3-2-1: Two Creative Approaches To The Housing Crisis, Would You Live In A 400 SF Apartment?, & More
Issue #27
Happy Sunday —
It’s been awhile. Way longer than I’d like.
We just hit two months under construction at 501 Main. And I’ve been fully focused on making sure that got off the ground. We’re settling into a good rhythm and I can now sit down and write a bit.
Enjoy!
THREE THINGS FROM OTHERS
I. Two Creative Housing Approaches From Woodstock, VT
Woodstock, VT recently approved two creative programs to help alleviate housing supply:
A $35,000 incentive program to transition short-term rentals (STRs) into apartments
$25,000 for a new “housing advisor” position to guide homeowners through the accessory dwelling unit (ADU) development process
I’m on the fence about the incentive program. Providing $3,000 to STR landlords in exchange for a single 12-month lease feels myopic and fleeting. That money will be gone in a year and landlords will just revert to the STR market again. Although desperate times call for desperate measures, I suppose.
However, the housing advisor position could be a game changer. I assume (sadly, hope) that $25k only buys a part-time position, but still—it’s a step forward. ADUs are a fantastic tool to help solve the housing crisis, yet they largely depend on non-traditional developers (i.e. homeowners) to make happen. Plus, they’re able to create new wealth locally and allow homeowners to earn some income on the side.
Kudos Woodstock!
II. Rethinking Revenue
Rethinking Revenue is a new research report that takes a fresh look at how municipal revenues are raised.
One of the authors, Joe Minicozzi of Urban3, is the father of revenue per acre analysis—an unparalleled way for cities/towns to make critical policy and infrastructure decisions based on data.
Without this data, municipalities fly blind when deciding, for example, where to expand water and sewer lines. Property taxes of the affected parcels must cover the costs (both upfront capital expenses and ongoing maintenance) of the improvements. Yet, so often, property owners outside the improvement district are left bearing part of the burden via broad hikes in tax rates.
The authors offer actionable steps to improve revenue per acre:
Make fiscally savvy development the easier choice
Calculate revenue per acre for all areas
Encourage infill development and building up rather than greenfield development and building out
Understand how building and zoning regulations impact revenues
Understand where cross-subsidization is happening and consider charging for it
III. Would You Live In A 400 SF Apartment?
Most people shake their heads when asked: would you live in a 400 SF apartment?
When I describe plans for 501 Main (or, now, give tours of the framed 1st floor), I hear a similar sentiment. These units are sooo small. Who would want to live here?
This article by Strong Towns articulates why some folks would, in fact, live in a small apartment. The demographic profile varies—some elderly people want to downsize and other young people are looking for independence.
But the rationale is typically consistent, boiling down to affordability. Other variables being equal, smaller apartments will cost less to live in than larger ones. That’s just a function of construction costs.
A poignant reminder strikes home:
You may not be able to picture yourself living in one today, but chances are there was a time in your life where you could have.
And I’m sure there are other folks out there like me who just don’t need a 1,000 SF apartment to live in. I’m perfectly content with the 550 SF I have right now (granted, no kids and only one of us works from home).
TWO THINGS FROM ME
I. Project Update—501 Main
In my last post, I shared a photo essay on the first two weeks of construction. Five weeks have gone by since then.
To give a sense of timeline, I’ll add dates. We started construction on 3/14.
And I’m going to start sharing costs in an effort to provide transparency into (one reason) why housing is so damn expensive.
In addition, a slew of mechanical fasteners were specified by the engineer to tie the new building to the old foundation. We’ve got Simpson HDU11s, DTT2Zs, A35s, HDQ8s… the list goes on. Structural fasteners for the first floor cost $10,000.
We even had to get our local metal fabricator to custom build several brackets. Here’s a glimpse of what those look like (click to view video):
Here’s a video of us raising the wall back up:
Here’s a video of us raising the remaining ground floor walls using jacks.
II. Alternatives to LIHTCs for Affordable Housing
Many of you already know this, but it bears repeating—Affordable housing is only affordable because of massive government subsidy.
Take Colonial Village in Bradford, VT, a 21-unit rehabilitation project by Downstreet Housing that cost $5,840,491. Or $278,000 per unit!
In order for any private developer to make that project work without subsidy, rents would have to be—at a minimum—between $2,500-$3,000 per month. Instead, Downstreet is able to offer rents at $982 per month for a 2-bedroom apartment.
How, you ask? Short answer: Low Income Housing Tax Credits (LIHTCs)—a federal program that covers 30% to 70% of development costs. Unlike debt or equity investment, grant subsidy does not require any sort of return on capital. In turn, affordable housing developers are able to offer rents at lower rates because they have fewer debt or equity costs.
This is one way to deliver affordable housing.
Another way is for city/town levied development charges. Take Toronto as an example. For each new construction “large” apartment, the city charges the developer $26,840. That money is then added to a pool of funds used to develop affordable housing. The city is now mulling an increase to $55,012 per apartment.
That’s a significant tax on new construction. And it will play a large role in driving up market rate rents. Either by way of increased construction costs or decreased supply.
I do like the direction it’s headed, though—a creative, yet flawed, push towards enabling affordability for lower-income earners. A provoking thought experiment.
And this got me thinking about a hypothetical 3rd approach: a fee based on capital gains when a property is sold. There are a couple advantages:
Reduce added cost imposed on new buildings, helping alleviate higher costs for construction of rentals and homes
Focus tax on speculative behavior by house flippers and real estate investors that profit off of windfall increases in property values
Protect owners who sell at a loss since fee would only be incurred on capital gains
Administratively, this may cause concerns. Especially for smaller towns with short-staffed offices. But, if that can be overcome, this could provide a powerful mechanism for town-led affordable housing development.
I’d wager this approach has actually already been implemented somewhere, I just haven’t heard of it. Let me know in the comments below if you've seen this before!
ONE PICTURE
Dense, water-front development done right. 😍
📍 Dinant, Belgium
That’s it for today. Thanks for reading. If you haven’t yet, go ahead and subscribe here:
About me: I’m Jonah Richard, a small-scale real estate developer in Vermont. With my company, Village Ventures, I’m currently getting my hands dirty developing Missing Middle housing while trying to pick apart and replicate what makes other communities thrive.
Connect with me on LinkedIn and follow my projects on Instagram.
Simpson brackets are a great example of a shadow tax imposed by height restrictions.
You can avoid a tremendous amount of structural fasteners by stacking the load paths /on top/ of each other rather than terminating them into each other. Joists and beams being the prime example. But then you are either having lowered boxed-in beams inside the living space OR you add the height of joists above the beam into each floor. On a project like your's, where you are already counting inches to remain inside allowable height... you gotta use all the brackets.
If you look at older buildings, there are no brackets or metal straps. But they stack load paths and have more closed in rooms (load bearing wall being cheaper than a beam).
In some cases, like rafter to plate connections, brackets are near impossible to avoid. (and for good reason, high winds used to lift roofs off all the time!). But in many other cases, if you have the height, it's worth asking your architects to consider simpler and cheaper alternatives to brackets.
And man... if someone had the capital to create a Simpson competitor, there's plenty of margin to be compressed there!