What Can We Learn from Attempts to Reduce the Cost of Affordable Housing?

by Sam LaTronica
Gramlich Fellow

Midwestern CDCs trying to build affordable homes that do not require development subsidies have identified three potentially promising strategies: building smaller homes, utilizing factory-built homes, and creatively designing houses to get more out of them. In a new working paper that grows out my work as an Edward M. Gramlich Fellow in Community and Economic Development I conclude that while each technique presents opportunities for cost savings, each also comes with its own set of challenges.

The fellowship, which is co-sponsored by the Joint Center for Housing Studies and NeighborWorks^® America, also expanded my horizons because for years, my conception of new “affordable housing” had been limited to the standard multifamily properties developed in larger urban areas. This was the type of affordable housing I had seen since moving to the Boston area, as well as working for an affordable advocacy organization in the San Francisco Bay Area prior to attending the Harvard Graduate School of Design.

As a Gramlich Fellow in the summer of 2015, I was exposed to a new region and new approach to affordable housing. The Midwestern CDCs, which were part of NeighborWorks^® America’s national network, often had in-house general contractors and focused on building and selling affordable single-family homes, in both urban and rural areas. Given the dearth of housing subsidies, particularly subsidies for affordable housing in rural areas, these CDCs were trying to find cost-saving construction techniques that would allow them to build affordable housing without development subsidies.

The Rambler, a single-family home constructed by the Southwest Minnesota Housing Partnership. The home is 1,092 square feet on the main floor with another 1,092 square feet of unfinished basement space that can be converted into living space or more bedrooms at a later date. This home was constructed in 2014 with an asking price of $153,900.

Through reading popular literature on home construction, analyzing building trends, conducting interviews with CDC leaders, and visiting new developments in the Midwest, it became clear that CDCs were interested in pursuing three potential cost saving techniques: building smaller homes, using factory-built homes, and creatively designing houses to get more out of them.

Smaller homes are theoretically cheaper to build because they simply require fewer materials and less construction time. Once occupied, these houses not only can be cheaper to heat or cool but also will cost less to maintain. Smaller footprints also make it possible to build these homes on smaller or irregularly shaped lots, which helps expand the options for CDCs.

However, cost savings are not always realized when buildings are smaller. Once land and other development costs are factored in, it is possible that building smaller homes will be only slightly cheaper than building larger homes on the same lot. Moreover, the marginal cost of constructing a few hundred more square feet might allow the CDC to sell the house for more money while still keeping it affordable. Some CDC leaders also worry that producing affordable homes that are much smaller than new market-rate homes would create obvious distinctions between income levels and stigmatize the people living in the new, smaller homes. Finally, while building smaller can be smart for a number of reasons, most people still want bigger homes as evidenced by the fact that average house sizes have been increasing and have recently surpassed pre-recession levels. This suggests that without a shift in the overall market, smaller homes may not be a particularly appealing option for CDCs trying to build affordable housing.

While factory-built construction techniques are not necessarily new, they are new to many CDCs. Many Midwestern CDCs are currently experimenting with (or exploring the possibility of using) both modular homes and homes made from structural insulated panels (SIPs). Factory-built homes have the benefit of being produced mostly indoors and using assembly line techniques, which can significantly reduce onsite construction time and protect against weather delays, theft, vandalism, etc. Moreover, homes built in factory-controlled settings can be tighter and more energy efficient and make more efficient usage of building materials (which should reduce their cost).

Like building smaller, however, the cost savings that are touted in popular literature are harder to realize in practice. If CDCs, architects, contractors, and subcontractors do not have enough experience working with factory-built housing, then the development process can hit major roadblocks that negate the hypothetical cost savings that would result from a shorter construction period and lower production costs. In fact, some CDCs that experimented with these techniques ended up with homes that cost far more than they would have cost using traditional stick-built techniques.

Finally, creatively designing houses can supplement the previous construction types to get the most out of new homes. This can come in many forms. Designing attached accessory dwelling units will add more units to the housing stock and can supplement the primary tenant’s income.  Co-housing development can utilize scale and reduce the per-owner development costs. Open floor plans can make smaller homes more palatable and unfinished buildouts can reduce costs while allowing families to later customize their home to meet their particular needs.

In the end, there is no silver bullet that can be used to build affordable single-family homes without a development subsidy. However, there are many techniques that, when combined, could produce significant cost savings. CDC leaders interested in pursuing these approaches should remember that the benefits of these techniques, as described in popular literature, do not always materialize in practice. Therefore, CDC leaders should learn from others who have already experimented with them. They should also establish strong relationships with architects and contractors who have experience with these techniques, so that they reduce the likelihood of delays that would drive up costs. Hopefully, by persevering and learning from others, the CDCs can increase the production of affordable homes.

Sam LaTronica, who graduated from the Harvard Graduate School of Design in 2016, was a 2015 recipient of the TheEdward M. Gramlich Fellowship in Community and Economic Development, which is co-sponsored by NeighborWorks®America and the Joint Center for Housing Studies.

