In my previous Insight Article on the concept of Home, I discussed the necessity for all people to have a place they identify as a safe, comfortable and affordable environment in which to live, work and play. In this Insight Article, I will discuss the concept of Affordability and the looming crisis we face to achieve this need.
Access to decent and affordable housing is so fundamental to the health and well-being of people and the smooth functioning of economies, that it is embedded in the United Nations Universal Declaration of Human Rights. Yet in developing and advanced economies alike, cities struggle with the dual challenges of housing their poorest citizens while providing housing at a reasonable cost for low- and middle-income populations.
According to the Canada Mortgage and Housing Company (CMHC), housing is considered to be affordable when a household spends less than 30% of its pre-tax income on adequate shelter. Households that spend more than 30% of their income on shelter are deemed to be in core housing need. Those that spend 50% or more on shelter are in severe housing need. CMHC reported in 2010 that over 27% of Canadian households (which is more than 1 in 4) live in core housing need, while 10.5% (about 380,600 households) are in severe housing need. This is referred to as the Housing Affordability Gap.
The McKinsey Report addresses the global affordable housing challenge, stating that based on current trends in urban migration and income growth, it is estimated that by 2025, about 440 million urban households around the world (at least 1.6 billion people) will occupy crowded, inadequate, and unsafe housing. These numbers will now be vastly exceeded due to the new specter of COVID-19.
The global Housing Affordability Gap is equivalent to $650 billion USD per year, or 1% of global GDP. In some of the least affordable cities like LA, San Francisco, New York, Toronto, and Vancouver, the gap exceeds 10% of local GDP.
To replace todays substandard housing and build the additional units needed by 2025 would require an investment of $9 trillion to $11 trillion USD for construction; with land, the total cost could be $16 trillion USD. Of this, $1 trillion to $3 trillion USD may have to come from public funding. The question for architects and builders is, how can we possibly address this need in the work we do?
The report goes on to identify four distinct challenges/levers for reducing the cost of delivering affordable housing by 20-50%:
- Provide land at the right location and price
- Reduce construction costs through value engineering and mechanized systems
- Increase operations and maintenance efficiency
- Reduce financing costs for buyers and developers
These broad, market-based measures can benefit households in all income groups and can reduce costs sufficiently in order to make housing affordable (at 30% of income) for households earning 50-80% of an area median income.
At NORR, we seek opportunities to partner with like-minded groups in order to achieve these goals. Historically, NORR has been involved in thousands of housing units with various levels of affordability. These partnerships have all endeavored to address the four basic challenges, and each of them has a story to tell.
NORR recently developed a modular infill design for the City of Calgary, in Alberta, that fits on increments of 25-foot (7.5 metre) lots. This innovative, stacked design can be developed in clusters of 8 to 24 units and with the flexibility for exterior modifications can fit in almost any emerging neighborhood in Calgary. The interiors have been designed with barrier free and accessibility in mind, and can be adapted for different users. The City acknowledged that this design reawakened their affordable housing program and since the design was developed, hundreds of these units have been constructed. In the end, this design met all four affordable housing challenges presented in the McKinsey report.
NORR also works closely with not-for-profit organizations who acquire public funding for specialized needs housing alternatives. Working closely with these agencies, NORR custom designs projects for specific end-users. This spans the entire age spectrum, from seniors to youth.
Affordable housing is an overlooked opportunity for developers, investors and financial institutions. Building units for 106 more million poor urban households by 2025 could require more than $200 billion USD a year, and account for 7% percent of mortgage needs. These findings indicate that new approaches are needed. Standard approaches to affordable housing will yield only standard and inadequate results. Cities need to think more broadly and creatively about a housing continuum that provides affordable housing and accommodates citizens of all income groups, while adapting to their changing needs.
The four challenges/levers can address the global affordable housing challenge, and NORR is ready to do its part to address this overwhelming need.