If you go check out a new construction apartment building in NYC, there's a good chance that you'll find a billiard room, a gym, and maybe a rock climbing wall. What you won't find as easily is a unit that is designed with families in mind. So why don't developers build out more apartments for people with kids? On this episode we speak with Stephen Smith, the Executive Director of the Center for Building in North America, and Bobby Fijan, a developer and floor plan designer. This transcript has been lightly edited for clarity.
Key insights from the pod:
Is there really a shortage of apartments for families? — 4:02
How do apartment developers think? — 5:33
What do families really want? — 8:35
The data problem in apartment development — 13:13
How regulations drive building design — 17:17
How American apartment buildings are constructed — 22:33
Why American apartments are built out of wood — 25:07
How fire safety codes drive construction choices — 34:05
---
Joe Weisenthal: (00:10)
Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
Tracy Alloway: (00:15)
And I'm Tracy Alloway.
Joe: (00:17)
Tracy, you know, we did a recent episode on rent recently and whether the price of rent is ever going to go down. And I asked the question like, ‘Why don't they ever build new apartment buildings for families?’
Tracy: (00:27)
A totally un self-interested question...
Joe: (00:30)
From now, from here on out, now that our years of just doing supply chain episodes are gonna come to an end, let's just do episodes about our own personal frustrations about the economy.
Tracy: (00:40)
All right. Where are all the dog amenities for apartments? That's my question.
Joe: (00:45)
That's the thing. There's plenty of buildings with dog amenities and, as you know, I have two kids and sometimes we look at new apartments and, like, I want a building with dog amenities and billiard rooms and gyms and doormen and all that stuff. But they don't make those buildings for people with families. And my kids don't play pool.
Tracy: (01:09)
Well, you’ve got to teach them. But I think you're right. It seems like a lot of apartment buildings are geared towards young professionals. For the most part, it's studios, it's one bedrooms, here in New York. It tends to be larger apartments that have been cut up at one point in time, and you end up with these really weird floor plans where like the bathroom is right next to the kitchen. And it's not a very pleasant experience for anyone, but I think there is this overarching question of why are these decisions being made in the way that they're being made?
Joe: (01:43)
Right. There must be some reason. And the people who are building these buildings, you know, they presumably have some good business reasons, but I don't know what they are. And I find it frustrating and I guess I'd like it to change, but I don't know if any developers are going to change their business models for me. I think the expectation is I just gotta move out to the suburbs. My kids are really tired of sharing a bunk bed.
Tracy: (02:07)
Okay, what I will say also is I think this is a peculiarly American problem. Because having lived in many other places, apartments are well-designed. Even in Hong Kong, where the average size of apartments tends to be incredibly small. They are designed for that tiny square footage. And so they tend to be quite functional, even for families. And certainly in Europe, there's much more of a culture of renting versus ownership. So that you do have families who spend, you know, decades in the same apartment building.
Joe: (02:41)
I think you're totally right. Here the basic idea is that if you live in the city, in an apartment, you're young, you are single. And then if you have kids at some point, then you move out to the suburbs. And the housing stock is not made for people who would, say, like, to stay in the city and maybe be a renter in one unit or one building for 20 years.
Tracy: (03:00)
Yeah, I think that's exactly right.
Joe: (03:02)
All right. So what explains the state of affairs? Is there any reason to change it? We are going to be speaking to two guests. I think they both heard our last episode and then spent a couple days sort of debating it on Twitter. And so it's like, well, why debate on Twitter when you can come in and talk to us rather than wasting it all in tweets?
We are going to be speaking with Stephen Smith. He is the executive director at the Center for Building in North America, a think tank around construction policy. And we're also gonna be speaking with Bobby Fijan. He is a real estate developer, is all about apartment floor plans and the thinking behind the business reasons for decisions. So Bobby and Stephen, thank you so much for joining us.
Bobby Fijan: (03:46)
Very glad to be here.
Stephen Smith: (03:47)
Yeah, thanks for having me.
Joe: (03:48)
So Stephen, I'll start with you, but really, are we right? Let's start with the premise of what we're talking about. That a lot of these new developments really aren't geared towards families. Is that correct?
