with the “loss of autonomous choice.”
4 — Homeownership is on the decline for young adults, who have been dubbed “generation rent.”
Their growing impoverishment, coupled with increasing real estate prices, makes owning property harder and harder. As a result, this demographic is largely composed of tenants. Yet this arrangement is far from perfect, as Patrizia found the qualities of most rentals are poor and offer few services, which their 2019 study attributed to the fact that these accommodations are mostly dispersed among individual owners in the private sector.
The various new needs of residents have engendered novel ways of thinking about housing. Ultimately, all of these trends have redefined what “quality housing” means. Today, two elements encapsulate how we talk about quality: spatial and social. The former refers to everything from location to the physical format of a home to the functions of different rooms. The latter applies to the number of people per household, their evolution, neighborhood relationships and the social uses of space.
Some countries, such as Germany and the UK, have already seen a diversification in the housing market that reflect on these trends. However, other European nations, like France, still have a big gap between demand and supply.
The Rise Of New Models
Emerging movements have pushed back on the traditional definition of “quality housing” by proposing alternative ways to use and organize living spaces. One such concept is coliving, a term that refers to different types of cohabitation, from shared workspaces to communal dwellings. Within this broad but disruptive new concept, there are four particularly interesting responses to the current market gaps:
- Different forms of shared residential living — specifically coliving models. Making these types of habitats available to everyone could be the answer to problems of cost, flexibility and human connection.
- Live-work-play forms of mixed-use dwellings adapted to the changing nature of home and work life.
- Different models of managed rentals, such as Build to Rent (BTR), Private Rented Sector (PRS) and multifamily schemes. It’s also interesting to consider how technology can make residential management easier and possible in real time.
- New housing access options between tenancy and ownership, such as ownership unbundling, co-investment, lease-to-own, or collaborative forms of the French viager system, which is a type of reverse annuity.
All of these approaches make for housing that is easy to rent, easy to live in, and easy to move out of. Simultaneously, these models can improve pricing, provide diverse living options suited to many different lifestyles, and create a positive societal impact. At its heart, coliving is a human-centric concept that revolves around the power of sharing — which inevitably leads to caring.
COVID-19 And The Acceleration Of Current Trends
Coronavirus is shining a spotlight on the importance of access to quality housing. The aforementioned trends, which already needed attention from the housing market, are now exacerbated. New demands, mostly sanitary-related, have also cropped up. When looking at future projections of residential needs, disruptive models seem like increasingly pertinent solutions:
1 — Homes and offices will become closer than ever.
The masses of people currently working remotely will heighten the need for flexible living spaces as many will not go back to working five days a week. Those who are unable to do their jobs from afar will want to live closer to their work for both sanitary and logistical reasons. For years now, the swelling cost of urban real estate has forced lower-income households to squeeze their families into small lodgings close to their work or they have been priced out to the suburbs and endure long commutes. Now in confinement, those who are cramped in small dwellings are realizing its toll on their health, while those who struggle to get to work due to reduced transportation are experiencing the inefficiency of living far from the office. Meanwhile, wealthier urbanites with multiple residences may want to share their homes to alleviate their finances during this economic downturn.
2 — Some city dwellers, however, may want to move to the country,
as the epidemic has caused many to flee overcrowded urban centers for greener landscapes. ESPI economist Carmen Cantuarias believes these “neo-rurals” could pose an environmental threat as their urban consumption habits could endanger the local flora and fauna. This may create a need for eco-neighborhoods (coliving spaces that promote sustainable development in cities) designed for rural areas.
3 — Quarantine has already created growth in demand for coliving
for the months of May, June and September 2020, report participants of recent Co-Liv meetups. Many who have been confined alone for months seek a more social living arrangement where they can be quarantined with housemates. Others, who share their homes, are unhappy with their roommates’ lack of hygiene and want the comfort of a management system that enforces sanitation standards, a perk included in many coliving spaces.
Another element of affordable housing that will require innovative changes is the relationship between the public and private sectors. Marcus Cieleback, Chief Economist at Patrizia, rightly pointed out that this pandemic has increased the government’s involvement in almost every industry. He argues that in order for housing to advance as needed, it is crucial for investors and policymakers to speak transparently about what each can bring to the table. Nicolas Bearelle, CEO of Revive, takes this idea even further with his suggestion that new models could arise where public and private work hand in hand, citing a project in Belgium where a private equity fund leases their buildings to the government, who in turn rent the apartments to families eligible for social housing. In this system, the private sector manages the asset, freeing up some of the government’s energy and resources, while rental income remains guaranteed for the investor.
Noting how the 2008 crisis led to trends like crowdfunding and blockchain, Bearelle believes this new challenge will create a growth in impact investment and even shift how we measure impact. Perhaps, for example, it will be determined by the number of green spaces that free people from their small condos, or by measuring the loneliness of inhabitants. He sees this evolution coming from public-private partnerships. Xavier Jongen, managing director at Catella, widens the picture by positing that evolutions in the housing market will also be determined by changes in the labor market as, for example, an increased minimum wage leads to better affordability.
Whatever happens, urban development policies and housing models have no choice but to face the shortcomings aggravated by this coronavirus. The development of new residential offers better suited to our evolving world was already in the works; Now we have a real opportunity to accelerate these much-needed changes. Recent years have also seen an impressive uptick in political will, providing the necessary momentum to make groundbreaking legal, architectural, cultural, and economic transformations. As the fight for both social equality and a healthier planet gains traction, what battlefield is more important than affordable housing?
