Will a major need for affordable housing lead to population gains in less desirable places?

As I read another story the other day about a need for affordable or reasonably priced housing – this time for aging baby boomers – it led me to a hypothetical question: would people move to less desirable locations if housing there was significantly cheaper? Many Americans have retired to cheaper locations that also have other amenities like nice weather (think Florida and Arizona). But, would they move to cheaper suburbs within a metropolitan region that perhaps has a lower quality of life or move to a new state that is cheaper but less glamorous (think a move from the Chicago region to Kansas or Youngstown, Ohio)? In other words, would they trade fewer amenities for cheaper housing? Is cheap housing so big of an issue that many people will move to acquire it? Conservatives argue that people should vote with their feet. And the continued population gains of the Sunbelt suggest that they do, to some degree. But, people have particular ideas about what they expect when they move. For retiring, they often want to go somewhere warm. For affordable housing, they want to go to nice communities.

These desires strike me as normal in our society: people want a nice yet affordable place to live. However, is this possible? Does the movement of people to particular locations drive up prices and long-term costs (providing a higher quality of life has to be paid for by someone)? In the end, can you really have it all: an affordable place to live but with great care or nice amenities or a high quality of life? Maybe not.

Imagine affordable housing is such an issue in the Bay Area that a large group of retirees decides to move to a small town in North Dakota. With the money made on the sale of their homes in the Bay Area (or the large rents they save), they have money left over to both save for the future and put into the local community. Granted, North Dakota doesn’t have the same kind of life as the Bay Area – no major city, different weather and topography, and social connections left behind – but the housing is certainly cheaper and the anxiety about day to day existence might be reduced. This might sound far-fetched outside of some odd religious group…but if housing is such a need, why couldn’t it happen?

Searching for communities for the under $20k house for poorer residents

Truly cheap yet good housing is hard to find. Here is a group who thinks they found an answer though the construction may be the least of their issues:

For over a decade, architecture students at Rural Studio, Auburn University’s design-build program in a tiny town in West Alabama, have worked on a nearly impossible problem. How do you design a home that someone living below the poverty line can afford, but that anyone would want–while also providing a living wage for the local construction team that builds it?

In January, after years of building prototypes, the team finished their first pilot project in the real world. Partnering with a commercial developer outside Atlanta, in a tiny community called Serenbe, they built two one-bedroom houses, with materials that cost just $14,000 each.

The goal: To figure out how to bring the ultra-low-cost homes, called the 20K Home, to the broader market. “We’re in a kind of experimental stage of the program, where we’re really trying to find out the best practice of getting this house out into the public’s hands,” says Rusty Smith, associate director of Rural Studio. “Really this first field test was to find out all the things that we didn’t know, and to find out all of the kind of wrong assumptions that we had made, and really find out how we had screwed up, honestly.”…

In Serenbe, their first problem was a zoning issue: The houses were too small. (It’s a common problem for anyone trying to build a tiny home.) But they also realized there were numerous other issues, from dealing with insurance, to the bank. In the pilot project, the homes will be owned by the community and shared with artists as part of a residency program. But in a typical case, when someone is buying the house on a limited income and can’t afford the $20,000, banks won’t finance a mortgage for such a small amount of money.

It is worthwhile to consider that the actual construction is not the issue. Rather, how many communities and institutions really want to have cheap housing nearby? This is a common problem with creating cheaper housing: it is often within communities that are already cheaper, leading to issues like a lack of property value appreciation, a concentration of lower income residents, limited local tax revenues, and a stigma for the community.

The real trick with cheaper housing, then, is to be able to intersperse it among more expensive housing. We know this is especially helpful for young kids. (Thinking of the larger picture, this is why school integration wouldn’t go far enough – you don’t just want to bus students to go to school together but you want a range of incomes and groups to live near each other.) Again, who is really open to this?