Stephen: (04:02)
Yeah, I mean, the typical new apartment building in the United States, the developer will try to cram in as many studios and one bedrooms as they can. And I think it's mostly driven by policy. You have a lot of planning policy that tries to encourage more family size units, but they really push against some more fundamental regulations that make it quite difficult to build family-sized apartments in any sort of affordable way in, not just the US but also Canada — North America.
Tracy: (04:31)
Stephen, can I ask you a quick follow up before we bring in Bobby, but why does it matter? Do we need to have families in apartments? Why can't everyone just move out to the suburbs?
Stephen: (04:40)
I mean that's the safety valve in America. You can just move out to the suburbs and we make it quite easy to build family sized houses. So, I mean does it matter? I guess, you know, if you want our cities to thrive, if you want people to be able to raise families in them, you know, for environmental reasons or even for some social reasons then I would say it matters. I don't want to live in the suburbs.
Joe: (05:04)
I don't either. I like living in Manhattan.
Stephen: (05:05)
I don't want Joe to have to live in the suburb.
Joe: (05:07)
Thank you. Thank you for recognizing that. All right, Bobby let’s bring you in. So you come from the business perspective, what is the sort of big picture math in your view of someone who builds a new apartment. They have an opportunity, they get the approvals to put down apartments on a plot of land. Why is it better to target young professionals and the types that don't need that space for children?
Bobby: (05:33)
Well, it is simple math in that smaller units generate higher rent per square foot, and that is the primary driver of returns for ground up apartments in the way that we finance them here in the United States, which is, you know, through private market capitalism, unlike other parts of the world.
So in those places, someone will look at the building in their spreadsheet and they'll look at other comps in the market. And the primary way that they compare units to other units is they say, “Here's the rent, here's the size, here's the number of bedrooms I want to try and make it slightly smaller.”
So it's like the power of diminishing marginal returns in reverse, right? A 599 square foot one bedroom will get basically the same revenue as 600 square feet. So that dynamic ends up pushing all units to being smaller. That's the basic math for why real estate developers are incentivized to try and put as many of those types of units [as] they can into the building as possible. There's a host of other things that I'd say have to do with the different timeline of incentives, but that's the largest driver.
Tracy: (06:44)
So walk us through, as a real estate developer, you know, when you are considering a potential investment or a potential new project, what are the things on your spreadsheet that you're looking at? How are you making those calculations?
Bobby: (06:58)
Well, I like to think that I make them a little bit differently than other people, but I would say in general, what I and other people are looking at is the trends in the market to see which unit types are getting the highest rents. Those obviously are going to be within the class of new construction, upmarket.
So you're not going to compare yourself to a pre-war building unless it's been heavily upgraded. And I'd say it really ends up being that simple. If there's a large problem that we have within real estate, which I hope to advance in the future, and I hope our industry advances, it's that the real estate data is very simplistic.
Rents are extremely opaque, and things get I'd say reduced down to different unit types. There's a lot of different data on new housing inventory that gets added to individual markets. And that's almost never broken down into type. And even when it's broken down into type, it's definitely never broken down into is this three bedroom, four families, or is this essentially three one bedroom suites? Those kinds of nuances are always lost in data.
Joe: (08:06)
Yeah, that's something that came up in our last episode on rent, which is that we talk about multi-family, etc., but it's kind of meaningless. What city are they in? These units are not all fungible, it's not all the same.
Tracy: (08:24)
I just realized we should probably talk about what we mean by apartments meant for families. What exactly is it that families would like to see here?
Stephen: (08:35)
I would say fundamentally what families want is a lot of bedrooms. And you know, Joe, when you think about what would you like, you'd probably like, most of all, you'd like just one extra bedroom. You don't need an extra walk-in closet. You probably don't need an extra bathroom. You just want one extra bedroom.
So fundamentally, I think a family sized apartment might be a three bedroom, one and a half bath, maybe a three bedroom, two bath. But the second and third bedrooms, they don't need walk-in closets. They don't need en-suite bathrooms. And that's what you get in the US. And maybe it's not by design, but it is in some sense mandatory based on the building and zoning codes.
Joe: (09:09)
I think it should really just be Tracy hosting this, and I should just be like the third guest since I have all these complaints. But clearly Stephen, you must view this question somewhat differently than Bobby to identify zoning and codes as being a driver rather than the simple unit math.
