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Thinking About Space Differently to Create New Affordable Housing

Jamie Weinbaum, executive vice president of residential developer MidCity and formerly with boutique developer Ditto Residential, challenged Mason real estate students and alumni to think creatively about residential space to make apartments more affordable to a broad range of young professionals and low to middle-income households.  Weinbaum addressed the group at the monthly Mason real estate role model networking event held last March 23 in Arlington.

Washington DC has seen a rapid expansion of new rental housing.  According to data from Newmark Grubb Knight Frank, since 2014, over 36,000 new units have been added to the region’s apartment inventory – an increase of almost 11% within a short time.  Another 31,733 units are under construction with an additional 8,690 units in the planning stages.

Great But Unaffordable for Most

This new supply has been developed to the wants of today’s renters – located in transit-oriented locations (often near Metro), rich in amenities, energy-efficient and sustainably-designed, and reflecting modern, bright and open-layout preferences.  These design elements, together with the cost of land and construction in our area, result in some new rental units priced at close to $4.00 per sq. ft. in Washington DC – which would make the monthly rent on say, a two-bedroom 1,000 sq. ft. unit at $4,000, or $48,000 annually.

Housing affordability is often defined as spending about 28% of monthly income on housing expenses (this is one of Fannie Mae’s benchmarks for determining if a borrower can afford to pay a mortgage payment).  So to afford a $4.00 per sq. ft. rent for a 1,000 sq. ft. unit, the household income would have to be $171,000.  Weinbaum noted that new apartments are not affordable for many DC households, who earn a median income of $76,000.

“For me, that is an untapped market opportunity.  Every developer is going after the same renter with high household income – the lawyer that makes $150,000.  There are only so many of those renters.  If you can figure out how to deliver new apartment construction for these other renters, like federal workers who make $70,000 or $80,000 – it is a much larger market,” said Weinbaum.

Affordable Need Not Mean Old

Some would argue that one should not seek housing affordability in new construction.  An often cited analogy is that if one wants to buy an affordable car, one looks in the used car market and not in the new car market.  Does that mean that affordability should be limited to older housing stock with obsolete design and marginal locations?  Should affordability preclude young professionals or moderate income workers from an enjoyable and productive urban experience?  Weinbaum says affordability does not need to make these trade-offs.

“One market response has been the rise of micro-units.  But reducing your life to 400 sq. ft. may reduce your rent but may not result in the enhanced urban experience renters desire,” noted Weinbaum.  “When I was with Ditto Residential, we talked about the sharing economy and how to use acceptable sharing norms to create affordable space.”

The result was the Oslo, a boutique building with nine 4-bedroom 4-bath units in the Shaw neighborhood in DC, which became the subject of an Urban Land Institute case study for innovative design.  Each 1,400 sq. ft. unit has shared living rooms and kitchens but private bedrooms and baths.  “This was basically a new take on the typical group house arrangement, except that it was a group house with new modern construction.  For $1,200 per month, you could rent in a brand-new bedroom unit for much lower than comparable one-bedrooms in older properties,” noted Weinbaum.

Weinbaum is also working on Mid-City’s new project RIA which is currently a 20-acre redevelopment site on Rhode Island Avenue dominated by old garden-type apartment buildings used for Section 8 subsidized housing.  “We want to create a new mixed-use and mixed-income neighborhood with 1,760 residential units and 180,000 sq. ft. of commercial space.  Developers typically move Section 8 renters out as they demolish their buildings.  The idea is to find ways to retain our Section 8 low-income residents by using the new market rate units to subsidize the development of the new affordable housing,” explained Weinbaum.

 

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    Keith Gumbinger

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    It would seem that new thinking is needed if we are to have more affordable housing constructed. Shared common living areas (dorm-style living, like the Oslo) could be one contribution, but it may be that tax policy and builder subsidies need to be aimed to entice builders to build affordable units by providing the same level of profits as if they built upscale or luxury units. The builder’s incentive is the same; such subsidies would be a one-time cost at the point of construction, and units could be deed-restricted to preserve their “”affordable”” nature.

    Of course, cities may also need to be more flexible in zoning and permitting to help lower costs for builders, creating per-unit savings that could be passed along to buyers, improving affordability. There may be other avenues to explore, as well.

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