Picking Priorities: Affordable Housing or Affordable Workspace
Many communities require developers to set aside homes for affordable housing. But what about requiring developers to set aside affordable workspace for small-scale manufacturing businesses?
Affordable housing fills a gap in our communities, helping more people attain housing at 30 percent of their household income.
Likewise small-scale manufacturing businesses fill a gap in our job market by creating jobs with 75 percent higher salaries than retail and service jobs - often accessible to people without a college degree.
So which gap is more important to address in our cities and towns?
Does a focus on affordable workspace instead of affordable housing make sense in communities that lack these high quality and attainable job types?
Let’s look at the details.
Cities often require affordable homes in new developments either by providing Low-Income Housing Tax Credits (LITHC) or through incentives such a density bonus. The affordable units are often in larger single-family home developments or in apartment buildings. For instance, Washington, D.C. requires developers to include a minimum of eight percent affordable units in any new development. The units fulfill an enormous need to provide homes to households that make less than the area’s median income (AMI). Other cities have similar requirements intended to create units priced for households at 80 percent of AMI or lower.
At the same time, communities are recognizing the need to provide affordable workspace for small-scale manufacturing businesses. These businesses are likely to have two to twenty employees and fit into urban or town center spaces. They often create jobs with 50 to 100 percent higher salaries than retail and service jobs.
Yet these businesses cannot compete for space with office or retail tenants because of the cost per square foot. Small-scale manufacturers generally pay anywhere from $10 to $20 per square foot - a price well below most market-rate office or retail leases. San Francisco is the first city to create incentives for developers to include affordable workspace for small-scale manufacturers by offering a density bonus in targeted zones.
So how do we decide which need is more urgent?
We know that better paying jobs allow people to get out of subsidized housing. If someone is making $50,000 a year in small-scale manufacturing instead of $27,000 a year in retail, then their household will be able to afford better housing. If they are a business owner of a small-scale manufacturing business, or a full-time craft entrepreneur, they may make even more.
This may help to decrease income inequality in a neighborhood, thereby improving the future economic mobility of children in that area (thank you Harvard). We also know that people “who live closer to jobs are more likely to work. They also face shorter job searches and spells of joblessness” (thank you Brookings). Which means that we need to ensure access to both housing AND higher quality jobs. If the small-scale manufacturing businesses are priced out of the market then the higher quality jobs are less accessible.
But, where will people live? Even communities like Washington, D.C. that have inclusionary zoning to provide housing at 80 percent AMI have an enormous gap as the households making salaries at 50 or 60 percent of AMI get priced out. We know that stable and safe housing allows kids to do better in school. Households that spend 50 percent or more of their income on housing are likely to forgo other important expenditures like healthy food or doctors’ visits. If these households cannot find affordable housing in the city, they will have to move farther out and spend more money on transportation and possibly be farther from their jobs.
So where does this leave us? What does your community need?
Density bonuses or other incentives are important to make up the difference in development cost for subsidized housing or workspace. But most locations will not allow unlimited amounts of added density. Some neighborhoods may have sufficient lower-cost housing, but significantly lack space for the higher quality jobs. Others may be in such dire need of affordable housing, particularly in a hot market, that neither manufacturing space nor any other priorities can rise to the top.
The answer requires more of a scalpel approach than a sledgehammer method to development and accessible job creation. And unless we want the income gap to continue to widen, we will need to rank real estate policies for affordable workspace over housing - at least sometimes.