Stephen: (09:30)
Yeah, I mean, I would say in the United States, to add an example, you know, let's say, let's imagine your typical new construction apartment. There's a long hallway in the middle of the building and then perpendicularly arrayed off of it, there's apartments and you enter one of the apartments. And if it's a two bedroom apartment, it's designed in what someone once called a ‘bowling alley configuration.’
So you enter it, you enter in the kitchen, you're about, I don't know, 30 feet from the window probably. And there there's not actually a whole lot of window space in the apartment and it's 30 feet away from you. So on the left you have a bedroom, so you know, you enter in the kitchen and then you go forward and then you see like a living area. And then on the left you have a bedroom. On the right, you have a bedroom, and those are by the window. But what do you fill all that other space with there? There's a ton of this space that would not exist in Europe or in Asia, mostly because the building is much, much thicker than it would be in another country.
So when we think about what a family wants, they want another bedroom and a bedroom typically (by codes and customs) has to have a window. So, you know, you want to capture that extra window space, but then you need to fill all this space, at least in the United States. And, you know, this is square footage, it costs money to build, it costs money to maintain, you have to fill it with something, you're probably gonna fill it with bathrooms, which are, you know, if anyone's ever done a home renovation, they're the most expensive part.
So, in the United States, when you add an extra bedroom to a two bedroom apartment or a one bedroom apartment, you typically have to build, you know, just within the apartment about 300 square feet of extra space. The bedroom itself is only about 10 by 10, (a hundred square feet), but then you need to fill all that space in the middle.
Whereas in other countries in Europe, Latin America, or Asia, to add the extra bedroom, you might need an extra, I mean, in some cases you can just add an extra hundred square feet, but maybe you'll add an another, you know, 150, 200 square feet, but you're adding much less space to add that bedroom. So, you know, buildings cost money based on the rent per square foot. When you rent an apartment or buy an apartment, you're probably not looking for a number of square footage, you're looking for a number of bedrooms.
Tracy: (11:56)
Bobby, you mentioned the lack of floor plan data. What do you mean by that exactly? Because when I think of floor plans, I think that's like the one thing that is potentially available and kind of standardized across every apartment building in America, certainly.
Bobby: (12:13)
Oh, Tracy, where to begin answering that question?
Joe: (12:18)
You scratched an itch...
Bobby: (12:20)
Yes. So I'd say that question has been driving me in my career, I'd say for the last like seven years and bothering me, I'd say in, in looking at my own Excel models when I've built ground up apartments, it always intensely bothered me that in Excel there was no differentiation between square footage. It's always a multiplier, like a base rent per square foot multiplier, depending on type, right?
It's just like a little pivot table. If it's one bedroom multiply by four square $4 a square foot, if two bedroom multiply by usually less than $3.50 right? And there's no differentiation between those two. So I'd say that is something that has bothered me for a while, given that anyone who walks into a unit knows that there are 700 square foot one bedrooms that are great and 700 square foot one bedrooms that are a piece of junk. But it has to be captured like in data somehow or else...
Tracy: (13:11)
It's like the qualitative difference?
Bobby: (13:13)
I would say, yes, qualitative, but you have to use some sort of data analytics or some sort of data columns just to say, well, how large is, again, similar things like we all know that height matters. Height should increase rent. But what would be the only way to prove that? Well, you would have to go through and measure the height of every place, then equalize for all other real estate type attributes and then say ‘Aha, now we know that hype matters by this much.’
When in fact every person knows that to be true. We just don't know exactly how that's true. So I would say that the difficulty on that has been driving me and my career for a while. It's why I left a real estate development for a little while to start two different sort of technology ventures and now am in, I'd say the software data business around floor plan data.
Tracy: (14:00)
Well I was just about to ask, could you create an algorithm that takes in data inputs and then tries to spit out, I don't, know, like a livability score?
Joe: (14:09)
Well, I was just going to say, you know, Bobby, in your Twitter bio you have quote, I don't know who made this quote, maybe you even made it up, ‘Bill James of apartments,.’ Bill James, of course, being the Moneyball guy who famously took baseball and tried to get it out of pure, sort of subjective things like ‘That guy has good hustle’ and tried to really quantify the speed that someone could go. Or all these other things. So how do you go about sort of taking these things that seem subjective? ‘Yeah, that seems like good, that's nice and airy, it's roomy...’ and try to put some like hard math behind it?
