Updates to A Solution to Affordable Housing

An article by Somnath Singh published in Level Up Coding entitled “The Era of High-Paying Tech Jobs is Over” convinces me that an assumption made in “A Solution to Affordable Housing” was incorrect. That assumption was discussed in Chapter 4 – Business Owners – Victimized and Ignored. I assumed that the solutions offered would be most valuable for tech companies forced to pay rapidly increasing salaries to their current tech employees. The tech layoffs just starting to expand in 2023 were assumed to be unwise because those same employees would be needed again at the same or increased salaries as tech industry conditions improve. That was a bad assumption as shown by the fact that in 2023, over 400,000 people in tech lost their jobs. Over 44,000 terminations occurred in January 2024 in 211 tech companies and getting rehired is becoming increasingly difficult for those terminated. Mr. Singh’s article explains why a huge shift involving the arrival of AI is causing a sharp turn in tech history. I am convinced he is right and I was wrong in assuming the current tech workforce to be a prime target for the solution offered in my book.

The days of universities producing hireable grads with the required coding skills has been changed by the ascent of open source and global collaboration. Self-taught coders can now bypass traditional education. Coding is no longer an elite skill. The pandemic showed many companies they could operate remotely and that opened the door to the pool of world talent. In 2023 AI reached a point where it was recognized as changing the whole trajectory of software development. AI will allow anyone with  expertise in a specific domain to create software solutions for that domain. The next step already underway is that human language itself is becoming the new protocol. Tech companies will be able to easily hire a coder or simply use ChatGPT to do the job. That will allow a small fraction of current employees to do the work of people who are laid off. That is the bad news now unfolding for graduates with Bachelor’s and Master’s Degrees in Computer and Information Sciences earned since 2000 and newcomers graduating now.

Today, AI specialist engineers and researchers are in short supply and some are commanding huge salaries. This is the new elite workforce emerging in the tech industry. A network model that involves using more contracted workers instead of full-time employees will replace centralized  teams of coders because the work will be able to be broken up into smaller pieces. The era of high-paying tech jobs of the type that flourished in the last quarter century will be over. This sharp turn in tech history will generate a huge increase in tech company profits as evidenced by the many multi-billion dollar AI investments underway by tech companies and early successes like Nvidia.

More profits combined with far fewer and more highly paid employees opens up a new challenge for the solution offered in my book. I believe it redirects early adoption efforts to companies that are building their business strategy around work that is stable in time – workers who perform jobs that won’t be greatly affected by AI, where long term affordable housing can be the key to employee recruitment and retention and payroll stability for employers. It is likely the new members of the emerging AI elite will earn wages that will leave them without an affordable housing problem. This fortunate group can choose to either participate in the luxury home speculation discussed in Chapter 8 or take on the role of employer in employer/employee partnerships for the benefit of their support staff. 

In a 3/29/2024 Atlantic magazine article by Jerusalem Demsas entitled “Why did the US Navy kill Arizona’s housing bill”, the author explained why Katie Hobbs, the governor of Arizona, vetoed a bipartisan bill intended to address the Arizona housing shortage. This interesting article details the misinformation that led to the veto, but the author prefaced her story by saying the story was symptomatic of a much bigger problem. Her description of that much bigger problem was an insight that sheds light on recent updates appearing on the  keytoasolutiontoaffordablehousing.com  website. Allow me to quote her summary of the problem: 

“Accommodating a growing population requires new housing. But if you want to build something in America, countless interest groups weigh in, and those who seek to block change have an asymmetrical advantage. Getting substantial amounts of homes built requires the proper alignment of political and economic interests. By contrast, stopping necessary change takes just one or two well-positioned groups. In many cases, those groups are outsiders – nonprofits, neighborhood organizations. But when opposition to housing reforms comes from inside the government, elected officialsare even more inclined to sit up and listen”

