Thesis: Housing can be affordable to the purchaser and profitable to the developer. For example, a finished studio apartment could be available at $700/mo, or a three-bed at $1300/mo, and the developer who builds it will consider the ROI on the project/investment to be exceptional.
The need to do something tends to trump the need to understand what needs to be done. And without data, anyone who does anything is free to claim success.
- Angus Deaton, The Great Escape
Housing, broadly, is often considered a political issue, to be fixed by politicians.
I'll be quoating broadly from a recent seminal book by Urban Economist Alain Bertaud, specifically from Chapter 6: Affordability (p 219).
Here's the four key metrics that determine the affordability of housing:
- floor area
- Land area
- Price of land
- price of construction per square meter
equation 6.1: Price of housing for households:
P(price of housing) = (Land area) x (Price of land) + (floor area) x (Cost of construction)
`Price of housing` can be considered as the cost of renting or owning.
Price of land depends on location. desirable locations have higher land prices.
Cost of construction depends on quality of construction. It's possible to build an informal shelter of lumber, plastic, and currugated iron roof for as little as $25/sq meter. A fancy apartment fully equipped with kitchen and bathrooms may cost orders of magnitude more. ($2500/sq meter in NYC in 2013 for residential buildings 307 stories tall)
We can use location as a proxy for price of land, and quality of construction as a proxy for price of construction.
| Category | Price/Income Ratio |
|---|---|
| Affordable | <= 3 |
| Moderately unaffordable | 3.1 - 4 |
| Seriously unaffordable | 4.1 - 5 |
| severely unaffordable | >= 5 |
Denver's Price/income ratio in 2015 was 5.1, or severely unaffordable. 12th annual housing affordability survey, Belleville, IL: Demographia, 2016
The PIR is a useful index for identifying an affordability problem, but it is too crude to identify a policy solution
Minimum appartment size + maximum number of dwelling units per area reduces availability of small apartments, regardless of the demand for such apartments. Demand for non-family households represents almost 40% of all households.
In 2015, an NYC zoning board approved construction of 55 mini-apartments, ranging from 24-33 sq meters in a single nine-story building in Manhatten. When they appeared on the market, there were 4300 applicants for each apartment.
Measuring income distribution in relation to housing consumption is indeispensable for sound policy formulation
vouchers
inclusive zoning: The holy grail of finding costless solutions to housing affordability. (Requirements made of developers)
Leads to luxury apartments for the happy few poor.
Kampungs. It works, emphatically well. Housing can be built with affordability goals, and profitably, but not easily given current land use regulations. (Maybe get Denver to grant a 'special economic zone' or 'planned unit design' designation to a current low-value piece of land, to run experiments against?)
Urban transport goals should be to minimize the time required to reach the largest possible number of people, jobs, and amenaties. Not to reduce distance travelled.
- Order Without Design, Alain Bertaud, 2018
- How Seattle Killed Micro-Housing: One bad policy at a time, Seattle outlawed a smart, affordable housing option for thousands of its residents (sightline.org)
Quotes from the sightline piece:
You draw up plans to build 40 apartments of 175 square feet each. You estimate rent at $900 per month. That amount might sound expensive if you haven’t shopped for rentals in Seattle recently, but it’s a steal: conventional studios now go for $1,400 on average.
[... city council changes rules]
You redesign your project according to the new rules and find that you are now down to 27 units of 260 square feet each. Thirteen Annas just lost their housing, and the remainder saw their rent rise by a third, to about $1,200 per month. But at least you are in the MFTE program, so five of your apartments will offer a discounted rent of $1,020 per month to people whose incomes qualify. (You facepalm in disbelief, however, that whereas your original plan offered 40 units, unsubsidized, at $900 a month, your new version has just five units, subsidized, at $1,020.) [...] The building department publishes a new code interpretation that requires your SEDUs to have larger living rooms. You redesign your project again: Plan C. Three more Annas lose their homes. You are now down to 24 apartments of 290 square feet that rent for about $1,300 per month. [...] Your unit count drops to 21. Your rents are now at $1,400 per month.