Bobby: (14:47)
So that is a self-chosen moniker And it is an homage to, I think, the mathematical approach. And it is also meant to me to be a reminder of how long it takes to do that. For those people who remember the story of Bill James, he was doing this by manually calculating things from box scores that he got from newspapers 30, 40 years ago.
And it took at least 25 years for the general approach to move forward. And the other thing that I also greatly admire about that approach is that none of his particular algorithms are that meaningful or that that good anymore. But it was the approach of saying we are going to go through and turn the sweet science into something slightly analytical.
So for me, how that works in floor plans is, as you mentioned, Tracy, there are a tremendous number of floor plans. Every apartment has one. The dimensions on them are nearly always useless because it's not always clear whether it's pointing to a wall or whether it ends in the middle of the room. Sometimes the dimensions are just incorrect. Sometimes they've taken room names and changed them from something useful to something useless like from ‘bedroom’ to ‘dream room’ and some other…
Joe: (15:56)
Grand room...
Bobby: (15:57)
Yeah. Some other ridiculous things which confuses people. But my basic approach has been to build some software tools to take essentially these low resolution image files and turn them into a lot more usable pieces of data. So instead of a room or a unit being described as a “775 square foot one bedroom,” it would be described as there is a room that has dimensions X and Y, it may or may not have a living room, it may or may not have direct access to a bathroom, and it has a closet with linear feet hanging of Z.’
And by breaking things down into some more pieces, then you can do some of the fairly straightforward statistical analysis on apartments to say, do people want like a kitchen that's 14 feet or are they okay with 11? Does someone prefer that extra foot in their bedroom or in their living room given a fixed space?
So I'd say that's where it initially started. The family-oriented aspect of those apartments kind of came out of the data and saying, there are a lot of apartments and many of them are not being built to these sorts of specifications. Stephen touched on some of them, which is that the size of closets in the United States is at least two to three times what is in Europe. And I'm not an expert in Europe. But they’re huge.
Tracy: (17:16)
In Europe we still use wardrobes — a piece of furniture that acts like a closet.
Joe: (17:23)
I had one of those! I had a studio or rather I had a loft in the financial district for awhile. We just bought this huge sort of wardrobe from Ikea that stood next to our TV, basically.
Bobby: (17:37)
Stephen is absolutely right that our building form does drive a lot of this stuff, right? So the general process for real estate development is that a developer is going to go identify a piece of land and then first go to the city and say, ‘I would like to build this approximate footprint with this many units, this many parking spaces, this amount of like mixed use.’
It isn't until after the building is approved that then they'll go through and configure units because you're not going to spend money on full architecture, right, when you don't know the general layout. So once the building footprint is defined, then it's a matter of how do you shift around walls? How do you chop up that space into a unit mix and type that maximizes your returns?
And that's why almost always small ends up driving. Small and deep ends up really pushing things forward. And once the building is set at being like 65 feet wide in the long direction, well now we know then simple math, like your units are going to be about 30 feet deep. Well then that means your smallest studio can be 450 feet. A two bedroom need to be what...
Joe: (18:42)
Wait, what does deep mean?
Stephen: (18:46)
The distance between one window to the other window on the other side of the building. So you're looking at it from the street. How far back does the whole apartment go? And it goes, in the United States, it typically starts at about 65 feet, I would say. Right, Bobby?
Bobby: (18:59)
Well, it depends. It depends on what market. But that is quite typical.
Stephen: (19:05)
And I would say, I mean, when we talk, you know, Bobby was talking about the built form of the building. We don't typically think about real estate as a field, like education or healthcare, where there's like a lot of government intervention because it is all owned and developed privately, but I think we probably should.
I mean the regulatory burden is quite high in modern day society. Even outside the United States. The architect isn't really designing the building. The codes are designing the building. So this form is sort of set from the start. So there's not a ton of flexibility from the architect in a lot of cities. They put out these little diagrams of how the building should look and it is very close to how it actually works.
And the architect can do the finishes, they can do the interior layout of the building, but the fundamental form that is pushing you to, you know, Bobby mentioned a 700 square foot one bedroom. I mean, that's a concept that just doesn't exist in other countries. In other countries. A 700 square foot apartment would be a two bedroom apartment. And it's not just because our bedrooms are a little wider. It's not just because we have a lot of more closets. We do have more, a lot more closets. It's because that's really the only way that you can design the building if you want a window in the bedroom.
