Thoughts to consider about the difficulties of cultivating affordable housing developments, especially in a city like Saint Louis, Missouri.
1. It is expensive to build things, and the cost is passed along, to some degree, to the end user. That is true for market-rate housing, where the end user is the homeowner or renter, and it is true for subsidized housing, where the ultimate payer is some combination of government/taxpayer and non-profit/donor.
2. The costs come in several forms. Some I think are straightforward. There is the cost of the materials to build housing, which includes the cost of the raw materials, processing, transportation, and whether there are other uses the materials could go to that would be more profitable for the material owners. There is the cost of labor, including degree of skill, complexity of the build, availability of labor/competition across projects, use of union vs non-union labor, other hiring requirements, etc. There is the cost of maintenance and upkeep, which will vary based on the building itself, construction style, and anticipated population living there–do you just have to keep the systems running ok, or is it a high-end place expecting manicured landscaping, regular redecorating of the lobby, fancy amenities, etc.?
3. There is the cost of the land which I think is related to several factors. In a realistic scenario, what is the value of what could be built there? What is legally permissible (zoning and other regulations, aldermanic support, neighborhood pushback, etc.). What will the market support–if it is office, how much space is likely to be rented, and at what rate? For housing, how many units could you build and at what anticipated rent? What sort of shape is the land in now–existing building that just needs a light rehab, existing building that needs a gut rehab, existing building that needs substantial rehab in a historic district that requires additional expense to comply with historic guidelines, tear-down, cleared site ready to build, need for environmental remediation, etc.
4. What incentives are available to defray cost of housing? Low income housing tax credits? Historic tax credits? Tax abatement? TIF?
5. Given the numbers above, collapsing them down into anticipated expense versus anticipated income, what is the expected profit margin? What is the opportunity cost in Saint Louis specifically: how long does it take to get through the city or alderman’s process of doing a development, how predictable is that process, how long will your money be tied up in this specific project treading water versus being actively used elsewhere, and with what likelihood of ultimate project success? Are the numbers secure enough that a bank or investors will loan the money, and at what amount of upfront cash required? For a for-profit company, is the profit enough to make it worthwhile to you and your investors, or is another project (in St. Louis or elsewhere, real estate or not) more attractive for your capital? What is the confidence level in the projections–a lower risk investment can get by with a lower rate of return, but a high risk investment needs to have a higher projected rate of return to amke it worth it. Would investors rather put money into this project or another real estate project or the stock market or buy a condo in Hawaii or buy a bigger yacht or whatever?
6. When we talk about “affordable” housing, it seems there are several different categories along a spectrum.
At one end is poverty– housing for people whose income is below the level required for the above even under the best of circumstances (e.g., low land value, permissive building code, low or no required profit margin for the owners, rent in many neighborhoods that is well below national averages).
At the other end of the spectrum is what gets a lot of attention in places like Palo Alto, where salaries are very high and could support many housing units in other areas, but not in that specific area due to restrictive land use and zoning codes that limit the supply of units far below demand, resulting in very high rents for available units.
Between those poles are a lot of intermediates, some of which are the targets of “workforce housing” policies which target rent at a certain percentage of local median income. People in poverty below the threshold required to maintain a liveable unit require government subsidy. (Perhaps changing some zoning codes to allow more housing styles like micro units, boarding houses– perhaps then, more people might be able to afford “market rate” but not most. Similarly, most above that threshold would benefit from zoning reform.)
7. It is usually more expensive to build something new than the rehab something old, barring major structural problems or strict historic guidelines that must be followed. The per unit cost of a unit in 100 Above the Park is way higher than the per unit cost of a unit in the Del Coronado apartments, Parc Frontenac, or the Buckingham Apartments, despite them all being within a block of each other. That is partly because people will pay a premium for new buildings, but an even bigger part is that the cost of a unit 100 Above the Park has not been amortized over a long period of time, while the cost of the other units has been amortized over many renters and many years, so the marginal cost on a per year basis is lower.
8. That extra cost does not go away if a developer is forced to set aside a certain number of units for below market-rate rent. The developer is unlikely to eat all or even most of that cost. It gets passed along in one of several ways: to the taxpayers via tax abatement, use of LIHTC, etc; to other renters in the buildings via higher rents in other units to compensate making the building less accessible to intermediate money renter; and to the community at large via changes to the building design, usually to make it smaller and have fewer total units as the initial building cost has several jump points as the building gets taller and more complex), resulting in fewer total units in the area which drives up rental prices in other buildings if the demand in the area is not met by supply.
