Commercial Investment Real Estate Spring 2020 | Page 24
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housing in which there’s some government
program that’s making it affordable.”
Ducker co-authored “Attainable Hous-
ing: Challenges, Perceptions, and Solutions,”
published last year by the Urban Land Insti-
tute. The report focused on for-sale housing,
but many of its findings have applicability for
rental markets as well. One prominent note:
Smaller and more-affordable homes simply
aren’t being built. “Small housing, under
1,400 sf, has historically represented about
16 percent of new construction but in the
last cycle has averaged closer to 7 percent,”
the report says. “When combined with the
next size category, 1,400 to 1,800 sf, the over-
all distribution of small homes has declined
from just under 40 percent to 22 percent,
whereas homes over 2,400 sf have increased
from 32 percent to 50 percent of new con-
struction since 1999.”
Land and construction costs, along
with development and impact fees, drive
up the cost of residential housing, and local
zoning ordinances can make it difficult to
experiment with smaller lot sizes, increased
density, and additional rental units. A long-
time solution to affordability — building
farther from the city centers — has become
less appealing as communities struggle to
contain sprawl and residents reject long
commute times.
“For municipalities, all sorts of strat-
egies could put a dent in the problem,” says
Engelstad. Towns could ease zoning and
Younger people in the home market gravitate toward location and amenities, rather than size and luxury.
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE
density requirements to allow accessory
dwelling units and cottage homes or permit
duplexes on single-family lots; they can also
revisit design standards that can add cost to
new construction. Easing zoning regulations
could also be a more appealing alternative
than financial incentives such as relief for
impact fees, adds Ducker.
Land and construction costs
make building expensive,
so housing is geared
toward higher-end buyers or
renters. Also, in many areas,
wage growth hasn’t kept up
with housing prices, leaving
many renters and
buyers scrambling for
suitable housing.
“Vision 2030,” a recent report
issued by the National Multifamily Housing
Council and the National Apartment
Association, included a range of local
government initiatives that could encour-
age attainable housing, including expedited
development review, establishing density
bonuses, and adopting separate rehabilita-
tion building codes.
On the development end, “we see the
door opening a little bit — more and more
people are focusing on it for several reasons,”
Ducker says. “People are seeing there’s a
huge market opportunity — there are a lot
of people who are underserved for housing.
If you can figure out how to do it, you’re tap-
ping into an underserved market and maybe
even a market that’s less cyclical than luxury
housing,” which can be affected by slower
turnover or a downtick in the economy. Also,
he says, “there are beginning to be enough
signs of success of people who have figured
out how to make the economics work. There
are more examples in every product type.”
Larger or more luxurious housing
also becomes impractical for millennials
entering the housing market and baby
boomers looking to downsize. In fact, Ducker
says, many millennials are less interested
in high-end housing and instead focus on
SPRING 2020
Economics play a part as well. Land
and construction costs make building expen-
sive, so housing is geared toward higher-end
buyers or renters. Also, in many areas, wage
growth hasn’t kept up with housing prices,
leaving many renters and buyers scrambling
for suitable housing. The Harvard report
says that, in 2017, 31 percent of U.S. house-
holds spent more than 30 percent of their in-
comes for housing, including 15 percent who
spent more than 50 percent of their income.
At the same time, the issue poses chal-
lenges for municipalities as well. They lose the
diversity of middle-income residents — teach-
ers, police, and health care workers, for exam-
ple — who are unable to afford housing in the
community. They also face pressure from local
business that may be unable to attract employ-
ees because of the high cost of housing.
Because of its scarcity and demand,
attainable housing presents opportunities
for commercial real estate professionals, but
the solutions require creativity, patience, and
a willingness to explore alternatives on the
part of both the real estate community and
municipalities needing attainable housing.
Workforce housing “is not well defined in
the industry, and it’s certainly not legally
defined in many places,” says Adam Ducker,
senior managing director at RCLCO Real
Estate Advisors in Bethesda, Md. He says
that while attainable housing is often de-
scribed as housing costing 80-120 percent
of median income, “we sometimes use the
range of 80-160 percent. That’s a range that
sociologists often use to describe the middle
class.” Ducker adds that the term generally
describes non-subsidized housing, in con-
trast with affordable housing, “which is also a
vague term, but that’s often used to describe