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Originally Posted by laniroj
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.
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Some very interesting points and perspective, I generally would not challenge your point about how unrealistic it is to expect developers to build "affordable" housing (unless mandated) in Denver, in this environment.
Having said that, of course the construction of "higher end" housing indirectly adds more relatively "affordable" housing to the market: as more and more higher end housing gets built, the older, less fancy stuff becomes less competitive for top dollar and ultimately drops in price, at least in comparison to the top of the market.
I've been in quite a few of the relatively expensive apartments built in RiNO, Brighton Blvd, and elsewhere and at its pretty clear to me that a lot of that stuff is not built to last, and won't remain as desirable (or as expensive) as other newer alternatives, as they come onto the market. As we continue to grow and those properties age, they will become the "affordable" alternatives of the future.
I put "affordable" in quotes because, of course, even though what I say above might be mostly true, supply and demand may dictate that even as some of the lower-quality "new stuff" declines in the future, it will continue to be way over priced for many looking for housing, even though it's much cheaper than the latest and greatest stuff then entering the market.
One other point that's been made on here before - some of the complaints about lack of affordability (at least for apartments) are exclusively focused on the newer product apartments built in the past 10 years that include health clubs, swimming pools, barbecue pits and more. When I was starting out after college we called those sort of places "luxury" apartments, and most people starting out didn't have an expectation that you could get a place like that right of college. No pool, and no in-room laundry was the norm, and all you could afford, often.
There's still tons of relatively affordable stuff like that in parts of Denver, but I think the explosion of the new "life style" type living of the latest mega complexes makes some people feel that settling for something like that, even if they are just starting their career is almost as bad as being homeless, lol.
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