A cottage court by Jeremy Sommer of Sommer Design Studios

I continue to be amazed at how many well intentioned people want to talk about affordable housing without being willing to put any effort into learning the basic math required to build....well, anything.

Capital "A" Affordable Housing is a term of art, a subspecialty amount real estate development. Affordable Housing is crudely defined and over simplified. I blame Herbert Hoover. His metric of a maximum of 30% of a household’s gross income to be spent on housing metric was apparently set in stone in the 1930's before automobile ownership was common (or required). Federal housing policy still uses that bullshit metric.

As we can see Housing + Transportation Index , the percentage of income you need to spend on transportation has a lot to do with where you rent or buy your home. “Drive ‘til you qualify”.

If 30% of the household's gross income is the key metric that determines if a household is "rent burdened", what happens if the household needs to spend 40% of their gross income on transportation, keeping 2 semi-reliable vehicles on the road?

There are a lot of households that are both rent burdened and transportation burdened.

What happens if the cost to develop and build housing increases year over year and household gross income does not increase to keep up? What happens if wages are stagnant for, say the last 25 years?

If folks are not paid a decent wage, they cannot afford decent housing. Policy and design folks who have avoided basic development math for their entire career try to solve this problem by searching for ways to make housing less expensive somehow. The math is relentless. You can't beat that basic math with off-site fabrication, density bonuses, inclusionary zoning, and financial subsidies, yet we see lots of well-intentioned folks trying to do so over and over...

So here are the overlapping, compounding structural problems I see:

1. We have built in the wrong pattern to provide naturally occurring affordable housing.

2. We are not building enough housing or enough of the right kinds of housing, so the costs continue to outstrip what people can pay.

3. We have defined "Affordability" in epically stupid ways.

4. We have applied Exclusionary Zoning over 70% of most cities and towns and constrained where denser walkable places worth caring about can be built/rebuilt.

5. Typical conventional zoning prohibits proven market rate solutions which need no subsidy, like attached or detached ADU's, dividing a larger house in to two or more smaller dwelling units, SROs and boarding houses.

6. We have created a culture that believes a toxic myth, that people who signed 3/4 of an inch of mortgage paperwork without reading it are somehow morally superior to the unfortunate lower caste of "renters". This pernicious othering becomes the justification for actively excluding rental housing from their neighborhood.

7. We have removed shop classes from most public schools and implemented ridiculous immigration policies which greatly limit the number of people available who know how to build anything. The lack of skilled construction labor has killed our productivity when we do get around to building.

Large scale builders can only deliver affordable units as new construction or substantial renovation with subsidies and tax credits. The amount of subsidies and tax credits available will just not meet the crushing demand we have for housing. Throwing money at overlapping systemic problems which are so poorly defined will not solve them.

So, yes, affordable housing is very difficult to build under the current assumption that people need to buy a house or condo, or they need to rent a house or apartment. In order for large scale projects to provide affordable housing you have to solve or mitigate several of the systemic structural problems described above all at the same time. Large scale affordable housing operators are specialists and have to focus on threading a series of entitlement, design, and finance needles just to stay in business. Too often the results are big lumpy out of scale projects that deliver unfortunate commodity housing. Building the wrong stuff more efficiently is not a virtue, but it is rewarded by the current culture and systems.

Some small scale incremental options which still work. House Hacking -a shared house allows the person with a modest W2 job buying the house on a 0% Down VA or a 3.5% down FHA , Fannie Mae, or Freddie Mac mortgage to live rent free by renting out a couple of rooms.

You can scale that approach up a bit and building/rebuild a duplex, triplex, or four-plex and living in one of the units. This allows the mortgage borrower to claim 75% of the gross rent for the other units toward their income to qualify for the VA, FHA, Fannie Mae, or Freddie Mac mortgages or purchase rehab loan.

And yes, these methods require more pragmatic zoning codes than we see in most places where elected officials wring their hands about the housing crisis. It’s worth taking a little political risk and changing your Exclusionary Zoning. These methods can provide folks living in low status neighborhoods to avoid displacement and build generational wealth.

There are grass roots, bottom up ways to organize and deliver lowercase "a" affordable housing.

I encourage urbanists and neighborhood activists to pay attention to what can be done when you cultivate a local network of small scale developers and clear the administrative underbrush so they can build local solutions.

I am hearing from an increasing number of people trying to figure out how to make the place where they live and work better. Sometimes this follows a vacation or business travel to a place that has built some protected bikeways, a walk down a tree lined street fronted with gorgeous four-plexes with two story porches, or a stay in a sunny apartment over someone’s garage, Folks return home and start to ask why can’t we have that here in our neighborhood? The benefits seem so obvious, right?

Typically ,there are local regulation that prohibit the cool thing you saw in some slightly more progressive place. The town has street standards from the 1970’s applied to the entire municipality and those street standards don’t allow protected bikeways, or on-street parking. The zoning regulations for 3/4 of the town does not allow Accessory Dwelling Units lADUs) like that apartment over the garage. The same zoning does not allow anything but a single unit home, even along a transit line with frequent service, so a four-plex on that vacant corner lot is out of the question.

Where did these rules come from? Why are they so…… dumb? What can we do about it? Poke around on the town’s website and you can find the community’s Comprehensive Plan (planner’s slang: Comp. Plan). The Comp Plan is full of all manner of great ideas, goals, and policies to make the place better and a maybe even a Work Plan for how to change the local regulations to make those great policies legal, and how to pay for things like on-street parking and protected bikeways. Unfortunately, many communities never get around to implementing the goals and policies they spent a lot of time and money putting into the Comp Plan. There are probably a number of reasons for this failure, but what do you do if your town is stuck with goals that can’t get implemented?

