At the recent 2013 ULI Fall Meeting in Chicago, second-year Runstad MSRE student Craig Ratchford attended a panel session to learn more about research and discussions surrounding the issues of affordable housing development.   He writes in with his impressions of that session, and thoughts about how his MSRE experience has helped him take part in the vital conversation about this real-world dilemma. 

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“There is nothing more complicated than affordable housing development in the entire real estate universe.” – Bending the Cost Curve on Affordable Rental Development panel, ULI Fall Meeting, Chicago, 2013

Before entering the MSRE program, I worked for an applied research and consulting organization focused on measuring the impacts of affordable housing policy and community and economic development in urban areas throughout the country. But while learning to understand the impacts is valuable and important, it was frustrating for my inner pragmatist to understand the difficulty in providing quality affordable housing where it was needed most, but remain so far away from influencing its actual development. I entered the MSRE program at the Runstad Center (and the Evans School of Public Affairs) to learn how real estate, finance, and land use economics intersect with public policy to meet this challenge, and, hopefully, pursue a career confronting this ubiquitous problem.

Many smart people at the ULI conference in Chicago were also confronting this problem. The panel session, Bending the Cost Curve on Affordable Rental Development, showcased a joint research effort and roundtable discussions convened by ULI’s Terwilliger Center for Housing and Enterprise Community Partners. Over the past year, they engaged over 100 affordable housing leaders in weak and strong markets across the country, to identify the most important cost drivers in affordable housing development, and develop strategies to “bend” the cost curve towards more efficient and lower cost affordable housing delivery.

Affordable housing delivery is shaped by a number of procedures, regulations, and policies instituted at all levels of the system – each with its own set of costs. But while there is a rich set of literature on specific regulatory barriers to affordability in general, little research has been done to examine how these issues interact with the financing and costs of affordable housing development. Their research intends to fill this gap.

During the session, the group focused on the following cost drivers:

• Project scale: small projects, less intensive projects have high fixed costs
• Project design and construction: higher upfront costs for design and materials are often justified, since the ownership period is typically longer, and limited funding available for future replacement compared to privately financed development requires smart material decisions to reduce future capital investments
• Financing and underwriting: decreased capital market funding competition (compared to market-rate projects) gives investors greater power to dictate terms; deals must be structured around non-financial terms and goals of multiple funders
• Capital availability: developers must often begin to scope a deal prior to assembling financing; capital is scarce for smaller or innovative projects; many investors deal in exclusively market-rate or affordable projects;
• Deal structures: “cost-plus” basis and percentage fees are common, reducing incentives to lower costs; tax credit allocations made years prior hedge risks of cost inflation, and fail to incentive use of anything less than full amount (because the savings reduce the developer fee); strict, increasing reserve requirements, due to higher risks; longer timelines and additional land holding and soft costs, due to project complexity and multiple standards
• Program and investor requirements: timing and fund distribution are often incongruous with projects needs, directly causing additional constructions costs, higher compensation for the uncertainty of extended land contracts, a reduced pool of potential developers; the challenges of tax exempt private activity bonds
• Other costs drivers, include incentives to meet social policy goals, poorly designed cost controls (ironically), and costs imposed by local regulations like parking minimums

The differing levels of complexity result in major discrepancies in affordable project costs nationally –examples included lows in the $100’s, up to $500,000 per door in San Francisco.

The session focused mainly on exhaustively identifying the problems. The next research phase intends to produce specific, actionable recommendations for lowering costs in the face of these barriers, with a report expected in the winter of 2014.

The session was interactive. The panel surveyed the audience, to identify their concerns and try to field questions. The back-and-forth between the panel and the audience revealed a very important lesson I hadn’t expected: nobody knows the right answers yet. We’re all exploring. I expected to walk in and learn about bold new plans and strategies professionals used to finance and build affordable housing that were previously off my radar. But it became clear – through this session and in other ULI panels – that there are not simple answers simply waiting to be learned and deployed. Despite years of experience, everyone continues to confront the same challenges and perpetually invent and deploy new strategies. It really is up to us to invent, test, and discover the next generation of affordable housing solutions.

And furthermore, while the panel compiled and succinctly defined the issues and ideas, and certainly helped sort out my thinking, it was no longer new knowledge after a year in the program. Many of the problems had been explored in coursework and resources of the MSRE program – my program experience had taught me the right questions to ask (and often with more nuance than many were addressed during the panel). The professionals in the room, with years more experience, were grappling with the same questions I was. To know that I was on my way to understanding the implications of real-world dilemmas really validated the work my classmates and I had been doing in MSRE.

