Solving the Issues of Affordable Housing

In Charles Goodhart and Manoj Pradham's book, The Great Demographic Reversal, they discuss how demographics are changing a multi-decade trend, and these changes will increase inflation and interest rates.

While those are certainly issues with construction costs, labor costs, and borrowing costs, an even greater issue over the next 25 years is related to demographics.

There was a graphic from Visual Capitalist recently that discussed the expected populations in 2050 . Instead of reproducing the graphic, I wanted to include raw data that I borrowed from Visual Capitalist, and then modified to include population percentage increases by region.

Even if you use the estimated World population figures that currently sit at around 8.1 billion people, that means that the planet is still expected to add 1.6 billion people over the next 25 years.

North America is expected to add nearly 200 million people, which is a 39.7% increase from 2000 to 2050. Africa and Asia are each adding approximately 1.6 billion people albeit off different bases, which shows why the percentage increase is so much greater in Africa.

But let's take a step back to discuss Affordable Housing.

What is Affordable Housing?

Affordable housing, from the perspective of real estate professionals, refers to residential properties that are priced within the financial means of individuals and families with moderate or low incomes.

The concept of affordability typically involves housing costs that do not exceed either a certain percentage of an area's average median income or of the owner's or renter's income. The theory is that this allows people in this category to meet their basic needs and to have more financial stability.

Affordable housing can include multifamily apartments, condominiums, and single-family homes. These properties are often subsidized through government programs. They can be owned by nonprofit organizations or for-profit owners.

5 Issues & 5 Solution Related to Long-Term Affordable Housing Issues

Many areas of the World are already experiencing a shortage of affordable housing, and the demographic trends shown above indicate that the problem will only continue to get worse unless the Public and Private sectors come together to solve the issues in a collaborative way that simplifies the process.

We will discuss 5 overarching affordable housing issues, and try to relay a number of solutions that could work in solving those affordable housing issues.

Urbanization and Population Growth

Demographers show that urbanization in urban centers will continue. While the pandemic slowed urban growth, there are signs that the return to the urban core are under way in major cities around the World. Demographers also show that there is expected to be rapid population growth in those urban centers.

Both of urbanization and population growth will continue to increase the demand for housing. And it can be inferred that affordable housing options will be in most demand, as the majority of people who migrate to cities do so for economic opportunities.

Potential Solutions

• Develop transit-oriented affordable housing near major transportation hubs.
• Incentivize the renovation of underutilized or vacant properties for affordable housing through adaptive reuse initiatives and urban gentrification to address the affordable housing demand.
• Implement zoning policies that require a percentage of new developments in urban areas and mixed economic areas to be allocated for affordable housing.

Multi-generational Concerns

Affordable housing issues do not just impact one segment of the population. Young adults struggle to afford a home and may even struggle to afford rental costs. Older adults and retirees also face affordable housing issues. The inability to access affordable housing can hinder financial security.

Potential Solutions

• Implement policies to incentivize affordable rental programs for owners and renters.
• Implement policies to assist affordable buyers with down payment programs.
• Expand affordable housing options for seniors that may offer subsidized senior housing and provide holistic aging in place options.

Shifting Demographics

Baby Boomers are aging and according to a CNBC Money Survey , 56% of retirees are not prepared for retirement. Younger generations have various dynamics that make access to affordable housing challenging. These younger generations face challenges such as student loan debt, wages that haven't kept up with housing costs, and delayed homeownership due to higher housing costs.

Potential Solutions

• Create affordable housing programs that provide affordable housing solutions such as rent subsidies.
• Incentivize owners and developers to maintain and develop affordable housing options.
• Incentivize innovative housing models including micro-units, modular development, circular renovation, and co-working that caters to the preferences and lifestyle needs of the target market.

Economic Issues

The lack of affordable housing can have economic consequences. People who have to live further away from their employment may have lower housing costs, but may increase other costs while reducing their quality of life. High housing costs in the urban core can also force workers to relocate to lower cost areas. These higher housing costs can impact businesses operating in a region negatively because it affects the business' productivity, the ability to attract labor, and impacts the employee/renter's morale and overall quality of life.

Potential Solutions

• Incentivize owners and developers to invest in workforce housing to provide affordable housing for workers in and near the urban core.
• Create Pubic Private Partnerships that provide some level of support for employees near the urban core that earn below the median average income.
• Implement policies that incentivize the development of mixed-income neighborhoods, promoting economic diversity and reducing disparities in access to quality housing.

Shifts in Housing Preferences

There has been a trend towards smaller, more affordable housing in walkable urban neighborhoods.

Potential Solutions

• Incentivizes for urban and close in mixed-use developments that combine affordable housing with essential and experiential amenities.
• Incentives for owners and developers to use sustainable and energy-efficiency that assist with providing affordable housing.

Final Thoughts

Through collaboration between the private and public sectors, affordable housing issues can be addressed and solved over time. With population growth, demographic changes, and economic concerns including inflation and interest rates, it is important to work together to solve affordable housing challenges such as urbanization and population growth, multi-generational concerns, shifting demographics, economic issues, and shift in housing preferences.

Addressing these challenges can move towards creating more affordable housing over the next generation.

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