The bitter fight over how to create affordable housing

By Deborah Goonan, Independent American Communities

In urban areas across the nation, housing is getting mighty expensive. Particularly in California, homeownership is out of reach for most residents. Rents are also out of control. Yes, a limited number of low to moderate income tenants do qualify for rent-controlled apartments, but critics say, there aren’t nearly enough of them.

For decades, a political battle has been brewing between housing advocates pushing local governments to promote new construction of affordable housing, and opponents of high density construction of multifamily apartments and condominiums.

The issue is particularly intense in California, where a state legislative proposal to force local governments to support higher density construction near transit stops, SB 827, has just been killed.

The following New York Times article outlines the political debate.

California Lawmakers Kill Housing Bill After Fierce Debate

The vote highlighted the state’s housing and homeless problem as a election-year issue that promises to dominate the state’s politics for years.
— Read on mobile.nytimes.com/2018/04/17/business/economy/california-housing.html

 

According to the report, Fair Housing advocates and some (but not all) environmental groups favor forcing local governments to approve construction of denser multifamily housing near rail, ferry, and full-service bus stops.

Housing advocates say adding housing in “high opportunity” neighborhoods will help undo decades of racial and income segregation, perpetuated by local zoning restrictions.

Environmental groups claim that residents living near public transit will not be dependent on driving a car or commuting long distances to and from work, on California’s overcrowded freeways. That, environmentalists, argue, should cut down on air pollution and consumption of fossil fuels.

Local governments oppose the proposal that state law would override “local control” of zoning. If it were up to some municipalities, they would maintain low density, no-rental housing neighborhoods for some of their most affluent constituents.

But the article doesn’t mention several other critically important factors.

Defining affordability

For one thing, there’s no practical definition of affordable housing. The real estate industry tends to focus on one of two options:

1) building housing with an affordable purchase price, or

2) working with various sources of public and private financing (including taxpayer-funded grants, tax breaks, and rent vouchers) to create a positive cash flow for future landlords, while reducing out-of-pocket monthly rent for tenants.

Both of these options are designed to primarily benefit real estate developers and investors. Any benefit to future homeowners or tenants is purely incidental.

Consider the realities of ownership of an “affordable” condominium or an apartment in a limited equity cooperative.

While costs of entry — initial purchase price — may be affordable in comparison to purchase of a single family home, many owners discover that, in the long run, the cost of ownership is not affordable after all.

Because construction materials and standards of affordable housing tends to be basic, meeting minimal safety and quality standards, components of infrastructure wear out more quickly, and are often require costly maintenance.

For example, consider the cost comparisons of maintenance and replacement for all of the following: wood frame construction as opposed to steel frame construction; pressure treated lumber for decks and outdoor stairs as opposed to weather-proof composite materials; wood or cheap vinyl siding as opposed to brick, stone, or high quality composite siding; a 20-year roof as opposed to a 50-year roof; low quality vinyl windows as opposed to high quality, insulated, solid frame windows; packaged terminal air conditioners (PTACs) as opposed to high-efficiency, ductless or  separately-zoned central heating and air conditioning.

Because it’s common for affordable housing developers to keep construction costs low, and to maintain the illusion of affordability with artificially low monthly assessments during the period of developer control, condo owners and limited equity cooperative shareholders are often shocked when assessments and maintenance fees double or triple within a decade.

Plus, in the majority of cases, associations tend not to set aside adequate reserves. So when the roof or windows need to be replaced, or the building needs to be repainted, owners face steep special assessments, or risk living for years with deferred maintenance.

And, considering that multifamily housing is more prone to construction defects, owners and residents of condos and co-ops are more likely to experience health and safety hazards, and the cost of litigation against the developer or construction and design professionals.

Can we truly call this affordable housing?

 

Practical considerations of high density

Then there are a number of valid and common complaints from residents and neighbors of high density housing.

When local governments allow developers to squeeze hundreds or thousands of housing units on relatively small parcels of land, it creates inevitable problems of overcrowding: parking wars, as a result of too few parking spaces in relation to the number of residents; decrease in access to natural light and fresh air in condo or apartment units with window views blocked by adjacent tall buildings; too many school children crammed into each classroom; excessive noise from neighboring units, buildings, sidewalks, ground floor commercial tenants, and train stations.

All of these are tremendous disadvantages of urban life, some of which could be avoided or alleviated with somewhat less density and more thoughtful urban planning with an eye on long-term quality of life.

But the emphasis seems to be on maximizing the number of housing units per acre of land, and using as much vertical air space as possible.

While high-end condos and apartments may be spacious and soundproof, with sweeping views, dwellers of modestly-priced and “affordable” units rarely enjoy these perks.

 

Poor management is common

And then there’s the elephant in the room, rarely mentioned in real estate and business reports.

The truth is, the more modest the multifamily housing, the less likely it is to be well managed and maintained. After all, the goal is to keep management costs to a minimum, so that landlords and owner investors of condominiums can maximize their positive cash flow.

Since there’s a severe shortage of affordable units to rent, there’s little market pressure on landlords and management companies to deliver top-notch, or even adequate, service to residents.