MSRE ’14 student Louisa Galassini sends in these beautiful photos from another tour she took at last week’s ULI conference.  Organized by the Chicago Architecture Foundation, this tour took her behind the scenes of several of the city’s best spaces.

First stop, the architecture office of Goettsch Partners at the top floor of the Railway Exchange building:

Views out of the iconic porthole windows of the Railway Exchange Building

The University Club’s historic Cathedral Hall

A walk through Millennium Park, a 400 million dollar project completed in 2004

Frank Gehry’s Pritzker Pavilion in Millennium Park

Backstage at Frank Gehry’s Pritzker Pavilion

The 41^st floor of the Kemper Building – the first 360 viewing deck in the city of Chicago, open for the third time in 40 years

 

 

CoreNet Global Young Leaders / Runstad Center event, Tuesday, November 12

 

University of Washington
Gould Hall, Room 110
5:30PM – 7:30PM

Cost:  FREE!  However, for planning purposes, please RSVP.   (a printable registration form is also available here.)

 
Real estate professionals consistently hear about the “buzz” companies that are driving the commercial real estate market in the Puget Sound region – Microsoft, Amazon and Boeing to name a few.  However, there is one other driver that tends to be overlooked…. and that is the University of Washington!  Join the CoreNet Young Leaders Group, in conjunction with the Runstad Center and the College of Built Environments, on campus to learn more about how higher education is impacting the real estate market in the Puget Sound Region.  Runstad Center Director Steve O’Connor joins Steve Kennard (Director, UW Operations and Real Estate Services) as guest panelists who will share their unique and experienced insight into the real estate world of higher education.

This event is open to all individuals serving the Corporate Real Estate Industry and are 35 years and younger. We highly encourage you to spread the word amongst all young real estate professionals to join us in these events and be a part of a stronger young leader’s community in the Puget Sound area.

 

Last Friday, several MSRE students were treated to a lunch-and-learn session with Sean Prasad, VP of Real Estate and Facilites (CRE&F), and James Mayton, MSRE 2013 graduate, at the T-Mobile campus in Bellevue, WA.  We’re proud of our students for their initiative, of our alumni for their incredible support, and of our community for fostering such a fruitful professional network!   Thanks to first-year MSRE student Patrick Kassin for guest-blogging about their visit, too.  You can read all about it here.

MSRE class of 2011 alumni Brian Kalthoff and Boting Zhang have created a website, Socially Responsible Development: A Community Dialogue, to address the largely polarized debate surrounding development in Seattle.  Their hope is to carve out a space for curious minds to engage in a meaningful, research-based conversation about what socially responsible development looks like.

Since August 2013, Brian and Boting have met with a number of neighborhood level developers (for and non-profit alike) and community stakeholders to help them develop a questionnaire for the mayoral candidates in regards to their views of socially responsible development.  They have submitted the same questionnaire to candidates running for positions on Seattle’s City Council. Their website now has the Council candidate Q&A available for viewing.  Check out their blog post below, and if you’re a Seattle resident, please don’t forget to vote in the November 5 general election.

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Guest bloggers: Brian Kalthoff and Bo Zhang

Over the summer, we began working with a small, diverse group of both for-profit and non-profit housing developers and citizens, all with an interest in promoting socially responsible development toward Seattle’s future built form. The Harrell, McGinn, Murray, and Steinbrueck campaigns all responded with detailed responses to our questionnaire.

 

After the primary election, we submitted the same questions to the candidates for City Council. We are happy to say that we have received responses from all but one campaign. The Conlin, Sawant, Bagshaw, Bellomio, Licata, O’Brien, and Shen campaigns all responded to our questions.

 

As the responses cannot be succinctly summarized—and with 7 different responses to 5 essay questions—below is not so much a summary as an excerpt from each full response:

 

Richard Conlin views the most “salient” issue regarding socially responsible development (SRD) to be the work of integrating affordable housing and transportation choices in a way that is accessible to all. His challenger, Kshama Sawant, acknowledges that Seattle has reason to tout its green credentials, but writes that these improvements are often at the expense of already marginalized communities. Sally Bagshaw hopes to advance SRD by requiring affordable units in market rate apartments, while Sam Bellomio advocates strengthening citizen engagement. Mike O’Brien, in his response, highlights his success in securing funds for a cultural center in Little Saigon as part of the Yesler Terrace Re-Development, as a way to prevent displacement and retain the neighborhood character.

