The rallying cry for many a defender of the move-up approach to building and selling homes in the United States has been that about two-thirds of Americans own their homes. Indeed, this mathematical monolith has changed only slightly (for the better) since 1965, when about 63 percent of American citizens owned their homes. But even that cornerstone could begin to crumble if the number of working families losing the battle with housing costs continues to rise. Today, as NAHB president Kent Conine has pointed out, "more than 14 million people spend more than half of their total income on housing or live in substandard units." Of those, about five million are wage-earning families. And that number is increasing at a record pace, up about 70 percent since 1997.
Private builders and developers need to become part of the workforce housing solution. Why? Because if workers can't afford to live where their skills are most needed, civil society begins to unravel. For example, police officers, part of a group called "workforce heroes" by the NAHB in a study released in June at a symposium in Washington on workforce housing, "find homeownership particularly difficult" in a number of metropolitan areas, the study says. The combination of their low salaries and inflated housing costs is snipping away at the strands of the public's most reliable safety net.
The Center for Housing Policy in Washington published a report this year titled "America's Working Families and the Housing Landscape, 1997-2001." The report highlights a dire shortage of affordable workforce housing. One surprising conclusion: The group with the highest number of citizens in critical housing need (defined as those paying more than 50 percent of their income for housing) were those making 80 percent to 120 percent of local area median income (AMI). In many areas, even families with two working adults can't break the affordability barrier.
Deepening the crisis is a litany of bad economic news -- instability on Wall Street, a growing national budget deficit, uncertain costs of military action in Iraq, and the post-Sept. 11 tightening of security, which has prompted new mandates aimed at preventing terrorism -- much of which must be paid for at the local level. Result: Cities must now spend more money on security at airports, shipping docks, and power stations -- leaving less in the public coffers for schools, social programs, or much-needed workforce housing.
Signs of Strain
In some regions, the impact of out-of-reach housing costs has already begun to disrupt business as usual. In Massachusetts, for example, a study by the University of Massachusetts and the Citizens' Housing and Planning Association finds that the aging workforce (many of whom already own homes) is not being replaced by younger workers -- because incoming families can't find housing and take root. The state already faces serious teacher shortages, and need is growing for nurses and public safety workers.
Part of the problem, the report suggests, is that municipal estimates of the impact of new housing on schools and town services are too high, so housing development is often stalled. In Massachusetts, between 1990 and 2000, the state's population increased 9 percent, but housing stock increased only 6 percent.
New England has emerged as one of the areas hardest hit by workforce housing shortages -- although the rest of the nation is fast catching up. New Hampshire has a rental vacancy rate of 1 percent. In Portland, Maine, where vacancy rates are similar, Nathan Szanton heads a project management firm where he helps developers navigate the affordable housing maze.
"The bottom line is that if we don't have places for gas station attendants and janitors to work, we won't have an economy," Szanton says. "We've hamstrung ourselves. That's the whole theory behind creating workforce housing."
Szanton acknowledges the complexity of regulatory (and NIMBY) barriers to affordable housing. "The process has become way too complicated," he notes. "It's a set of skills totally different from what a builder normally does. What we have to do is put together these layers of financing, and each one comes with its own restrictions and rules. The trick is making it all work."
Fortunately, firms like Szanton's know how to make those linkages for builders, and they're engaging with private companies -- as are local politicians, as the gravity of the situation begins to undermine their infrastructure.
James Hahn, mayor of Los Angeles, says that builders can and must play a pivotal role in keeping the urban workforce intact. "The lack of affordable housing in Los Angeles is a challenge that can only be resolved with increased partnerships between the private and public sector," Hahn says. He adds that he has adopted an "aggressive policy agenda" specifically aimed at getting the private sector involved in dealing with the housing shortage in his city.
Lending clout to the mayor's efforts are nonprofit foundations willing and able to contribute big money to the idea. For example, Century Housing (a nonprofit affordable housing advocate), the city of Los Angeles, and the National Housing Development Corp. have joined to create a $200 million private sector fund/program called LA Win! (Los Angeles Workforce Housing Initiative Network). The fund will be aimed largely toward rental housing, assisting families who make 80 percent to 120 percent of the AMI.
Another big effort in the same city aims more specifically at homeownership. Jack Shakely, president of the Los Angeles-based California Community Foundation, says his organization is already working with private builders, such as Lee Brothers of Los Angeles, to address the lack of workforce housing.
"There are a lot of community development corporations around," he notes. "We have about 60 in L.A. alone. They do good work, but they're small, and they can't possibly produce enough housing to get to economies of scale. We're now asking community development corporations to act as our brokers -- to find us ready buyers."
Getting workforce housing into the construction pipeline doesn't have to start at the top, however. Builders, nonprofits, developers, and financiers can open a valve. For example, lender Fannie Mae has created an Employer Assisted Housing package (EAH) that helps employers create "forgivable loans" for home purchases.
What kinds of policies work? Streamlining regulations, density bonuses, donation of city lands, waiver of development fees and yes -- even the much maligned inclusionary zoning.
"We understand that for-profit builders need to make a profit," Shakely adds. "And we think that's to our advantage. Private builders are lean and mean, and they know what they're doing. For example, I think Lee Brothers' square footage cost is about $60. That's a third of what many of our community groups are building for."
In this special report, Builder leads you through the core issues of the workforce housing situation. We'll introduce you to some of the real people affected by this growing problem and share some of the tools and techniques that have produced many successful projects. Finally, we'll look at a number of case studies from around the nation. Can private builders ease the workforce housing shortage? That's for you to decide.
By Matt Power
Q: How did the workforce housing situation get so bad? Is lack of inventory to blame? Excessive development costs? Poor planning?
A: All of the above.
Not enough units: Fannie Mae estimates that 1.6 million units of new housing must be built annually to keep pace with demand in the United States, about a half million more than are now produced in a good year. Fannie Mae CEO Franklin Raines sees a need for national affordable housing programs in combination with local smart-growth policies -- to avert a deepening crisis.
Costly sites: G. Allan Kingston, president and CEO of California-based nonprofit Century Housing, points to escalating land costs -- especially in urban areas. "As housing costs in the inner cities have continued to escalate," he says, "urban infill sites for housing development have become less available and more costly to develop. The consequence has been a decline in the supply of middle-class, wage-earner housing."
Blurred vision: J. Ronald Terwilliger, with Trammel Crow Residential in Atlanta, notes that "communities that want affordable housing have the tools (such as housing trust funds, tax abatements) to cut costs, but with no comprehensive plan permitting inclusionary zoning, you wind up with low-density development. The residents tend to want larger houses on big lots to hopefully elevate the value of their own homes."
Change of Heart?
A new study suggests public sentiment toward affordable housing may be softening -- at least in the Midwest.
By Matt Power
Housing Illinois (a coalition of affordable housing groups) and the Chicago Rehab Network, (another housing advocate), both based in Chicago, recently commissioned a study of Chicago residents to test their views on affordable housing. Surprisingly, the results showed a populace generally supportive of bringing affordable units to their backyards.
These so-called YIMBYs (yes, in my backyard) varied in their enthusiasm, but the majority fell on the favorable side. About 31 percent said they would strongly support such projects; 35 percent would offer some support, and 17 percent suggested they would oppose affordable units being built in their neighborhoods. Even among those who would approve the housing, however, the survey found that two-thirds of residents had concerns about the property not being maintained properly. Half were worried about criminal activity being caused by the residents of the new developments.