Lack of affordable housing a challenge we must face

By: J. David Chapman/December 9, 2021

We are nearing the end of 2021, and I am thinking about limitations and threats to otherwise successful communities. In this era of political divisiveness, there are two things that I think most can agree on:

1) There is a tremendous need for affordable housing throughout America.

2) There is a strong “Not in My Back Yard,” or NIMBY, agenda.

There is a shortage of more than 7.2 million affordable rental homes for extremely low-income renter households, defined as those with incomes at or below the poverty level or 30% of their area median income. To make matters worse, the lack of affordable for-sale homes drives up rents and increases prices of multifamily investment properties.

This problem was evident before the COVID-19 outbreak and was listed by the Urban Land Institute as one of the biggest problems facing the U.S. housing markets. During the pandemic, the affordability issues and housing shortage simply got worse. At the same time, those afraid of density and multifamily developments in urban environments reached an all-time high and caused many high-profile developments to be postponed or cancelled.

Density is a developer’s “go to” concept to achieve affordability in housing without a reduction in quality. It is the best way to leverage the land component in the building equation. In the end, the affordability and housing shortage problems are municipal government problems. It will rest on the shoulders of municipal planning departments, planning commissions and city councils around the country to develop creative solutions to solve the problems.

Solutions that could be considered include: 1) expediting the approval process by adding “Inherently Beneficial Use” to municipal land use laws to circumvent “NIMBY” opposition; 2) expand taxpayer funded one-time front-end subsidy programs for affordable housing and encourage the expansion of existing subsidy programs at the federal, state and county levels; 3) use the power of zoning to create subsidies necessary for providing more affordable housing and market rate housing at no additional costs to the taxpayers.

I prefer the last consideration with little impact on taxpayers. If a municipality really wants affordable housing, it could subsidize it via zoning-based incentives like density, set-back allowances, height or bulk standard bonuses. They could also grant tax abatements, provide free land or grant “as-of-right” re-zoning to residential use of what we refer to as “stranded assets” which is repurposing of under-utilized office and retail sites. We must get creative to solve the affordability problem.

J. David Chapman is professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).