And in mixed income housing projects, it’s not hard to imagine that high-rent or upper floor condo dwellers are likely to receive more prompt and courteous service than residents in rent-controlled ground floor or basement units.

Ironically, that inconvenient reality simply perpetuates housing inequities that affordable housing is supposed to eradicate.

 

References:

The Uncertain Future of Common Interest Developments by Tyler P. Berding

POOR WORKMANSHIP TOPS LIST OF CONSTRUCTION DEFECTS IN NEW CAI REPORT

A Bold, Divisive Plan to Wean Californians From Cars (New York Times)

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2 Replies to “The bitter fight over how to create affordable housing”

  1. This article mentions many factors related to affordable housing such as shoddy construction, poor management, over-crowding (density). But the article fails to deal with the major cause for expensive housing. It’s not the expense of materials, labor or management. These costs very only slightly from place to place. The real culprit is the price of land.

    In the rust belt, housing prices appear cheap. But, if you don’t have a job, even a “cheap” house can be unaffordable. And, where the economy is booming like in Silicon Valley, households with six-figure incomes have trouble finding housing that they can afford. Land speculators have most of us on a hamster wheel where better jobs and better pay fail to keep pace with housing (land) prices.

    Our tax system encourages land speculation. Even where land is zoned for reasonable density (in relationship to the availability of infrastructure and the level of economic demand), land often lies fallow or is used for surface parking lots (a favorite land use of speculators).

    State-level tax reform is necessary. Most property taxes are upside-down. If a landowner constructs a building, they are punished with higher taxes. Taxes are higher not just when a building is constructed, but each and every year that the building adds value to the property. On the other hand, owners who allow buildings to deteriorate are rewarded with lower taxes. Those who own vacant lots pay less tax than their more responsible neighbors, even though vacant lots require just as much infrastructure (streets, sidewalks, water, sewer, etc) as developed lots. California’s tax assessment freeze does nothing to address this upside-down tax and actually encourages more speculation and land-price inflation. (Land price inflation increased dramatically after Proposition 13.)

    Some communities have addressed this situation by reducing the tax rate applied to privately-created building values while increasing the tax rate applied to publicly-created land values. The lower rate on buildings makes them cheaper to construct, improve and maintain. This is good for residents and businesses alike. Surprisingly, the higher rate on land value, by reducing the profit from land speculation, helps keep land prices more affordable as well.

    Because land values reflect the value of public goods and services, taxing land values allows landowners to pay taxes in proportion to the value of public goods and services that they receive. Also, high-value land tends to be located near high value infrastructure. A tax on land value encourages intense development of high-value sites — which tend to be urban infill sites where intense development is most appropriate.

    Thus, without any additional spending or any loss of revenue, shifting property taxes off of building values and onto land values helps make both buildings and land more affordable. Zoning reform (reduced parking requirements and higher permissible densities) are also needed. But absent tax reform, these zoning reforms might simply lead to higher land prices.

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    1. Good points, and an interesting approach to solving the problem of affordability. Taxes are definitely a barrier to affordability. I would add that common interest housing adds to the tax burden via Special Districts (such as Mello Roos in CA) and HOA/condo-co-op assessments and fees. There’s some double taxation involved, too.

      There’s nothing affordable about common interest housing or association-governed communities! It’s all an illusion. Privatized and planned communities tend to have higher cost of living, and, frankly, many don’t offer good value for the increased costs to housing consumers.

      I agree that zoning reform is needed, but there must be adequate space for parking and construction of roads that are wide enough to allow two vehichles to pass in opposite directections, with parallel parking on at least one side of the road. Too many townhouse and condo developments lack sufficient space for parking in their small (or nonexistent) garages and driveways. It creates a perpetual, unresolvable parking problem for residents and their guests. This is one example of too much density. Build a few less houses and provide roads and driveways that are actually functional!

      The very first zoning reform needed is for local governments to stop mandating HOAs, and to permit condo or co-op housing only if economically feasible for the future owners (vs. the developer or investors in the project). Otherwise, affordable rental apartments make more sense. States need to explore other ways to help first time home buyers to purchase affordable housing.

      The second zoning reform needed is for local governments to make it possible for the market to provide small and modestly sized single family or small multifamily housing without the need for an HOA of condo association. I believe that’s where your suggestions with regard to taxation of land are most applicable.

      Another way to promote affordability for the long term — Infrastructure (roads, storm water management, water/sewer utilities) needs to be built to higher PUBLIC standards and then maintained by public entities, because most private associations do a notoriously lousy job of funding and maintaining infrastrucutre over time. Why? They simply can’t afford it, or don’t plan for the future.

      And, it should be obvious, but…States need to stop allowing development in flood plains or borderline flood zones — not to mention landslide-prone areas, earthquake fault lines, sinkhole alleys, wetlands, and former landfills or industrial sites. It’s amazing how far local governemtns and economic development councils will go to create a tax base on otherwise vacant land parcels. Speculators and developers get cheap land and better profit margins, but future residents or tenants get financial liabilities and health risks in return for “affordable” purchase prices and/or rent.

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