Clyde Holland, chairman and CEO of Holland Partner Group, testifies at House hearing on affordability
Clyde Holland, chairman and CEO of Holland Partner Group, testified on Capitol Hill yesterday in front of the House Committee on Financial Services Housing and Insurance Subcommittee on the challenge of meeting the increasing demand for multifamily homes for millions of working Americans.
Testifying on behalf of NMHC and NAA at the hearing entitled, The Future of Housing in America: Government Regulations and the High Cost of Housing, Holland outlined the key reasons why America faces a growing affordability problem - stagnant wages, a supply-demand imbalance and numerous hurdles and regulations in developing new apartments - along with potential solutions.
“Almost 75 million young adults are entering the housing market, primarily as renters. At the same time, Baby Boomers and empty nesters are trading single-family houses for rental apartments,” said Holland. “This combination of factors is forecast to lead to four million new renter households over the next decade.”
The Increasing Affordability Divide
Holland detailed the key reasons why Americans are facing high rents and finding too few affordable rental units. The costs to develop and operate rental housing increases each year, while median household income today is virtually unchanged since 1981 on an inflation-adjusted basis.
In addition, Holland pointed to the enormous deficit when it comes to aligning the supply of rental apartments with the demand. “Between 300,000 and 400,000 apartments must be constructed annually to simply keep pace with demand,” he said. “Yet, on average, just 208,000 apartments were delivered in the four year period from 2011 to 2015.
And finally, Holland detailed that the development of new apartment homes is exceptionally difficult and in many markets where apartments are needed most, “simply impossible.”
“Even if, hypothetically, developers agreed to take no profit, the cost to build still exceeds what people can afford to pay.”
He noted the litany of hurdles and regulations that often slow down or even stop the process.
“Even in communities that want and desperately need new multifamily development, the numerous hurdles that must be overcome include: entitlement expenditures; zoning rules; environmental site assessments; impact fees; mandates like inclusionary zoning or rent control; labor expenses; and building code requirements,” said Holland.
Further, “Before a project even breaks ground, we often encounter organized community resistance known as “Not in My Back Yard,” or NIMBY actions,” said Holland. He emphasized that these anti-renter efforts are rarely based on legitimate concerns, but can still significantly impede the construction process by two to ten years and require upfront investments of $1 million or more.
“All of these barriers ultimately translate into higher construction costs and rents for residents,” he stressed. “In fact, Point Loma Nazarene University studied the San Diego housing market and found that regulations increased the cost of housing by a staggering 40 percent!”
The Bottom Line
Holland then outlined that policymakers must recognize that addressing local workforce housing needs requires a partnership between government and the private sector. “Local governments can do this by bringing down barriers to development and incentivizing for-profit entities to build apartment homes at a price that is affordable for the community,” he said. “When both the public and private sectors bring all their tools and assets into play, the greater the likelihood of finding viable solutions to meet our housing challenges.”
Some of the key solutions Holland touched on at the local level included deferring taxes and other fees for a set period of time, in addition to leveraging their tangible assets like buildings, raw land and entitled parcels. At the federal level, he noted that Congress must enable new development, preserve subsidy programs that make units available at below-market rates, and rehabilitate existing stock at-risk of loss due to obsolescence and other factors.
He concluded by emphasizing that Americans work hard and deserve quality housing at a price they can afford, but that we as a nation are “falling short” of that goal.
“What is needed is a bold, fresh vision that sets aside historic approaches that have only marginally succeeded,” said Holland. “We invite policymakers to convene a task force to bring together the public and private sectors so as to embrace all the tools at our disposal in order to meet the tremendous challenge of affordable housing production.”
To read Mr. Holland’s full written testimony, please click here.