Daniel Herriges wrote this article in “Strong Towns” on December 10, 2018. The full text of the article can be found here.
The article “Why Are Developers Only Building Luxury Housing?” discusses the prevalent issue of luxury housing construction in many North American cities, highlighting the disconnect between the need for affordable housing and the types of developments being pursued by developers. The author, reflecting on the widespread frustration expressed by community members, emphasizes that the question of why only luxury housing is being built is complex and multifaceted.
The article begins by acknowledging the common lament that developers are not constructing affordable housing, which often leads to heated debates about growth and development. This sentiment is frequently used to argue against market-rate housing development, as critics question the benefits of such projects for low-income residents. The author points out that this perspective can lead to defeatism among affordable housing advocates, who may feel discouraged from advocating for development if they believe it won’t benefit their communities.
To address the issue, the article outlines five key reasons why developers primarily build luxury housing:
- New Construction is Expensive: The cost of building new housing is high, with reports indicating that the average cost for apartment buildings was around $192 per square foot in 2017. This translates to high rental prices, often exceeding $1,500 to $2,000 per month. The author explains that as buildings age, they tend to become more affordable through a process called filtering, where older housing becomes accessible to lower-income households. However, filtering is a long-term process and does not provide immediate solutions to the affordable housing crisis.
- Supply and Demand are out of Whack: The article discusses the concept of “luxury” housing as a marketing term rather than a reflection of actual luxury. The author argues that the scarcity of desirable locations drives up prices, leading to a perception of a housing shortage. High demand in desirable areas results in low vacancy rates, allowing landlords to increase rents. The author emphasizes that simply stopping new construction won’t solve the problem, as it would only exacerbate the competition for available housing.
- Your City’s Zoning Limits the Creation of Less-Expensive Housing: Zoning regulations often restrict the types of housing that can be built in certain areas, limiting the overall supply of new homes. The author compares developers to car manufacturers, suggesting that if production is artificially capped, developers will focus on the most profitable options, which tend to be luxury homes. The article highlights the potential benefits of allowing more diverse housing types, such as duplexes and triplexes, to increase affordability.
- Other Regulations are Driving up the Cost of Development: Various local regulations, such as building codes and parking minimums, can significantly increase development costs. These regulations, while often well-intentioned, can disproportionately impact the affordable housing market. The author notes that time delays in the approval process also add to costs, favoring larger developers who can navigate the complexities of local regulations.
- Your City Makes it Hard to Build Missing Middle Housing: The article introduces the concept of “Missing Middle” housing, which refers to smaller multi-unit buildings that fill the gap between single-family homes and large apartment complexes. The author argues that many cities have effectively outlawed this type of housing, leading to a reliance on larger, more expensive developments. By allowing for more diverse housing options, cities could better meet the needs of middle-income residents.
The author concludes by suggesting that there are precedents for maintaining an affordable housing supply in prosperous cities, emphasizing the importance of allowing market signals to work in every neighborhood. The article advocates for a gradual approach to development, where incremental changes are encouraged rather than large-scale transformations that can lead to speculation and increased land prices.
Overall, the article highlights the complexities of the housing market and the need for a more nuanced understanding of the factors driving luxury housing construction. It calls for a reevaluation of zoning regulations, development costs, and the types of housing that are permitted to create more affordable options for residents across the income spectrum.