"Housing is too expensive!"

I've heard that said many times in my twenty-eight year career in Southern California real estate.

"We need more affordable housing."

Politicians like that one. As if someone were deliberately refusing to give the community what it needs.

The truth is that we aren't even speaking the same language. To a politician, affordable is a formula based on a percentage of median area income. Government can attempt to bridge the gap, but government subsidies don't create more affordable housing. The only bona fide solution to housing affordability is higher wages. Politicians would better spend our resources attracting high paying jobs to a region.

To a builder, affordable housing is an additional mandate to create a certain percentage of housing affordable to people earning less than the area median wage. Usually, that is physically impossible to do. Instead, the developer pays "in lieu of" fees to the municipality. It is simply an additional cost, which, in a free market, must be passed on to the consumer. So, to the extent that there is any affordable housing, it makes all housing less affordable.

What no one is willing to admit is that there is no way to build more affordable housing than how we are doing it today. In the end, it will either have to be smaller, different, located elsewhere, or paid for by someone other than the occupant, such as taxpayers and other homebuyers, as is the case today.

And, while government likes to meddle in affordable housing, their only real solution is to spend taxpayers' money and they usually perform far less efficiently than the private sector would given the same resources.

And, this is an important point; developers only develop where they can make a profit commensurate with the risk. Home building is now the arena of large multi- national companies who can leverage the economies of scale to bring a profitable product to market in the most affordable manner so that it can be purchased by the largest number of consumers.

For all of the hand-wringing about the cost of housing, it comes down to a stark reality: you can't build it for less. Well, actually you could, but nobody seems to want that. A Mongolian yurt makes for a dandy shelter and as recently as the 1950's, typical homes were less than a thousand square feet and featured linoleum in every room.

Today, the average new home square footage exceeds 2400 and is constructed to higher standards with better materials, better mechanical systems, and better insulation.

Taking into consideration all types of housing, we really aren't doing that badly. In the last decade we've built more prison cells than any other form of housing. Note that prisons meet not just one, but all of the criteria for affordable housing in that they are smaller, different, located in the middle of nowhere, and paid for by someone other than the occupant. It doesn't get more affordable than that.

And, if you are curious, next on the list … mobile homes. Draw your own conclusions about where we are headed.

But as it turns out, mobile homes are largely prohibited in most communities with rapid growth. As the nation continues to migrate into ten regional economic powerhouses, "Megapolitans," the demand for housing will continue to outstrip the ability of developers to produce it.

The need for housing is so great in some markets that "adaptive reuse" has been gobbling up old warehouses, factories, office buildings and department stores and converting them to residential use.

Places people never imagined calling home are providing an alternative development opportunity.

In Los Angeles, the turquoise terra cotta and gold leaf Art-Deco building that once housed the Eastern Columbia department store has come back to life as 147 light-filled loft condominiums.

At 1100 Wilshire, a sleek, modern structure, looking somewhat like a Motorola Razr sitting in its charger, rises above a seventeen-story parking garage.

Built in 1984 as an office building, it was never occupied. More than twenty years later, it will finally have occupants, but not office workers, loft buyers. With its sweeping 360 degree views and proximity to LA Live, it has been a popular development despite its completion problems. More on that in a moment.

Broadway-Hollywood evokes the myth and the romance of Old Hollywood. A former Broadway Department store has retained its opulent character while being transformed into contemporary homes. Yet the feeling of a bygone era, when departments had names such as, Sundries, Notions, and Millinery, lingers in its soul. Rumors abound of at least two Hollywood A-Listers purchasing here.

The Toy Factory Lofts was once home to the Ace Novelty Company and may be the ideal address for those who never grew up.

Adaptive reuse isn't new nor is it confined to Los Angeles. With the price of concrete and steel keeping building costs around $750 per square foot, retooling for new uses makes sense and often improves the community. An abandoned church comes back to life as a restaurant, a hardware store is reborn as a church, and in London, the old Bankside Power Station now houses the Tate Gallery.

But what is new is the conversion to residential use. The possibilities for unique housing options are unlimited.

While adaptive reuse may provide housing alternatives, there is little evidence that it provides a solution to affordability. Converting an old building to a modern day residence is fraught with problems. First, as with any new approach, there is a general lack of experience on which to draw. Contractors of new construction face unfamiliar challenges when adapting an existing structure.

Limitations are created by what is already there. Retrofitting plumbing, electrical, and mechanical systems often involves compromise. Buildings that wish to maintain existing windows cannot be expected to meet today's stringent energy codes.

City governments often seem uncertain of what they will and will not require a developer to do, and indeed, each building represents its own unique set of challenges.

Many of these buildings are well over fifty years old and predate many building code improvements. As with remodeling a single family home, surprises can drive costs up and push completion times back, sometimes as much as a year or more.

It may very well be that with more experience, the process will become faster and more predictable, and those savings could be reflected in lower per square foot cost. But given the varying nature of the issues that hold up construction and increase costs, that level of expertise will be slow in coming.

What is not slow in coming is the population surge. At the moment, it is a demonstration of the unabated demand for housing in some areas and not a matter of economics.

Unlike prison cells, loft condos aren't vastly smaller or radically different from conventional apartments, though they might be located in a non-conventional building or a non-residential area. But they are usually right in the heart of growth rather than remote areas and therefore tend to be more influenced by market forces than any greater economies achieved through adaptation over new construction.

What they do, however, is help us maintain an important link with our past while being good stewards of the work of our grandfathers and great grandfathers. We are breathing new life into long abandoned sections of our cities. Buildings need people. Abandoned buildings deteriorate. They need the care of watchful, attentive eyes, and by turning them into homes for a housing-starved nation, we have inadvertently found a cost-effective way of preserving them.

Adaptive reuse is a good idea whose time has come. Your home can be interesting, fun, romantic, unique, located in the hat department or the converted boiler room of an old industrial building with fourteen foot, floor-to-ceiling windows, but it won't be the solution to affordability.

Published: March 1, 2007

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George W. Mantor is known as "The Real Estate Professor" for his wealth building formula, Lx2+(U²)xTFP=$∞. A proponent of educating consumers on using homeownership as an opportunity to build an estate, he has set out on a crusade to educate small real estate investors, fellow practitioners, seniors, and high school and college students about the risk-free benefits of planned real estate ownership. His consumer education efforts include a long-running radio program, Mobile Information Center, monthly workshop series, public appearances, informative website and frequent articles. During a career that has spanned nearly three decades, he has amassed experience in new home and resale residential real estate, resort marketing and commercial and investment property. He is currently the founder and president of The Associates Financial Group, an independent, locally-owned, full service real estate and mortgage brokerage, dedicated to creating long-term relationships with clients. Prior to starting his own firm in 1992, he had been Director of Training and Customer Service for Great Western Real Estate. In addition he has served on virtually every real estate committee, including a term as a Director of the California Association of REALTORS®. He is the creator of the Personal Best System, a business and life planning process and the Red Zone Time Planning System for Business Professionals. In addition to Realty Times, his articles have recently appeared in Real Estate Finance, National Real Estate Investor, The Real Estate Professional, Broker Agent News, and RIS Media Power Broker Network Report. He is available for speaking and customized training. His website is www.myafg.com and he can be reached at GWMantor@aol.com.