We also set up regulations to make building truly dense affordable housing impossible. Where it is possible, it offers lower returns than low density luxury housing.
> [affordable housing] offers lower returns than low density luxury housing.
Not true - as a RE investor you're always looking for around 1% of the property's value per month as rent ($1 in rent per month for every $100 the property is worth). Much below that and you're not going to have sustainable cash flow.
It is much, much easier to get $1k per month in rent from five $100k properties than it is to get $5k per month from a $500k property. Especially in areas with high property values (California), you're lucky to break 0.4-0.5%, which is not going to support any meaningful level of investment, only speculation. Which in turn helps drive a cyclical market, which helps pump up the higher end home values, which further hurts cash flow, etc etc.
Lower value housing may offer lower returns in an absolute sense but as a far as ROI it's much easier to make it on the lower end of the scale.
The 1% is based on those costs. If the costs to build affordable housing are greatly inflated due to permits, city fees, professional services, zoning waivers, subsidy to BMR, and additional construction costs, the ROI will be artificially lower than single family detached luxury homes.
In addition to building, it is harder to buy. If I had bought a large SFH, I could have put 3% down (FHA loan). Instead I bought a smaller townhouse, and 95% of lenders would not accept any less than 25% down.
It does make intuitive sense: build profitable luxury housing and the affluent will move in there, and while it ought to depress prices on cheaper places, a bunch of new condos does wonders for property values, which in turn drive up taxes, and therefore rents.
Not true - as a RE investor you're always looking for around 1% of the property's value per month as rent ($1 in rent per month for every $100 the property is worth). Much below that and you're not going to have sustainable cash flow.
It is much, much easier to get $1k per month in rent from five $100k properties than it is to get $5k per month from a $500k property. Especially in areas with high property values (California), you're lucky to break 0.4-0.5%, which is not going to support any meaningful level of investment, only speculation. Which in turn helps drive a cyclical market, which helps pump up the higher end home values, which further hurts cash flow, etc etc.
Lower value housing may offer lower returns in an absolute sense but as a far as ROI it's much easier to make it on the lower end of the scale.