Examples like the Steamboat Springs Brown Ranch project and Park City’s Mine Bench proposal show how such large developments requiring significant community changes attract opposition from individual citizens, affected businesses, and non-profits as well as individual members of local government. The bigger the project, the more neighbors it has, and such projects cause impacts that affect community taxpayers. Citizens, businesses, and non-profits with long histories in the community are often skeptical that new projects won’t affect them adversely and are any better than what they have. Conversely, the smaller a project is, the easier it is to fit into the existing community. The 42 unit apartment project envisioned for the employee’s of the Yampa Valley Medical Center in Steamboat Springs is much more likely to gain acceptance by citizens who understand why the medical staff they know and rely on need an affordable place to live. Local governments know how to deal with ensuring compliance with established rules or even minor changes to those rules. Every business or non-profit suffering from a lack of quality employees understands the different housing needs of their employees in terms of size, location and cost. Clustered projects targeted for one income segment of the community make sense to developers because they are more efficient to build as one initial project Dispersed housing in locations that work best for occupants proceed at a slower pace, but need only the normal construction permitting process and compliance with established community rules. School teachers prefer to live in their school district and firefighters, police and city workers can do their jobs better if they can live in the community they serve vs. the town 20 miles down the road

The only large development that seems to have a path to success is The Point in Draper, Utah. This 600 acre project seems to be making a good start in gaining community acceptance. That acceptance is due to a lengthy and comprehensive outreach to its neighbors and regard for their concerns as reflected in final plans. Another factor is that The Point replaces the old Utah prison, now demolished and not missed. The fact that this land is owned by the state and the project infrastructure is funded by the state is another reason for neighboring community support..     

In the 3/16-19/2024 edition of the Park Record, a front-page article entitled “Park City opts against housing near Old Town”, it was reported that a majority of the Park City council in their March 14 meeting decided not to support a proposal for a 300-unit, 660-bed workforce housing development (the Mine Bench project) on a city-owned parcel between Old Town and Deer Valley. This proposal by Servitas, a developer specializing in workforce and student housing began four years ago. One of the inducements offered by the developer to the city was a no-cost option to cancel the proposal after a public input phase. Apparently that public input phase ended with the denial by the Park City council. The article characterized the proposal as pitting the neighborhood against business interests in Deer Valley. People in Old Town cited traffic concerns and impact on trails in an area described as “sacred to the community”. The inducements offered by Servitas with support from the business community were not listed in the article but included high annual lease payments to the city ($19.5 million over 20 years), total revenue of an estimated $915 million (ranging from $6.6 million to $47.6 million annually over 30 years). In addition the city would automatically take ownership of the $88 million asset in 20 years. 80 percent of the units would be affordable to people making 70 percent or less of the area median income (roughly $80,000 a year) and 60 of the 300 units were to be available at market rates.

The Park Record article cited concerns from city officials that the testimony they heard from the residents was a likely preview of future debate had this project progressed through the entitlement process. That was probably an accurate prediction based on years of acrimony concerning the Dakota Pacific proposal at KImball Junction just outside the city. So much for affordable housing as a top priority. 

In a letter to the Park Record in the 3/27-29/edition, Jennifer Wesselhoff, the president and CEO of the Park City Chamber of Commerce & Visitors Bureau submitted an article entitled “Council passes on compelling housing proposal on Mine Bench” .In her article she outlined the financial benefits for the city and the employers who are suffering from a lack of employees. Other benefits mentioned were traffic benefits from reducing commuter traffic generated by employees and freeing up existing properties currently rented by employers for their workers to become available for much-needed long-term rentals. Jennifer Wesselhoff ended her article with a good question: If not this location, then where? If not this project and terms, then what will be acceptable?

