Commercial Investment Real Estate Spring 2020 | Page 24

WORK IN PROGRESS 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. 22 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