What is affordable housing? In the United States, anyone who spends more than 30 percent of their income on housing is considered “cost burdened,” and has difficultly paying for other of life’s necessities such as food, clothing, transportation and health care. It is surprising how many people fall into this category.
The median income in Oakland is $47,000, which translates to $1,175/month for rent, but the average monthly rent in Oakland is $3,000. An entry-level teacher in the Oakland Unified School District makes just above the median. Entry-level pay for police in Oakland is $70,000, meaning $1,750 a month should be spent toward housing. An assistant professor at UC Berkeley makes somewhat less than an entry-level Oakland police employee. The average for a two-bedroom apartment in Berkeley is $3,657.
Most affordable housing programs designed to help close this gap are not aimed at teachers, police, or professors, but those at 30 percent to 50 percent of the median income. A few subsidy programs are aimed at those at 80 percent of the median, so in San Francisco, where the median income is $83,000, an entry-level schoolteacher qualifies. Whenever I have presented an affordable project to a planning commission or city council, those opposed always assume the occupants will be the most indigent hard-core unemployed, not those teaching their children and patrolling their streets.
A Bay Area Council poll indicated that the lack of affordable housing is one of the region’s most pressing problems. The long wait-lists for each new affordable project are proof that we are not doing enough.
What choices do people have to find housing they can afford?
One can live further away where housing may be less expensive, but transportation costs will offset this savings, particularly if not near BART or reliable transit service, and the commuting time will result in a loss of productivity. There are also environmental costs resulting from stretching the infrastructure (roads, sewers, water and power), and the increased pollution from automobiles. Perhaps most importantly, there are the social costs of having less time with your family and in your community.
Another choice is to share with a domestic partner, spouse or friend. A two-income household will earn enough to pay 30 percent toward rent. Indeed this is how many get by, particularly young, working singles. But not everyone has this choice, and it also entails larger units and higher rents. A two-parent household where both parents work also incurs childcare expenses.
One can accept a lower standard of living. The University of California’s student family housing, University Village in Albany, was once barracks-type structures built as temporary housing for ship workers during World War II, which were retained for returning GIs entering the university and remained as student family housing for over 50 years. They units were small, rife with mold and lead, not disabled access, and seismically insufficient. They were also cheap. A two-bedroom rented for around $600 in the 1990s, when a design-build team (of which I was a member) remade University Village, creating modern, safe, and spacious units. The rents were still below market as there were no land costs, but they had doubled. At the ribbon cutting of the new housing, students protested the doubling (it is Berkeley, after all). They were willing to accept the deficiencies of the old barracks because that is what they could afford.
The cost of building affordable housing is as much or more than market-rate housing
I’ve been designing low income housing for over forty years, and found that it generally costs as much or more to build than market-rate housing. How can that be?
The actual construction cost is often only 60 percent of the total cost. Land, design and engineering fees, building codes, and other regulations are the same regardless of the intended occupant, and therefore constructing the actual building varies little. The major differences between housing for those of low income and market rate housing are the quality of interior materials (think granite kitchen counters), and dwelling size.
While market rate dwellings are generally larger, this size increment means very little to overall costs. The most expensive square foot to build is the first as the land, pre-construction expenses, and construction staging are basically the same regardless of the overall size of the dwellings. Adding size to dwellings means amortizing these front-end costs over a larger area thereby reducing the cost per square foot. If it costs $450 per square foot to build a project with 800-square-foot units, it is likely to cost the same per square foot were the units 1000 square feet. The overall cost of the building will increase, but so too will the rents.
Affordable housing developers, primarily non-profit community-based organizations, are compelled by the community approval process to use high quality exterior materials, mature landscaping and amenities such as community buildings, all of which increase costs. The quality and design of these projects must be acceptable in a community that is almost always opposed to such housing, and the developers who will own these rental buildings want to ensure they will age well with minimal maintenance.
Finally, the building sites for affordable housing are often less than ideal for development. Market rate developers select the best sites, and may be required to segment a property for a required affordable component. This segment may be an irregular shape or require some environmental mitigation adding to the cost.
Attempts at lowering the cost
There has been much press lately about the creation of very small efficiency units, known as micro units. In some cases city zoning and building codes that govern dwelling size have been suspended to allow such development. But can these solve the affordability crisis, and are they actually cheaper? The answer is no.
The most expensive rooms in a dwelling are the bathroom and kitchen. When you build a very small unit that includes both, the cost per square foot is very high as there is far less area over which to amortize these two expensive elements. Similarly, each small dwelling requires its own heating/air conditioning system, and most have expensive built-in furniture such as murphy beds and fold-up tables to make the small space usable throughout the day. To compensate for the small unit size, developers provide public recreation rooms and rooftop gardens that appeal primarily to young working singles who favor privacy and urban living, but these too increase costs.
Since the design, engineering, land, and other pre-development costs are comparable regardless of the unit size, the only real savings is by increasing the number of units on a site, but this too can be deceiving. No housing is 100% efficient as there is always a ratio of rentable space to built space. Hallways, stairs, elevators, utility rooms, mechanical space, lobbies are all non-rentable areas. More small units can often lead to a reduced efficiency, further driving up the cost per square foot of rentable space.
