We (David Kim, Bruce Tolar, Will Burgin and I) are currently working on a wide range of tools for delivering walkable neighborhoods and incremental development.  After Hurricane Katrina, Bruce and a host of others put in thousands of volunteer hours producing an alternative to the awful FEMA travel trailer that came to be called the Katrina Cottages.  The State of Mississippi's Emergency Management Agency (MEMA) commissioned several thousand MEMA cottages of various sizes that were used as part of the hurricane recovery effort and eventually were sold for permanent housing.

Bruce Tolar has continued to advocate, design and build cottage housing and cottage neighborhoods over the 12 years since the hurricane.  He lives in Cottage Square neighborhood in Ocean Springs, MS. He built a place contains a number of the early prototype cottages designed by colleagues in addition to his own excellent work. As our development company started building a project in Thomasville, Georgia we started looking for manufacturers to produce cottage designs in addition to their usual mobile homes and modular houses.  We continue to find a lot of confusion that comes from not having a workable common vocabulary to talk about the range of housing that is partially or entirely built off-site in a factory.

For example; capital "M" Manufactured Homes (mobile homes) are produced to meet HUD certification that allows for their use anywhere in the US.  You can easily find yourself in a conversation where industry insiders are using "Manufactured Homes" as a term of art referring to mobile homes and lay people are using lower case "m" manufactured homes to describe anything that comes out of a factory regardless of the code or certification it complies with.  In a spoken conversation you cannot hear the capitalization of the word and this leads to needless confusion.

Site building can be quite economical and flexible if you have a good team of local trades and you are well organized. But that level of delivery does not come with a one-off project. You can also build economically if you are competent enough to self-build.

Things get complicated when skilled construction labor is in short supply as it will be for the next 10 years.  Short supplies of skilled construction labor get compounded by the needs of disaster response and recovery within a region. For example, a lot of drywall outfits from Atlanta are now down in the Houston area after Hurricane Harvey, so finding someone to install drywall in Atlanta is a problem.

We need to train folks in the trades for all forms of building across the board.

In additions to training people for site built construction and incremental development, we need to be able to use all manner of systems built housing, depending upon what the right tool for job might be:

• ANSI spec Tiny Houses.
• ANSI Spec Park Models.
• HUD spec mobile homes. (also know as capital "M" Manufactured Homes)
• IRC spec modular buildings in single box and multiple box configurations.
• IRC spec wet core modules with site built additions.
• IRC Spec Panelized Construction.
• IRC Spec SIPS construction.

The MEMA Cottages produced after Katrina were dual certified as IRC off-frame modular Homes and on frame HUD Spec Mobile Homes.  They could be placed temporarily as HUD spec mobile homes.  Once you removed them from their trailer chassis they could be placed upon permenant foundations as IRC spec Modular homes that comply with the standard local building code, while being inspected by third party engineering outfits at the factory.

Below is a 12' wide MEMA Cottage w/ 8' ceilings (one bedroom).  This cottage had its porch tuned up a bit and got repainted when it was taken off the trailer frame and set on a permanent foundation in Ocean Springs.

 

I commented on a friend's Facebook thread in which he lamented the lame podium building getting built on his street. Somebody posted a comment that "It's all about maximizing the developer's profit" to explain why the building was not great.

I gotta say, that's really over-simplifying what it takes to get a building constructed in Portland.  There is a pretty good chance that trying to build a building will result in the developer losing money if they are not on top of things. I guess Not Losing Money may be the same as Maximizing Profit, but there is a lot more to the work. If you lose money often enough you become a former developer.

Most developers are minimizing risks and maximizing returns within the current crop of constraints which include local, state, and federal regulations, local approval processes, skilled construction labor shortages, and a number of can only be described as short sighted bad habits. Over the life a a project it is too easy for design to end up as the superficial consideration -kinda like deciding how a cake will be frosted. All of the other things (that will blow up your project if you don't pay attention) are about the cake. Attention to urban design and place making should be part of the cake because they can add a lot of value and solve some gnarly problems. The developers that get that employ urban design as a tool with great flexibility and utility. For the rest, well, that design stuff is just frosting.

