Regulations, Rising Costs Limit Affordable Housing Availability

Omar Rihani

In 2022, the National Association of Home Builders and the National Multifamily Housing Council issued a joint report that found a staggering 40.6 percent of development costs can be attributed to regulations imposed by all levels of government.

While many of these requirements are good intentioned—and some are absolutely necessary—an increasingly complex patchwork of development regulations has suppressed the supply of new housing stock and made housing less affordable across the board, with increased costs being passed on to tenants in the form of higher monthly rents.

Attempts to spur development of more affordable housing have also had little positive impact on America’s housing shortage and are responsible for a 6.9 percent premium on new developments, according to NAHB & NMHC. Nearly half of developers say they avoid projects where inclusionary zoning practices are in place and more than 87 percent avoid areas with rent control.

With too few homes and high costs for labor, land and materials, a unified effort to reduce the complexity of existing regulations and reconcile conflicting standards is essential if the country’s housing stock is ever going to catch up with demand.

Reimagining residential neighborhoods

 Across the country, zoning laws support the development of single-family homes with strict requirements for lot size, street setbacks and minimum distance between houses. While many neighborhoods fight against the mere mention of densification, cities and their closest suburbs are vying for more options between the extremes of expansive green lawns and glass high-rises.

Several states and municipalities have started to experiment with slightly increased density in historically single-family neighborhoods, adding duplexes, triples and townhomes to residential neighborhoods. This approach reduces land costs by spreading them across a greater number of units, without dramatically changing the makeup of the neighborhood.

But contradictory zoning and local practices can impede this approach. In California, where S.B. 9 legalized duplexes and split lots, utility companies still only allow one metered connection per single-family property, regardless of how many units now occupy the space. Water line rules in Oregon, which also prioritized adding units to single-family lots, mandate that each property be allocated its own water line, making limited street frontage a seemingly impossible hurdle to more housing.

It’s possible these issues will resolve as new multi-unit conversions and developments become commonplace, but for now, developers will prioritize building additional units where it is legal, practical and profitable to do so.

City centers attract new housing stock

If there has been a bright spot in the multifamily development process in recent months, it’s the fast-tracked approvals in urban cores to turn unused office space into multifamily apartments. In Chicago, the city’s LaSalle Reimagined plan has garnered praise for its emphasis on affordability, with 600 of the proposed 1,300 new units being developed for city residents that make 60 percent of the area median income or less.

Chicago’s Department of Planning and Development saw a unique opportunity to add affordable housing in the city’s oldest office buildings, which are uniquely fit for multifamily conversion, in an area that has shut out all but the highest-income households. By offering a mix of low-income housing tax credits, historic tax credits and public funding via a tax-increment financing district, the city has incentivized affordable- and market-rate development, along with related retail and other spaces to make the Loop a live-work destination.

While not every city or office building is primed for this type of conversion, the innovative thinking and developer incentives for adaptive reuse are models for other municipalities to consider in combatting the high cost of multifamily development.

Stakeholders need to work together

America’s lack of affordable housing is a complex problem with no simple solutions, but we must start working together to make development more affordable.

Zoning reform is an essential first step. There are too many hurdles for developers to jump through to effectively satisfy housing demand and reduce costs across all kinds of homes. By simplifying regulations and reducing conflicting standards, developers can more efficiently deliver housing for individuals and families at all income levels.

Addressing outdated zoning policies will help reduce costs and make more land available for denser development. Incentivizing affordable development and creative solutions like adaptive reuse can also increase housing supply, without compromising the character of established communities.

Omar Rihani is executive vice president and National Residential Sector lead for Project Management Advisors, Inc., a national real estate advisory firm providing consulting services as the owner’s representative.