In some cities a micro unit rents for 15 percent to 20 percent less than a typical studio, but it is 30-50 percent smaller.
There are two advantages of micro units. First, you can increase the number of units on a site, and more housing is better than less. Second, if the units are for sale, it allows first-time buyers entry into the market at a relatively low cost, just as “starter homes” once did. But micro units are too small for low-income families that make up the majority of those in need of affordable housing.
Since the middle 20th century the idea of producing high-density housing as we do cars or other mass-produced products has been beguiling dream. There have been many attempts but few successes. The most iconic of all such projects was Habitat 67, a demonstration project at the Montreal Worlds Fair designed by Moshe Safdie. It exists today as high-end condominiums, but was never replicated.
Producing whole dwellings, or modules that combine to make dwellings, in a factory has many advantages. Work in a controlled environment proceeds regardless of weather or local noise-restriction regulations that limit on-site construction time. Computer technology can size building components precisely thereby reducing waste, and then these elements may be stockpiled until needed. Work can proceed simultaneously, rather than sequentially, as is often the case on building sites.
Perhaps the greatest advantage for a developer is a reduction in overall construction time that then reduces the cost of construction loans and generates rental income earlier.
So why hasn’t this become the predominant method of building? A main reason is that the home production industry is cyclical, and in order to justify the capital investment a factory entails there must be a consistent, ongoing demand for the product. Not all housing lends itself to factory production. Some projects are too small, some sites too irregular, some developers require a range of unit types undermining standardization. Often sites are too far from the factory making delivery of large elements more costly. Most local jurisdictions require their own building inspections. If a module is delivered and found lacking, then on-site adjustments need be made. Finally, there is still costly and substantial on-site work including land preparation, foundations, and connecting modules to each other and to city services.
The home-building industry is a reflection of variety of buildings types (garden apartments, high-rise, single-family), regional aesthetic expectations, local building codes, and the cyclical nature of the economy. Most home-building contractors are small businesses with little in capital expenses and few employees. They hire as the need arises, use subcontractors for a variety of trades, and rent specialized equipment as necessary. They buy materials only when needed and rarely stockpile them. They are basically managers of the construction process whereas a factory builder must maintain all the tradesmen and control the entire process.
Standardization has occurred in the building industry, but it has emerged as a way to support small, independent builders. Molded bathtubs, plastic piping, engineered wood of standard lengths, various structural connectors, are all mass-produced building products available to contractors regardless of the type of housing they build or the size of their operation.
Despite decades of recurrent attempts at standardization of building without success, some continue to try. Rick Holliday, a Bay Area developer, recently completed a San Francisco multi-story housing development using modules. He is bullish on the process as it has reduced costs by 20% and saved 40% of the time on the site. He acknowledges, however, that a sustained market is necessary for this system to survive.
On the other hand, a new modular project in Berkeley designed by architect Stanley Saitowitz (Natoma Architects) for Nautilus Group did not yield either time or costs savings. Nautilus was essentially beta testing this system which partly accounts for the lack of savings. But there was a significant amount of on-site work before, during, and subsequent to the modules being delivered which undermined any potential savings of the factory-built components.
Nevertheless, Nautilus may be in a better position to succeed than their predecessors, as it is both the contractor and developer. It has acquired and entitled several sites in the region proximate to its factory and is creating its own market.
What strategies have we used?
Housing is continuing to be more expensive and an increasing number of people cannot afford to rent or buy without a subsidy. We cannot significantly reduce the cost through off-site manufacturing, reducing unit size, or building further out of city centers. We can ask people to accept less, and many already do. So what can and should we do? There are historical approaches to the problem from both the demand side and the supply side.
Housing vouchers (primarily the HUD Section 8 program) provide those who qualify with a rental subsidy. The recipients select the dwelling, generally pay 30 percent of their income toward the rent, and the government pays the difference directly to the landlord. There are several advantages to this approach, not the least of which is that the renter may choose the type of dwelling and location that best fits the family’s needs. However, landlords are not compelled to participate in the program and the maximum subsidy is $2,000/month, both of which limit choices. Another advantage of Section 8 is that it promotes a mix of incomes in a building and within the community. Since it is not apparent that someone is receiving a subsidy, the stigma of being of low-income that historically has been associated with public housing is lessened.
Despite these advantages, the Section 8 program is woefully inadequate. The wait-list for vouchers in many cities is as long as six years, and in some places the lists are no longer open. As rents rise along with occupancy rates, there is little incentive for landlords to participate in the program. Vouchers will be ineffective when there are too few dwellings available, so we must consider the supply side as well.
In the middle of the 20th century the federal government directly funded new public housing. This was a failure on many levels: social, architectural and economic. Many blame the architecture that was primarily large, bland blocks of apartments set in expanses of featureless landscapes. Federal guidelines restricted the designs, excluding any element that was deemed unnecessary, including closet doors. (The notion was this would compel the poor to be tidy.) These projects displaced many families, oftentimes from highly socialized, tightly knit communities that were bulldozed in the name of urban renewal.