While we can beat up developers for being unaware of the power of design to manage risk, let's bear in mind that there is plenty of cluelessness to go around.  Some of the problem with how buildings are currently conceived and delivered be found in the unfortunate culture and habits of the design community. Most planners, urban designers, and architects are satisfied with remaining uninformed and unskilled when it comes to developer math and operations.  In the end they don't have much of a common vocabulary to communicate with their clients (which is unfortunate.)

The bar for decent infill is pretty low these days -even in a place that likes to consider itself forward thinking and progressive like Portland.  It is very hard to build trust with local folks who have seen a lot of lousy buildings go up recently. If you do succeed in building something  something decent, you can start to carve out a place for yourself in the neighborhood. No matter how good your built work is, chances are good you will still be treated with contempt if your chosen line of work is to be a developer. Other people get paid at their job, but getting paid to make buildings happen is somehow something sleazy in the minds of some.  Development work is considered a vocation reserved for individuals of low character. Your buildings will have to speak for your character after you are dead. In the mean time, most folks will just think you are an asshole.  That does not mean that you can consider yourself some sort of community builder/martyr.  It's an everyday thing.  Humans prejudge strangers based upon fear, myth, or by their direct experience of some recent bad building put up by somebody that you resemble.

I live in Portland Oregon.  Moved here last December.

Last year Oregon's legislature removed a prohibition on Inclusionary Zoning (IZ) which now allows cities to require a percentage of Affordable Housing units in new buildings of 20 units or more.  The Portland City Council unanimously voted to put an IZ ordinance in place.  Recently I have had a number of folks from around the country and from Portland ask me what I think about IZ.  I have had a hard time coming up with a response that does not shut down the conversation. I get really exorcised over this topic.  To be blunt, IZ makes me nuts and I tend to go off on the people who innocently ask me about it.  Clearly, I need to craft a more grownup response.

I respect the motivation behind wanting to see more affordable housing get delivered. I am appalled by the naive methods being employed toward that very positive goal.  I get frustrated with smart and sincere people who are serious about the delivery of housing if I think they have not made a serious effort to understand the basics of how housing gets delivered.  Maybe that information has not been available to them if they are not in the business.  It's not reasonable to hold people accountable for information they don't have, so let's start by laying out the basics of how a building makes money and how people decide if they want to construct a building in a given location.

If you can't get the rent, you shouldn't build the building.  The rental income for a building needs to cover the Total Project Cost.  This includes cost of buying the site, , paying the impact fees, designing, bidding, financing, building and leasing the building.  The rental income also needs to allow for some of the units not paying rent from time to time because nobody is living in them (Vacancy).  Finally, the rental income needs to be able to cover the building's Operating Expenses which include property taxes, insurance, property management, maintenance, water, sewer and trash, and replacements reserves of $300-$500 per unit set aside each year.

In addition to covering these costs, a building need to make a profit to justify why someone is going to put up 20% - 40% of the cash need to make the building happen.  Whoever puts that money up (and signs a guaranty to repay the construction loan that will provide the rest)  has other things they can do with that money and they can reasonably expect to get paid something for the risk they are taking in undertaking a construction project.  A construction project has more risk than a savings account, treasury bond or mutual fund, so money put into a real estate project has to pay a higher return than alternative investments with lower risk.  A workable rule of thumb is that $1 in monthly rent can typically support $100 in Total Project Costs and yield a reasonable return of 10-12% on the cash you put in the building.

What happens if 20% of the units in a building don't pay their way because the rent you can charge has been limited by the IZ Ordinance?  The assumption is that you will have to convince the potential tenants for the other 80% of the market rate units to pay higher rent, or find a way to  reduce the Total Project Cost.  Reducing Total Project Costs will come down to convincing the person selling you the site that you need to pay less for it.

In Part II we can walk through the math on how this works on a example building.