The process of attempting to gain community acceptance of large affordable/workforce housing projects is expensive, time consuming and failing to produce results in many locations suffering from an affordable housing crisis. As reported in the 4/1/2024 update,on 3/26/2024  the proposed 2,200 unit Brown Ranch development in Steamboat Springs, Colorado went down to defeat in an election whose history reads much like the Park City Mine Bench story. As discussed in the book, tech giants like Facebook encountered disappointing results in its Willow Village project near Meta’s headquarters in Menlo Park.Similar Google projects in Silicon Valley achieved similar results. Why are so many well-intentioned, financially sound, affordable housing projects going down to defeat after expensive and time consuming fights between housing’s haves and have-nots? The solution offered in “A Solution To Affordable Housing” is gaining credibility from the actual results emerging from battles coming to conclusion after the book went to press in late 2023. Stay tuned for an ongoing comparison between the employer/employee partnership concept and results from major government/developer projects.

The city of Steamboat Springs, Colorado purchased a 534-acre ranch that the city’s housing authority purchased with a $24 million anonymous  donation. The housing authority could use state and federal grants and proceeds from a recently passed tax on short-term rentals to build more than 2,200 housing units in phases. The Brown Ranch proposal would restrict sale and rental of those homes to residents who meet a certain income threshold, work locally, and plan to live in the homes full-time.

Local residents who had concerns about the project’s financing and the impact on traffic and local infrastructure along with what it would mean for the character of the community spoke against the project, but in October of 2023 a divided city council voted to approve the Brown Ranch plan. Opponents then proceeded to collect more than 1,000 signatures to get the development on the ballot scheduled for March 26, 2024 leaving the final decision up to voters.

Steamboat Springs has a population of around 13,000. Since 2020, single-family home prices have increased about 80 percent to about $1.8 million on average, and all real estate sales including condos increased 64 percent to $1.1 million. Those increased prices have caused the average tax assessment to increase by 86 percent. Now increased prices combined with low inventory of homes has made it hard to fill high-paying positions in the community including at the UCHealth Yampa Valley Medical Center, the main hospital for the region. To address the problem, the hospital has gone into the residential real estate business and is building 42 apartments with rent that will be capped at around 30 percent of the employee’s income. This sounds a lot like the solution offered in “A Solution to Affordable Housing”.

On March 27, 2024 the headline in the Steamboat PILOT & TODAY was “Voters reject Brown Ranch annexation in preliminary results” The preliminary results showed Steamboat voters rejecting the ballot question 2,903 to 2,074 – a margin of 829 votes – with 400 ballots still to be tallied.

In a 2023 NBC news article, former Steamboat Springs city council member Jim Engelken was credited with helping to organize the opposition urging the city to downsize the development or slow the pace. He suggested that affordable housing needs to have the ability to generate its own way and its own money. He was also concerned that the expected infrastructure needed to service the expected 6,000 people who would ultimately live in Brown Ranch would be beyond the financial capability of the existing community and might result in a second-class neighborhood. Although Mr. Engelken was happy with the outcome of the March 26 election, he acknowledged that the affordable housing problems were not going away. He requested that the housing authority re-evaluate their goals and their perception of what the existing citizenry of Steamboat Springs want the future to be. Both sides of the recent controversy might benefit from what is happening in similar communities and starting to happen in their own community, The 42 unit apartment being built by the UCHealth Yampa Valley Medical Center to provide affordable housing for their employees is the small step Mr. Engelken wished for – a step that can generate it own way, its own money, and serve as an example for other employers in Steamboat Springs. New ideas about employer/employee partnerships as explored in “a Solution to Affordable Housing” combined with ongoing experiences taking place in other communities facing similar problems are being covered on this website and may be helpful to those who are interested in solving this problem vs. studying it to death. Comments by those people would be most welcome.   

