The challenges at work in providing attainable housing to the marketplace include a range of issues from the cost of land and the cost of construction, to the cost of capital. However, creating housing that only delivers on price by cutting costs doesn't answer all the needs of today's homeowners. What makes one home or neighborhood more attractive than another and what are buyers willing to give up to find the right solution for their needs? Attainable housing is not just about price. It's about a combination of location, features and amenities at price points which meet the needs of buyers.
The industry’s solutions to improving the supply of attainable homes, typically include reducing costs by limiting community amenities, providing lower-quality finishes, and locating homes in less desirable areas. Yet, that’s apparently not what buyers want.
Recently, land use consultant RCLCO teamed up with the Urban Land Institute (ULI) to survey both ULI members and consumers, and the results are certainly instructive. When ULI members were asked what the biggest challenges are to delivering attainable housing, the top four reasons included cost of capital, lack of building efficiencies, availability of buyer financing, and cost of materials.
In contrast, a RCLCO consumer preference survey and several case studies concluded that buyers actually prefer better locations and amenities over lower density and larger home sizes. In other words, buyers are willing to forego space for other factors.
This disconnect has also played out in the marketplace itself. According to figures used by the U.S. Census Bureau for the same study, whereas homes with under 1400 square feet accounted for 16 percent of new construction 20 years ago, in the last five years it has hovered closer to just 7 percent. When also adding homes ranging in size from 1400 to 1800 square feet, the percentage of these smaller homes fell from nearly 40 percent in 1999 to just 22 percent by 2017.
Between 1999 and 2017, however, the percentage of larger homes of over 2400 square feet rose from 32 to 50 percent. That means that half of all homes are being built for a dwindling customer base.
While it’s understandable that builders tend to prefer larger homes because they are usually more profitable, allow more upgrades and can spread the cost of land over a larger budget, they’re also missing out on an important potential source of demand. The key challenge is how to maintain or even improve profit margins with smaller homes and higher densities.
Moreover, while the majority of these ULI survey participants also believed that attainable housing accounts for 20 to 60 percent of demand (with another 25 percent believing it’s more than 60 percent of demand), over 35 percent of them are not meeting that need at all. Only 15 percent of respondents – or about one out of seven -- think that 20 percent or more of their housing product is attainable.
At TTLC we believe the best way to bridge this gap between demand and supply for attainable housing is to work closely with cities, planners, communities and builders to provide high-quality housing in urban areas as well as some suburban settings close to transit. In many cases, this means rezoning and repurposing under-utilized and functionally obsolete property uses to residential housing, and adding the kinds of amenities that enrich quality of life.