Bobby: (20:14)
That's exactly right. So once the building, once the unit is 30 feet deep, having a window in the bedroom means the unit is going to be at least like 23, 24 feet wide. So then basic geometry just tells you how your different units step up in size as you add bedrooms.
Tracy: (20:32)
Just to play devil's advocate, and I know Joe says he doesn't like the suburbs, but setting Joe aside, what evidence do we have that families, you know, assuming that there there were good size departments designed for families, what evidence do we have that families would want to stay in that kind of presumably more urban environment? Are there other factors at play where maybe people want to buy a house and build up equity? Maybe they want different schools, maybe they want a garden for their kids to play in? What evidence do we have that families actually want this?
Joe: (21:07)
Just to add on to that. And even though Tracy started it as a devil's advocate question, I agree with it. I do wonder, do people go to the suburbs because the houses are available? Or do they go to this, you know, or do they go to the suburbs because they want the suburban life?
Stephen: (21:21)
I mean the rent shows you that there's the demand for it, the rent and the prices. You know, a typical family housing unit in New York might be a townhouse. And I mean the prices are extraordinary. So, you know, I would say the evidence that the demand is there is the very low vacancy rate in our cities at the high price. And you know, you look at other countries that simply allow this kind of family-oriented apartments and you have a lot more of a culture of families living downtown.
Tracy: (21:52)
Just on that note, can you give us some examples of how other countries handle this? Because I often think with the US housing market, it's really helpful to look at how other places do it, because there's often such a big contrast.
Stephen: (22:04)
Yeah. So the, the design of a North American apartment building is very globally unique. And it is what in other countries they might think of as a hotel. So you enter the building you might remember it from the movie The Shining, there's a big long hallway. And there's, you know, there's apartments.
Tracy: (22:21)
That’s a great description of American apartments. It's like The Shining.
Stephen: (22:23)
Yeah. And I mean they all look like this and maybe the hallway will twist and turn a little, but it's going to be a long hallway. There's going to be units arrayed to the left, arrayed to the right. On the end of the building, there might be some, you know, three bedroom sort of reasonably sized apartments because they're on the corner.
In the rest of the world — let's use Europe because the people have a lot of familiarity with it — typically, there will not be as much of this hallway space, if at all. So typically what it'll be is it'll be, you'll enter the building, there'll be a single staircase. If there's an elevator, it'll probably be a little smaller. It'll definitely be a little smaller. So you'll have this vertical core of the staircase and the elevator and then arrayed off of it, there will likely be between one and four, but probably two apartments on either side, left and right. So each building, or at least little core of a larger building will, you know, let's say it's a six story building, pretty typical height. There will be 12 apartments in the building. It's not going to be a, you know, a hundred unit building. There's not gonna be a long hallway.
And these units if you're American or if you're familiar with New York, I'm really describing a tenement. So, you know these units, they'll go from the front of the building to the back of the building. In the rest of the world, the building will typically be maybe 45 feet deep and the apartment will go from front to back.
So in general, there will be a much higher ratio of surface area to volume, which is to say you're going to have more windows. So in 700 square feet, you're gonna have two bedrooms. In 900 square feet, you're gonna have three bedrooms. Whereas in the US those are one and two bedroom apartments. In the rest of the world, you're much more likely to have windows in the kitchen, windows in the bathroom. You just have more windows generally and much more flexibility with laying out the plan.
Joe: (24:11)
It's funny because if someone asked me what the differences between a European and apartment build and a US apartment building is, I don't know if what I would've said, but then the moment you said like those tiny elevators, and that single central core staircase, I was like, ‘oh yeah.’ And I haven't spent that much time traveling in Europe, but I immediately got that it's like random Airbnbs I've stayed in like Italy or Paris
Stephen: (24:36)
It's not just Europe, it's every, you know, from, you know from Bangladesh to Switzerland. This is how an apartment building is built. And this was how an apartment building was built in America too. If you think about like a Chicago three flat or a New York City tenement or, you know, one of those little two story four unit buildings in Los Angeles. This is how apartment buildings by humans are designed. It's just North America, we've taken it a different direction.
Tracy: (25:03)
Well, can I ask why has that happened?
