Housing prices have been on the rise in recent decades. Almost half of all American homeowners spent more than 30% of their income on housing, while roughly a quarter devoted at least half of their income to housing costs, according to a study from the Joint Center for Housing Studies at Harvard UniversitySM. While there are numerous factors that have helped drive the increase in housing costs, one of the overarching results has been the same: growing demand for affordable housing.
Continue reading to learn more about the factors behind rising housing costs and to read about some of the most successful affordable housing projects across the world.
The factors driving demand for affordable housing
Housing is a complex institution and growing costs are often due to a confluence of different factors. Here are some of the economic forces driving rising housing costs in today’s market:
- Stagnating wages: Wages in the United States have been stagnating for several decades. One study from the Economic Policy InstituteTM found that between 1979 and 2017, the bottom third of workers saw their earnings drop. Many renters are finding it difficult to keep up with rising rent prices with their current income. According to ZipRecruiterTM, the average monthly salary for a person living in New York City was $5,492, while the average price of a one-bedroom apartment in the city was $4,761, according to Apartment ListTM.
- Gentrification: Housing prices often parallel the income level and purchasing power of local residents. As higher-income earners move into low-income neighborhoods, landlords are able to charge higher rents, which often negatively impacts low-income earners. Similarly, as businesses follow the flow of capital and set up shop in these neighborhoods, this serves to further increase demand for local housing from high-income earners and drives up prices.
- Government regulations: Local authorities often institute a number of zoning regulations designed to reduce the density of local neighborhoods and improve the wellbeing of local residents. While these regulations are necessary safety requirements, they also serve to limit the availability of buildable areas, increasing development costs and reducing housing supply. Both of these often result in higher costs for renters and homeowners.
- Inadequate supply: Construction firms were hard at work building new homes in the few decades prior to the 2008 financial crisis, and a balanced supply and demand caused housing prices to stabilize. Despite the recovery of demand since the housing crisis, new building has not kept pace, leading to a serious shortage of homes, which has helped cause prices to increase. At the end of 2020, there was a shortage of roughly 3.8 million housing units in the United States, according to Freddie MacSM.
4 examples of successful affordable housing projects
There are numerous factors that make different affordable housing projects successful, and there is no single method of achieving housing and affordability objectives. There are, however, numerous successful affordable housing projects around the world whose design and processes might provide inspiration to community leaders today.
Four of the most successful are:
1. Savonnerie Heymans — Brussels, Belgium
Belgium is among the fastest-growing countries in Europe, meaning demand for affordable housing is high and there is significant pressure on urban developers. Rather than build new housing accommodation entirely from scratch, local firm MDW ArchitectureTM took advantage of the infrastructure already extant in Brussels for an adaptive reuse public housing project: Savonnerie Heymans.
Located in a highly desirable location in the city, MDW renovated a former soap factory sitting on 6,500 m2 of land and transformed it into modernized affordable housing units without requiring an overhaul of the former factory’s existing architecture. In fact, according to ArchDailyTM many of the factory’s original mechanisms were repurposed for residential use, including the chimney, which now plays an essential role in the housing estate’s ventilation system.
Designed with health and sustainability at the core, Savonnerie Heymans features numerous glass openings for increased light exposure as well as open public spaces to encourage a more communal atmosphere among residents. Additionally, Savonnerie Heymans relies on renewable energy sources like solar panels and sustainable building materials.
2. Quinta Monroy — Iquique, Chile
Today, Chile is home to one of the world’s most heavily urbanized populations, with roughly 88% of people living in urban centers in 2020, according to the World Bank. The rate of urbanization in Chile has far outpaced the country’s population growth, however, and local government authorities have failed to keep up with the demand for urban housing. This has led to a proliferation of substandard housing and homelessness in the country’s sprawling cities.
