Quote:
Originally Posted by TakeFive
Part Two:
Developers rule the roost and since it's their money (including investors) they build to profit potential and prefer as mhays can tell you what pencils out the easiest. So they started small and increased their density over time as the demand warranted.
Whether catering to upscale housing or 'luxury' apartments downtown we only get what they decide to build. End of story.
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I don't have the slightest clue what you're getting at with parts 1 or 2. Are you implying that the real estate development industry is DECIDING not to make money on building more affordable housing? That would imply (unlike every other for-profit industry in a capitalist society which has ample risk takers willing to figure something out then take a risk to make money) that real estate developers of the world are conspiring together and simply choosing not to make money at the lower end? Nobody is taking up a massive market opportunity?
If that is your position, it's simply laughable. IT'S NOT POSSIBLE TO MAKE MONEY AT THE LOWER END AND THAT'S WHY IT'S NOT GETTING BUILT AND THAT'S WHY IT WON'T GET BUILT AGAIN - regardless of whatever millenials do or whatever recession happens. A combination of land costs, construction costs, labor costs, and time to execute are why the more affordable units aren't getting built. If you can't make 6% return on cost and peg to an 8-10% IRR (and you can't with lower end housing) why not just invest in a dividend fund that you can buy and sell in seconds, not years?
Now, if municipalities would rezone vast swaths of land and open up the land market, the land cost issue could get solved. Municipalities are picking and choosing winners by way of zoning. Leveling the land playing field would solve one component of the problem.
The other problem that is absolutely solvable is the regulatory burden, both with regard to how long everything takes now and how much it costs. Impact fees have risen dramatically this decade. My latest project has municipal fees equal to 13% of total project costs. Land is typically only 10-15%, at most. That 13% municipal burden requires $165 per month for me to hit a very low 6.5% return on cost and that doesn't even include all the design/landscaping/beauty contest minimums which also all cost money.
Lastly, if there was money to be made at the lower end (think suburban garden apartments) people would be doing it. Many did do this earlier in the recovery years of this cycle before costs got out of control. A lack of will to build at the lower end by developers is not why certain unit types or affordability levels don't get built, it's a matter of economics. There is no money to be made on those projects. There is so much money on the sidelines just dying to go to a project, it's comical - and it's why they will accept a 6% return.
Again, we have a generational housing crisis...right now, it's not something that only affects millennials. It's not ok now and it won't ok for a significant period of time until we make sensible changes to zoning and how we regulate - zoning being the much more important factor.
If you've never read it, I would encourage everyone to study up on Harvard's annual housing report. It's an excellent effort, fair analysis without a slant one way or the other, and it's been around for quite some time with good data tracking and trend analyses over time. According to the study, 38 million households nationwide, almost 1/3 of all households (home owners and renters) pay more than 30% of their income toward housing. Of those 38 million who are housing cost burdened, 18 million pay more than 50% of income toward housing.
^That is not ok and when people like you say everything is dandy, it really speaks volumes as to the arrogance and selfishness of a generation. People are in tough times and this is why things like Trump happen (love him or hate him). The economy has worked for every generation prior to Gen X, but it's largely not working and won't work for those who come after unless we solve the housing issue, which is totally in our control. If you don't have stable housing, you can't maintain stable employment, or income, or food, or healthcare, or health.