Silicon Valley-based Gopi Mattel is General Partner and CEO at Lifeboat Ventures, a venture fund that creates disaster impact mitigation startups. He is the Founder/CEO of CellarStone, Inc., Director at Founder Institute, and Advisor for Pepperdine University’s Most Fundable Companies program. The views expressed are his own.
Urban areas in the United States have been suffering from a housing gap for decades now. Homeownership is out of reach for most, and rent is too high even otherwise. California is a case in point as housing has become front and center of its problems. California has suffered a net loss in migration for the first time in history. According to a report by McKinsey Global Institute, California needs 3.5M new homes to accommodate its growing population over the next 30 years.
The problem is getting worse as home prices and rents continue to rise while wages remain stagnant for many young people who cannot afford homes or apartments that are available in their communities. It also makes it impossible for seniors on fixed incomes to stay in the areas where their family, friends and support systems exist. Many families have even been forced to leave because affordable housing opportunities are not available where they live now.
Why does the USA suffer from such a problem? Why is this storm so hard to weather? The answer can be found in two structural problems that have developed over time.
The gridlock of housing codes
House building in the USA is governed by a manifold set of construction and zoning codes. There is a national level code, followed by state-level codes and down to counties, cities and towns. They dictate everything from the materials to be used, the measurements of the materials, the acceptable location of construction, the relationship to the lot and other nearby elements and many times even the final appearance of the houses. These vary significantly and have accreted like barnacles over time. California has standards related to earthquakes. Louisiana has specific standards due to storms. When a balcony collapses, new codes are added to all new balconies. On top of this, states like California and Oregon have additional rules and agencies to cover coastal area developments.
It now takes very significant expertise to navigate the codes and requires knowledgeable architects and state-certified contractors to execute them successfully, It takes a lot of time to get this whole process through the planning and building department of each jurisdiction. Government staff also have to be very knowledgeable and to avoid risk and lawsuits they limit approved materials and methods to a few possibilities. Since certification requires education and training the architects and experts are also tied to approved technologies they have already learned about. This all adds a lot of time and a lot of costs. Because of all of these, introducing new material or a new method into this entire complex system becomes prohibitively expensive and difficult. Innovations are crucial to reduce costs in any business space as you can see in consumer electronics or computer technology. Innovations in materials and methods find it very hard to navigate this construction industry morass and reach the market.
Once people move into a location, they largely do not seem to want other people to move in. They consider that additional housing in their area, especially affordable housing, is a threat to the value of their house. For the majority of Americans, real wealth is acquired primarily from the house they live in. The average retiree averages only about $170k in retirement cash equivalents, but their house could be worth a few hundreds of thousands to a few million, depending on location.
They see any additional construction as reducing their quality of life with more demands on services and inconveniences such as more traffic. They also seem to want to preserve the place they moved in as very similar to how it appeared when they moved there. To this extent, they participate vociferously in any attempt at the construction of houses in their areas. This phenomenon is now known as “Not in My Backyard” or NIMBY behavior.
Since housing and zoning are controlled in local jurisdictions, elected by residents, the homeowners have a disproportionate influence on the rules. They create many rules that make it very difficult for housing to be built. They are part of the elected government machinery and add extra process steps such as architecture review, design review, etc. to make the process slow and onerous. One city has mandated that housing has to be restricted to 1% growth per year. Another has declared that legal lots owned by buyers that are less than a specific size as arbitrarily sub-standard and not allowed to be built on. They set requirements for setbacks and building coverage of lots to limit construction even further. They use laws and regulations (like the CEQA laws) to stymie construction and make it unaffordable for most developers to deal with. Above all, jurisdictions pass zoning rules, that have their basis in the racist practices of the past. This makes it difficult for housing to accommodate many needs including affordability.
How do you change this?
Many institutions are actively working on these difficult problems. The government, charities and private organizations are all doing their part. Many solutions are being rolled out, so the hope is high for solving the housing problems. Here are some ideas that could help:
- Regulations should make it easy to build more housing units. As an example, the state of California passed a set of laws overriding local laws in the construction of second units (ADUs) in single-family residences and making it easier to add housing without having to pay for more land.
- All new regulations and rules related to housing should assess the likely increase of average housing costs and likely reduction of housing units before they are approved. This is similar to state election measures showing the impact of a new measure being voted on.
- Communities should be limited in their ability to restrict an individual’s right to use and enjoy their property. The bar to restrict anything other than safety should be set pretty high.
- Change the odious zoning laws with single-family-residence zoning at the center. This was a backdoor method to enforce racial segregation when it was initiated. It is gratifying to see Berkeley, CA, which created the original single-family zoning, has eliminated it. Many cities and states are seriously looking at this now.
- Companies that depend on employees to live close by should mitigate the housing impact in their communities. Some thoughtful large employers are already setting up investments in affordable housing in their communities. Apple, Facebook, Microsoft and others have dedicated billions for this.
- Charities have to make the shelter a higher priority due to the enormous impact it has on families and children. Many NGOs such as HipHousing, MidPen, etc are working actively to create more affordable housing for the destitute and working poor.
A solution we support is the building of ADUs (Accessory Dwelling Units), which leverages the state’s interest in adding housing units affordably, by allowing people to construct extra units.
Lifeboat Ventures, is thinking about the problem of housing in its quest to mitigate disaster impact on society. Lifeboat Ventures has funded ADU Works to solve the problem of housing at scale using ADUs. This startup threads the needle of many of these issues to construct units that provide many advantages:
- It provides an affordable housing option while solving many issues like space availability and affordability
- It doesn’t require a big budget because there aren’t any land costs involved and construction methods can reduce costs even further
- It offers homeowners an affordable way to add additional living space without having to relocate or buy another property.
- It adds extra space in a distributed manner such that any impact is spread out evenly.
- It allows homeowners, to generate income from renters while providing them with affordable housing.