Stephen: (25:07)
It's a combination of I would say two things. It's a combination of our very unique approach to fire safety rules, which are in turn driven by our obsession with building out of light wood frame. And then it's also, I would say, our obsession with the way our society looks down on apartments and confines them to very small pieces of the city.
So let's take the second one first. To have an apartment that has a lot of windows, you tend to need a little bit more land. And in America, you know, we have these competing planners who have these competing mandates. On the one hand, there's clearly a housing crisis and, you know, especially in our cities, we need to allow more apartments. On the other hand, you know, the local politics are such that nobody wants to live near an apartment.
Nobody wants it near them. So we confine them to these loud polluted arterial streets. So if you think about a new apartment building, it's probably not being built on a leafy side street with a lot of land. So, you know, most of our land is locked up in single family houses and it would be pretty trivial to demolish them and build something new, but that's not really allowed.
So in this attempt to try to fit so many apartments on such a small piece of land, the buildings just get like really thick, really deep. And this is a good way of cramming in a lot of square footage. It's not a great way of cramming in a lot of bedrooms. Then on the other side of things, the United States has a very unique approach to construction. Something that foreigners are very surprised about when they watch American TV series is you punch through the wall...
Tracy: (26:32)
Drywall.
Stephen: (26:33)
Yeah. You punch through the wall and there's nothing there. It's built out of wood and drywall. So we've traditionally allowed people to build out of light wood frame, whereas in the rest of the world, again, from Bangladesh to Switzerland, you build the building out of concrete. So as a result, the buildings traditionally have been quite flammable. America has a very high rate of fire deaths. You're much more likely in America than in any other advanced country, and a lot of far less advanced countries, to die in a building fire than in other countries.
So we have all these mitigations. One of the mitigations is, probably the most important one, in driving apartment design, is two interior staircases. There has to be two ways to get out of the building by staircase. This is very unique globally. In other countries, this is really reserved for skyscrapers.
So if you need two entrances, and since 9/11 in most of the country, (except ironically New York), they have to be, the term is ‘remote’ from each other. They have to be at a distance. So if every apartment needs two ways and they need to be a distance from each other, well the most logical thing to do is have this long haul hotel-like corridor in the middle. So that is the simple version of what's driving all of this.
Joe: (27:38)
So Bobby, as a developer and as a floor plan expert, floor plan knower, you know, how much does that resonate? And when you're thinking about a new building, how much do you feel constrained ultimately in design by some of the rules that Stephen’s been talking about?
Bobby: (27:57)
Oh, completely. But I would say like in sports, the way that I sort of approach it is, yeah, these are the strictures. I want to try and make things as good as possible within the bounds of that, within the bounds of those limitations. So Stephen’s absolutely right that those are the design limitations. I'd say that there were some other ones too that have to do with capital. It is much more efficient to build a 250 unit apartment building double loaded very quickly and inexpensive out of wood. And that is one thing that, especially across the United States we have done very well, very, very quickly in Texas, in the suburbs.
And those projects are the ones that institutional investors want to put their money in. Typically a large developer is not gonna waste their time doing any project that's under 200, 250 apartments, both from the equity side and it is just as complicated to build 10 as it is to build 250.
Tracy: (29:13)
So I think you mentioned before we started recording this, but that you yourself are investing in more projects that are explicitly designed for families. How is that process? How is it in terms of identifying those projects, how common is it that they're being proposed? And then secondly, what are the different calculations that you would make for a family oriented project versus something, you know, I guess more ‘normal’ for an apartment building?
Bobby: (29:43)
Well, I think about it from a product perspective, which is another area where I believe that real estate is lacking. The product philosophy for most apartments, certainly in the United States, is to offend as few people as possible. That's why there's three different color palettes of cabinet colors.
Tracy: (30:02)
Gray, gray and gray?
Bobby: (30:03)
Exactly right. Right. Everyone uses the same LVT.
Joe: (30:06)
I've seen off-white.
Bobby: (30:07)
So that's a problem in general. So I would say the way that I start by approaching it is saying I want to build something that is a product that will actually delight families, which to me means it's going to need to be a smaller project. A 250 unit project with kids would be unpleasant for everybody.
