Developers are incentivized to build whatever units are most profitable, not what lowest income people need. More expensive units make more money.
Besides that, land and construction are both limited resources that constrain developers ability to “flood the market with small, high density units.” For example in high-land-value urban areas, developers need to build expensive units to be able to make a profit.
Yes, developers are incentivized to build whatever units are most profitable, but the price per square foot is much higher for small units than for large units, so without regulations prohibiting high-density projects, you'll end up with far more units for a given amount of resources. Instead of building 20 units of 2,000 sq ft, if allowed a developer could instead build 40 units of 1,000 sq ft, for a similar cost, and sell them for less per unit but more per square foot. Without using any more land, foundation, or roofing, and only needing extra fixtures and interior walls, it would reduce the labor and materials needed per unit, while increasing the income.
It’s more than just extra fixtures and interior walls but bathrooms, kitchens, plumbing, and HVAC - some of the most expensive parts of a build. For example if a developer has 4,000 square foot of land, and it costs $1.6 million to build 4 units selling at $2.4 million total - vs costing $1.2 million to build a luxury unit selling at $2.2 million, they will build the single luxury unit. The overall price for the construction is lower, the price per square foot is lower, but they make more profit.
This is exactly what the developers say. Low income housing, which is unaffordable even on middle class income, is only viable if heavily subsidized. So the tax payers have to pay the developer to take the guaranteed loss. And even then, 3000 rent on a low income studio apartment is only possible for low income people who have subsidies. So the tax payers pay the developers to build it, and then pay the tenants to rent, and people have the gall to refer to this as the “free market” solution.
> It’s more than just extra fixtures and interior walls but bathrooms, kitchens, plumbing, and HVAC - some of the most expensive parts of a build.
That isn't necessarily saving anything. A 4000 square foot unit could very plausibly have four baths and HVAC zones, especially if it's a luxury unit.
Meanwhile not doing that is exactly the sort of thing the existing rules nefariously prohibit. Suppose you want to turn that 4000 square feet into eight studio units with a dorm-style shared kitchen and bathrooms. Now you've significantly lowered your construction costs while increasing the total you can sell for because you're offering eight units, so that becomes the most profitable thing as long as there are enough people who want lower rents more than space, except that hardly anywhere allows you to do it that way.
A developer in our example would still profit by offering a luxury unit with 3 bathrooms instead of 4. But you’re right that there will often be multiple baths and HVAC systems in a luxury unit - although electrical, plumbing, and fire suppression systems still scale up with the number of units.
And kitchens remain a problem. Your dorm-style kitchen layout is creative, but the problem with this idea is that there is very little demand for dorm-style housing. Developers are able to charge higher prices for more conventional layouts - where the demand is - which is what they will build even in the absence of regulation.
Markets can handle some things well but the inability to provide merit goods (like housing) is one of their shortcomings. Unfortunately we need policies with more scope and ambition than YIMBYism if we want to tackle society’s larger problems.
> A developer in our example would still profit by offering a luxury unit with 3 bathrooms instead of 4.
Would they though? Having one fewer bathroom would lower costs but also lower the value of the unit. Meanwhile it doesn't actually cost $400,000 to build one bathroom.
> Your dorm-style kitchen layout is creative, but the problem with this idea is that there is very little demand for dorm-style housing.
There is very little supply of dorm-style housing, because building it is banned. And it's banned because there is demand for it, especially when rents are high. Why would they bother to ban something nobody was going to do? If nobody wants it then there is no harm in getting rid of the ban because nobody will build it anyway, right?
> Developers are able to charge higher prices for more conventional layouts - where the demand is - which is what they will build even in the absence of regulation.
Let's suppose that's true in some cases. There is currently a lot of demand in some area for 4000 square foot units so that they're more profitable to build than four 1000 square foot units.
Then if you let them build 4000 square foot units, they do, and satisfy the demand for those units. At which point the price of those units comes down because the supply has increased. Which makes it more profitable to build smaller units going forward, because now that's where the unsatisfied demand remains -- in your example, the increase in supply of 4000 square foot units causes their price to fall from $2.2M to $1.9M while the four 1000 square foot units are still going for $2.4M and are now the more profitable alternative even if they cost more to build.
> Markets can handle some things well but the inability to provide merit goods (like housing) is one of their shortcomings. Unfortunately we need policies with more scope and ambition than YIMBYism if we want to tackle society’s larger problems.
The thing that I find suspicious is that if you actually want some specific thing, like more smaller units, there are obvious ways to make that happen. Just provide a tax credit for building smaller units, or a credit per-unit so that one 4000 sq ft unit gets you one credit and four 1000 sq ft units get you four credits each in the same amount. The result is going to be more smaller units than the market would otherwise demand, which is what you wanted, right?
But meanwhile people start proposing things like having the government not just build but actually operate rental properties, or constrain who is allowed to live in them, which tend to create nasty problems like "sorry, you make $1000/year more than the threshold for affordable housing so now there's a cliff where your rent goes up by $1000/month", or create a handful of housing projects that turn into an area of concentrated poverty while not actually providing enough housing for everyone who needs it and in particular not getting housing costs down for middle-income people.
And those policies strike me as attempts to disguise a desire to not solve the problem. They're token efforts to be able to claim that something is being done on paper so that housing costs can remain high in practice.
So I guess what I'm asking is, what are you actually proposing? And how is it better than some combination of "remove policies that inhibit construction" and "provide tax incentives to build more housing"?
If you wanna break it down by "systems" the most expensive part is the regulatory compliance you need to engage in before you start.
People shit on the healthcare industry for being written into law and they shit on the credit processors for taking a cut of every transaction but the degree to which various flavors of paper pushing engineers are required by law to be given a cut of every single creation, alteration and major repair of a structure is mind boggling.
And this racket is a large part of what puts the squeeze on low end projects.
If it takes me $50k of engineering to be granted a $100 permit to do another $50k of tree clearing and dirt work on a lot then whatever I build needs to make up for that. If not for BS compliance those numbers would be something like $5k, $100, $20k
All of this expense, levied upon literally every single project everywhere, all to prevent the 1/100 or 1/1000 case where someone does something (that they likely knew was) stupid and causes a runoff problem or whatever, that could likely be mitigated by the same costs after the fact where and when it happens.
And this is before you start discussing all the areas where industry and company lobbyists have got their clients inserted into the IBC at the expense of the public.
there are a ton of build code issues in the US that raise the cost of construction without substantionally improving benefits. As an example, I am in Europe right now, most apartment buildings here have single stair entry and smaller elevators, both of which are prevented by US building regs for bad reasons. Fixing these regs would expand the market for new construction at the low end (lower costs for marginal opportunities) and the high end (makes 4 unit condos feasable).
Western Democracies usually (always?) have planning laws that allow for democratic (ie for the benefit of the people) building plans. In short, we don't have to allow developers to choose.
We could equally levy pressure to improve quality.
In UK, house price inflation has well outstripped material and wage inflation, we should be getting exceptional housing that fits the need of the demos.