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Monday, February 6, 2017

Housing Affordability in SLC

"The consensus among real estate experts is that the recent expansion in housing supply has managed to keep DC area rents from spiraling out of control....December's year-over-year multifamily apartment rent growth in the DC metro region was 2.6 percent.....considerably lower than the national average of 4 percent.....attribute this to DC’s above-average multifamily housing stock growth rate (3.6 percent last year, compared to 2.4 percent nationally)....supply has narrowly outpaced demand recently. - Greater Greater Washington.

Seems pretty clear to me. If rents are rising, supply is not meeting demand. SLC's rents are rising; We can't control demand; we can only control supply. There is strong market demand for housing, and the limit is regulatory. Relax regulatory limits, and increase supply.

I recognize no one wants a high-rise worth of buildings looking into their backyard. For owner-occupiers, their homes are their primary investment, and they are willing to fight to project that, which makes them politically powerful. So clearly some sort of buffering is going to be necessary. What that is going to look like is (broadly) hammered out: Two story buildings, over a half basement, with a total height of about 30'. The major conflict is over cars, and where to put them. On-street parking can accommodate 3 cars per 33' lot. Beyond that, off-street parking is required. How that is going to work out needs serious consideration as part of accessory dwelling units.

I'm opposed to efforts focuses on increasing the supply of owner-occupied housing. I rent, and I resent the implication that it means my housing preferences are inferior. It's also deeply inequitable: Providing a few more owner-occupied houses means a few more people are going to be able to 'win the lottery' by buying a home and sitting on it while it appreciates, without it doing anything to alter the fundamental dynamics of the housing market.

But relying on market solutions alone is not going to solve SLC's affordable housing problems. All the housing that is being added is being added on the higher end of the market. This is natural, and somewhat necessary--new construction requires higher rents. While that mitigates the tendency for mid-range apartments to be rehabbed and upgraded, it doesn't provide short-term relief for the low end of the rental market.

Market rate new construction requires high rents. So to provide low rents, a non-market intervention is required. SLC, as part of its homeless initiatives, is already engaging in this policy, at the low-income level. I'd like to see that extended further into the low-middle, and middle-income levels (50-80% of area median income).

As a long-term policy, a 'overbuild' in elevator apartments is appealing. Permit a very large number of high-rise apartments. Apartment construction is 'lumpy', and buildings 'package' units big bunches. Over-building is a expected characteristic of the development cycle; people start new projects until the financing runs out; the projects take a long time to complete, and my the time many hit the market, the increase in supply has caused rents to fall, and the projects are no longer profitable. Rather than competing with the private market at the peak of the cycle, the city should take over 'orphan projects' partially through the development process, and convert them to use as affordable housing. Denver's housing agency has done so with single family homes on a pretty successful basis.

To go even further, SLC could use public money to 'overbuild' the multi-family market after the development cycle has peaked. I'm less of a fan--the oversupply generates a 'hangover' effect that last decades, suppressing new market-rate multi-family development. I'd far prefer reducing market costs for new multi-family construction.

Finally, I'd like to suggest that the regulation most in need of attention is per-unit parking requirements. Parking is expensive, and mandating 2 stalls per unit seriously affects the affordability of a unit. There are increasing number of people in SLC that would be willing to make do with one less car (or no car) if that made rent cheaper. As a back of the envelope calculation, assume that a stall in a parking garage costs $40,000 to build. Using the 'building worth is 10 years of rent' ratio, that means a $40,000 bit of real estate is worth about $333 per month. I think many people would be willing to shed a car to reduce their rent by that much.

The immediate objection to such a policy would be the ease of violation: Deprived on on-site parking, people turn to on-street parking, and then overflow into near by areas, putting them in conflict with other users of on-street parking. Potential policy solutions include permitting reduced parking ratios only where on-street parking is metered for all nearby areas. For districts lacking meters, residents in the low-car or car-free units could be required to verify that they do not have a registered vehicle.