"Grim" Affordable Housing Study by Harvard. An opportunity?

31 Replies

A new study was conducted by Harvard analyzing the impact of decades of housing policies that disincentive affordable housing.  Declining inventory of affordable housing are preventing first time homebuyers from purchasing and pushing low income tenets out of city.  Is this an opportunity for mid western cities with better access? 

 ref: https://www.huffingtonpost.com/entry/housing-crisi...

Great article @Frankie Woods - thanks for sharing! I would say that urban flight would only work if there are jobs in those mid-western cities with pay enough to cover housing costs at 30-35% of income. The debt:income ratios need to be right. However, I would also say that if you can figure out a way to offer (either for sale or for rent) affordable housing in your area (whatever area that may be) that it is pretty much a sure thing. There are almost always buyers or renters for clean, affordably priced homes or units. There are some smaller "dying" towns around the country that are offering attractive incentives to young professionals (and maybe even retirees) who choose to relocate. Creative idea... Overall, each town and each investor will need to pull together a number of options to create what everyone deserves - a clean, habitable home that doesn't bankrupt the family vs. a reasonable rate of ROI... not easy - but "doable".

some of the issue is redefining affordable... on the west coast starter housing is basically 300k and up and we are in the lowest price west coat major metro.

you can run all around the mid west in every city and find sub 100k housing and those mortgages and all in are less than rent.. what I find is there are just so many folks that in those markets look at owing a house as a liability and they prefer to rent..

unlike West coast or other areas of known appreciation were we look at owner occ as way to grow wealth.

@Frankie Woods I 100% (as always) agree with @Jay Hinrichs . Affordability is a very nebulous term. 

FYI: I didn't even know one could buy a house for under 100K before I moved to the US. The average apartment (forget about detached home) prices in Canada are insane. It's a similar case in most other parts of the world. 

Housing prices aren't the only factor folks are looking at (contrary to what folks on BP feel). The Midwest can't attract quality jobs fast because there is little or no infrastructure/ecosystems needed for high-growth, high-paying jobs. 

E.g. my sister and BIL work in Silicon Valley and (like everyone else) complain about housing prices in Mountain View. But they would not, in a million years, consider moving to the Midwest even though they frequently visit for outdoor activities/road trips. Why? They won't be able to make 50% of the money they if they move. 

My physician uncle, an immigrant who moved to the KY 30 years ago, complains how his med interns/students are leaving KY to go to other parts of the country where there will make less money. That fact alone astounds him and his colleagues (his colleagues are not immigrants) because they have been conditioned to work, work, work. Why does this astound them? Generational shift; younger generation likes to not work for the sake of working and have a different concept of what quality of life means. 

Midwest prices can be as low as they can get but till high growth industries don't move there we will continue to see a migration away. 

Also, high prices are often an indicator of how attractive a market is. You don't want real estate prices crashing where you live/invest :)

Originally posted by @Omar Khan :

@Frankie Woods I 100% (as always) agree with @Jay Hinrichs . Affordability is a very nebulous term. 

FYI: I didn't even know one could buy a house for under 100K before I moved to the US. The average apartment (forget about detached home) prices in Canada are insane. It's a similar case in most other parts of the world. 

Omar:

Home prices in southern Ontario - particularly around the Big Smoke - are insane.  If you come east, you can still find houses - even duplexes and the occasional triplex or {even} quadriplex - for under 100K.  ;-)

... of course, you will need to re-invest 10K - 50K in many such properties.

Yes, it's an opportunity.  I purchased and re-positioned a 29 unit stable 1990 C+ class apartment community with affordable rents and I have been investing passively in value add affordable mobile home park communities.

Of all the market forces discussed on BP, the affordable housing shortage is the one undeniable force and it likely will not be solved in my lifetime.

Originally posted by @Mike Dymski :

Yes, it's an opportunity.  I purchased and re-positioned a small 1990 C+ class apartment community with affordable rents and I have been investing passively in value add affordable mobile home park communities.

