Updated: Jul 28, 2022
By John McManus
Jul 26, 2022,10:58am
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The United States has a deep, decades-old housing shortage.
There’s not a whiff of ambiguity in one of the moment’s heartbreaking headliners spotlighting housing’s affordability crisis.
“The United States has a deep, decades-old housing shortage.”
New York Times staffers Conor Dougherty and Ben Casselman did not bury their lead. They hinge analysis that follows on a baffling, self-fulfilling riddle at the crux of an issue that has fully latched onto the nation’s carotid, from the neighborhood news to the White House. The riddle turns supply and demand upside down, and turns money and capability inside out and backwards.
What’s more, it feeds back on itself, circularly and negatively. Dougherty and Casselman write of a Federal Reserve monetary policy course its governors believe will save the life of the macro U.S. economy even at a cost of a couple of crucial limbs (i.e. the housing economy), in an effort everyone knows will happen again someday, and again:
“In a sense, policymakers are solving the immediate cost-of-living crisis (inflation) by making the longer-run cost-of-living crisis (housing) even worse.”
And this pattern recurs, rinse-and-repeat, each up and down cycle, on and on. The Gordian Knot crisis, people who know housing believe, is destined to get only worse on its current glidepath. That’s the nature of a crisis; it gets worse. That is, unless the knot gets cut, solving for the higher and higher barrier of access to affordable homes and communities by matching ground-up home and community production to places and people that need it more and more.
“Last year, Freddie Mac estimated the nation’s housing supply deficit at 3.8 million units, up from 2.5 million in 2018. Other analysts come up with different figures, but pretty much everyone agrees that the country hasn’t been building nearly enough homes to keep up with demand, especially for middle and lower-income families. The failure to build those units is the single biggest contributor to the affordability crisis that in recent years has spread from a few coastal cities to a much larger swath of the country.”
The capability to slice the knot in half – the industrialized manufacturing know-how and growing factory infrastructure and digital twin modeling and increasing sophistication of bill of materials procurement, etc. – is necessary, but it’s not all that’s needed to alter housing’s vast, unspooling imbalances. Bending cost curves in the construction and development build-cycle – which evolving building technologies, modern manufacturing, and industrialization can do — make a difference only insofar as those favorable cost curves carry right through to households, and too often they don’t.
“To build when no one is buying,” an oxymoron, anchors the requirement Dougherty and Casselman propose as a counter-intuitive solution. Does a building blitz into a void of market demand square with economics, financial and land-use policy, and construction business practices?
Only a singular alignment of stars – private sector capability, local policy, global capital, Federal-backing, and consumer household adoption – could begin to alter what turns out again and again to be a pre-determined housing affordability stalemate.
Too often, public sector-driven affordable housing efforts wind up as case studies in obscenely wasteful expense. Equally if not more often, private sector interests recoil from community development that requires an unusual amount of time, money, and effort to navigate an investment and operational model that could drive value creation full-circle among stakeholders. If private sector developers don’t get it their way, it’s literally the highway out of the jurisdictions of places they regard as hostile to their business interests.
On the other hand, full alignment, were it plausible, would re-imagine private sector urban master plans – typically a hodgepodge of nearly infinite moving- and too often opposing parts – as cohesive, “productized” real estate platforms whose stakeholders include households, neighborhood leaders, municipality officials, local business, as well as a stack of investment capital, and construction and development capability with deep pockets and long-term commitment.
Even as signals flash a fast-evolving market-rate housing correction, rental housing continues to glow among real estate asset class investors as a reliable bastion of long-run opportunity. Further, since the pandemic has exposed some near- and medium-term risks for commercial office and hospitality real estate investors in particular, it’s now surprise that some of them would now look to redouble a long-term focus on adjacent opportunity in the residential rental world.
In that light, word that a start-up company Homz will partner with cities across the U.S. to establish highly amenitized master-planned communities centered around attainably-priced housing marks what will likely be the first of several mega-hospitality enterprises pivoting into housing and community development.
With a housing business model that takes a page from a hospitality industry franchise model that typically develops and manages standardized buildings and connected public spaces, Homz is led by real estate and hospitality investors with track records of owning, managing, and development of over $5 billion worth of assets.
“We aim to create economies of scale around a consistent branded uniformed experience – design, livability, connectedness — that result in attainably-priced homes and a viable solution for a housing crisis plaguing markets across the world,” said Dipika Patel, Managing Director of Homz. “Our triple-bottom-line approach focuses on sustainable development, placemaking and public amenities, allowing us to responsibly deliver the highly-amenitized lifestyle residents seek at attractive price points while creating public value that draws incentives from local governments.”
Patel says that Homz’ phase one business plan calls for deals in 50 U.S. cities, and that she and her team thus far have made 35 pitches to cities, with initial agreements pending on 15 to 18 cities currently negotiating with civil engineering and planning teams on prospective land parcels and sites.
Homz urban neighborhoods would feature four multifamily brands – UP, 24, NJOY and LYF – that are designed to mesh with renter household life-stages, along with a selection of single-family rental homes. The design of these properties will be standardized so as to be replicable and identifiable across markets. UP and 24 target value seekers, while NJOY and LYF offer larger floor plans aimed at roommates and growing families.
Integrated into each Homz neighborhood, 54 publicly available amenities will activated the mixed-use master plan platform, including clubhouses, pools, athletic fields, playgrounds, urban farms, Miyawaki forests aiming to foster wellness and satisfaction among residents and their neighbors in the community. Each community might also include hospitality, retail and office components.
Homz expects to invest between $140 million and $170 million in each community and plans to secure financing from the Department of Housing and Urban Development. The company will also work in partnership with municipalities on incentives that make it possible to develop these communities. Homz will hold each investment for approximately 25 years, creating a close alignment of interests with each city.
Indeed, it’s localities – the towns and cities – that most often prove to be the catch in each and every big-idea effort to break out of housing’s self-perpetuating cycle of building less and charging more – a cycle that’s creating a larger, and larger “have-nots” population that’s priced out of participating in ground-up home and community development.
“With communities and municipalities, it’s really about partnership, about being in the paint with expertise, and commitment, and investment in those places,” says Homz senior advisor Kwanza Hall, who served briefly in the U.S. House of Representatives succeeding the late John L. Lewis of Georgia. “I’ve been around this issue of a housing crisis for years now, hearing from parents and organizations, and enterprises about the need for housing as critical infrastructure. There are many, many cities and counties around the country I know who’ll welcome a team like this, with the experience and track-record of execution it takes to disrupt this industry. Cities will be more than receptive to this kind of partnership once they get to see it and know who’s backing it up.”
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