According to research from the Massachusetts Institute of TechnologyTM, over the course of several years beginning in 2003, the Chilean government partnered with general contractor ElementalTM and a number of other local bodies to transform a 1.25-acre site in central Iquique. At the time, this area was home to several dozen informal settlements that exposed residents to serious risk.
When building began, the government did not have the requisite funds needed to bring the project to completion. However, local authorities solved this challenge by taking an incremental approach to construction; it built housing units containing all of the essentials, like kitchens and bathrooms, and then gave residents (many of whom were the same individuals and families occupying the informal settlements) the option to make modifications to meet changing needs over time.
3. Harvest Commons — Chicago, IL
Affordable housing projects sometimes have a reputation for being visually unappealing, and that might lead to significant resistance to their construction from the local community. One way for community organizers to mollify those concerns is to repurpose existing buildings, retaining traditional outer architecture while completely modernizing the amenities inside.
The Harvest Commons in Chicago, IL, is one such example. An affordable housing project in the downtown area of the city, Harvest Commons was built out of the repurposed Union Park Hotel. According to the U.S. Department of Housing and Urban Development, Union Park was originally built in 1929 and features a beautiful Art Deco facade complete with terra-cotta tiles that made it a beautiful, modern building in its day and an attractive historical relic today.
The city’s plans to convert the hotel into an affordable housing unit involved preserving and refurbishing all of the building’s traditional architecture, while also investing in sustainable and environmental designs to promote the health and wellbeing of residents. The project’s urban agriculture program includes a nearby microfarm that provides fresh fruits and vegetables for the complex’s cafe, offering residents a unique blend of historical architecture and modern sustainability techniques.
4. Affordable housing in Fuyang, China
The most successful and effective affordable housing projects usually address the specific needs of local residents, matching building specifications to the challenges they face, while still respecting traditional modes of living. China is currently among the world’s most unequal countries, and this disparity is sharpest between rural and urban communities.
The provincial government in Hangzhou sought to address the growing gap between rich and poor, rural and urban communities by providing affordable housing options to a deeply vulnerable village community in the province’s hinterlands. The goal of the housing project was not only to offset the financial hardship of local residents but also to support village life.
According to ArchitizerSM, this $3 million investment project led to the construction of 50 new housing units in rural Hangzhou, containing a plethora of modern amenities like high-quality insulation and ventilation for a much higher standard of living. Each housing unit also faces a spacious courtyard, encouraging contact and community between villagers to maintain and strengthen tight communal bonds.
Future trends in affordable housing
It is difficult to forecast the future of affordable housing due to the unpredictability of the current consumer market. However, there are some noteworthy recent trends that are likely to affect affordable housing in the coming years. These include:
- Shift from buying to renting: Many consumers are no longer considering buying a home outright, instead choosing to be lifelong renters. According to Apartment ListTM, 12.3% of Millennial renters plan to continue renting their homes for the rest of their entire lives, a figure that appears likely to rise. Many of these consumers are choosing to rent primarily because housing costs are so high, meaning future affordable housing schemes might include more mechanisms to encourage eventual ownership, according to the U.S. Chamber of Commerce.
- Deurbanization: The COVID-19 pandemic spurred an exodus out of urban centers as remote work models gave people more flexibility to live where they wanted. According to VisaSM, close to 3 million people have moved to suburban communities since the start of the pandemic. If this trend continues after the public health crisis has passed, it could take the pressure off of properties in urban centers, possibly causing rent and housing prices to decline. However, increasing demand for housing in suburbs could cause prices in those areas to increase.
- Infrastructural investment: The U.S. government’s Build Back Better Act has earmarked billions of dollars in investment for affordable housing, including a scheme that would provide assistance to first-generation homebuyers making a downpayment on a home, according to Commonwealth MagazineTM. Not only could this reduce the financial burden on new homeowners, but it might also help close the racial disparity between white and nonwhite homeownership.
At Comerica Bank, we are committed to providing clients with the community development investment products they need to create better and more affordable neighborhoods for residents.
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