There appears to be a housing revolution taking place in metro areas all across the United States. In major metro areas, single-family housing has been the norm for the majority of residentially zoned areas. In New York, only 15 percent of the city’s residential real estate is zoned for detached single-family housing only, but that’s a rarity. Many other cities have zoned the majority of their residential real estate for single-family housing.
In Minneapolis, it’s 70 percent. In Los Angeles, 75 percent. Portland has zoned 77 percent of its residential real estate as single-family. Seattle has zoned 81 percent. Charlotte; Arlington, Texas; and San Jose are zoned single-family only 84 percent, 89 percent, and 94 percent, respectively.
Recently, however, these cities are beginning to change their tunes. Minneapolis has put an end to single-family zoning. California and Oregon are both considering bills to do the same statewide. It appears that single-family zoning may have a downside.
What’s Wrong With Single-Family Zoning?
There’s nothing intrinsically wrong with single-family housing. The truth is, it’s a matter of supply and demand. Since the 2008 recession, institutional investors have been on a buying spree, snatching up starter homes left and right, and it’s driving up real estate prices everywhere. This is cutting a lot of younger would-be homeowners out of the housing market and forcing them to rent instead.
Sooner or later, the single-family market is going to close. Either institutional investors will exit the market and sell the homes, probably for a huge gain, or they’ll continue to hold those homes and rent them out. Either way, a big need for affordable housing will exist.
The solution to the housing affordability crisis for millennials, who are ready to own, could be financing for multifamily housing.
Why Multifamily Housing is Necessary
As the hole for starter homes closes, millennials are getting married and having children. Their families are growing. That means they’ll need bigger houses. But if they can’t afford starter homes, they likely won’t be able to afford larger homes either, at a time when they will want their children playing on swingsets in the backyard.
When people think of multifamily housing, they tend to think apartment complexes, but those aren’t the only types of multifamily housing available. Duplexes, fourplexes, townhomes, and condominiums can also serve a need in the real estate marketplace, and these types of properties could fill the niche that needs to be filled. But, someone will need to finance the construction of these properties as well as the facilitation for millennials to become homeowners.
Since large metro areas are now beginning to end single-family zoning or limit its use, the door is opening for more affordable housing that can meet millennial needs.
- Duplexes – A duplex can feel like a single-family home without the detached structure and yard. Private lending can play a useful role in building affordable two-unit family housing where homes can share a backyard or simply be attached with their own unique amenities.
- Fourplexes – Fourplexes offer less privacy, but they can be more affordable as properties share some of the same amenities. It isn’t quite the same as apartment living but can serve as affordable starter housing.
- Townhomes – Like duplexes and fourplexes, townhomes can give the feeling of single-family ownership without a large property to take care of.
- Condominiums – Condominiums feel more like apartment living, but with the added advantage of homeownership.
Let Private Lending Solve the Housing Affordability Problem
Government alone cannot solve the current housing crunch, but it can get involved in solving social challenges. Such challenges can best be solved with a private-public partnership. If cities and states will open the door for private lenders to finance multifamily housing projects where single-family zoning once was the standard, more people can experience the American dream of homeownership. Everyone wins.