PART 2: Starter home shrinkflation: Builders in Utah are moving to townhomes and condos with smaller floorplans from single-family detached homes which are more expensive to build and require more land/unit. So Fi, a California-based bank with offices in Utah put the cost of building town homes in Utah to between $111 and $125/SF compared to about $150/SF for single-family detached homes. Attached homes are usually easier to build, fit into different zoning regulations and come with fewer conditions. From 2018 to 2022 permits for single-family detached homes in Utah decreased by 6.9 percent while townhomes and condo permits increased by 54.1 percent. Nearly every listing on Zillow.com in Salt Lake City listed for less than $450,000 and built within the last few years is a townhome or condo. For the past 15-20 years, Utah builders weren’t constructing true starter homes because low interest rates meant people could afford larger homes which buyers preferred. Builders are quick to point out that most new homebuyers today are not enamored with small homes, they just can’t afford anything else.

Since America added fewer single-family homes in the 2010’s than in any decade since the 1960’s, a nation-wide shortage of homes has been the result. Zillow now estimates that shortage to be 4.3 million homes. Currently big home builders face higher borrowing costs and growing demand for more affordable housing. D.R. Horton, the nation’s largest home builder sold more than 82,000 homes in 2023, most of them under $400,000 and to first-time buyers. Toll Brothers, known for high-end properties with average prices of $1 million, more than doubled it’s sales of “affordable luxury” homes last last year at prices starting at about $400,000. In the past year the boom in smaller construction has cut median new detached home sizes by 4 percent to 2,179/SF, the lowest reading since 2010. 

Montana Governor calls housing affordability his state’s most pressing crisis.

A March 9, 2024 Business Insider article entitled “The Trump-supporting governor of Montana is staking his reelection on a set of ‘Miracle’ YIMBY housing policies.

Blaming the 2018 Paramount series “Yellowstone”, Montana Governor Greg Gianforte says a flood of wealthy out-of-staters have fallen in love with his state and are making it their new (or second) home. The economy in Big Sky Country grew faster in 2021 than it had in four decades. Statewide, home prices have soared by 60 percent since 2020. In the city of Bozeman single-family home prices have surged from under $500,000 pre-Covid to over $800,000 today. Now Bozeman is filled up with campers and RVs where unhoused workers and locals priced out of better housing are living.

Montana’s state legislature only meets for 90 days every other year and when it convened in early 2023, it passed a number of housing and land-use reform bills that make it much easier to build. These bills loosen zoning, allow more housing density, and require localities to devise a land-use plan. Republicans and Democrats supported most of these bills, and refer to this program as the “Montana Miracle”. Montana’s new laws are focused on stripping away government regulations and empowering landowners and developers to do what they want with their property Some examples are : allowing accessory dwelling units on single-family lots, duplexes to be built anywhere single-family homes are allowed, and making residences possible in commercial areas. The emphasis is on creating more housing, keeping down costs and focusing on reducing government red tape rather than subsidizing renters or lower-income buyers.

Governor Gianforte’s arguments were compelling enough to convince a significant number of his fellow Republican legislators to join in, but Democrats were much more supportive of the various pieces of pro-housing legislation.  

PART 1: Is the affordable Housing problem getting better or worse? A March 4, 2024 article entitled “Home Ownership Moves Even Further Out of Reach Even as Inventory Increases” by Philippa Maister reports that Redfin estimates there are now 13 percent more homes for sale nation-wide than last year, but the typical monthly mortgage payment has reached $2,671, almost at the record high reached in October of 2023. Now roughly $106,500 in annual earnings is needed to afford a typical home when the typical US household earns about $81,000 according to Zillow.

A March 14, 2024 Globe St article entitled “Janet Yellen Says Rates Will be Higher for Longer”, by Erika Morphy reports that Janet Yellen told Bloomberg that it is unlikely that market interest rates will return to pre-pandemic levels. She said this projection was in line with private sector forecasts, The projection for the 10-year US Treasury bill yield is now 4.4 percent up from 3.6 percent.

On 3/22/2024 a Wall Street Journal article entitled “The New Normal for Mortgage Rates Will be Higher Than Many Hope” states that economists at Fannie Mae increased their forecast for average 30-year fixed mortgage rates to be 6.4 percent on average in Q4, 2024 from their prior view of 5.9 percent. They are also expecting an average rate of 6.2 percent in 2025. The weekly average at the end of Q1, 2024 was 6,87 percent.

