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Rebooting private urban workforce housing

5 min read

Seventy years ago, American employers and insurance companies responded to the post-World War II economic and baby boom by developing over 50,000 apartments of largely unregulated private urban workforce housing rentals. Initially popular and successful, particularly in New York City where Met Life invented the asset class, over the ensuing decade-and-a-half they gradually evaporated, some floating upward into no-longer-affordable, high-market housing, some evolving into condo/co-op conversions, and a few falling into economic failure until rescued as subsidized affordable housing. After the tumultuous 1960s and 1970s, the experiment was forgotten, yet upon re-examination it holds tremendous proven lessons for today’s urban workforce housing.

The first lessons for us are the mistakes the insurers made as the high price of pioneering:

Don’t be monolithic; build for future optionality. Enable anyone who moves in to become a lifelong resident.  Accommodate changing household sizes and compositions by building a range of configurations—everything from micro-homes to multi-generational flats, price points and tenure models—including step approaches to homeownership via rent-to-own, limited-equity co-operatives and shared equity, all of which have been used for decades in the United Kingdom.

Don’t chase out changing households; make it easy to move within the property by facilitating a robust centralized market of continuous stable pricing within the development. Maintain a central listing of rentals, a buy-sell service for owned or partially owned apartments and reliable consistent pricing. For global examples, study larger, New York limited-equity co-operatives, UK Housing Associations or Singapore’s Housing Development Board, all of which have a half century of practice.

Don’t be a bedroom suburb; be an urban village. Use all the ground-level space to provide what Jane Jacobs famously called “eyes on the street,” to assure safety to strangers in public places: retail, convenience, professional services, plazas and piazzas, park and parent-child gathering spots, daycare and charter schools. Create not only a lively walking streetscape but also localized businesses that stay open evenings, nights and weekends, with new jobs embedded into the master-planned campus. Make sure the economics of retail work with authentic diversity discounts: cheaper rents for lower-revenue, higher-individuality bodegas or shops that give a place a distinctive flare.

Don’t (un)wittingly exclude any groups; enable ever-changing inclusivity. Unless mandated by a subsidy program, segregation by race, ethnicity or income band is morally dubious, typically illegal, and perhaps most to the point, bad business. Diversity broadens your potential market and diversity is never static, so be inclusive against the backdrop of an urban population that will evolve over future decades.

Don’t time-limit affordability; design for algorithmic perpetual sustainability. A time-limited affordability resource is a ticking bomb. If tax abatements are critical, tie them to use or legal status, not a fixed-term of years. Raise rents annually by an external formula (say, changes in area median income) rather than return on equity, cash flow or any other property-specific metric.

The second set of lessons consist of the things we can now do they could not, because of the immense evolution of affordable housing in 50 years:

Do mitigate political risk by pre-empting local rent control. Otherwise later generations of elected leaders can be tempted into foolishness. Either state enabling legislation or federal supremacy (e.g. with HUD affordability resources) will do the trick.

Do use professional affordable housing property management. Met Life had to go it alone; today we have a robust, sophisticated, fast evolving industry that understands household-centric property management and has people and systems both to scale and to provide touch.

Do motivate many capital providers to invest. Instead of asking one alpha dog to rally the industry, expand the Community Reinvestment Act (CRA)—it’s only two decades overdue—to embrace all forms of long-term finance or capital providers.

Do motivate large employers to participate and co-invest. Likewise, when tackling a problem whose solution greatly benefits employers, give them no free pass. But instead of blaming large employers by surtaxing them for creating jobs and bringing economic growth, as Seattle abortively just tried to do, create a Community Employment Act. Model it on the (potentially revamped) CRA: evaluate employers periodically and publicly on their (a) hiring from within the community, (b) investing back into the community, for instance with investment into their footprint’s Opportunity Zones, and (c) supporting their workers’ efforts to obtain housing, by way of payroll deduction at source, or rental/flexible credit/down payment assistance for long-term loyal employees. Many large employers do this already in their enlightened self-interest; use a CEA to codify good practices, standardize their applicability and stimulate the laggards.

Do apply positive-sum upzoning to urban redevelopment that brings in workforce housing. Urban upzoning is a positive-sum game: additional verticality creates monetizable value out of air. Over 850 jurisdictions nationwide have adopted inclusionary zoning in some form. Many of those that haven’t, should.

Do think bold and use workforce housing upzoning to tackle seemingly intractable problems. America was, and is built by, people who think big and bold. Today, many of the ripest areas for urban workforce housing are developed with obsolete buildings from a legacy or vanished industry. Now eyesores, if redeveloped, they will flip from neighborhood challenges to neighborhood assets, and the redevelopment will generate demonstrably visible public benefit, giving it the imprimatur of government legitimacy and the strong likelihood of self-interested public support.

Do look for dysfunction and buy the right to make it functional. Somebody else’s intractable problem is the functional buyer’s pricing discount. Large parcels have not gone the way of the dodo. In New York City, where the insurance company model of workforce housing began, one major residential owner is in desperate need of fast, bold, well-capitalized new thinking to turn its failing portfolio into thriving housing that spans every income range from the poorest up through workforce housing.

Its name is NYCHA.

David A. Smith is founder and CEO of the Affordable Housing Institute, a Boston-based global nonprofit consultancy that works around the world (60 countries so far) accelerating affordable housing impact via program design, entity development and financial product innovations. Write him at dsmith@affordablehousinginstitute.org.