Another Fig Leaf Solution for Affordable Housing

Virginia lawmakers are adding $4 million this year to the Commonwealth’s affordable housing trust fund. While acknowledging that the sum is a “drop in the bucket” when it comes to affordable housing costs — the money would bring the revolving low-interest loan fund up to $9.5 million — the Washington Post cites housing officials as saying that the money “is a sign that the state is paying attention to a growing need.”

I would characterize the $4 million expenditure differently. The political function is to allow the Northam administration and lawmakers generally look like they’re doing something while. in actuality, they are studiously ignoring the underlying problem. The erosion of affordable housing is mostly a supply-side problem, not a financing problem.

Let’s look at some numbers. The rate on 30-year mortgages today is about 4%. Let’s say revolving loan funds and other government programs can bring down the rate on “affordable” dwelling units to 3%. To keep things simple, let’s say that it costs $120,000 on average to acquire the land, hook up the utilities, and build the unit (although this number will vary from region to region, depending upon local regulations and construction costs).

Shaving the mortgage rate by 1 percentage point would reduce the financing cost per unit from $6,400 per year to $5,800.

By contrast, let’s say that addressing the supply side — reducing the land cost per unit, reducing utility hook-up fees, and embracing manufactured housing techniques, for example — drives down the cost per dwelling to $80,000. That would reduce the yearly cost of principle and the interest cost to less than $4,300 without the need for any government subsidy at all.

Is it realistic to bring down the cost per housing unit to $80,000? The average cost of a single-wide trailer home (600 to 1,300 square feet) is roughly $45,000. Localities can reduce the cost-per-unit of land by allowing developers to put more housing units on an acre of land. And municipal utilities can slash the cost of water-sewer hookup if the housing is being built in locations already served by water-sewer.

Pursuing such supply-side solutions to affordable housing wouldn’t change the fact that nobody wants poor people living their single-family residential neighborhoods and that NIMBYs would raise hell to halt planning commission approvals. But localities with slum neighborhoods have plenty of vacant and under-utilized land, and every suburban Virginia locality has abundant land outside of residential areas — in land zoned for commercial, industrial, and retail — that could be re-purposed to include housing.

I readily concede that the numbers above are very back-of-the-envelopish and that a serious analysis based on local costs might look very different in different parts of the state. In Northern Virginia, for instance, land costs will be considerably higher than elsewhere. On the other hand, greater use of manufactured housing, built in regions of the country where wages and other costs are lower, would yield tremendous savings over local stick-built housing.

Regardless, from what I can see, nobody is conducting this kind of analysis at all. The Poverty-Housing-Industrial complex precludes thinking about market-based solutions. Instead, what we have in Richmond is a redevelopment and housing authority that can’t figure out how to build new “affordable” housing for less than $250,000 per unit and is opting instead for renovating existing structures in crime-breeding housing projects for $50,000 to $60,000 a pop.

Why can’t we think differently? Because there are too many vested interests built up around the existing way of doing business with all of its consulting contracts, nonprofit sinecures, and housing bureaucracies. The United States suffers from institutional scleroris, and nowhere is that rigidity more evident than in the realm of affordable housing.

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12 responses to “Another Fig Leaf Solution for Affordable Housing”

  1. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    What is $4 Million dollars of other people’s money (the taxpayer’s) mean to Northam is it helps Northam to remove a smudge on his blackface? Nothing. Northam is a disgrace.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Sorry for need to edit:

      What is $4 Million dollars of other people’s money (the taxpayer’s) mean to Northam IF it helps Northam to remove a smudge on his blackface? Nothing. Northam is a disgrace.

  2. djrippert Avatar

    You can’t have supply side driven high density housing unless you have supply side driven high throughput transportation too. Both are largely local problems and both should be managed by local governments. It’s time to get the Imperial Clown Show in Richmond off our backs.

  3. TooManyTaxes Avatar

    Having served on a Fairfax County subcommittee on affordable housing, I learned a few things. Affordable housing is important. Affordable housing needs to be located where it can be successful. Many people needing this type of housing will not have regular access to automobiles. Ergo, local government should look for locations with reasonable access to transit that operates not just in the AM and PM rush.

    At the same time, many people will have an automobile. Ergo, there needs to be sufficient parking to handle the tenants.

    People also need access to some neighborhood shopping, preferably within walking distance, for basics such as milk and bread. Residents need some access to open space, again hopefully within walking distance.

    Affordable housing needs to be compatible with neighborhoods. Putting a multi-family building in a most SFH or townhome district is not going to work. There will be too much political opposition based on density. Why waste time and resources on something that will cause opposition to affordable housing?

    Local governments and nonprofits should look at the possibility of repurposing commercial and light industrial locations for affordable housing. Failing small strip shopping centers could be modified to include affordable housing and, perhaps, help revitalize retail in the same location.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      TooManyTaxes – Your excellent comment that would otherwise bring great benefit to many in need of it, will be totally ignored. It doesn’t fit the racist agenda of cheap politicians and their allies.

