A Once in a Lifetime Investment
A Once in a Lifetime Investment
A note on scale
In Rhode Island, state leaders are discussing spending $250,000,000 of the state’s American Rescue Plan Act funds on (affordable) housing. This is a big number in the context of recent spending on housing in Rhode Island. Last year, the state approved a ballot measure to issue up to $65,000,000 in general obligation bonds to fund affordable housing. The state has passed a similar bond issue every few years. Even with that, RI spends only about one fifth, per capita, on affordable housing construction as neighboring Massachusetts.
This has often been referred to as a “once in a generation investment” in affordable housing. Wow! So what are we getting for this once in a generation opportunity?
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First let’s understand the scale of Rhode Island’s housing market. According to the US Census, RI has nearly 1,100,000 people and around 470,000 dwellings (detached homes and apartments, market rate and income-restricted). Last year new building permits were issued for only 1,374 new units (an anemic .29% growth rate, compared to the national average of 1.05%).
In our market, a newly constructed dwelling costs in the range of $250-350 per square feet to build (and sometimes a lot more. (This is true whether they are income-restricted, capital “A” affordable, or market rate “luxury”--the cost is roughly the same.) A typical 1,000 square foot apartment (a generous 2-bedroom or a tight 3-bedroom) costs around $300,000 per unit to build.
If the whole $250M were just plowed into building new homes1, paying 100% of the cost, it would represent about 833 homes, housing around 2,000 people. More realistically, the ARPA money would be combined (leveraged, in the jargon) with various other affordable housing funding sources. If the new funds were an additional, let’s say, 20% of the capital required for new homes (and we didn’t run out of sources for the other 80% of the capital requirement), then this historic investment could support as many as 4,166 homes, housing roughly 10,000 people.
That would be a +/- 10% increase in the stock of affordable homes in the number of income restricted affordable homes.2 But considering the total housing stock of the state, this once-in-a-generation investment in affordable housing would represent less than a 1% increase in the number of homes available. Or another way, it’s about three years of regular construction activity. So while it’s a big investment, we need to build way more than this in the next generation to make sure that there’s space for our kids to have a chance to live in the community they were raised in.
And then, how would you actually get these new homes built? How quickly?
It probably takes a year before funds actually start to go out. And another year or two for projects to get approved, all the other subsidies lined up, and ready to build. Right now RI is building around 1,300 homes per year. Our construction industry is going full tilt, as seen in rising construction costs, delays, and difficulty bidding for new projects. If we built an additional (over current baseline) 4,000+ affordable homes over a 5-6 year period, we would need approximately 50% more construction capacity (workers, lumber yards, cranes, etc.)
There are about 21,000 people working in construction in Rhode Island (probably more that are uncounted by the census). We would need to train another 10,000+/- people, not just as construction laborers, but as licensed tradespeople like electricians and plumbers. It can take four years to complete an apprenticeship to become an electrician, mason, or skilled carpenter. If we can’t just import large numbers of skilled tradespeople, we’ll have to train them ourselves, and it’s going to take time, money, and institutions we may not even have. If we just don’t have the people, it doesn’t really matter how much money we try to throw at the problem, we just won’t be able to build the homes.
I come away from this analysis with two thoughts:
First, I sure hope this is not what a literal once-in-a-generation investment looks like!–It’s not nearly transformative enough to address the underlying causes of rising housing cost burdens and homelessness. I think we sometimes look at big numbers and say, yeah, that’s a big effort. But we really do need to think about the scale of the systems we’re intervening in.
And that’s the second thought, our housing market / industry is a system. A system is complex, with many moving pieces and feedbacks–when one thing changes, other things also change in response. Just trying to push more money though the system only really works if the lack of money is the problem… and if the way you do it doesn’t cause other parts of the system to break.
So what are some things that we could do to improve the housing system? Well, we do need a lot more construction workers. Could we fund increased job training over a 10+ year timeline? Guesstimating here, but let’s suggest that training costs $20,000 per year for two years (plus their paid apprenticeship after). Our $250,000,000 could train another 6,250 construction workers,3 about a ⅓ increase in our construction labor capacity (and the potential to build more homes every year). Probably there are other ideas out there as well. But a once in a generation investment needs to transform how we build housing for everyone, not just build a few thousand more homes
This is not actually the plan, it’s divided up into a number of budget categories, but I’m keeping things simple here. But it does mean that the actual effect will be even less than I’ve sketched here.
I couldn’t find an exact number (and it may be that it's not known), but the state is overall under its goal of 10% of the housing stock as deed restricted affordable housing.
But again, this only works if more money into job training actually results in increased employment–but does it? That’s a good empirical question!