And I'd also say that I think there's a lot of diversity within family and family oriented, which is why I sort of use that phrase. I think that it needs to be a product that is appealing to someone who doesn't, not just people who have kids. Another problem that I'd say within US apartments is that it's fairly monolithic, in terms of who goes after, right? I like billiards rooms, but every building has a billiards room. Everyone has like a rock climbing wall here in New York. They all have these, they all fit these same things. So what I want to do is build something different.
How does that differentiate from a typical building? It's going to be smaller. It's going be about six to a hundred units. That is good for me in that I am not competing with say, the Tramell Crow and Avalon Bays of the world who would eat my lunch operationally. And the difference in the type, again, fitting within the double loaded corridor, means one of the metrics that I track in floor plans is something that's called like bedroom ratio, which is the amount of square footage that is behind bedroom doors. And the other one is the ratio of the size of bedroom one to bedroom two, or bedroom one to bedroom three. So for a family, the main thing that I look at is reducing the size of those second and third bedrooms.
Joe: (31:41)
Right. Because if it's like two roommates, then presumably they want the same size. Whereas, well if it's kids, they can have a small [bedrooms], they don't need a master bedroom
Bobby: (31:50)
And they don't need an en-suite bath. That might be nice, but when you're talking about like urban or expensive suburban markets, space is at a premium. And so it's all about making the best change you can.
Tracy: (32:04)
So this might be one for either Bobby or Stephen, but you know, Stephen talked a little bit about the regulations in the US and how that impacts building design specifically around fire safety. Are there additional regulations that kick in if you know you're going to be having small children living in a space?
And the reason I ask that is because I know in New York, if if you live in an apartment every once in a while you get a form from the city asking you to fill it out. If you have small children in that apartment and they need to put like bars on the windows so they don't fall out, and other safety measures. Is that a consideration or a thing that comes into play?
Bobby: (32:41)
Generally not with a new construction. So there are regulations for children around things like lead for older buildings. Owners have to continually certify, and have to have a higher level of certification if there are people under a certain age living there. But for new construction, those safety things are, I'm not aware of any building regulations or construction regulations that are different for who occupies it.
In fact, regulations like the FHA require that anyone be allowed to rent any unit that is there. Now, design will practically discriminate, right? Like if you were to design, you know, a 375 square foot studio, a family I suppose could rent it, but they're not going to.
Stephen: (33:22)
Yeah. And I mean, even for these big apartments, I mean, the reason they don't build them is if they did build them, you couldn't afford it. So, like Joe, you know, you're looking for a bigger apartment. Well, I'm sure you're seeing them. They're just out of your price range.
Joe: (33:31)
Yeah, that's what we see, it’s like, okay, there'll be the one bedroom, the studio, the one bedroom, maybe the two bedroom, and if you, you know, I don't even need three bedrooms, I just need two. But if you go to that next level, then it balloons. So the units do theoretically exist. They're just so much more expensive. Again, this gets to some of these questions about do families like really want to live in cities, etc. But if there was one sort of policy change or prescription that could really improve the family orientedness of the new housing stock in New York, what would it be?
Stephen: (34:05)
I'm going to cheat and give you two. Well, actually in New York, I can just give you one. We need to zone more land for apartments. And I think when people think of land, they think of big corn fields, but most urban land is tied up in single family houses. So, you know, a single family, you know, including in New York City. So, you know, we think about New York City as, you know, brownstone, Brooklyn and Manhattan. But you know, the truth is a lot of New York is Staten Island, outer Queens, outer outer Brooklyn. So more of that land, more of those lots need to be zoned for low and mid-rise apartments. And then some things that need to be changed a little in Newark and a lot in other cities, is we need to change our building codes so that you can build a building with a single staircase. In New York, you can. In other places, you can’t.
Joe: (34:50)
So maybe make the construction material more resistant to fire. And then if you do that you can achieve similar outcomes with fewer points of egress?
Stephen: (35:01)
You could do that. Although, you know, a generation or so ago, the United States started requiring sprinklers in all buildings, which is globally extremely unique. You won't find a sprinkler outside of a highrise skyscraper in Switzerland. So, you know, at least in theory, and I think in practice, a sprinkler should provide the same fire protection that, you know, just building the whole thing out of concrete does.
So I think frankly, the buildings are already, I mean the real fire traps in America are the single family homes. You can still build a single family home pretty much everywhere out of light wood frame and in most places, especially the places that actually build them without a sprinkler system.
