In this morning's Fizz, neighborhood activist and microhousing watchdog Bill Bradburd laid down a challenge to developers. We quoted him from last Friday afternoon's hearing in front of the city council's land use committee (and this time we're bolding it) saying: "To portray the changes that [committee chair Mike O'Brien is] proposing as somehow affecting the affordability of these units? These are not affordable by any standard. They're just priced below market rate. We have not seen anything from a pro forma standpoint how these things are really priced  [and] if these changes [O'Brien is] proposing will really affect the bottom line."  

And Bradburd added for good measure (though, we left this zinger out Fizz): "I think we should separate the smokescreen from the reality at this time."

We did quote a couple of developers this morning too—Scott Shapiro and Robert Dedon [pictured below, respectively], who believed O'Brien's legislation would increase rents in microshousing (by 20 to 40 percent, Shapiro said). But after Fizz hit, we got a couple of urgent calls from developer lobbyist Roger Valdez. (Valdez gets paid $50 an hour for his lobbying efforts).  

Valdez said he'd cough up one of his members' spread sheets.

Which he did, along with this explanation/ op-ed.—Editors   

Currently, the way microhousing works is that each unit in a building can have multiple rooms. The rooms share a kitchen. In this example, which is based on one of our member’s review of his projects, there are 5 units each with 7 sleeping rooms. The new legislation would end this way of allocating rooms and units, and each room would be called a unit.

Micro Apartment Building

   

Minimum 220 NSF Impact

   
     

Units and Rooms

NSF of Rooms

 

Unit 1

   

SR 1.1

167.6

 

SR 1.2

136.7

 

SR 1.3

139.5

* Smallest

SR 1.4

150.5

 

SR 1.5

150.5

 

SR 1.6

150.5

 

SR 1.7

200.1

 

AVG

156.5

 
     

Unit 2

   

SR 2.1

173.3

 

SR 2.2

142.4

 

SR 2.3

140.5

 

SR 2.4

151.6

 

SR 2.5

151.6

 

SR 2.6

151.6

 

SR 2.7

201.7

* Largest

AVG

159.0

 
     

Unit 3

   

SR 3.1

173.3

 

SR 3.2

142.4

 

SR 3.3

140.5

 

SR 3.4

151.6

 

SR 3.5

151.6

 

SR 3.6

151.6

 

SR 3.7

201.7

 

AVG

159.0

 
     

Unit 4

   

SR 4.1

173.3

 

SR 4.2

142.4

 

SR 4.3

140.5

 

SR 4.4

151.6

 

SR 4.5

151.6

 

SR 4.6

151.6

 

SR 4.7

201.7

 

AVG

159.0

 
     

Unit 5

   

SR 5.1

166.7

 

SR 5.2

136.7

 

SR 5.3

139.5

 

SR 5.4

150.6

 

SR 5.5

150.6

 

SR 5.6

150.6

 

SR 5.7

200.1

 

AVG

156.4

 
     

Total

 5,528.30

 

Rooms

35

 

Average

 157.95

 

Rounded

 158.00

 
     

Proposed Code

220

nsf

Difference

 62.05

nsf

Increase in Size & Rent

39.3%

 
     

# of SDU w/ new code

 25

 

Decrease in units

 10

 

% Decrease

28.6%

 
     

Rental Rate of original

$800

per month

Rental Rate w/ new code

$1,120

per month

Increase

$320

per month

     

Notes: Rate includes utilities.

   

  New rate does not include cost of Design Review.

 

This example is a three-story building with a basement, so it has four floors. There are two rooms per floor so eight rooms, but one of those rooms is a kitchen (which is the current standard for calling it a unit)—so seven sleeping rooms per unit. Take seven sleeping rooms for five units and we have 35 sleeping rooms in this example.

Even though the standard of determining rooms and units would change under O'Brien's proposal (now every dwelling space would be a unit),  applying O’Brien’s 220 square foot average would result in an overall necessary increase in unit size by about 39 percent. The building can’t get bigger just because  units do. So the only physically possible thing to do is reduce the number of rentable rooms (or units under proposed legislation).

The price of the financing, land, and construction on this building don’t change; the only thing that does change under O’Brien’s proposal is the number of units  sharing those costs. There are fewer of them. 

The bottom line on the number of units in this example is a loss of 10 units in order to make the new 220 square foot average with bigger units work in the same overall building square footage. And what effect does this have on rents?

If we take the rent per net square feet and allocate that to the fewer, larger rooms (down to 25 from 35), the rents on the remaining rooms go up from $800 per month per room, to $1,120 per month per room, an increase of $320.

The price of the financing, land, and construction on this building don’t change; the only thing that does change under O’Brien’s proposal is the number of units sharing those costs does. That means, using simple division, that the rent structure changes, and rents are higher for each unit.

There’s a  canard that pops up about the average price per square foot in micros being higher than other multifamily housing units. Of course the square footage costs are higher. Think of it this way. If you take your kids to the baseball game and a vendor offers you lemonade at $.50 an ounce for a 16 once drink, you’d gladly pay that instead of paying $.25 per ounce to a vendor offering you and your kid 100 ounces of lemonade. You just don’t need that much lemonade; it would make watching the game less enjoyable, and it’s likely that even the two of you couldn’t finish all that lemonade.

The point is, people pay higher prices per ounce, or square foot, or per pound all the time, because they don’t need more volume even when the costs are cheaper per unit of measurement.

But force Safeco bleacher hawkers to use a tray that only carries 10 lemonades instead of 20, and they're going to start to offer bigger sizes (the 100 ounces in the example above) to sell as much lemonade as they can in one efficient sweep. That'll bump the overall price—And worse, bump the price for a drink size people don't want.  

 

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