by Stephen Oliner
presentation given at the 2018 Social Innovation Summit: Innovations in Urban Housing (April 27, 2018)
USC Price Center for Social Innovation
https://socialinnovation.usc.edu/past_events/innovations-urban-housing/
1. Introductory Presentation on Workforce Housing
Note: I thank Ed Pinto for many helpful discussions and Jackson Garner and Benji Smith for excellent research assistance.
The views expressed herein are mine alone and should not be attributed to AEI or UCLA.
aei.org/housing-center | April 27, 2018
Stephen Oliner, American Enterprise Institute and UCLA Ziman Center for Real Estate
Presented at the 2018 Social Innovation Summit, USC Price Center
Session on Housing the Workforce
2. 2
What is Workforce Housing?
Usually defined as housing that is:
• Affordable for lower to moderate income households (roughly, those from 60% to 100% of AMI)
• Located near jobs
• Either rental or owner-occupied
• Targeted in some cases to “essential workers” (police officers, firefighters, teachers)
For the LA metro area, I would amend the usual definition in two ways:
• Focus on rental housing alone
o Owner-occupied homes are out of reach in much of LA area for households at 60-100% of AMI
• Drop the potential targeting of essential workers
o On average, these workers have incomes well above 100% of AMI
3. 3
Workforce Occupations: Facts and Figures
2016 Average Salary
Occupation LA Metro U.S.
Retail sales workers $28,000 $25,000
Food and beverage serving workers $26,000 $23,000
Assemblers and fabricators $31,000 $33,000
Memo: Police, firefighters, teachers $81,000 $56,000
In LA metro area:
• Workforce occupations (avg. salary of $25K-$35K) account for 32% of all payroll employment
• Workers with salaries of $25K-$35K have average household income of about $50K
• $50K household income is about 80% of AMI
Note. LA metro area defined as Los Angeles, Orange, Riverside, and San Bernardino counties.
Source: Bureau of Labor Statistics, Occupational Employment Statistics.
o LA workers in common service and light
industrial jobs earn roughly $30K per
year on average
o LA police, firefighters, teachers earn
much more and have salaries well above
U.S. average for their occupations
4. 4
Rent Burdens Decline Sharply with Income
Note: Rent burdened households spend at least 30% of income on gross rent (which
includes utilities); severely rent burdened households spend at least 50%. LA metro area
defined as Los Angeles, Orange, Riverside, and San Bernardino counties.
Source: Author’s calculations using 2016 American Community Survey (ACS), one-year
estimate, table B25074.
Key takeaway: Rent burdens are a much
less severe problem for police, firefighters,
and teachers than for typical workforce
households
Rent Burden by Income Group, LA Metro Areao 75% of lower-income workforce households
($35-50K) are rent burdened, some severely
o Almost 50% of higher-income workforce
households ($50-75K) are rent burdened
o Rent burdens much less common for
households with incomes above $75K
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
<$20K $20-35K $35-50K $50-75K $75-100K >$100K
Rent burdened
Severely rent burdened
Share of households
5. 5
Answer to Question on Construction Volume
In recent years, how many rental units with rents below $1250 per month (including
utilities) have been built annually in the LA metro area?
a. Less than 2,500 units per year
b. 2,500 to 5,000 units per year
c. 5,000 to 7,500 units per year
d. More than 7,500 units per year
Why did we use $1250 as the monthly rent limit?
• For household with income of $50K, this rent represents 30% of the household’s income
Number of units built with rent below $1250 is so small for two reasons:
• Total construction of rental units has fallen
• Share of total with affordable rents also has fallen
*Source: Author’s calculations using the 2016 ACS one-year estimates, PUMS sample. These data show that during 2012-15, about 2,300 units with gross monthly rent
below $1250 in 2016 were built annually in the LA metro area defined as Los Angeles, Orange, Riverside, and San Bernardino counties.
Answer:
a. Less than 2,500 units*
6. 6
Construction of Rental Units Has Trended Down
Note: Year-built counts reflect units rented in 2016. Thus, counts will understate actual construction in earlier years if some
units have been torn down. LA metro area defined as Los Angeles, Orange, Riverside, and San Bernardino counties.
Source: Author’s calculations using 2016 ACS one-year estimates, PUMS sample.
Rental Units Built by Year, LA Metro Area
0
5,000
10,000
15,000
20,000
25,000
30,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Units
Units built in earlier years
(average annual number)
1980s: 36,000
1990s: 23,000
2000-04: 16,000
7. 7
Mix Has Shifted Dramatically to High-Rent Units
Note: Rent is monthly gross rent, which includes utilities. Rent in 2000 is adjusted to 2016 dollars
using the CPI-U for All Items less Shelter. Recently built units in 2000 were built in 1995-98;
recently built units in 2016 were built in 2012-15. LA metro area defined as Los Angeles,
Orange, Riverside, and San Bernardino counties.
Source: Author’s calculations using 2016 ACS PUMS data and 2000 Census 5% sample.
Rent for Recently Built Units, LA Metro Area
(rents in 2000 and 2016 are both in 2016 dollars)
o In 2000:
63% of recently built units had gross rents
below $1250/mo (in 2016$)
Few units had rents above $2000/mo
o In 2016:
Only 23% of recently built units had gross
rents below $1250/mo
Nearly half of units had rents above $2000/mo$0-749
$0-749
$750-999
$750-999
$1000-1249
$1000-1249
$1250-1999
$1250-1999
$2000+
$2000+
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Recently built units, 2000 Recently built units, 2016
63%
23%
8. 8
One Approach to Fixing the Problem
A pilot project to build economical rental housing with market rents
• Spearheaded by my AEI colleague Ed Pinto in Southwest Florida (Manatee County)
• A large project: 510 units, with a mix of studios, 1 bedroom, and 2 bedroom units
• No federal subsidies at all – no LIHTC, no vouchers
• Limited local financial assistance – some combination of donated land, right-sizing of upfront
fees, and reduced property taxes
• Potential sites are in jobs-rich areas, on bus routes
• Leading site already zoned with sufficient density
• If all goes as hoped, plan to break ground at the beginning of 2019
• Press coverage here
9. 9
One Approach to Fixing the Problem (cont.)
Intense focus on cost control is a core element of the project
• General contractor and engineers were involved in design process from day one
• Achieved major cost reductions
o Total development cost of about $110,000 per unit
o Compares to total development cost of $200,000 or more per unit for local LIHTC projects
• Features that contribute to reduced costs
o Small unit sizes
o No elevators (acceptable for three-story building)
o No interior halls or stairways
o Economical finishes
o All dimensions are multiples of 8 feet
o Large project scale helps to get attractive bids from subcontractors and suppliers
10. 10
Final Thoughts
• Many workforce households face substantial rent burdens
• Need to greatly increase supply of housing these households can afford without rent
subsidies
• To achieve this goal, must find ways to produce economical rental housing