So in America, we treat apartments as these dangerous things and single family houses as, you know, this just a right and normal thing. But the truth is our single family houses are quite dangerous. So I think if we applied similar standards, either brought the standards of the single family homes up, or I wouldn't do this but, the standards of the apartments down, then I think it would make a lot more sense to build apartments. Right now it makes a lot more sense for families to live in single family houses, partly because they're, you know, they're built as fire traps, so they're a lot cheaper.
Tracy: (36:11)
Bobby, what would you like to see when it comes to maybe encouraging more family oriented apartments in the US?
Bobby: (36:19)
I think developers have the tools to do it currently. It is going to require creative partnerships with the right kind of capital. Short-term private equity is going to be a lot more difficult in financing these kinds of projects. But they work, they pencil. Mainly it requires, I'd say, developers being willing to do the chicken and the egg. I fundamentally believe that families do want to live in cities.
Joe: (36:43)
Taking this sort of like product oriented approach to thinking about real estate and demand for normal consumer goods, it goes through fads and changes all the time. Is there, do you perceive a fundamental change in demand? Are there more families like mine that want to stay in the urban core? And is this something that's different in the year 2023 than might have been in the year say 1993?
Bobby: (37:09)
It's not something that I can show yet. It's only something I can know as being someone who's lived in the city and knowing the number of people who are meeting people in the city, falling in love with the city. Like they have kids here. They move after those things occur. So I would say at the moment, the option isn't there for them to stay.
So I mean, I believe, and I'm willing to bet on, and I think other developers should too, that that will work. People in the United States are delaying having families or having, they are having fewer kids, but most people still eventually make that decision and that product is not being built at all. Which to me is, even just as an investor, is a compelling thesis. If even just a small percentage of people stay, then at the moment they have no new choices.
Joe: (37:57)
Bobby and Stephen, I feel like there's so many sort of branches of this conversation that we could take. Super fascinating. I'd love to have you both back on sometime. Gotta leave it there. But seriously, there's so many interesting like aspects of the housing conversation we could take this. So appreciate you both coming on the podcast.
Stephen: (38:17)
Thank you for having me.
Bobby: (38:18)
Thank you.
Tracy: (38:19)
Yeah, that was great guys. Thank you so much.
Joe: (38:34)
So Tracy, I mean it, I know you really want me to move to the suburb so that you can have more space in New York, etc., but maybe there's an option. Maybe it could happen that we could both stay here.
Tracy: (38:44)
I just want more dog amenities, that’s what I’m saying.
Joe: (38:47)
Maybe we could have both.
Tracy: (38:47)
No, you mentioned branches from that episode and one thing that that has always sort of confused me is why in the US the standard building material is that really thin wood framing. I've never understood that. And sometimes when you see — especially single family houses — going up, to Stephen's point, and you see the framing for those, it really looks like nothing. And it does look like they could A) either go up in flames very quickly or B) just fall over with like one good gust of wind.
Joe: (39:19)
Yeah. You know, another aspect of this that we didn't get into, it's just like, you know, home ownership culture versus rental culture and whether there is a perception that you don't need to build as well for rental. Maybe the problem is really just, you know, capitalism and this need for everyone to own a home or the distortionary impacts of this idea that everyone needs to own a home.
Tracy: (39:44)
Yeah. There's that. But to me the big thing that resonates is this idea that choice of building materials leads to the need for additional regulation, which ne leads to design choices that are not necessarily optimal.
Joe: (39:58)
Well, and then, you know, I don't know, I think we talked about this and I haven't found it. There's like this famous like post that someone put on Medium about why all cars look this the same. And I think it's just because they all have to design for the same safety and fuel standards regs.
And so there really is sort of one optimal design. And it kind of sounds like, you know, to some extent that's the same thing that's happened with homes, which is that if mainly you're sort of feeling like you're optimizing for one sort of set of regulations, then you do just get these endless gray buildings. And then the only places where you can exercise some creativity is in the rock climbing wall. And I want that too. I want, you know, I also want a rock climbing wall. I'm not against these things.
Tracy: (40:40)
‘How regulation ruined design.’ That's a good topic. Okay. Shall we leave it there?
Joe: (40:46)
Let’s leave it there.
You can follow Bobby Fijian on Twitter at @bobbyfijan, and follow Stephen Smith at @marketurbanism