If the regulations are in the way, the zoning code and street standards, you should probably change those. Better regulations don't just happen. Any significant change in what is on the books typically brings out lots of folks convinced that the change can only make things worse, the change will be too expensive, or the change will bring the wrong sort of people and reduce their property values. In order to change the rules you have to get good information into the hands of lots of people and build trust. Take senior staff, elected officials, and neighborhood activists on field trips to see well executed places where people are building/rebuilding walkable neighborhoods. Learn what is in your Comprehensive plan, your LCI study and your local zoning code right now. Know the current rules of the game. figure out what rules stand in the way of reasonable things that could be done in your town.

A change in the current rules and procedures that clears the way to deliver on the goals and policies of the Comp Plan adopted by the city council should get support and be adopted without too much fuss, right? Nope. Adjust your expectations. Recognize that this is going to take a while. Identify the early, relatively easy things to fix with a simple text amendment that could help create momentum. Figure out a strategy with near term and long term goals for the rules that need to change. Some bigger moves may have to wait for a comprehensive overhaul of the rules following the next Comp Plan update in two years. At least that’s what the city staff will probably tell you. Press for changes along the way anyway. Build political capital. Build trust by sharing accessible information about the benefits of the goals the rules are obstructing.

People tend to resist change, particularly change they don’t understand or change that is proposed by someone they don’t know, don’t like or don’t trust.

Don’t assume that your town’s current regulations were handed down by capable wise professionals who could see the future. A lot of frustrating rules were adopted to prevent some terrible thing from happening, and, but the rules were written in a way that prevents a number of good things from happening. You are not questioning the motivation of the folks who wrote the regulation, just the affect the rules have on your community now.

Dig in and learn. I know someone who diagnosed why her dryer wasn’t working by watching a couple of YouTube video. She figured it out, bought a part online and fixed it. Most folks find appliance repair quite intimidating, but it ain’t magic. Your local zoning regulations aren’t magic either. If you can figure out a way to put in the work, you can change the things that are holding your town back, mired in resignation and apathy.

Don’t go it alone. Find your people. Find other folks on your local social media willing to meet for coffee and work together. Research the rules in those other places with the cool stuff you want to do in your town. Start a community development book club. Build a constituency that is clearly not going away and will need to be engaged by the city staff and elected officials. Have as many conversations as you can outside of the official on-cable-TV public meetings. Avoid embarrassing people with information you figure they really should know if they are going to be good at their job…(nobody likes that.) It will be a grind, but with time and effort you can make a difference. It’s not so different from fixing your dryer.; Intimidating and confusing at first, but if you take it a step at a time, you can get to a good outcome.

When hedge funds buy up detached houses and town houses, those houses are not likely to come back on the market. They are gone for now and likely for the long term, because they won’t be coming back.

Hedge funds may hold a portfolio of homes for 5-10 years, but when they decide to sell, I seriously doubt those homes are not going to show up on your local MLS. Now that the homes have been bundled, funds will sell to other funds. Houses have been transformed into an asset class to be traded among institutional investors and funds. Once homes get bundled into a fungible asset, people are not going to be able to buy individual homes to live in. Those homes become part of the rental market. For prospective home buyers, they are going to be unavailable.

This will exasperate the shortage of new and existing homes for sale. We cannot build quickly enough and we cannot build inexpensively enough to make up for the gap between housing supply and housing demand.

The worst part of this structural issue is that funds can over-pay for a home on the front end, now that a market for bundled homes has been established, since they are looking at appreciation of a scarce asset that generates tax sheltered cash flow from rents and depreciation expense while they hold it. This gives a hedge fund a competitive advantage in a hot housing market. Not only are they cash buyers who will raise an inspection, but they can pay more than individual homebuyers.

You might think this is like the financial meringue of credit default swap and the bundling sub-par mortgages into securities which led to the real estate crash of 2008, but I think that is not the case. I don’t think funds crowding individual home buyers out of the market is going to lead to some 2008 scale disaster or even a serious correction in the next 10 years. The annual demand for housing does not go away on December 31st. Unmet demand Carrie’s over into the following year. People are still forming new households. The demographics that drive demand for housing are like gravity.

In my view there are three colliding problems at the heart of the supply problem:

1. Lots of people are not paid enough to afford rent and cannot save up a down payment to buy a home. Except for some recent increases, wages have been stagnant for the last 20 years while housing costs have increased steadily.

2. The pain is not spread equitably around the US. Even with double digit annual increases in home prices and rents, folks keep moving to dynamic metropolitan areas for jobs, education, and health care. The housing crisis can be observed all over the US, but we are still a country of regional real estate markets. Some aces are seeing greater increases in costs than others.

3. Productivity in the housing construction sector is really low due to a prolonged endemic shortage of skilled construction labor. Skill construction labor is what folks in the project management trade call the “critical resource “. Production will not increase until there is more of this resource. Local small developers and builders may find ways to be more productive with the people they can find or train, but they will be doing this out or raw necessity. For them, it is a time to innovate or close their enterprise.

These three colliding problems are going to hang around for the next ten years. The activities of hedge funds will just be gasoline thrown on a well-established fire.

Thankfully, the Federal Reserve's decision to raise interest rates has cooled the overheated market to a large extent. That said, the fundamentals of low inventories and a shortage of construction labor will still be in play for the foreseeable future. Homes that were selling in a week before the Fed stepped up are now taking a whopping 4-5 weeks to sell. You could call that a _relative_ improvement, from off-the-charts insane to garden variety crazy.