The Leonard W. Wood Center for Real Estate Studies, along with the Kenan Institute of Private Enterprise, cohosted the UNC Affordable Housing Symposium last month. Experts in the field, as well as academic professionals, explored how the Triangle housing climate has shifted as business booms in the surrounding area and how the real estate industry can prepare for the future.
More than 100 people attended the symposium, which featured nine respected real estate professionals over the course of three virtual sessions. Throughout these sessions, attendees heard about an initiative in Washington, D.C. that aims to preserve affordable workforce housing, the struggles in developing affordable housing communities, and the impact remote work has on the affordability of homes throughout the region.
Wood Center Executive Director Jim Spaeth said this annual symposium allows innovative ideas about possible solutions to the development and preservation of affordable housing to be discussed and shared.
“With home prices and rents soaring, the nation’s housing affordability crisis continues to worsen,” Spaeth said. “It is incumbent upon us as a leading real estate program to not just produce the next generation of industry leaders, but also to engage our students, alumni, and partners in meaningful conversation around how we can all work toward alleviating this crisis.”
The Washington Housing Initiative team from JBG SMITH — including Residential Asset Management Associate Laura Bartos, Residential and Retail Asset Management Executive Vice President Tiffany Butcher, Social Impact Investing Vice President Lily Goldstein, and Social Impact Investing Executive Vice President AJ Jackson — led the first session. The Washington Housing Initiative, launched by JBG SMITH in 2018 in conjunction with the Federal City Council, is comprised of two entities: private capital from the Impact Pool, and the Washington Housing Conservancy, an independent 501c3 that preserves affordable workforce housing. During the session, the team described how it is bringing focus and new investment to a currently underfunded segment of the housing market with the help of creative financing structures and real estate experts.
“The investments and the operations work hand in hand, and I think one of the things we have learned through this is that the underwriting is so key to being able to successfully not only purchase these deals, but operate them,” Butcher said. “There’s not a lot of profit margin and not a lot of profit spread, so you have to be really careful in how you underwrite, because your revenue side has certain caps and you need to make sure that you have really accounted for all the operating capital that you need, as well as capital investment.”
Jackson said the team is generally competitive investing in Class B/C communities.
“We’ve got pricing up to $400,000 a unit and we’ve got units that are down at $165,000, $170,000 a unit,” Jackson said. “It’s just different income profiles, but it really depends where we want to go on affordability constraints, and also where the market component of the property is.”
In the second session, speakers examined an innovative development model from the past that could provide a scalable solution without government subsidy in present day. AECOM West Region’s Planning and Urbanism AICP Senior Associate Ashley Hoang, PGIM Real Estate Portfolio Management Executive Director Chris Lackett and ZOM Development Manager Ben Stevens provided an engaging and informative conversation about the model’s prospects for success at a time when the prices of homes are continuing to rise, along with the need for affordable housing.
Stevens noted that housing types of yesteryear, such as a rooming house, were naturally occurring affordable solutions at about 20-30% of a factory worker’s income, but that model no longer exists today. He said that while there are challenges to bringing the model into the present day, it is worth exploring rather than leaving many people without another livable option.
He presented the model of a sample shared living building he designed. The building would offer 270 gross square feet per person at 82 percent efficiency, or 222 rentable square feet per person. At a sample rate of $3.21 per square foot, which is comparable to a modern micro unit building in downtown Durham, that would make each unit $713.
“It’s just not close,” Stevens said. “When you start sharing and you start using fewer square feet, you can solve the affordable housing problem.”
Lackett said he could see the value of shared living and micro units, but he is not looking to invest in the idea as a standalone entity. Instead, he said he could possibly see it as a part of a larger conventional deal.
“The concept has not totally been proven,” Lackett said. “I think you can point to some level of demand being out there for this product. I can’t sit here today and tell you that the demand for co-living is robust, but I think for us to maybe dip our toe in the water, we’d prefer to see it as a portion of a larger building.”
In the final session of the symposium, UNC Kenan-Flagler Business School’s own Assistant Professor of Finance Franklin Qian joined Matthew E. Kahn, Provost Professor of Economics and Spatial Sciences from the University of Southern California. The two examined the spread of tech firms across the United States and what those cities gain from recruiting them. They also explored what a big win means for the lower and middle-income residents of those cities.
Qian said in his research regarding the effects of these large firms’ arrivals, he found that low-skilled renters fair the worst as the price of housing booms.
“Most low-skilled renters and low-skilled homeowners are more likely to move away from their original neighborhood and more likely to move out of the city,” Qian said. “When these low-skilled renters move, on average, they move to neighborhoods of slightly lower quality, shown by proxy by lower home values, median household income, as well as upward mobility.”
Kahn posed the question, “When you attract new jobs, who wins?”
“The politicians offering these local incentives are sort of guessing,” he said. “They’ve never run this experiment before, so in the language of economics these are heterogeneous treatment affects.”
They also discussed the idea of a highly skilled firm being headquartered in one city while having workers all over the country in the age of telework and the potential effect that would have on the firm’s home city.
“If work from home leads to some businesses to spread out, this makes the middle class lifestyle much more affordable for more people,” Kahn said.
Spaeth said although the Wood Center is eager to return to an in-person format for future events, he was pleased by the interactive nature of the symposium.
“We’ve already heard from a number of the attendees that they are bringing some of the ideas discussed into their own communities, which is certainly what we hoped might happen,” Spaeth said. “We’re also excited to see our students further engage with housing market participants in support of delivering and preserving affordable communities, which we feel is an encouraging sign for the future!”
To view the recordings of the Affordable Housing Symposium, visit the site.
For more information on the Leonard W. Wood Center, here.