Re:Minimum-wage worker needs 2.5 full-time jobs to afford a ...
by brudgers on Saturday February 16, 2019 @11:34AM
(#19179367)
The idea that regulation is the primary constraint on housing supply seems at odds with the fundamental assumption regarding real-estate markets: land owners seek the 'highest and best' use of their holdings. In the US, housing is generally a 'lower and worser' use. Usually above agriculture and often below transportation infrastructure. Hence, housing was never on the table for the HP campus that became Apple's spaceship.
Even where housing is the highest and best use, affordable housing is a 'lower and worser' use when 'affordable' means below market rate. 300 units of luxury housing requires about the same resources as 300 units of 'affordable' housing. And more work to secure financing (e.g. tax credit syndication and competitive application processes), more entitlement work in NIMBY local politics, and results in lower gross revenue with which developer fees are often correlated.
To put it another way, the rational economic model dictates that a 0.10 probability/year of selling a parcel for $10 million based on commercial use trumps a 0.13 probability/year for $5 million sale based on residential use. Of course the model needs to be more nuanced. With commercial uses the sky is the limit. There's some probability of a commercial sale at $50 million, e.g. when part of a multi-parcel acquisition or in other circumstances where the value of the parcel is determined by economic activity rather than resale.
The rational actor economic model implies that converting undeveloped or obsolescent commercial property to residential use is always unlikely. It's only a no-brainer the extreme obsolescence and high residential prices of lower Manhattan that industrial buildings get downgraded to residential lofts. At the other end, money parked in agricultural land is likely to have higher returns when the land use is upgraded to a commercial or industrial use than to a residential use. Even land upgraded to a residential use, is likely to provide higher returns from an upgrade to high end dwellings than affordable housing.
Even where housing is the highest and best use, affordable housing is a 'lower and worser' use when 'affordable' means below market rate. 300 units of luxury housing requires about the same resources as 300 units of 'affordable' housing. And more work to secure financing (e.g. tax credit syndication and competitive application processes), more entitlement work in NIMBY local politics, and results in lower gross revenue with which developer fees are often correlated.
To put it another way, the rational economic model dictates that a 0.10 probability/year of selling a parcel for $10 million based on commercial use trumps a 0.13 probability/year for $5 million sale based on residential use. Of course the model needs to be more nuanced. With commercial uses the sky is the limit. There's some probability of a commercial sale at $50 million, e.g. when part of a multi-parcel acquisition or in other circumstances where the value of the parcel is determined by economic activity rather than resale.
The rational actor economic model implies that converting undeveloped or obsolescent commercial property to residential use is always unlikely. It's only a no-brainer the extreme obsolescence and high residential prices of lower Manhattan that industrial buildings get downgraded to residential lofts. At the other end, money parked in agricultural land is likely to have higher returns when the land use is upgraded to a commercial or industrial use than to a residential use. Even land upgraded to a residential use, is likely to provide higher returns from an upgrade to high end dwellings than affordable housing.