A row of new townhouses or condominiums.
Adobe Stock, by Roman

Rarely has the phrase “push comes to shove” been more appropriate. Steady population growth in America’s most attractive metro areas is starting to push aside long-held notions in some cities about the sanctity of single-family homes. But so far that movement hasn’t been wide or deep enough. A necessary shoving phase could come soon.

Multifamily developers can welcome zoning changes in Minnesota, Oregon, and other places that make it possible to put multiple dwelling units in neighborhoods previously designated solely for single-family homes. Those benefits are limited mainly to the creation of duplexes and triplexes, however. For developers who think bigger, it’s going to take a lot of creative thinking and patient adjustments by all involved before they can fully do their part to lessen the affordable housing crisis.

Take California, for instance. According to Forest Economic Advisors, California accounts for 17% of all new jobs created in the past five years but only 6.8% of the single-family housing starts and 11.8% of the nation’s multifamily starts. With numbers like that, it’s no wonder that the Golden State has sky-high housing costs that are forcing people onto the streets: According to Rolling Stone magazine, California’s homeless rate has increased to the point where 25% of the nation’s homeless live in the state, even though it accounts for only 12% of the U.S. population.

Yet even California’s political leaders have trouble persuading homeowners that change is needed. This summer, the City Council in San Bruno, just south of San Francisco, voted down a planned 425-unit development near a commuter train station and after the city had given signs it was open to development. One council member’s concerns over traffic congestion and parking torpedoed the deal.

Reversion to the Mean
What happened in San Bruno happens all over: People like things the way they are, be they single-family homes on expansive lots or semi-rural areas that don’t even have sidewalks. And because these people protest and vote, elected officials heed their wishes.

A June 2019 report on multifamily housing in metro Boston found that—in an area that generated 14% more jobs but only 5.2% more housing units between 2010 and 2017—most of the area’s 100 communities severely restrict multifamily development, usually by limiting areas zoned for multifamily or putting height and density restrictions on those buildings.

“The vision of suburbia that people have is just not sustainable any more in terms of climate change, in terms of social and economic equity,” urban planning expert Amanda Hurley told The Washington Post. “It needs to change.”

Much of what action there has been in zoning and development has involved single-family zoning. In August, the state of Oregon mandated that each of its cities with a population over 25,000 must allow the construction of so-called “missing middle housing” types and/or duplexes on lots previously limited to single families. “Missing middle” housing includes triplexes, courtyard apartments, bungalow courts, townhomes, multiplexes, and live/work facilities. Other jurisdictions, such as in Minneapolis, are opening up to the idea of accessory dwelling units on single-family lots.

Planning a Laborious Process
For the most part, however, change has come slowly. And with good reason, says Caitlin Walter, vice president of research at the National Multifamily Housing Council (NMHC). “The land-use plans are pretty old in a lot of places,” she says. “Land that got zoned in 1992, let’s say, is not zoned for its current and best use.” Change clearly is needed, but “most local jurisdictions have a couple planners on staff at best,” Walter says. “And if you have a really large jurisdiction, it can be difficult to do a comprehensive plan every five to 10 years.”

One result is that developers and city officials run the risk of getting ahead of their constituents, particularly with regard to renter trends. For instance, opponents of higher-density zoning often cite parking and congestion, but nevertheless the San Diego City Council decided to eliminate parking requirements for new condo and apartment complexes located near mass transit. Parking spots can increase the coast of building an individual housing unit by $35,000 to $90,000, The San Diego Union-Tribune reported.

Advocacy groups pin a large part of the affordability problem on regulators. A June 2018 report by the National Association of Home Builders (NAHB) and the NMHC concluded that regulations imposed by all levels of government added up to 32.1% of all development costs. In a quarter of the cases, that total was as high as 42.6%, the associations added. But what went into those figures can be fuzzy or related to safety. The biggest cost item stemmed from changes to building codes, while the second biggest was “development requirements that go beyond the ordinary.” A third but lesser problem concerned the cost of complying with OSHA requirements. A looming shortage of building inspectors isn’t helping.

Source: Multifamily Cost of Regulation, 2018 Special Study, Dr. Paul Emrath, National Association of Home Builders and Caitlin Walter, National Multifamily Housing Council
Source: Multifamily Cost of Regulation, 2018 Special Study, Dr. Paul Emrath, National Association of Home Builders and Caitlin Walter, National Multifamily Housing Council

But if the current burden is too high, how much should the cost of regulations drop? “It should never be zero,” says NMHC’s Walter. “There are some things you have to have for health and safety.” But any way you look at it, Walter believes, “30% to 32% is a huge number.”

NAHB says one way communities can make housing costs pencil out is to donate land it owns. The Colorado mountain town of Frisco did that a few years ago to help create a collection of single-family homes and duplexes. Of the 69 units, 61 were priced at 80% to 160% of the area’s adjusted mean income, while the other eight sold at market rate. Old Saybrook, Conn., did much the same, donating 2.5 acres to create a townhouse complex in which all 16 units were rented at levels ranging between 25% and 80% of area median income.

Speeding the Process
What the study referred to as “pure cost of delay” because of a reg amounted to just 0.7% of the total development costs, but new construction techniques could help. In many cases, apartment complexes built with mass timber or made out of modular units take less time to reach occupancy, thus cutting the cost of borrowing. And increased reliance on Building Information Modeling systems make it easier to create designs that are easier for regulators to understand and for contractors to execute.

But long term, Walter says, regulatory costs won’t ease for developers until the communities where they build have a comprehensive land use plan in place. “Then, when a developer comes in, they know what the local community wants,” Walter says. “That reduces cost. There are fewer meetings, more clarity, and less legal and architectural fees.”

What will it take for that to happen? John McManus, vice president and editorial director of residential at Hanley Wood, addressed that in a Builder magazine column in June. He wrote:

“Developers and builders need to make it part of their business to know voters, their journey, their values, their needs—including need for their home and community to appreciate in value over time, and including their need, perhaps unknown to them, for their children and children's children to be able to afford to live in their communities.”

It’s crucial, McManus continued, “to not give in, give up, and say that regulation and its widening gyre of costs and time and burdens on builders and developers is an externality you can do nothing about.” Otherwise, odds will grow that today’s increased push will result in tomorrow’s unpleasant shove.