Potential negative outcomes of growth, for Albert Shen, include inadequate public transit relative to the city’s growth, in particular to underserved communities—for example, the lack of a Graham Street LINK station. Kshama Sawant sees gentrification as a negative outcome of growth and development, and proposes freezing rents and enacting rent control as remedies. While Richard Conlin, after explaining the nature of Seattle’s boom-bust cycles, asserts that people in Seattle do not fear change, but rather loss. According to Sally Bagshaw, this is caused by rapid growth—and to Nick Licata this rapid growth tends to exacerbate already existing discrepancies in wealth.

 

Nick Licata asserts that the “Seattle process” can make the city reactive, when it should be responsive—essentially always “one (economic) boom behind.” However, the he goes on to say that as a model of community engagement, Seattle has set an international example. Mike O’Brien sees the “Seattle process” as an opportunity to fully examine a development’s merits, but that the lengthy review can increase costs that ultimately get passed on higher housing costs. Both Albert Shen and Kshama Sawant indicated that the process can cause delays to the supply of affordable housing, and both draw the connection between the delay in affordable housing and an inadequate public transportation system. Kshama Sawant proposes that while the “Seattle process” has somewhat democratized the process, monied influence still holds undue sway. Richard Conlin values the democratic principles behind the process, but sees it fall apart at times when it is an endless loop, and in the worst case the views ultimately taken into account are simply the last ones standing. He laments that the current land use code is often too focused on things we do not want to see happen, rather than promote opportunities for the things we would like to see happen.

 

In regards to building typologies and parking, Sally Bagshaw recognizes people’s desire to preserve single family neighborhoods, but states that 100,000 new neighbors are expected within city limits within the next 10 years. She has been impressed by some of the density solutions advocated by Seattle-based Sightline Institute’s Founder and Executive Director, Alan Durning, in his book Finding Home. These include, for example, easing parking and owner occupancy restrictions for (modest) detached and attached accessory dwelling units. Sam Bellomio states that the future typologies will be decided by the impacted neighborhoods. Nearly all candidates expressed the very critical need for improved public transportation to accompany any new growth in the city or any change to the building typologies as issues of both efficiency, sustainability, and equity.

 

All the candidates who responded express a desire for a range of affordability across all neighborhoods. Mike O’Brien sees the need for a multi-faceted approach that includes strengthening the incentive program in the SLU rezone to a variety of housing types, including micro-housing. Albert Shen states that his 8 years with the Seattle Chinatown International District Preservation and Development Authority (SCIDpda), a non-profit housing provider and community development agency, gives him direct experience in working with the affordable housing community. Kshama Sawant sees raising wages, controlling rents, and taking advantage of currently vacant and underutilized buildings as steps to take before increasing supply. Richard Conlin sees the greatest need for people who earn 30-50% of area median income (AMI), especially as the Federal government reduces its commitment, and sees the Housing Levy as a key tool for this. Nick Licata states that preservation of existing housing is a key to affordability as well, and that the creation of the City’s rental housing inspection program, which he spearheaded, will promote stronger maintenance practices and will help prevent some properties from reaching such a state of disrepair that they are vulnerable to redevelopment.

 

TOMORROW! Don’t miss the Runstad Center Affiliate Fellows’ presentation of PLACE CAPITAL: A Live Documentary Film About Cities.

From travels to Berlin, Krakow, Fukushima and Detroit, this year’s Runstad Affiliate Fellows present alive documentary film about the changing nature of cities. From centers of trade to nodes of information and culture, the Fellows share stories about cities that have experienced destruction and renewal. What makes places resilient? How will the sharing economy reshape our urban experience? Are there better ways to approach development in our own community? Join us for an evening of moving images, stories and reflections.

October 3rd @ 6:30pm, HUB Seattle, 220 2nd Ave S, Seattle, WA 98104

RSVP at http://www.brownpapertickets.com/event/449836

Northwest Natural Resource Group is hosting a tour of the City of Seattle’s Cedar River watershed for a group of architects, developers, and builders on 11th of September. The purpose is to showcase Forest Stewardship Council (FSC) certified forestry in action and then engage participants in a discussion about improving the flow of FSC wood into local building projects and integrating the story of local wood and forests into each project.

Runstad Center students, alumni and friends are invited to participate.  More information about the tour is available at the event page: http://cedarrivertour.eventbrite.com/ or in the attached flyer.