Of all the market forces discussed on BP, the affordable housing shortage is the one undeniable force and it likely will not be solved in my lifetime.

our west coast MHPs  are priced at cap rates like A and B multi and in HIGH demand..   cant build anymore of them and they are solid..

I have owned 4 of them.. and did well on each.. but very tough to find.. there are some major players on the west coast that dominate it.

not nearly the amount of them as I see out in the deep south..  or when I drive around outskirts of Charleston I see little mom and pop ones..  

Add in the fact that the majority of millennials can’t get a loan and most Americans have a pittance for a savings . A new study I read said despite the economy down by so much better ,people are saving far less . Good news if you have rental properties!

Originally posted by @Jay Hinrichs :
Originally posted by @Mike Dymski:

Yes, it's an opportunity.  I purchased and re-positioned a small 1990 C+ class apartment community with affordable rents and I have been investing passively in value add affordable mobile home park communities.

Of all the market forces discussed on BP, the affordable housing shortage is the one undeniable force and it likely will not be solved in my lifetime.

our west coast MHPs  are priced at cap rates like A and B multi and in HIGH demand..   cant build anymore of them and they are solid..

I have owned 4 of them.. and did well on each.. but very tough to find.. there are some major players on the west coast that dominate it.

not nearly the amount of them as I see out in the deep south..  or when I drive around outskirts of Charleston I see little mom and pop ones..  

I am investing with sponsors who own hundreds of parks.  One of them recently sold 100+ parks to a large PE firm who will likely take that (fund) group of parks public.

Originally posted by @Mike Dymski :
Originally posted by @Jay Hinrichs:
Originally posted by @Mike Dymski:

Yes, it's an opportunity.  I purchased and re-positioned a small 1990 C+ class apartment community with affordable rents and I have been investing passively in value add affordable mobile home park communities.

Of all the market forces discussed on BP, the affordable housing shortage is the one undeniable force and it likely will not be solved in my lifetime.

our west coast MHPs  are priced at cap rates like A and B multi and in HIGH demand..   cant build anymore of them and they are solid..

I have owned 4 of them.. and did well on each.. but very tough to find.. there are some major players on the west coast that dominate it.

not nearly the amount of them as I see out in the deep south..  or when I drive around outskirts of Charleston I see little mom and pop ones..  

I am investing with sponsors who own hundreds of parks.  One of them recently sold 100+ parks to a large PE firm who will likely take that (fund) group of parks public.

I would assume those are A B parks not the low end  crappy single wide  10 to 20 unit mom and pop parks.

there is a family I did business with in Orange county that owned over 6000 spaces in Orange county.. and get this FREE and clear..

talk about cash cow .. he lives on Lido island .. not sure if the dad is still with us.. I did business with the son..  

Originally posted by @Mike Dymski :
Originally posted by @Jay Hinrichs:
Originally posted by @Mike Dymski:

Yes, it's an opportunity.  I purchased and re-positioned a small 1990 C+ class apartment community with affordable rents and I have been investing passively in value add affordable mobile home park communities.

Of all the market forces discussed on BP, the affordable housing shortage is the one undeniable force and it likely will not be solved in my lifetime.

our west coast MHPs  are priced at cap rates like A and B multi and in HIGH demand..   cant build anymore of them and they are solid..

I have owned 4 of them.. and did well on each.. but very tough to find.. there are some major players on the west coast that dominate it.

not nearly the amount of them as I see out in the deep south..  or when I drive around outskirts of Charleston I see little mom and pop ones..  

I am investing with sponsors who own hundreds of parks.  One of them recently sold 100+ parks to a large PE firm who will likely take that (fund) group of parks public.

one of my parks was in Vancouver Wa.. and It was a B  sold it to a privately held company out of SF they own 50 plus parks from SF to Seattle.. they paid cash as well.. no debt.. 