    2. djrippert Avatar

      “Local governments and nonprofits should look at the possibility of repurposing commercial and light industrial locations for affordable housing.”

      Gotta have the transportation capacity too. Tearing down the old Springfield Mall to build affordable housing won’t work as long as we keep getting “Not payin’ fer no NoVa roads” out of Richmond.

      1. TooManyTaxes Avatar

        The first step would be for NoVA delegates and senators to stop voting for bills that harm their constituents. To steal from Walt Kelly, We have met the enemy and it is us.

  4. Randy Grumbine Avatar
    Randy Grumbine

    Thank you for an impartial view of factory-built housing as a viable solution to the affordable housing crisis. Yes, your numbers are “very back-of-the-envelopish” but we embrace this kind of creative thinking and encourage a continuation of the discussion.

    Randy Grumbine
    Executive Director
    Virginia Manufactured and Modular Housing Association

    1. Randy, thanks for joining the discussion. Consider yourself invited to provide more authoritative data that would help inform the debate.

    2. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      In the 1990’s I looked into manufactured housing in a big way, first on the Md. Eastern Shore then out in the American Southwest, and down into Baja. Of course manufactured housing has been at the heart of modular construction from the beginning, and it will continue to play an key role in what hopefully is an oncoming revolution. I am a big believer in the need for that revolution today. Thus, my earlier comment here on BR to Steve Moret set out below.

      Steve –

      I find the new high tech aspect that you suggest now might be to brought to this economic development arena quite fascinating. In addition, I have long thought that modular construction – factory built and then site assembled – if properly appreciated, funded, organized, and deployed for the benefit of the site acquisition clients could bring great value to the marketability of a site or collection of sites within a market, given the great time, cost, and simplicity benefits that modular if properly done, can bring to most any site transaction, soup to nuts delivered.

      We just need a new up-to-date way of thinking about how to lever up modular construction. Such as:

      Might today’s advantages of modular be leveraged by the other high tech advantage that you mention? Do these co-joined advantages of this new approach multiply given the crying need for affordable housing today? And many other applications, too. Modular technologies now with today’s higher tech can apply to single family, residential mid-rise and high rise, and commercial buildings, ranging from manufacturing to high rise office, and most everything in between.

      Why should not Amazon consider all these possibilities? And consider not only what it can bring to industry, but also for itself, as well as for others clients in a rapidly expanding market given advantages of scale?

  5. “To keep things simple, let’s say that it costs $120,000 on average to acquire the land, hook up the utilities, and build the unit (although this number will vary from region to region, depending upon local regulations and construction costs).”
    Arlington’s Affordable Housing Mafia is preening about a project in which its cost per unit was right around four hundred thousand.
    “The Poverty-Housing-Industrial complex precludes thinking about market-based solutions.” Yah, you betcha! And furthermore, the choice to build units where they cost twice as much is going to deny families housing – this kind of siloed thinking is common in NoVa jurisdictions.
    I’d like to climb in behind commenters TooManyTaxes and djrippert on transportation: much of the perceived urgency to building too-expensive units close in is driven by the expense and difficulty of commuting from further out. The tolling of 66 shows one path forward – if we tolled 95, a fairly high per-vehicle toll – we’d get a lot of traffic off the road as people shifted to buses and car pools and the long-dreamed-of rainbow-unicorn twelve person van pools. Commute would get cheaper and easier in terms of people’s time, and further out would be more acceptable for everyone.

  6. LarrytheG Avatar

    I think Dave is on the right track. Today, automobiles are much more affordable and available and most everyone can afford one and I think that is one of the reasons why transit numbers have plummeted just about everywhere – both subway and bus.

    It’s the congestion that’s killing us and THAT’s why they use METRO when they KNOW it can get them somewhere in a comparably reasonable timeframe. It’s certainly not cheaper than driving and it’s certainly not quicker except when traffic is a peak hour.

    The idea that people will live NEAR to where they work – is obsolete.

    People are job mobile now. They pick a place to live and they get whatever kind of car that is affordable – many buy “beaters”.

    So I challenge the idea that we can build “dense” if it is “near” transit.

    I also will point out that we’ve tried before to build dense housing for less than market price and they end up with concentrations of low income folks, i.e. “projects” with all the attendant issues.

    Arlington is a high dollar place but right next to it is Alexandria which already has a LOT of low-income housing AND transit AND more land available for more “project” type dense housing.

    Affordable housing now days is supposed to be integrated with other housing.. truly mixed income levels.

    So Dave here essentially agrees with New York City’s decision to set up a CORDON TOLL to discourage auto travel into the city AND to use the proceeds to fund transit for those who get chased away by the tolls.

    We need to take a hard look at what we are doing – and at the same time accept the realities of modern day commuting and recognize that we have thousands and thousands of people – right now today – who earn substantial incomes that commute 50 or more miles daily to THEIR “affordable” housing and refuse to ride VRE or buses or van or carpool – they want to drive solo and the only thing that will
    convince them not to – is unbearable congestion levels on the “free” lanes or HOT tolls too high for them to afford.

    We have to be willing to confront the real issues here.

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