Local Strategies to Promote Housing Options

May 29, 2012

by Roger Williams & Mark Weinheimer

The health of cities and suburban and rural communities going forward will depend in large part on how they respond to the changing housing needs of Americans. The housing options Americans are pursuing are changing, and the affordability challenge they face is increasing exponentially.

In the post-World War II era, the homeownership rate rose from 64% to close to 70%. However, with the economic downturn and the foreclosure crisis, the country's homeownership rate is now back at about 65% and could go even lower. In 2010, the U.S. Census Bureau projected that 10 million people could be moving into rentals over the next five years. At the same time, the level of multifamily construction set a post-World War II low in 2009-2010. It is projected that by the end of 2012 the U.S. will have 200,000 fewer apartments than in 2011. Thus, the need for rental housing is rising meteorically in virtually all communities.

In order to maintain a healthy tax base and attract new industries, cities will have to make certain that they provide a climate in which affordable workforce rental housing and multifamily rental apartments are available that suit the housing needs of the new demographic trends. Younger Americans, "Echo Boomers," the children of "Baby Boomers," will drive the demand for apartments over the next 15 years. The recent housing/foreclosure crisis and recession have indelibly altered their attitudes about homeownership. These younger folks, also including Generation Y or Millenials (ages 15-30), have grown wary of the collapse of the real estate market and the dramatic loss in the value of homes. They are not as eager to become homeowners as their slightly older cohorts were in the past. Mobility is also more of a factor. The increase in the number of jobs that it is expected young people will hold in their lifetime, and the need to relocate for jobs, have changed the commitment that these cohorts are willing to make to homeownership. 

The demographic shift caused by the growing 65 and older population will also present a unique need for more multifamily and rental housing. Baby Boomers and older adults are reexamining their housing needs, downsizing and looking for communities that provide services that will enable them to age in place. This is making renters out of increasing numbers of older Americans. In fact, many of these "downsizers" still want space and thus are asking for larger rental units (two- and three-bedroom units instead of the ubiquitous one-bedroom). The foreclosure crisis is also making renters out of former homeowners. The combination of these changes in housing needs and affordability will create an increased need for rental housing that cities need to be certain they are ready to address.

In order to capitalize on these demographic changes, cities will need to focus on creating an environment in which construction of multifamily and rental housing, and preserving affordable multifamily housing, are encouraged. Multifamily housing includes low-rise and high density rentals, condominiums and town houses. Many single family detached homes are rented and should be preserved as well. The economics of rental housing are also changing rapidly. The average monthly U.S. rent for apartments hit $1,008 in the first quarter of this year, pushing past the all-time high set in the third quarter of 2008, according to the data firm RealFacts.

The construction of multifamily rental units is growing faster than the construction of single family homes, and they are projected to lead the U.S. building industry again this year according to Bloomberg Business Week.

City leaders know that sprawl and low density developments drain municipal resources by requiring the building of infrastructure that taxes severely strained service budgets. Dense developments such as multifamily housing can be net revenue producers. From a policy perspective it is anticipated that municipalities will have to adapt their policies to expand choices and support the development of multifamily and other rental housing types. 

Below are some suggestions for how cities can attract and support multifamily rental housing: 

Land use and zoning:

  • Evaluate land use and zoning requirements to ensure that they encourage the development of different types of rental and multifamily housing and are not unnecessarily restrictive.
  • Examine the potential of providing higher density in the development of sites close to community assets such as waterfronts, universities, hospitals, downtowns and employment generators.
  • Promote inclusionary zoning.
  • Expand public transit systems and encourage TOD/transit friendly developments to recognize that driving is increasingly becoming a prohibitively expensive option. 

Developer assistance:

  • Position your city to be "developer friendly" by providing services such as expedited permitting and processing.
  • Encourage "As of Right" development opportunities that offer developers a clearly defined path for project approval without having to navigate time consuming and expensive zoning and other approval battles.

Funding:

  • Examine ways to use municipal revenue authority creatively - through the use of TIF's (Tax Increment Financing), impact fees and tax abatements that can stimulate multifamily development.
  • Maximize the use of Federal housing subsidies and tax credit programs.
  • Provide subsidies to encourage programs and services that promote "aging in place" by such things as removing barriers to pedestrian traffic. 
  • Implement loan programs to promote affordability among potential borrowers. 
  • Explore how to promote public private partnerships where appropriate.

Modification options:

  • Support practices that facilitate the return to rental of failed Condos - so called "Rondos."
  • Initiate a process to expedite modification of residences to suit the disabled, especially returning veterans.

Roger L. Williams is the founder of Rogelio Williams & Associates, a domestic and international consulting firm specializing in advising on a wide range of issues involving community development. Mark Weinheimer is the principal of Weinheimer & Associates, a Washington, DC-based consulting firm that specializes in community development. They are collaborators on NLC's work related to Housing and Community Development, including co-authors ofResilience in the Face of Foreclosures: Six Case Studies on Neighborhood Stabilization, which can be found on the Housing and Land Use page of the NLC website.