March 18, 2013

Booming Seattle faces critical shortage: affordable, close-in housing for workers

This week, real estate and community development thought leaders from around the U.S. will be gathering in Seattle to explore a variety of housing issues faced by urban areas seeking to regain their footing and position themselves to be competitive in the post-recession environment.

The March 20-22 event, sponsored by the Urban Land Institute Terwilliger Center for Housing, does not lack for topics. The housing industry has been, in many ways, forever changed by the Great Recession. The impact is broad, ranging from proposals to reform the nation's housing finance system to a surge in demand for micro-apartments.

But one agenda item is not the product of the downturn or the turnaround: the shortage of workforce housing. It's not a topical issue, it's not a trend. It's a timeless problem that exists regardless of economic recessions or rallies.

Seattle is a particularly fitting setting for a discussion of workforce housing. The city ranked as one of the nation's 10 most favorable markets for investment and development in 2013 Emerging Trends in Real Estate, the annual industry forecast co-published by ULI and PWC.

Seattle is a global city with ample employment opportunities, and is renowned for its lifestyle. However, one side effect of Seattle's success is a limited supply of housing affordable to workers. This is a problem inherent in cities with strong economic drivers and multigenerational appeal.

Filling the need for workforce housing does not mean just building more affordable housing. It means building more affordable housing where it's needed. At ULI, we believe in learning from development mistakes as well as successes. And this is a lesson learned from the past two decades: the movement to neighborhoods farther from employment centers by workers seeking housing they could afford wound up costing them more in living expenses, not less.

The savings in housing costs were largely offset by transportation costs for commuting, shopping and other activities. The ULI Terwilliger Center has looked at this mismatch in three metro areas: Washington, D.C., San Francisco and Boston. In each case, it found that the combined housing and transportation costs were highest (as much as 65 percent of total household income) for the outlying neighborhoods.

In Washington, where many jobs remain in the urban core, the point 15-miles-out from the center is where transportation costs begin to exceed those for housing.

The housing-jobs gap is most acute in high-cost markets on the coasts, but it's not just their problem. Markets throughout the nation need more housing that is both affordable to moderate-income workers and accessible to jobs.

Research from the Center for Neighborhood Technology bears this out. Its Housing and Transportation Affordability Index has analyzed housing location in terms of household economic impact and environmental impact for hundreds of urban areas. In city after city, including Seattle, the results are similar for all but the closest-in neighborhoods: homeowners and renters are spending more than 45 percent of their income on housing and transportation alone. Most drive more than 18,000 miles per year for work and errands, and most have seen their fuel costs double, even quadruple, since 2000.

This is not a sustainable urban growth model for the 21st century. It's not conducive to a healthy lifestyle, and it's neither economically nor environmentally viable. One solution is mixed-income housing, which combines market-rate with below-market rate units, and which tends to be near employment centers.

A number of successful mixed-income developments have been built around the country, including Seattle's Ballard On the Park, which received a workforce housing award from the Terwilliger Center in 2011.

Admittedly, this type of housing — more densely developed, with more shared open space — is still the exception, not the norm, in most markets. But while it is not suited for every household, demand is growing. Several “game-changers” related to demographics and population are reshaping urban America, and they could result in mixed-income housing becoming more mainstream:

• The U.S. is expected to add an additional 150 million people by 2050.

• The first wave of baby boomers is hitting 65. Most will shun retirement and stay in the workforce. Many, if healthy now, could still be alive in 40 years.

• The children of baby boomers, Generation Y, have started to enter the housing market and workforce. This generation, about 78 million strong, is even bigger than the boomers, and experience so far suggests their taste in housing may be very different from that of their folks.

• For the long term, household size will shrink steadily, due to more people living alone, delaying marriage and childbirth, and having fewer children.

All these changes point to a greater demand for affordable, accessible workforce housing in the years ahead. They are taking place as the U.S. is becoming an increasingly urban nation, and as our urban regions are evolving into multiple nodes of employment, housing and recreation. Clearly, workforce housing has a place in today's economy, one in which many households are likely to rent longer and change jobs much more frequently. The cities that make housing the workforce a high priority will be well positioned to thrive in the 21st century.

Patrick L. Phillips is CEO of the Urban Land Institute, a research and education institute dedicated to responsible land use and creating sustainable communities worldwide.