9. It is ultimately almost always cheaper to provide housing subsidy in an older building than a new building. In a rich city that has plenty of money to go around and has a well-funded system to promote affordable housing, I think it is reasonable to require developers to set aside some subsidized housing units, knowing that the per-unit cost will be very high but you are able to provide subsidized housing to all in the community who need it because you are wealthy and/or very few in your community need it.
That is not the case in St. Louis, where we have a long wait for our subsidized housing because we are a high-poverty city that is chronically cash-strapped, with many competing needs (aging infrastructure especially sewer and water management, shrinking population, crime, schools, job loss, lead paint, etc etc etc) that deserve investment, but there are only so many dollars to go around.
In order to maximize the number of people we provide housing to, we should focus on maximizing the number of people we provide housing to by keeping the cost per unit low, rather than providing housing to fewer people but in high cost buildings.
I am open to more new construction government-owned housing, and things like Rise-owned housing, but I believe in general these strategies are also more expensive, (i.e. the amount of money required for living in one of the Rise units south of Manchester in FPSE is higher than renting in a 4-family in our neighborhood, though this will likely change as demand in our neighborhood goes up unless we can significantly increase supply by building more units; hopefully all the apartment buildings going up south of Manchester will ease some of the pressure on existing rentals.)
10. There are definitely pros to requiring subsidized units in new builds. One is that it can reduce economic segregation. I think that is less true in St. Louis City (even in a high cost neighborhood like the CWE, there are units within walking distance to the park that could be covered by a Section 8 voucher), but certainly would be true in wealthy suburbs like Ladue, and probably Clayton, if they were interested in contributing to regional housing affordability (they are not).
Another is that politicians like it because it is highly visible and makes a good headline, and ultimately in order for an outcome to be politically sustainable, elected officials must be bought-in to the concept.
A third reason it is attractive is that the costs are hidden and spread out–it does not come out of the budget as a line item and thus looks kind of like free money, even though it ultimately costs more money in ways that are disguised as tax abatement/TIF (takes from future city budgets) or fewer units at higher costs (paid by other building residents, prospective residents who cannot live in the unbuilt units and thus live elsewhere either in the city or outside of it).
SIDE NOTE: The pros of a voucher-style housing programs is that it offers more flexibility to recipients (find housing that is convenient to you, maybe close to your work or on the right bus line so you don’t need a car, near a family member who can watch your children or provide social support to you personally, in a community that is important to you, etc., maybe by saving on one of these other expenses you can supplement your section 8 voucher money with additional income to afford higher rent, etc.) and gives more personal agency to the recipient. The cons are that it has higher headline price. Also, some landlords are resistant to renting to section 8 tenants, often for racist and/or classist reasons; it is illegal in St. Louis city (and I think the county, but I am not sure), though it’s unclear how well enforced.
11. Zoning ideas to increase supply of housing so that market rate units will stretch across a wider income range include:
a) streamline the approval process so that opportunity cost is lowered/process is more predictable;
b) outlaw single family zoning–not saying to prevent single family homes from being built, merely that you cannot require certain parcels to only have single family homes, I would allow 4 plexes to be built anywhere;
c) liberalize the city’s zoning code to allow smaller unit sizes/microunits, override antiquated codes like in Skinker-Debalviere which restrict the number of unrelated persons who can live in a unit together (I think 3 is the cut off) and, more controversially, allow boarding houses again;
d) abolish parking minimums;
e) liberalize our building code, including in historic districts, regarding things like materials, windows, solar panels, modular housing, etc.
12. Neither section 8 nor direct provision of units address poor landlord problems, which is more an issue of city code and enforcement than direct housing issues.
Thought provoking articles:
Affordable housing explained: https://www.vox.com/2014/4/10/18076868/affordable-housing-explained
The need for section 8 non-discrimination enforcement: https://www.vox.com/22547660/section-8-housing-vouchers-landlords-realtors-lawsuit-century-21-keller-williams-realty
And possibly section 8 navigators?: https://www.vox.com/future-perfect/2019/8/4/20726427/raj-chetty-segregation-moving-opportunity-seattle-experiment
Inclusionary zoning controversy: https://www.nytimes.com/2014/06/08/upshot/affordable-housing-thats-very-costly.html?_r=0
Some more analysis here: https://marketurbanism.com/2014/05/29/how-affordable-housing-policies-backfire/
Slate article on housing vouchers: https://slate.com/business/2016/07/its-time-for-universal-housing-vouchers.html
The high price of affordable housing: https://cityobservatory.org/the-high-high-price-of-affordable-housing/
Why is affordable housing in California so expensive?: https://www.nytimes.com/2019/11/07/us/affordable-housing-california.html
A tool where you can play around with parameters, financing, etc: https://apps.urban.org/features/cost-of-affordable-housing/