As we start to emerge from the coronavirus crisis, the line between home life and work has not just blurred, it’s virtually disappeared. One likely permanent result of this convergence is that buildings used primarily as residences and those used primarily for working should become more like the other and potentially one and the same. The potential ramifications of this synthesis and the challenges to its wide adoption are only beginning to be explored and understood by the real estate industry.
Despite the market logic and practical efficiency of expanding building functionality, the transformation itself will not be easy, and in many cases not possible at all without a substantial rewrite and reboot of the underlying codes that dictate both how buildings are used and where they can go.
This is the software of real estate. It is analogous to computer software in that it needs to be constantly updated, or it becomes ineffective and out of date. It will take teams of experts, but unlike computer code, there is not a significant feedback loop.
Notwithstanding the considerable attention surrounding the emerging app-based ”property technology” marketplace, the truly transformational “PropTech” advancements will need to think bigger. Turning the static into the kinetic will rely on the strategic rethinking and rewriting of the decidedly old economy building and zoning codes that govern how and where all buildings are built and occupied in the United States.
Just as computer code needs continual updating to keep pace with technological advancements and changing tastes to best serve consumers, building and zoning codes likewise need continuous improvement to enable our existing building “hardware” to keep pace with technology-driven economic and social change. While both the computer and building/planning industries have many highly skilled people to recognize inherent code inefficiencies and points of internal friction, computer code can be rewritten instantly and unilaterally, whereas the time, cost, and visual permanence associated with the built environment, combined with competing industry interests, legitimate public safety concerns and the inherently political implications associated with regulating land use have long made any rapid adjustment to real estate’s underlying codes a practical impossibility.
How big is this problem? Absent the ability to adapt to changing user preferences, a huge portion of all single use U.S. commercial real estate assets may soon be functionally obsolete. When you consider that typical municipal budgets rely upon stable property tax collection to fund most local government functions (schools, police, fire, etc.), and that most municipalities inexplicably still regulate land use based upon thirty year comprehensive planning cycles, the scale of the challenge is clear; the need for rapid rethinking unavoidable.
Let’s start with building codes. Building codes were initially conceived to improve building safety and were based primarily upon the customary uses of certain types of space. In codifying typical use however, building codes transformed what had been customary into what was now mandatory. While before you might have chosen to be like your neighbor, now you had to be.
The mandatory codification of customary use is the single greatest barrier to the creative rethinking of buildings and is therefore the real estate industry’s primary impediment to meeting changing markets. Examined more closely, there are fundamental differences between residential and commercial building codes that impede the potential cross functionality that emerging working and living models will require.
One primary difference between residential and commercial building codes is the number of people who can lawfully occupy the same amount of space. In most instances, commercial buildings are permitted to hold between two and five times as many people as residential buildings. This increased occupant load does not come cheap. Due to higher permitted occupancy, commercial building codes are more restrictive in terms of floor strength (the amount of weight a floor must be able to support, both for people and things), stair width, sprinkler pipe material and head coverage, building hourly air exchanges, handicapped accessibility, structural torsional strength, and parking, than residential buildings of the same exact size and shape.
How might these differences manifest themselves? Let us consider the case of a freelance writer blogging professionally from a Manhattan apartment. Is this a lawful use? Probably not. This simple home occupancy is quite likely a violation of both building code and zoning code.
I know. This seems silly. Really, who is harmed? What could possibly go wrong?
Now let’s say the blogger invites someone to his/her “home/office” for an interview, that person happens to be handicapped, and needs to use the bathroom. If there is no available fully accessible facility, the blogger has just committed a federal crime. Further, if the blogger is using their home as an office and something happens in their “workspace” that requires insurance, would an insurance company even cover the claim? If the individual is using the space in violation of either legal code or their lease arrangement, the answer is probably not.
Viewed within this context, the totality of potential hidden legal and insurance liabilities associated with changing life and work styles is staggering. Which brings us to another interesting question. While we have seen many downtown areas convert formerly obsolete industrial and office buildings into condominiums and apartments, we almost never see residential buildings revert to office space. Why is that?
Once again, it is the software.
From a building code perspective, since commercial buildings already come with the more restrictive physical requirements related to higher potential occupancies, it is much simpler and cheaper for a commercial building to be retooled to meet residential codes than it is for a residential building to convert to commercial use. As a result, it is far more likely that your office may someday be your home than your home will ever be your office.
The other half of this code-driven economic time bomb is zoning. Zoning codes dictate what uses are allowed in buildings and where specific types of buildings are allowed to go. Zoning codes have largely defined and separated the various aspects of American life since 1926, when the U.S. Supreme Court ruled that the Town of Euclid, Ohio, could divide its municipality into specific zones by use. However, in many other countries mixed-use zoning is more prevalent than it is here in the U.S.
While initially crafted to enable peaceful and logical separations between the clearly incompatible (no one really wants a pig farm moving in next door, or a XXX theater popping up next to a pre-school), just like most 1920’s era technology whose foundational premises have not changed, a critical rethinking is now in order.
For most of our history, the logic of preventing a foundry from co-locating within a residential subdivision was based clearly upon protecting the public’s health, safety, and welfare. Today, with many people’s homes or apartments also serving as their office, and many of the physical distinctions between work and leisure largely eliminated (am I on my computer buying something “on” Amazon or on my computer buying something “for” work on Amazon?), the public safety rationale underpinning the rigid separation of life and work functions is greatly diminished. And much of this is new. The speed of this change and the ability of municipal zoning codes to adapt accordingly, will likely determine which local economies emerge the healthiest in a post COVID-19 world.
In the meantime, with almost all Americans now working somewhere zoned and constructed for solely residential use, one unintended result of the COVID-19 related stay at home orders has been the establishment of the world’s largest collective zoning and building code violation. A regulatory framework that lags behind rapidly emerging realities effectively criminalizes common sense lifestyle adaptations.
While this immediate response is crisis-driven, and we doubt that local enforcement will create a problem any time soon, as information technology enables the myriad aspects of modern life and work to be done almost everywhere and at all times, and as more people experience the benefits that working from home provides (more time, less cost, no commute), once the stay at home orders are lifted, they may be surprised to learn how many legal barriers still stand in the way of doing what now seems logical and natural.
A regulatory framework that lags behind rapidly emerging realities will have effectively criminalized many of the common sense lifestyle adaptations we have all just made. This dislocation may very well become the largest and most formidable challenge in restoring our economy post COVID-19.
As we emerge from this crisis, how we recognize, define, and capitalize upon the opportunities before us will mean the difference between near term success or a longer, slower, and more painful return to solvency. For real estate, the path is clear. In a world of rapid technological change, we need to rearm our buildings with the tools to adapt to changing economic realities at the speed of technology. There’s only one way to do that. We must now rewrite and reboot the primary regulatory software that establishes how, when, and where we can use all buildings to allow our built environment to remain a relevant and active participant in helping us all move towards a renewed and stable tomorrow. Now is the time to update the software of our cities and give thought to designing Buildings 2.0.