Wednesday, October 5, 2016

Did the government cause the affordable housing crisis?

"Yes," says the Washington Post, for three reasons:

1. Restrictive zoning reduces the profitability and therefore the supply of housing:
The White House’s calls for local policymakers to expand by-right development (where allowable building projects can proceed administratively, without years-long public hearing processes) and accessory dwelling units, to repeal or reduce minimum parking requirements, and to rezone neighborhoods for greater possible density all amount to restoring landowners’ rights to develop property as they and the market see fit. As the tool kit notes, inappropriate parking requirements, in particular, can raise the expected rent in a new development by as much as 50 percent, while depriving towns of socially and commercially productive land.

2. Regulatory delays and requirements raise costs to the point where only high-end apartments are profitable (Nashville's problem):
Establishing by-right development and streamlining local permitting processes will allow developers to respond nimbly to market demands and will relieve the “guilty until proven innocent” status of new building development, which depresses construction starts across the country by delaying and inhibiting housing projects. What’s more, adopting leaner codes would remove obstacles to the countless smaller developers and would-be builders who want to invest in strengthening their local communities, but currently can’t afford to navigate the vast regulatory burdens and uncertain futures awaiting anyone who tries to build in America today. Trulia economist Ralph McLaughlin found that these regulatory delays may have an even bigger impact on housing production than zoning restrictions.

3. FHA loans prohibit mixed use, further reducing the profitability and supply of housing:
To this day, FHA standards for loans, which set the market for the entire private banking sector, prohibit any but the most minimal commercial property from being included in residential development. As a groundbreaking report by New York City’s Regional Plan Association found, these standards are “effectively disallowing most buildings with six stories or less.” And depending on the program, a building could have to reach to 17 stories before it is eligible for participation in the normal housing markets. Without the FHA’s blessing, projects are granted the “nonconforming” kiss of death unless their developers can persuade a local bank to write an entirely customized loan for them, one whose risk the bank would have to keep entirely on its own books.

1 comment:

  1. The affordable housing crisis is an age old issue. This part of the American dream has always been elusive to many. The idea of affordable house is a theory that does not have ample application. Most builders only keep 10% of their buildings for low income residents. In doing so they meet the criteria for permits and tax breaks. The process is totally incomprehensible to most builders and they shy away from the tedious list of requirements in order to get FHA approval. The rigors of the process have created this gridlock and a lack of interest from builders to enter into the fray. Market rate prices are easier to obtain when the factor of low income rents/mortgages do not play a role. While the government insists that it wants low income housing to be a priority, it refuses to regulate the process so that it has even a hint of fairness for both builder and potential renter/purchaser. FHA has not been required to keep up with the current status. It is almost as challenging as a conventional loan. While it claims to be favorable to the less privileged.