Can Housing Keep Up with Job Growth?

Alan Durning, executive director & founder of Sightline Institute

The housing shortage is a prevalent issue across the nation, with some cities struggling more than others. “The Housing Paradox” session during ULI’s 2017 Spring Meeting in Seattle explored how the housing shortage has come to be and what steps need to be taken in order to alleviate this problem. Cities such as Houston, which is the fourth biggest city in the country, and Chicago, both have rising incomes and strong population growth without a spike in housing prices. “Why can’t we build enough housing to match job growth? The answer is actually very short: We can,” said Alan Durning, executive director & founder of the Sightline Institute.

Local Constraints

There are several reasons why housing in cities is not keeping up with job growth: housing prices are influenced by population size of the city, bidding for the same space, average incomes and the supply of land. Zoning and other local constraints on home building is a major factor for the shortage in development. At the fundamental level, why do some places impose local constraints on home building and others do not? Durning explained that in a case study of Seattle, there has been an addition of 40 people, 35 jobs and 12 housing units per day from 2010 to 2015. This year alone there will be 10,000 new apartments built inside city limits. Seattle is in its prime, but the new developments planned are still not enough to keep up with job and population growth, causing rents to continue to rise. Only 18 percent of land is available for building multifamily housing, according to zone and planning restrictions, leaving a mere 10 percent of that space for mid- to high-rise buildings.

“My analysis of housing in Seattle is that there are three interest clusters,” said Durning. “Incumbents, who are home owners in the city and tenants; housers, which are non-profits for affordable housing providers and social justice groups; and urbanists, which includes real estate developers and environmentalists.” The conventional alignment has been between housing and incumbents, sharing distrust in the urbanists. In 2014, the mayor assembled a Blue Ribbon commission to respond to affordable housing problem. After 10 months, a plan was created to embrace growth and aim to steer towards affordability. The plan will up-zone the whole city and impose matching new requirements, which will lead to an increase in land value. In turn, this theory leads to a new partnership between the housers and urbanists.

It’s in the Numbers

Clyde Holland, chairman & CEO of Holland Partner Group

Since 1700, America has grown 3 percent per year. With that trend following through, today we are off by $3 trillion worth of growth, with 6.8 percent of that being an under-investment of housing, according to Clyde Holland, chairman & CEO of Holland Partner Group. The nation has gone from a surplus of 2 million single-family units to a deficit of 2.6. Multifamily starts are 930,000 units short, even before the job loss hit. From 1980 to 2007, there were 1.5 million units per year being built, which dropped to 750,000 from 2007-2009. “From the entitlement process to opening doors, the process of building a new housing community took about five years,” explained Holland. “Two years in entitlement, six to nine months in permits, 20 to 30 months in construction and then the property was ready in five years. Now, there is a three- to five-year entitlement process, one to two years for appeals, still the 20 to 30 months of construction, and that leads to a finish in seven to 10 years minimum.”

The focus needs to be on urban core communities, which will return the most investment over time. No one wants to fund predevelopment for today’s market; there is no room for developers to take that risk, said Holland. Potential residents have no interest in commuting and want that live-work-play environment. In Seattle, building one high-rise in town will provide enough property tax for 5,000 units of affordable housing. That will create $1 billion of property tax paid and a 100 percent return on investment. These developments will bring in 2,000 units, 2,500 residents, 5,000 permanent jobs, 10,000 construction jobs, $11.7 million a year in initial property tax, 710 cars off the road and 3,400 metric tons of CO2 out of the air.