There are two keys to success
A solution to the country’s severe housing shortage is to build more multifamily homes instead of expensive single-family units that serve only to exacerbate the crisis, the head of a leading real estate finance firm has said.
John Beacham (pictured), the CEO and founder of New Jersey-based Toorak Capital Partners, an investment company specializing in bridge lending, has railed against the single-family model preferred by US builders and town planners, saying they are more expensive to build, have a greater environmental impact and exacerbate commuting times.
Speaking to MPA, he said: “As a country we focus a lot on this idea of the single-family home, which is a very American concept.
“But the reality is that these homes are exacerbating commuting times - the environmental impact of having to drive long distances is not great – and they are also more expensive than multifamily properties. The focus on the single-family model has caused a lot of these issues.”
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Founded in 2016, Toorak acquires and manages loans directly from private lenders across the US and the UK – “a private version of Freddie Mac and Fannie Mae,” according to Beacham.
About 25% of Toorak’s business volume is multifamily, including ground up and rehab loans - a sector that is booming, according to the company.
But it’s the issue of affordable homes and the lack of inventory that is uppermost on Beacham’s mind, having recently decided to incorporate affordable and social initiatives into the company’s portfolio.
He said: “We as a country have massively under invested in our real estate for many years and we’re not building new housing at nearly the rate we need to create homes for people living in our country.”
According to the National Association of Realtors (NAR), there is a shortage of up to 6.8 million new and resale homes in the US.
Although the National Association of Home Builders’ (NAHB’s) figure of one million units is a more modest estimate, experts agree there is no quick solution to the problem.
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The latest figures released this week by the Census Bureau show that new home starts fell by 0.7% from September’s revised estimate of 1.53 million units to a seasonally adjusted annual rate of 1.52 million last month, which was below expectations.
Single-family housing starts fell by a lot more - 3.9% to 1.04 million – the lowest rate since August 2020.
Beacham added: “There’s a supply-demand imbalance, and we have been under-building housing for a long time. We have population growth that continues…but you don’t have any more housing units.”
His response to the crisis was clear: “We’ve got to make more units, and the only way I know to do that really is to do multifamily.”
In line with other industry experts (including the NAHB’s VP for housing policy, Dr Robert Dietz) Beacham pointed the finger of blame for the slow pace of multifamily construction partly on the country’s zoning laws.
“I live in New Jersey and to get multifamily building built in my town requires the approval of zoning board town committees and school boards, all of which are really set up to keep the status quo,” he said.
By contrast, he cited the state of California, which recently took over many of the planning rules to increase house building and supply, as the way to go, saying that Accessory Dwelling Units (ADUs) - usually garages, basements or guest cottages built on or adjacent to the main structure - could also help create more affordable housing options.
“California basically said that if you have a property that looks like this, you have the ability to go build another property on the property. The state will basically override the local town rules, and I think that’s a model that they should apply to every single state in this country,” he said.
Beacham highlighted Toorak’s efforts at funding ground-up multifamily building projects, adding that it would also have a positive knock-on effect on the community.
He said: “This is getting at the core of the issue by creating more density and more housing closer to where people want to work, play and socialize.”
The demolition or renovation of older homes was also a way to address the problem, he added.
“There’s a huge need to take older out of date housing stock, especially multifamily housing stock and renovate those units and put them back into operation,” he said.
“There are many properties around the country that are not habitable, aren’t in great condition and haven’t been maintained for a long period of time. Private capital can come in and take those units, bring them up to standard, and then put them back on the market.”