affordable housing

Builders Reveal the Real Challenge of Building Affordable Housing

June 11, 2019

A new report by the Urban Land Institute’s Terwilliger Center for Housing and RCLCO looked into the challenge of finding attainable, affordable housing for moderate-income home buyers. In the report, builders revealed the real challenge of building affordable housing.

The report, Attainable Housing: Challenges, Perceptions and Solutions, looked into the affordable housing shortage and came up with potential solutions that would add to the supply. Here’s what they found.

Buyer’s Wants

Home buyers are less focused on the four or five-bedroom dream home and instead are looking at walkability. They are looking for shared outdoor spaces in communities that have accessible services, shopping, restaurants, transportation, schools, and, of course, jobs.

In exchange for these amenities, people will accept smaller units, as long as they have high-end finishes. Size doesn’t matter, while quality and location still do.

Knowing this, builders can offer high-end homes with quality finishes in areas with existing amenities but on a smaller scale. Higher-density neighborhoods with more townhouses, duplexes, and triplexes would take over the focus of single-family homes.

Cost Drivers

Although builders are open to the idea of providing attainable housing for the moderate-income group, cost drivers make it challenging. Things such as the labor shortage, the cost of materials, and a lag in technology all pose obstacles for builders. Labor and material costs are going up 5% to 7% each year. That makes it difficult to build homes that are affordable for moderate-income households.

Modular and panelized housing will help ease the costs, as labor demand will be reduced. However, there is slow progress in this area.

Shortage of Lots

It is also easier for developers to build on larger lots of land located outside of urban centers than it is to build a higher concentration of smaller homes on small lots in an urban area. That often keeps the higher-density areas out of reach.

This shortage of affordable lots is forcing builders to look further and further outside suburban and metropolitan areas for cheaper land.

NIMBY and the Exurbs

Since developers are building outside urban centers, home buyers are being forced to expand their searches to the “exurbs.” These regions are the only areas registering single-family permit growth thanks to the cheaper land.

Adding to the challenge of finding space in higher-density areas is the “not in my backyard” mindset. It becomes harder to sell a higher-density project in areas that are well established, as locals don’t want to see drastic changes to their neighborhoods.

There are also exclusionary zoning requirements posing challenges since they require minimum lot sizes. Established communities impose minimum lot sizes and other restrictions, such as the distance required between the street and the structure, to limit density. That is an effective way to prevent development, which is why the exurbs are becoming the only place middle-income families can find housing.

Growing Market

Despite the limited activity in this area, there is a growing interest from a diverse set of players, including:

  • Publicly held home builders
  • Developers of master-planned communities
  • Neighborhood-based real estate investors
  • Entrepreneurs from other industries

Evidence collected by the Urban Land Institute shows that there is a growing response from industry leaders to provide new homes aimed at this underserved market.

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