Originally posted by @Jay Hinrichs :
Originally posted by @Mike Dymski:
Originally posted by @Jay Hinrichs:
Originally posted by @Mike Dymski:

Yes, it's an opportunity.  I purchased and re-positioned a small 1990 C+ class apartment community with affordable rents and I have been investing passively in value add affordable mobile home park communities.

Of all the market forces discussed on BP, the affordable housing shortage is the one undeniable force and it likely will not be solved in my lifetime.

our west coast MHPs  are priced at cap rates like A and B multi and in HIGH demand..   cant build anymore of them and they are solid..

I have owned 4 of them.. and did well on each.. but very tough to find.. there are some major players on the west coast that dominate it.

not nearly the amount of them as I see out in the deep south..  or when I drive around outskirts of Charleston I see little mom and pop ones..  

I am investing with sponsors who own hundreds of parks.  One of them recently sold 100+ parks to a large PE firm who will likely take that (fund) group of parks public.

one of my parks was in Vancouver Wa.. and It was a B  sold it to a privately held company out of SF they own 50 plus parks from SF to Seattle.. they paid cash as well.. no debt.. 

Makes sense. I believe the mobile guys are the actual origin of the 2% min rule philosophy. 

Originally posted by @Jay Hinrichs :
Originally posted by @Mike Dymski:
Originally posted by @Jay Hinrichs:
Originally posted by @Mike Dymski:

Yes, it's an opportunity.  I purchased and re-positioned a small 1990 C+ class apartment community with affordable rents and I have been investing passively in value add affordable mobile home park communities.

Of all the market forces discussed on BP, the affordable housing shortage is the one undeniable force and it likely will not be solved in my lifetime.

our west coast MHPs  are priced at cap rates like A and B multi and in HIGH demand..   cant build anymore of them and they are solid..

I have owned 4 of them.. and did well on each.. but very tough to find.. there are some major players on the west coast that dominate it.

not nearly the amount of them as I see out in the deep south..  or when I drive around outskirts of Charleston I see little mom and pop ones..  

I am investing with sponsors who own hundreds of parks.  One of them recently sold 100+ parks to a large PE firm who will likely take that (fund) group of parks public.

I would assume those are A B parks not the low end  crappy single wide  10 to 20 unit mom and pop parks.

there is a family I did business with in Orange county that owned over 6000 spaces in Orange county.. and get this FREE and clear..

talk about cash cow .. he lives on Lido island .. not sure if the dad is still with us.. I did business with the son..  

Yes, they have minimum pad count and other requirements.  And the 100+ parks that were sold to PE are institutional grade parks.

6000 spaces free and clear is a cash flow monster.

Originally posted by @Mike Dymski :
Originally posted by @Jay Hinrichs:
Originally posted by @Mike Dymski:
Originally posted by @Jay Hinrichs:
Originally posted by @Mike Dymski:

Yes, it's an opportunity.  I purchased and re-positioned a small 1990 C+ class apartment community with affordable rents and I have been investing passively in value add affordable mobile home park communities.

Of all the market forces discussed on BP, the affordable housing shortage is the one undeniable force and it likely will not be solved in my lifetime.

our west coast MHPs  are priced at cap rates like A and B multi and in HIGH demand..   cant build anymore of them and they are solid..

I have owned 4 of them.. and did well on each.. but very tough to find.. there are some major players on the west coast that dominate it.

not nearly the amount of them as I see out in the deep south..  or when I drive around outskirts of Charleston I see little mom and pop ones..  

I am investing with sponsors who own hundreds of parks.  One of them recently sold 100+ parks to a large PE firm who will likely take that (fund) group of parks public.

I would assume those are A B parks not the low end  crappy single wide  10 to 20 unit mom and pop parks.

there is a family I did business with in Orange county that owned over 6000 spaces in Orange county.. and get this FREE and clear..

talk about cash cow .. he lives on Lido island .. not sure if the dad is still with us.. I did business with the son..  

Yes, they have minimum pad count and other requirements.  And the 100+ parks that were sold to PE are institutional grade parks.

