A builder’s perspective: Housing affordability is about more than subsidies

Construction on a new, luxury apartment building in Dilworth. Photo: Nancy Pierce.

Charlotte has a problem with housing affordability for many of its citizens. But the solution is more complicated and nuanced than just putting more money into subsidies. 

The housing affordability problem is primarily a result of the combination of two basic factors: It is getting more and more expensive to develop and operate housing, while at the same time, many families don’t have enough income to meet the required prices associated with these higher costs.  

As the founder and owner of a Charlotte-based general contractor, my experience is totally in the area of housing production (especially apartments), so that’s the viewpoint from which I approach this problem.  

There is no magic bullet. The problem is manifold and thus any progress towards solutions will also have to be manifold. While there are multiple causes, it’s certainly true that Charlotte, and the rest of the United States, is not building enough housing to meet the current need.

A place to start would be to accept the law of supply and demand. To the extent that we reduce or discourage production, add costs to, or inhibit the supply of housing, we will certainly increase the cost of whatever housing is available.  At the margin, anything that adds a cost to housing makes somebody homeless, because those costs will, of necessity, be passed along to consumers.  

As a significant producer of market-rate housing, we are finding that our costs are increasing at a rate of more than 0.5 percent per month. Furthermore, this involves only the actual cost of construction and does not include other ancillary cost increases associated with the development process: Land prices, fees, design, financing, etc.

There are multiple causes for this situation but a significant one is the fact that of the many players in the review and regulation of housing plans, none are explicitly committed to lowering the cost of developing housing.  Generally, each of these many regulatory agencies’ primary interest is in advancing the standards in their specialty.  The staff of these various agencies are experts - and they have the expertise to help with many issues around lowering costs, if this were their interest.

Unfortunately, if they were asked to indicate the potential cost of their endeavors, in almost all cases, they could not tell you. It is not their focus. If it were possible to incentivize the reduction of the actual cost of production among the regulators, that would be an avenue for progress. 

Here’s an example of increased complexity: In 1983, my company built the McMillan Place Apartments at the corner of Providence and Fairview Roads in Charlotte.  The development contained 135 units and the hand-drawn architectural plans, including the conversion of the existing home to a club/office ran to19 pages; it was perfectly adequate.  Currently, I would expect a redo of this deal to require a 300-plus page set of computer drawn plans, adding to the cost.  Maybe simplifying plan requirements would be a place to start.

Lower costs aren’t just a benefit to housing producers, such as developers and general contractors. Those lower costs translate into lower home prices and lower rents for consumers.  The reverse is also true. 

Another area of confusion that complicates the issue is the terminology we use.  Generally, housing is referred to as “Affordable” when what is meant is “Subsidized.”   What does affordable housing mean?  All new housing being built is affordable for someone; otherwise it would not be produced. 

We should stop focusing on subsidized housing as if it were the only affordable housing being produced.  Actually, subsidized housing represents a very limited portion, probably less than 10 percent of housing production, and it generally costs more per unit or square foot to develop subsidized housing than to develop market-rate product.  

And there’s an added bonus to incentivizing regulatory agencies to lower costs for developers. Anything that reduces the cost of developing market-rate housing will also benefit subsidized housing, by lowering both the amount of subsidy required and the rents needed to make those projects viable. Clearly, everyone could benefit from such measures. 

John Huson is the CEO of Carocon Corporation.