In 1972, the award-winning 1956 public housing project Pruitt Igoe in St. Louis was imploded. This poignantly signaled the ignominious retreat of the federal government from its approach to low-income housing. Thereafter funds were redirected into communities, and the local non-profit developer became the major producer housing for those of low income. This new strategy, which continues today, has many advantages.
First and foremost the housing is better. Local non-profit developers know their communities, what type of housing is needed, and how such housing can be integrated into neighborhoods. They also know that in order to continue their work in that community, they must build good projects, as well as maintain and manage them well. Having worked with many such organizations as an architect, I can attest to their commitment to this mission.
The primary method of financing this housing is through the Low Income Housing Tax Credit (LIHTC), a feature of the US Tax Reform Act of 1986. Developers of affordable housing, mostly non-profit entities, are granted tax credits through a competitive process. They then allocate these credits to high-income investors, or groups of investors, who receive a dollar-per-dollar tax credit for their participation. Since the LIHTC inception, nearly 2.5 million dwellings have been funded, both new and renovated. There are other sources of funding, and part of the affordable housing developer’s task is to aggregate many types of programs and subsidies for each project.
Too many groups, however, have formed to compete for these limited resources and this has led to a duplication of effort, and an increase in the cost of such housing. The more amenities and features developers include, the more competitive their application.
The successes of community-based non-profit developer notwithstanding, they simply cannot fulfill the need. Instead, cities have looked to market-rate developers by requiring them to include below-market units in new projects, or by compelling them to contribute to a low-income housing fund as a pre-condition for development rights. To compensate developers, a city may allow an increase in the number of units or floors that would otherwise be permitted.
This inclusionary zoning can take several forms, but it generally results in some percentage of units in a new project to be set aside for below market rents. Sometimes these units will be identical to other units, while other times they will be smaller with less luxurious finishes.
The advantages of inclusionary zoning are that it promotes mixed income occupancy, it provides high quality housing indistinguishable from market rate units, and it creates affordable units in areas where there are likely few. In general, however, inclusionary zoning is insufficient in providing sufficient numbers of affordable dwellings, as the percentage of such units in each new market-rate development is small, and the overall building pace of high-density housing slow. Furthermore, someone is subsidizing these units, and it is most likely those renting (or buying) at the market thus driving up their costs and exacerbating the affordability problem. The differences in rents can be substantial. In New York City, for example, those qualifying for below market rents pay as much as $90,000 less than those paying the market rent in the same building. That degree of subsidy could help many more families in a more moderately priced neighborhood.
In lieu of including affordable units in a project, many cities allow developer to pay into a housing fund that is then used to build such units elsewhere. This too has been less than successful due to the high cost of land and construction, and the difficulties in building low-income housing against neighborhood opposition.
What is the answer?
We need to build more housing. While we can strive to build better, faster, smaller, and more economically, the cumulative results will not close the affordability gap or create enough of the type of housing most needed. There also must be some form of subsidy.
We can continue with the strategies we now employ, housing vouchers on the demand side, government programs and inclusionary zoning on the supply side. Both would need to be substantially increased. Non-profit developers need to further consolidate to reduce the duplication of administrative efforts and the competition for limited funds.
While I have been designing affordable housing for non-profit developers for decades, and appreciate their commitment to high quality, affordable housing and to the communities in which they build, the more effective approach likely is on the demand side. More employers need to consider either making employee housing contributions as they currently do for healthcare, or developing housing for their workforce. Health and housing are inexorably linked, and employees well-housed near work will be more productive resulting in reduced absenteeism, healthcare costs, and staff turnover. At UC we help new faculty with housing allowances and low-interest housing loans, both demand-side programs.
From the private developer’s standpoint, this represents a most straightforward approach by reducing regulatory mandates that inhibit housing creation, and more housing creation will ultimately lower rents. From the renter’s (or buyer’s) standpoint it provides the most flexibility in housing type and location. As incomes rise, the degree of subsidy can be adjusted while remaining in that dwelling. Section 8 currently requires you to move if your income is sufficient to pay no more than 30-40% toward rent.
Some changes in programs should be considered. Section 8 vouchers pay a portion of the rent directly to the landlord. A landlord is not compelled to accept such tenants, and many do not, either because they do not want the governmental oversight, or feel the tenants are undesirable. Instead, voucher programs should be the means of leveling the playing field with few restrictions as to where to live. A housing account with both government and the renter contributions that automatically pays the monthly rent can be set up for voucher recipients, obviating landlord involvement.
I have said in previous postings that we have always been uneasy with subsidizing housing for those of low-income. We need to get over it, and see it as a community investment rather than a burden. The lack of affordable housing has high costs in health, environmental degradation, transportation, and homelessness. Strong, mixed-income, diverse communities are stable, healthy, and economically viable, and they support a variety of stores, services, and entertainment that make cities vibrant and interesting. Teachers, police, and professors should be able to live in the communities in which they work. Without more housing and housing subsidies, they cannot.