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The blocked market for density and affordable housing

Karen Chapple, Professor, City and Regional Planning | October 17, 2014

Around the globe, many cities are experiencing a housing affordability crisis. There are few places this crisis is more pronounced than San Francisco and Los Angeles. California’s strict land use regulations hinder us from producing enough housing, particularly infill development, or new buildings on vacant or underutilized land in the urban core.

cottage diagram

Cottage diagram, modified from the City of Santa Cruz’s ADU manual (See

Yet, with 200,000 units in the pipeline, the San Francisco Bay Area’s housing construction is near its historic pace. The question is, how can the region produce more affordable housing?

The crisis will only get worse as we plan for a more sustainable region. With two million new residents expected in the Bay Area by 2040, the region is proposing to channel 80% of its future growth into 5% of regional land area. To help, cities will get transportation funding and relief from environmental regulation. But that may not be enough to counteract the challenge of finding appropriate sites or even just paying for high-rise residential buildings outside of the region’s major downtowns (San Francisco and San Jose). Rising land prices in the core will also mean higher housing costs. At the same time, the vast majority of new jobs expected in the Bay Area are expected to be low-wage, exacerbating the need for affordable housing.

cottageWhat if the solution is actually in our own backyards?  My study with University of Texas-Austin Professor Jake Wegmann, published recently in the Journal of Urbanism, shows that based on the availability of underutilized or vacant land, about half of our infill development in built-up areas like San Francisco’s East Bay should occur in the form of accessory dwelling units, or self-contained, smaller living units, attached or detached from the main home.

With relatively low costs (as low as $100,000) and short build time (less than six months), backyard cottages can increase density more efficiently than multifamily projects. They rent for much less, often providing affordable units within affluent neighborhoods and diversifying the housing stock. We calculate that a backyard cottage strategy could yield as many as six times as many affordable units as conventional infill.

The question then becomes, what is hindering homeowners from building more cottages? Even in Berkeley, a city that welcomes accessory units, the number of permit applications for home additions still dwarves that for cottages. We argue that the market is blocked largely because of restrictive zoning regulations, particularly parking requirements. One solution has appeared in the form of intermediaries that help homeowners navigate city regulations and manage construction. But the market for these intermediaries is mostly a niche of wealthy elderly homeowners seeking to age in place alongside younger generations.

cottageTo address the affordable housing crisis while making our regions more sustainable, a mass market for small-scale infill must emerge. But to create such a market requires a fundamental shift in the conversation. Just as in the debate over climate change, we can argue endlessly on the merits and the means, but in the end, the game-changer will be the costs of inaction – a deepening of the already devastating housing crisis.

Banks currently don’t allow current or prospective homeowners to use income from accessory units to qualify for mortgages. That means that only the homeowners with substantial equity in their homes who can finance the construction of accessory units.

Developing a mass market means helping low- and moderate-income homeowners to build – and purchase – homes with accessory units as well. As Wegmann has written, state and national housing finance agencies could adapt their existing programs to provide new mortgage products for new permitted spaces. Eligibility for the loans could be predicated on the home city easing zoning regulations for accessory units.

cottageIt took a revolution in mortgage finance to spur the suburbanization of America. It will take a new revolution to make affordable infill possible.

For more information:

Cross-posted from the Institute of Urban and Regional Development Blog.

Comments to “The blocked market for density and affordable housing

  1. Anyone interested in affordable dwelling units (ADUs) should take a look at what the City of Portland, Oregon is doing. Portland actively encourages ADU construction through its zoning regulations and, for now, waiver of some development fees, to encourage greater urban infill populations which can utilize their terrific (for a city its size) mass-transit rail lines, buses and designated bicycle roadways.

    I’m not sure I would say all ADUs are “affordable” as rentals, but they encourage a smaller footprint and many are being lived in by extended family, allowing grandparents and children/grandchildren to live close to each other while still maintaining their own home; a nice trend indeed.

  2. Interesting that you consider backyard cottages a solution to large scale demand. In the UK the current Government have imposed greater restrictions on development within the plots of existing homes, (so called ‘garden grabbing’), as a sop to higher value homeowners who felt that their neighbourhoods were being adversely affected by the increase in density created by this kind of development.

    At the same time, we have patterns of illegal conversion and occupation of outbuildings and garages in the already dense suburbs of Greater London, (often occupied by the less well off and less articulate, so this raises less of a hubub than legal development in better areas).

    I am all for selective densification but the real issue is under-occupation of larger properties. Recent reports here have highlighted how under-occupation impacts on the whole housing market and denies younger people who need more space the opportunity to trade up to the existing stock of larger family homes. Whatever we build it must be attractive to the older homeowners in terms of space, long term functionality for later life and access to services so that they move out of the family home and enable the next generation to use these.

  3. Get cars out of the equation and all of these problems become much less difficult to tackle.

    Also, how responsible is it for an academic to applaud “relief from environmental regulation” ?

  4. I agree. I own and live in the house I was born and raised in. My sons are now in their early twenties. They are finding themselves priced out of the market, even for rentals without having to resort to numerous roommates.

    I have the property space for a cottage on my property that two could live in. Not only would I have additional income for my eventual retirement, I have family nearby but with their own adult space.

    Zoning, permits and not enough equity keep me from having a “legal” cottage on the property. While growing up in this neighborhood, nearly all the houses had an in-law cottage. I don’t see what the big deal is for a homeowner to maximize their investment.

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