Industry Leaders Should Partner With Policy Makers to Meet Housing Demand
Rising development costs and burdensome regulations are making it increasingly difficult to bring new multifamily inventory to market. Yet, demand continues to rise. A study by Hoyt Advisory Services found that the United States needs 4.6 million new apartments by 2030 in order to meet demand. Further, the number of renter households increased from 35.7 to 43.8 million between 2000 and 2016, according to U.S. Census data.
As the multifamily industry aims to provide apartment homes that residents are looking for, there is a growing need for forward-thinking policies at the local, state and national level that can help make this vision a reality. Policymakers and industry leaders need to collaborate with one-another and the community-at-large to implement policies that work to meet housing demand at all price points and nuanced to reflect local market dynamics. For example:
• Is there public land available that could be sold below market value and be used for new development for a variety of housing?
• Can density guidelines be revisited to allow for more units on the same plot of land?
• Are there incentives available to make new development more attractive to builders, in turn bringing new inventory to market?
• Could by-right development help reshape the dynamics of the local multifamily market?
Understanding the Dynamics
The nation’s housing affordability crisis is complicated. In addition to a growing renter population, we are faced with a rapidly growing class of high-income renters and what limited new inventory there is often favors them. The United States fell short of meeting demand among low- and middle-income renters by 1.2 million units from 2000 to 2016. And, development costs are rising, with land costs alone increasing 100 percent since 2000.
Where Policies Fall Flat
Sometimes policies with good intentions can inadvertently be off-putting to new development. For example, while inclusionary zoning is designed to improve availability and affordability, when incentives don’t cover the gap between below-market and market-rate rents, it can actually turn developers off from starting a project and result in less housing for a community. Similarly, lengthy review processes and regulations designed to meet often outdated community mandates create project delays that often translate into higher rents.
Diving Deeper into the Review Process
As noted above, review processes and regulations can escalate development costs, which in turn escalates asking rents. For example, a six-month review delay can translate into an additional $15 in rental costs per month, while a new stormwater retention system could cost renters an extra $80 per month. These — and other — “soft costs” can account for 15 to 20 percent of developers’ costs of that type.
In an effort to offset these costs and improve affordability, some communities offer accelerated approvals. In Santa Fe, N.M., projects that feature a minimum of 25 percent affordable housing enjoy an accelerated permitting process. Permit and impact fee waivers, as well as reduced utility expansion charges for affordable priced housing properties, are also available.
Opportunities for Developers
Creating the conditions to expand multifamily development is good for the community and the economy. The same 1 acre of land that houses three single-family homes can house a 15-story multifamily property with 176 units. Multifamily development also comes at a lower cost per square foot than single family — $127 versus $228 — and consumes significantly fewer BTUs per residential unit than single-family properties. Lastly, multifamily properties generate an increased tax base; a 2013 report from Smart Growth America notes denser development generates 10 times more tax revenue per acre than conventional suburban development.
Developers have the opportunity to open conversations with policymakers to create an environment that will make it easier to bring new inventory to market. Whether it’s proposing a reduction in the number of required parking spaces or proposing more lenient density restrictions, these subtle shifts can make a significant impact on both the volume and affordability of multifamily inventory that a community has to offer.
As cities and developers work to reshape public policy in support of the new multifamily development that residents crave, it’s critical to keep the dynamics of the local market top of mind. What may work well in Seattle may fall short in Atlanta and so on. Together, elected officials, the construction industry and the community can create a framework for governing new development that bolsters availability, enhances affordability across all renter incomes and can meet the rising demand for inventory in communities across the United States.
Doug Bibby is president of the National Multifamily Housing Council (NMHC).