State and Local Governments Take Action to Promote Affordable Housing

by Daniel McCue
Senior Research
Associate

Home prices are rising, rents are up, and units available for rent or sale are few and far between. Detailing these trends, our 2016 State of the Nation’s Housing report once again finds affordability concerns at the top of the list of US housing challenges, both in metropolitan areas and rural counties. But with assistance reaching just 26 percent of households that qualify for it, the federal response has not been able to keep up with the growth in low-income households in need of affordable housing. Faced with this challenge, states and municipalities are increasingly looking beyond federal programs to take whatever action they can to increase the supply of affordable housing.

So what are they doing? In a recent article posted on the Shelterforce Rooflines blog I look at how state and local governments—those who are most commonly tasked with implementing federally funded programs—are increasingly working independent of federal programs and using their own resources to increase the supply of affordable housing in their areas.

Why Does Affordable Housing Need Saving?

Alexander von Hoffman
Senior Research Fellow

In recent years the skyrocketing housing prices in major cities in the United States have raised the specter of driving out people who cannot afford to pay the increasingly high rents. Many housing advocates argue that the most practical way to prevent dislocation of the poor is to save government-subsidized privately owned low-income rental dwellings.

Why does such “affordable housing” need to be saved? After all, you might point out, public housing doesn’t change into private market housing.

In fact, subsidized rental housing is quite different than public housing. Begun in the 1930s under President Franklin Roosevelt, public housing was created and managed solely by government agencies. Under subsidized housing programs, the first of which started about 1960, the federal government gave various financial incentives to private nonprofit and for-profit companies to build, manage, and own rental projects for low-income households. Public housing was pretty much all government; subsidized low-income housing took the form of public-private collaborations.

Most significantly, the projects under the two housing programs ran for dramatically different lengths of time. The federal government financed public housing over such long terms – with sixty year construction loans, for example – as to make it seem almost permanent. In contrast, the terms of the subsidies under public-private housing schemes were relatively short – most for only twenty or twenty-five years.

Back in the 1960s and ‘70s, the authors of the subsidized housing programs gave little thought to what would happen when the subsidies ended. But years later, when the subsidies began to expire, people realized that enormous numbers of low-income dwellings could easily disappear. Poor people would have no place to live. In response, housing advocates raised the cry, “preserve affordable housing!”

New Franklin Park Apartments in Boston, Massachusetts

The story of how people realized that privately owned subsidized housing needed to be saved and how they went about saving it is the subject of my newly published Joint Center for Housing Studies working paper, “To Preserve Affordable Housing in the United States: A Policy History.”

For some time now, I have been examining the subject of public-private low-income housing. Unlike public housing, remarkably few people know about these programs. Ask about them and you might get a vague response, “Is that Section 8?” Such unawareness is remarkable because these subsidized housing programs have created millions of low-income rental units, far more than public housing has.

I first studied the origins and causes of America’s subsidized low-income housing and published my findings in an article, “Calling Upon the Genius of Private Enterprise: The Housing and Urban Development Act of 1968 and the Liberal Turn to Public-Private Partnerships” published in the journal Studies in American Political Development (October 2013).

Now in the Joint Center working paper, I have explored the way America’s public-private housing policy unfolded.

Skyview Park Apartments in Scranton, Pennsylvania

My research reveals that the public-private housing programs created in the 1960s and 1970s were highly productive but beset by troubles. Buffeted by bad underwriting, weak management, and economic hard times, many of the early housing projects deteriorated. Housing advocates for the poor jumped in to rescue the troubled projects from defaulting, becoming unlivable, or both. After studying the problems, the advocates sought ways to buttress the incomes of financially troubled housing projects or convey them to responsible parties. In Washington, sympathetic federal officials implemented new programs and procedures to help the advocates stabilize the conditions of the beleaguered properties.

The process, I found, created a cadre of experienced and informed housing activists and government officials. So when the subsidies of the housing programs began to expire in the 1980s, these policy veterans threw themselves into preventing the low-income residential stock from either deteriorating or being converted to expensive private-market housing.

Their efforts, however, set off a political backlash from the owners of the housing who insisted on the right to do what they wanted with their property, including cashing out. The two sides fought each other in the courts, Congress, and federal government until the late 1990s when they compromised and joined forces.

Since then, a broad coalition – including advocates for the poor, for-profit and nonprofit developers, government officials, and philanthropic institutions – coalesced to support preservation of affordable housing. Since the 2000s, the National Housing Trust, with the support of the MacArthur Foundation, has led a highly successful campaign to enlist state and local governments in the cause.

In short, the plethora of programs and efforts to maintain the subsidized low-income housing has become a key component of America’s low-income housing policy. Perhaps it is not surprising, then, that people now suggest preservation of affordable housing as a practical way to prevent displacement of the poor.

Read the working paper