Are Micro-Apartments a Solution for Affordable Housing?

November 9, 2019

Patrick Kennedy knows how outlandish real estate prices in the Bay Area have become. Owner and president of Panoramic Interests, a development company, Kennedy has seen the cost per square foot of a high-rise in San Francisco go from $272 in 2001 to $833 today. Construction costs in the Bay Area are the highest in the world, he said Friday at the Commercial Economic Issues & Trends Forum during the REALTORS® Conference & Expo in San Francisco.

Patrick Kennedy

© Kevin Berne

San Francisco-based developer Patrick Kennedy said micro-apartments are cheaper to build, which should incentivize builders to construct more cost-efficient housing units for buyers and renters.

These rising costs make it difficult for builders and developers to prioritize affordable housing. That’s a problem for San Francisco’s growing population: For every new housing unit built since 2008, the city has added 6.8 new jobs, Kennedy said. And construction in San Francisco isn’t keeping up with demand. Lowering the cost of construction is “the only way to make any type of impact on building affordable housing in urban areas,” Kennedy said.

His company seeks to reduce construction costs and bolster housing inventory through the development of micro-apartments, which range from 160-square-foot studios to 660-square-foot four-bedroom units. Kennedy said micro-apartments are more cost-effective for builders in three primary ways: They tend to be car-free developments, promote economized living spaces (which he calls micro-DNA), and have standardized designs.

Car-free development. One Panoramic Insights housing project that will bring more than 1,000 micro-apartments to nearby Oakland, Calif., has no dedicated parking space for residents. “What you get instead is more interesting and lively communities, along with lower rents,” said Kennedy. “Why pay for a parking space when you’re next to transit or can call Uber?”

Micro-DNA. To explain the need for ultra-efficient apartments, Kennedy uses the analogy of plane travel. While most housing options in the Bay Area are “the equivalent to traveling business class,” Kennedy said that micro-apartments are “a much-needed economy class option.” The average cost for a 687-square-foot apartment in San Francisco is $3,700 a month, while the 172-square-foot micro-apartments in Oakland will be around $1,400.

Kennedy said that while headlines tend to focus on the rise of high-paying salaried jobs in the technology sector, the growth in urban centers also includes minimum wage and other hourly positions. When asked who constitute the ideal candidates for micro-apartments, Kennedy mentioned working-class professionals like baristas, maids, and construction workers who commute to the Bay Area for their jobs.

Standardized design. Panoramic’s micro-apartment floor plans are standardized, Kennedy said, likening the designs to the limited-option menu at fast food chain In-N-Out Burger. “All we build is a hamburger, a cheeseburger, and a double-double,” said Kennedy. “We standardize all our designs and we don’t vary a bit from that principle.”

At Panoramic’s Oakland project, there are six unit types available across 1,032 micro-apartments. By comparison, he noted that one high-profile apartment building in Manhattan has 709 apartments and 168 different unit types. From a cost-effectiveness standpoint, said Kennedy, “That’s what not to do. Standardized design also makes it possible to go to pre-fab, which is the only way that the Bay Area can build anything that reaches affordability.”

A recent Panoramic project in Berkeley, Calif., was built on a 5,150-square-foot lot with a market value of $900,000. Within that space, the company built 40 identical studio apartments surrounding an open courtyard; the building also includes a community room. The shell of the pre-fab development was erected in four days, and the entire building was finished in six months. “This project can be duplicated on a massive scale on any single-family home lot in California or your community,” said Kennedy.

NAR Chief Economist Lawrence Yun, who was also at the session, said that micro-apartments will be “something that many big cities will require in the future.” While Panoramic’s offerings are all within the rental space, Yun added that micro-condos could be “the future starter home—not a dream home or a permanent home but an option for people who are having a hard time otherwise obtaining homeownership.”