If a megaproject proposal doubles the number of onsite affordable housing units in a bid to get approval, doesn’t this mean the profits will be substantial?

The latest proposal for the Lincoln Yards project on Chicago’s north side will now include 600 on-site affordable housing units – 300 more than before:

It will be the largest on-site commitment in the 16-year history of Chicago’s affordable requirements ordinance, according to Ald. Brian Hopkins, 2nd. Hopkins will join the Chicago developer and affordable housing advocates to announce the revised plan in a news conference Tuesday morning at City Hall…

Sterling Bay wants to build about 15 million square feet of commercial and residential buildings on 54.5 acres of riverfront land along Lincoln Park and Bucktown. That includes 6,000 residential units on the sprawling site between North and Webster avenues…

Under the compromise unveiled Tuesday, Sterling Bay will provide 600 on-site affordable units, while the maximum number of off-site units it will provide within 3 miles decreases to 300, from a previous 600. The Affordable Housing Opportunity Fund payment remains unchanged.

Half of Sterling Bay’s $39 million fee will support construction of about 1,000 affordable units citywide, and the other half will support 15 years of rental subsidies for 130 very low-income families through the Chicago Low Income Housing Trust Fund, according to Hopkins.

Two quick responses:

1. If the developers can offer more onsite units, then Chicago should probably think hard about increasing its requirements. The developer is still very interested in the project even with providing more on-site units.

2. This project must really be projected to turn a nice profit if these last-minute adjustments can be made. Perhaps it is all about negotiating – offer a low figure and then it looks nice if you adjust up – but developers tend to want to get plenty of profit by the end.

On the whole, when these kinds of prime properties come up for development and/or a developer gets a big idea, there could be better ways to ensure there is more affordable housing included in what is eventually built rather than just settling for a relatively low figure. Even with more land devoted to affordable housing and parks, the plans still provides plenty of room for money to be made. Would Sterling Bay be scared off if the affordable housing requirements were higher and, if so, would other developers jump right in to develop such a property?

Dwindling yet still present pay phones

Even as the number of pay phones has dropped dramatically in recent decades, they can still generate money:

In 1999, you could still plunk a coin into one at 2 million phone booths in the United States. Only 5% of those are left today. About a fifth of America’s 100,000 remaining pay phones are in New York, according to the FCC…

But pay phones remain a steady business for some of the 1,100 companies operating them across the country.

Pay phone providers reported $286 million in revenue in 2015, according to the most recent FCC report. They can still be profitable, particularly in places where there isn’t cell phone or landline coverage, said Tom Keane, president of Pacific Telemanagement Services. Keane’s company operates 20,000 pay phones around the country.

Yet, even if pay phones help serve the need for calls in certain circumstances, the article says the future of pay phones is “bleak”:

More low-income Americans, once a steady revenue stream for pay phones, have turned to prepaid phones or receive subsidizes on cellphones through the federal government’s Lifeline program. Ironically, providers contribute to the Lifeline fund on their phone bill taxes.

Four quick thoughts:

  1. What is most intriguing to me here is not that pay phones are dwindling – the rise of smartphones in everyone’s pockets may be just as remarkable – but that there may still be a market for a limited number of pay phones. Is there still a business opportunity in the remaining phones?
  2. Imagine something drastic happens to the cell phone network. How would people communicate over long distances with the decline of pay phones and landlines?
  3. What other features of physical spaces are still around but are also anachronistic like the pay phone? Perhaps the water tower on top of some buildings or the occasional hitching post.
  4. Last thought: it takes some work to have sufficient change to regularly use pay phones. I realized again recently that I rarely make cash purchases and this means I generate a lot less spare change than I did before. If I really needed to use a pay phone, it would take some work to get some change.

Builders to construct “jewel box homes”?

Builders have ways to sell small but high-end homes:

Stumped on what to do about buyers who are looking for a home that comes with a tiny price but a McMansion look and feel? Enter stage right: the jewel box home.

Ranging between 650-2,500 square feet, these are a win for buyers who want something custom but affordable, but they’re also an ideal product for builders looking to diversify and sell a higher-end product across multiple demographics…

It’s just a smaller-than-average single-family home — not a starter home or a tiny house — built with high-quality materials, exquisite detailing and custom finishes with an emphasis on tailoring the home to the owners’ way of life for maximum elegance, harmony and function…

Another key advantage to building jewel box homes: They’re ideal for high-density areas. In some of Weremeichik’s planned communities, he has reached densities up to 9-11 dwelling units per acre.

I suspect this may be a way for builders to avoid the ignominy of constructing oversized single-family homes: they can build (1) homes with all sorts of nice touches that still command high prices and (2) fit even more of these smaller homes onto parcels of land. Of course, there is also the matter of providing the sorts of homes that at least some in the housing market desire. However, are the profits to be made in these smaller homes enough to outweigh what could be made in larger homes or other development projects?

Calculator suggests developers can profit and build affordable housing

The Inclusionary Calculator suggests developers can typically make 10% profits and build 12-15% affordable housing at the same time:

It can feel like a mantra among private developers: Requirements by municipal governments to include affordable units in market-rate housing developments make those developments unprofitable, even unfeasible. It may be one of the most frequently repeated claims about housing in general. Can it possibly be right?

The Inclusionary Calculator is an effort to settle this question—and to prove that one major assumption about affordable housing is a myth. Developed by the Cornerstone Partnership, the tool allows users to simulate the balance sheets for market-rate developments for any number of scenarios. It accounts for factors such as costs of production, financing, affordability set-asides, and parking requirements…

“In almost every case, we could target a 10 percent profit for the developer and still leave at least 12 to 15 percent of the units to be affordable,” McCarthy says…

So, not only does inclusionary zoning not raise the costs of market-rate construction beyond reason, it also does not raise the price of market-rate units for homeowners. It eats away at developer profits. That makes affordable housing a moral question, not a feasibility issue: Do leaders dare to challenge developers on their profit margins?

