Affordable housing

Why communities succeed or fail

It’s impossible to solve a problem as complicated as community development without a full understanding of what makes communities succeed or fail. When most investors look at a neighborhood, they check standard metrics like employment rates, crime prevalence, school district numbers, etc. These numbers provide a picture- but not the full picture.

Underutilized metrics like childcare affordability, access to community services, presence of full grocery stores, community leadership and others can help investors gauge the health of an area in a more precise manner. Instead of taking a neighborhood at face value, make sure you are “peeling the onion” and looking at the layers beneath the layers.

Why they fail

Let’s get the bad stuff out of the way.  Communities fail for many reasons, sometimes due to macroeconomic factors out of their control. Think of the coal industry dying, or the hollowing out of the manufacturing base in the rust belt. Other times they are mismanaged into oblivion. Underserved areas typically share several similarities, including low employment, high crime, poor school performance, and flat or negative population growth. 

These problems often feed on each other- when schools are bad, employers can’t find skilled employees and move elsewhere. The tax base dries up, schools get worse, and the cycle continues. It is easy to lay blame at the feet of elected officials, but in reality, it is a combined failure of government officials, the local business community, and yes, fly-by-night developers.

Why they succeed

Communities succeed when the stakeholders- developers, residents, and local government- embrace innovation and new ways of thinking to solve the challenges they’ve always had, and challenges down the line. This often takes the form of changing how cities build housing and commercial space. With housing, it comes down to building for the needs of a community. Different regions require a different touch. Before entering any new market, a developer should “peel the onion” to understand how their future tenants or buyers will use their property.

In parts of Arizona and the Southwest, apartment complexes often have three, or even four bedrooms, which is a deviation from the national norm. The areas contain a large Latino population, and they tend to have larger, intergenerational families. This has led developers to respond to that particular need in their market. And this is prime evidence that developers and investors need to consider what the market wants- not what it can bear.

The ability of people to work, live, and play in their immediate surroundings is what differentiates good communities from great communities. For a long time, we have expected people to fit their lives to the way we build cities. While it might make economic sense to developers on the front end, it results in stagnant areas that act as warehouses for workers, who then commute to more vibrant areas.

The role of small business

Local businesses play a tremendous role in fostering a healthy community. They give locals a place to congregate and circulate money through the neighborhood. Thriving commercial centers increase an area’s walkability score and can help increase the value of nearby property. Developers can encourage the growth of small business by including mixed-use commercial spaces in or near housing plots. It is possible to further incentivize local business ownership by granting special commercial lease terms to residents or even reserving commercial spaces for residents only.

In cities across the country, from Portland to Phoenix, developments are popping up where the focus is on blending entrepreneurship and community. If developers, communities, and residents are all stakeholders in the success or failure of a community, it stands a much better shot of sustainable growth over the long haul.

Image from pxhere licensed CC0

Urban areas face unique development challenges

Property development in urban areas faces a wealth of challenges. City permitting, construction and noise ordinances, and outrageous land acquisition costs all come to mind when considering urban development and renewal. One hurdle you face more often in older cities is that older areas were primarily developed in the 1930s through to the 1950s.

At the time, developers tended towards very small-footprint buildings, constructed very close together with individual ownership of each property on the parcel. It is not uncommon to see a single parcel of land with multiple homes and homeowners.

This situation is challenging for large-scale developers because they are unable to buy up all the parcels and homes they need to scale. On the flip side, smaller, more agile projects are possible. With that possibility comes the potential of neighborhood preservation. Instead of a monoculture mega-development with new construction, there might be room for the redevelopment of older buildings, and the local and independent businesses that call them home.

Why circumstances necessitate a change

The reason we see so many cookie-cutter megaprojects is that developers tend to develop where they are going to make money, not where it makes sense for residents. This has led to islands of homes out in the middle of nowhere, with terrible walkability scores, and few commercial businesses to pierce the monotony. This problem is particularly glaring in the suburbs. How have young and community-minded residents responded? By moving into cities, where walkability and mixed-use neighborhoods are the norm.

A new model?

It should be clear by now that we will not find a “silver bullet” when it comes to effective land-use, especially within high-density urban areas. A patchwork approach is far likelier to succeed, and there are a few programs across the country that have had some successes in this regard.

This calls to mind a new real-estate development in East Portland, Oregon, which might provide a model worth following.

Essentially, a nonprofit organization went into an underserved neighborhood, purchased several properties, renovated them, and put them back on the market as affordable rental housing. The goal was to eventually allow the properties to be purchased by the residents, who would then gain a stake in ownership of both the building and their community.

Another creative, and effective, step they took was to set aside the first floor of each building as a commercial space, reserved for resident-run businesses. This move provided an income stream for residents and added to the overall vibrancy and economic health of the neighborhood and the community at large.

The goal of this entire endeavor is to foster a form of self-reliance and ownership in that community, and ideally provide residents and homeowners a springboard to more economically prosperous lives.

A solution in rural areas

Alternative modes of development have the potential to improve the lives of rural residents as well. Despite media portrayals of urban areas as poverty and crime-ridden, some of the worst poverty in the United States lies within rural areas. There are many reasons for this, but one major contributor is the fact that the delivery of services is magnitudes harder in rural areas, due to the lack of infrastructure.

Instead of livable, mixed-use areas where density rules, rural areas have far fewer people per mile. This means that rural businesses do not benefit from economies of scale, and their transportation costs eat into their ability to generate revenue.

Setting up similar, self-sustaining mixed-use developments in rural communities could alleviate some of those issues, and maybe lure back much of the talent that leaves those areas for bigger cities. Instead of constantly rushing to meet heightened demand in cities, perhaps we can solve affordability by focussing development close to rural communities.

River Terrace in DC. Image courtesy of Small Change.