6000 spaces free and clear is a cash flow monster.

 I met him when I was about 30  and that is many moons ago... I had never walked into B of A and when we went to get a cashiers check for a trustee sale.. the manager hopes up runs over and grabs us at that point I was thinking OK something is going on here.

then his dad shows up later in the year driving a testarosa.. and then he starts to explain all the parks they own.. they starting buying them in the mid 50s.. in Orange county.. even back then ( mid 80s) the space rent in those areas was 400 to 600 a month..  one thing we had to deal with though in our area is rent control..

its a great business and well position quality parks on city water and sewer are about as bullet proof of cash flow investment as one can make in my mind.. once the coachs are there they done move. especially if they are pit set.. If I ever wanted to be a syndicator ( which I don't) but if I did that would be my asset of choice.

Originally posted by @Roy N. :
Originally posted by @Omar Khan:

@Frankie Woods I 100% (as always) agree with @Jay Hinrichs . Affordability is a very nebulous term. 

FYI: I didn't even know one could buy a house for under 100K before I moved to the US. The average apartment (forget about detached home) prices in Canada are insane. It's a similar case in most other parts of the world. 

Omar:

Home prices in southern Ontario - particularly around the Big Smoke - are insane.  If you come east, you can still find houses - even duplexes and the occasional triplex or {even} quadriplex - for under 100K.  ;-)

... of course, you will need to re-invest 10K - 50K in many such properties.

 I misspoke. Should have been clearer. From my limited Canadian life experiences (Big Smoke, Calgary), I didn't know houses were available below 100K. Obviously, in a big country like Canada there is a diversity of house prices and markets. 

I would say that it is a great opportunity!  Change is constant and inevitable.  You have to be informed to take advantage of the next great opportunity and the real estate market is one of the best ventures out there.  The history of this nation is full of stories of land grabs, changes and shifts. 

Unfortunately there are so many people who spend time focusing on the negatives: income and social impact etc., that we fail to look for ways to make the investment NOW.  I work and live in Chicago in a rapidly gentrifying neighborhood and my biggest concern is that so many people who live here, are not in a position or perceive they are not to take advantage of the changes.  We get caught up in the social media and reporting that leads to fear as opposed to action.  There are investment opportunities that if sought out are available.  Instead of giving up, its time to dig a little deeper.  

@Frankie Woods Maybe is probably the best answer. 

With the rise of work for home/telecommunting more and more higher level employees do have the ability to live further away from the office if they only have to be there once a week/month. Employers do take advantage of that to lease smaller office space in better locations. 

However, the one driving factor of where people live is the school system. Looking at the nation objectively, the mid west just doesn't have the school, public or private, that the coasts do. That will keep people and companies from moving to places where its more affordable. 

If you combine avoiding closed cities with MSAs that are growing and/or have more tax/business friendly outlooks and invested outside of them you stand a good chance of making some money.

Originally posted by @Bill F.:

@Frankie Woods Maybe is probably the best answer. 

With the rise of work for home/telecommunting more and more higher level employees do have the ability to live further away from the office if they only have to be there once a week/month. Employers do take advantage of that to lease smaller office space in better locations. 

However, the one driving factor of where people live is the school system. Looking at the nation objectively, the mid west just doesn't have the school, public or private, that the coasts do. That will keep people and companies from moving to places where its more affordable. 

If you combine avoiding closed cities with MSAs that are growing and/or have more tax/business friendly outlooks and invested outside of them you stand a good chance of making some money.

what I find is that unlike here in our market in PDX  many of the folks I know out in the mid west send there kids to private academy's this has a direct effect on how much house they can own.. there is far more private education in those areas than we have here probably 10 to 1.. that is a great point. 

@Teri S.  I like your approach and agree "There are almost always buyers or renters for clean, affordably priced homes or units."  Great article @Frankie Woods .