The Inclusionary Calculator is available here after watching a training video and registering.

This poses a fascinating question in the housing industry (as well as for other sectors of the American economy): just how much profit is enough? Very few people outside the housing industry would have any idea how much money developers and others make on the construction and sale of housing units. Perhaps the process is deliberately opaque or perhaps it is simply complicated. But, I wonder how the public in many communities would respond if they knew that 10% profits were generally possible while also providing affordable housing.

Of course, this is just one hurdle in the construction of affordable housing. Not allowing developers to claim that they can’t make money would help the process but in many communities, neighbors would still complain. A NIMBY response often takes over; who lives in affordable housing? What does this signal to outsiders? Won’t this lower our property values?

Developers give reasons why they won’t construct starter homes

Here are some of the reasons given by developers regarding their lack of interest in starter homes:

The market for new “starter homes” is drying up, mostly on the supply side. As credit markets recover, there are more and more people who could be buying their first homes … if only builders could build them. But for a host of reasons, they can’t:

  • Materials costs have risen.
  • They lost a lot of their labor force during the economic downturn.
  • Communities entitled large lots during the boom, and now they won’t zone them for smaller parcels.
  • Cash-strapped local governments have raised permitting and other fees.
  • Building codes and other requirements make it harder to build cheap.

This makes it extremely difficult to build a house for less than $200,000 in many places, which is a hefty multiple of local median incomes.

Three quick responses:

1. I know this doesn’t get much discussion in many industries but when they say it is difficult to build for less than $200k, what exactly does this mean? A home at that price won’t meet their profit goals? What kinds of profits do developers and builders make at the lower end of the housing market as opposed to the higher end? Builders can’t make any money off new started homes or they can’t make enough money for them to see it as worth their time?

2. As noted, communities have some influence on this process. How many are really willing to zone for starter homes and/or have different guidelines for starter homes?

3. Isn’t this an opportunity to construct homes more efficiently? It sounds like there is some turmoil in costs – material, more uncertain labor, higher fees and requirements – but this is where the housing industry could find some new solutions.

Walk-NYC-sociologist gives pricey tours based on his knowledge

Sociologists often debate or lament their public role but one sociologist who has walked all of New York City 16 times makes money on giving tours:

Helmreich, who wrote “The New York Nobody Knows: Walking 6,000 Miles in the City,” wants more than anything to share these lesser-known wonders of New York with others. He’s even willing to play tour guide, showing off his knowledge of the city’s more than 121,000 blocks…

Helmreich’s tour, dubbed “The New York That Nobody Sees,” can accommodate up to six people on an eight-plus-hour tour to any of the five boroughs. The cost: up to $1,500 per person, including meals, luxury transportation, travel expenses and signed copies of his book.

If a descendant of Italian immigrants wants to see the neighborhood his great-great-grandfather lived in when he came to America, Helmreich can show him and tell him about how it’s changed. If a real estate developer wants to know what the next hot neighborhood will be, Helmreich, a sociology professor at City College well-versed in gentrification patterns, can bring her to the precise block with the best housing stock ripe for a renaissance…

“The New York Nobody Knows” was such a hit that Princeton University Press signed him to write five more books, each one delving deeper into one of the boroughs.

Is he doing a public service through sharing his research knowledge or is he out to make money? Can he do both? It is not uncommon for academics to get involved with consulting or working with organizations. Yet, it sounds like the opportunities created by these tours are primarily for the wealthy and people who could capitalize on the information. Additionally, how recognized are his sociological observations by other sociologists and other scholars of New York City? Sociologists can seem to discredit more popular appeals – see the discussion around Sudhir Venkatesh’s The Floating City – even as many want to have broader recognition from the public.

More broadly, it would be worth hearing from more sociologists about the line between research and entrepreneurship. Is there a line where one has “sold out”? How can one do both?

Stat of the day: cable companies now actually have more Internet customers

New figures show cable companies now have more Internet customers than TV customers:

For the first time, the number of broadband subscribers with the major U.S. cable companies exceeded the number of cable subscribers, the Leichtman Research Group reported today. Among other things, these figures suggest the industry is now misnamed. Evidently these are broadband companies that offer cable on the side.

To be sure, the difference is minimal: 49,915,000 broadband subscribers versus 49,910,000 cable subscribers. But even assuming a huge overlap in those numbers from customers who have both, the primacy of broadband demonstrates a shift in consumer priorities. Nearly all the major cable companies added broadband subscribers over the past quarter, for a total of nearly 380,000 new signups. Cable subscribers don’t have to worry about TV as they know it going away any time soon. But cable is on its way to becoming secondary, the “nice to have” compared to the necessity of having broadband access…

The better margins boil down to the fact that broadband is purely about access, while cable is about content. The crux of the cable side of the cable business is hatching deals with the makers of sports, news, and entertainment so there’s something to send through the box. And the costs can be steep. ESPN, the most pricey by far, tops $5 per subscriber per month.

The temptation with these numbers is to see a decline in television but I don’t think this is necessarily the case. TV has had remarkable staying power over the decades (it doesn’t hurt that the technology keeps getting better with better picture and sound as well as lots more channels) and Americans continue to watch a lot of it, on average. The Internet offers different possibilities compared to TV: access to more specific information, interactions with other Internet users, and a less passive overall experience. They also can be consumed together, presenting intriguing potential for interactions between the two.

Perhaps the bigger story here are the larger profit margins with the Internet…