After the Wall Street Journal had estimated that sales would fall 1.3 percent in February, 2024, sales of existing homes in February surged by 9.5 percent. The most expensive homes saw the biggest increases in sales. Homes sold for over $1 million increased 37 percent in February compared with the same month a year ago. Sales of homes priced from $750,000 to $1 million rose 23 percent. At the same time the national median existing home price rose 5.7 percent in February from a year earlier to $384,500. In my home state of Utah where the 2022 median home price was $574,000, the senior advisor for housing strategy for the state said that at least 80 percent of the non-homeowner residents of Utah cannot afford to buy a home.

With the average mortgage payment now 38 percent higher than the average  monthly apartment rent and apartment rents expected to grow by 2.8 percent annually over the next five years, housing affordability for renters is also in doubt. In the single-family home (SFR) and built-to-rent (BTR) space where rentals offer the same comfort and privacy as purchased homes with fewer headaches, rent prices are much higher and growing much faster, but are still lower than paying a home mortgage, insurance and taxes in any major metro area.

This data explains why housing affordability is not getting better for the majority of US households with little relief in sight for first-time buyers and renters. First-time buyers accounted for only 26 percent of home purchases in NAR’s latest survey matching the lowest figures ever measured for that group of purchasers.

The future of biotech at The Point. In negotiation for nearly three years, plans for a life sciences campus in the heart of The Point development seem to have fallen through. The current situation is explained in a March 11th, 2024 Salt Lake Tribune article by Tony Semerad.

Richard Linder, CEO of medical-devices startup Xenter has attempted to secure development rights for a significant portion of the 600 acre site as a home for a life sciences campus. Although officials with The Point of the Mountain State Land Authority say they remain receptive to resuming negotiations with the Xenter CEO and hope to see a version of the campus happen, Linder appears resistant to yielding control over how the campus would be developed by the state and its master developer. He has urged that a group of nationally known medical researchers, biotech leaders and developers who are his partners guide the project. A life sciences campus aligns with Utah goals. A 2021 study by the University of Utah’s Kem C. Gardner Policy Institute shows that Utah has the highest workforce share of life sciences jobs (1.9%) in the country. These jobs are high-paying and align with Utah’s higher education system.

As envisioned by XPI, the campus has expanded in size from 100 acres to 200 acres and has grown to include real estate and developer partners, architects, planners, and consultants. The Point announced in midsummer 2022 that a consortium of three companies had been selected to lead work and act as the master developer on the first 100-acre phase of the development. This team is composed of Lincoln Property Co., Colmena Group, and Wadsworth Development Group. Since that time it seems XPI and the master developer have had trouble reaching agreement on how the campus might be broken into phases, architectural styles, building locations, who would control and market new office spaces, retail outlets, differing approaches to parking, and how the campus would mesh with other key features of The Point such as transit, open space, and the Jordan River Trail.

After much public and private acrimony between XPI and the master developer and others associated with The Point, the land authority board issued a formal statement saying it was withdrawing its original four-stage vetting process and urged XPI to reignite talks with the master developer or reshape its proposal as a sub-campus and start a new review. It now appears that the dispute over who knows best how to develop life sciences to its highest potential at The Point remains a major sticking point. There are also financial differences concerning providing financial, land, or other incentives for entities to locate at The Point. These concerns have also emerged in connection with those investigating The Point as a possible location for MLB or NHL stadiums.

As officials over The Point explore the option of life sciences built by the master developer, Linder and his partners discuss taking their venture to Vineyard or to another state, Patrick Gilligan, executive vice president at Lincoln Property Co.told the Salt Lake Tribune that the master developer team remains open to negotiating with XPI.

Two things seem apparent at this point. Life sciences will be a part of The Point’s future and there will not be more than one master developer at The Point. Stay tuned.