Originally posted by @Jay Hinrichs :
its a great business and well position quality parks on city water and sewer are about as bullet proof of cash flow investment as one can make in my mind.. once the coachs are there they done move. especially if they are pit set.. If I ever wanted to be a syndicator ( which I don't) but if I did that would be my asset of choice.

 @Jay Hinrichs With your background, knowledge and network, you would make a great syndicator. I would have thought that when you hang out with friends like @Brian Burke , some of that that syndication mindset would rub off.  

I live in North Texas where cities encourage larger expensive houses in an attempt to get high income residents. Builders have no incentive to build new stock of clean affordable housing because margins are slimmer and many cities are against that type of housing.  

Originally posted by @Manish Bahety :
Originally posted by @Jay Hinrichs:
its a great business and well position quality parks on city water and sewer are about as bullet proof of cash flow investment as one can make in my mind.. once the coachs are there they done move. especially if they are pit set.. If I ever wanted to be a syndicator ( which I don't) but if I did that would be my asset of choice.

 @Jay Hinrichs With your background, knowledge and network, you would make a great syndicator. I would have thought that when you hang out with friends like @Brian Burke , some of that that syndication mindset would rub off.  

I live in North Texas where cities encourage larger expensive houses in an attempt to get high income residents. Builders have no incentive to build new stock of clean affordable housing because margins are slimmer and many cities are against that type of housing.  

 When you make a commitment to be a syndicator you need a back office and Staff like Brian has.. there is a ton more to it than take a course and become a syndicator.. so its not my gig..  But I appreciate what the good ones do that's for sure..  and I cringe when I see the I want to syndicate by those with limited real estate experience... theres a lot to it.. SEC regs state regs.. yearly audits .. financial reporting to investors.. investor relations etc etc.. ... and as much as anything.. if they don't work.. It no place I want to be is a sponsor you take on HUGE liability in the event of a water landing.. I am too old for that risk.

This problem is largely due to cheap labor! whatever you stance on that, it has created a situation where we (americans) look down on factory built homes.

Without the artificial input I believe we would have giant , efficient, factories in every city pumping out modular homes, that are green, affordable and accepted as "normal" and probably cost as much as a nice new truck.

If you have ever built a new home, the insanity of "site built" becomes apparent as the waste of materials and man hours can be staggering.

Super interesting article. As a Bay Area resident I see the affordability disparity on a daily basis. Of particular interest to me out here are the co-living spaces being built (check out www.common.com). Certainly affordable compared to market rate, but still not quite affordable by federal/governmental standards. What is also helping in our area are [private] investments in down-payment assistance programs. I love what Landed (www.landed.com) is doing, starting off with a focus on school teachers so they can afford to live in the districts where they teach.

Something I'd love to do when I have the resources is establish rental properties that are affordable based on one's income across the board, e.g. rent NTE 25% of take-home pay (or 30% of gross monthly, or whatever makes the most sense). Sure there are plenty of hurdles and head-scratching what-if's to work through, but I love the idea of furnishing homes that the tenants can truly afford, and not because they're white-collar DINKs  or it's a household of 8 crammed into a 2-bedroom apartment.

Originally posted by @Jay Hinrichs :

some of the issue is redefining affordable... on the west coast starter housing is basically 300k and up and we are in the lowest price west coat major metro.

you can run all around the mid west in every city and find sub 100k housing and those mortgages and all in are less than rent.. what I find is there are just so many folks that in those markets look at owing a house as a liability and they prefer to rent..

unlike West coast or other areas of known appreciation were we look at owner occ as way to grow wealth.

 Absolutely agree.  The financial intelligence of the average American is so poor.  And I also don't think this will be solved in my lifetime.  I think there are a few cities in the middle of the country (e.g., Kansas City, Denver, STL) that are starting creative initiatives that are attracting an influx of new residents.   And I'm seeing a lot of California investors interested in moving to Albuquerque of all places.  I'd like to try to take advantage of the possible shift if the trend continues.  But at the end of the day, the really smart money will continue to take advantage of appreciating assets on the coasts.  

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