Legislative options to add more housing in California

A number of legislative options are on the table in California to encourage the construction of more housing and counter the actions of nearby residents:

Dozens of the solutions floating in the state Legislature aim to address that supply problem, including several that would streamline the process by which housing projects get approved (one, for example, would limit the circumstances in which a special permit could be required to build a granny flat). Others would not-so-subtly make it much harder for local residents and government agencies to block new projects, like by requiring a two-thirds vote for any local ordinance “that would curb, delay, or deter growth or development within a city.”

That latter bill epitomizes the frustration many young working people and families have as they try to attain what was once a milestone of adulthood—homeownership—that is now out of reach for even those making decent money. Some of those folks are YIMBYs, or supporters of a “Yes in My Backyard” agenda. “We know that our housing struggles are not the result of impersonal economic forces or lack of individual effort, but derive from bad policy and bad laws that have restricted housing growth for decades,” said YIMBY leader Brian Hanlon, co-founder of the California Renters Legal Advocacy and Education Fund, at an April Assembly committee hearing….

It’s unclear what the chances for each bill are. Though legislators seem eager to spur more housing construction quickly, some of their allies might not be. Many environmentalists, for example, want new projects to comply with CEQA, the state’s landmark environmental law that requires developers to study and possibly mitigate the environmental impact of whatever they build. And developers are never quick to embrace mandates that they include affordable units in their projects.

If the bills do pass, will any of them actually make a dent in what’s become a crippling problem all across the state? The Sacramento Bee’s Dan Walters recently wrote off the current proposals in the Legislature as “tepid, marginal approaches that would do little to close the gap.” Cuff admits many critics dismiss individual bills as a drop in the bucket. “But on the other hand, let’s put a drop in the bucket,” she says. “A drop is better than a drought.”

This is a long-term issue that may take decades to work out. The issue is complicated as it involves social class, race and ethnicity, understandings of local control, and property values.The article notes that some claim the legislative suggestions thus far are too small and I suspect a number of the bills would lead to lawsuits from communities and residents.

If I had to make a prediction (a near impossible task) based on what has happened in many suburbs throughout the United States, I would guess that the wealthier communities will find ways around these legislative actions. This could happen through the courts as they can better afford the time and money or there could be loopholes in the bills. Either way, the burden of the affordable or cheaper housing will likely fall on communities that are lower income and non-white.

Affordable housing shortage affects much of America

A new report from the Urban Institute suggests affordable housing is a concern in both urban and rural counties:

Nationwide, only 21 units are available per 100 extremely low-income renter households (those earning below 30 percent of the area median income) without government assistance. With assistance, it’s 46.

UI has also created a neat interactive map, which is an update from a previous version. It lets users explore the gap between the demand and supply of affordable units in every single U.S. county. (The National Low Income Housing Coalition released a similar report for states and metros this year, based 2015 one-year American Community Survey data. The UI report is based on 2010-2014 five-year estimates, which is better for a county-level analysis.) The UI map also lets users toggle the impact of assistance from the Department of Housing and Urban Development (HUD) and the Department of Agriculture (USDA).

Here’s what the affordable housing deficit looks like in Hays County, Texas. (Urban Institute)

The map shows how much more severe the problem is in urban counties. Overall, they have 42 units per every 100 low-income renting household, compared to 62 among rural counties. But in a blog post, the UI researchers note that while housing costs are lower in the countryside, so are incomes. And poverty rates are higher.

Urban areas are going to get the most attention with this issue since they have more people looking for housing, more government aid, more media, and more developers and builders interested in constructing housing units there. But, if affordable housing is difficult to supply there, how much harder must it be to supply it in more rural areas?

It would be interesting to think about how a lack of affordable housing in rural areas might contribute to affordable housing issues in urban centers. In other words, people who can’t find reasonable housing in rural areas might move to urban areas where they are more housing options but this could also exacerbate existing urban housing issues.

The conservative approach to affordable housing

Richard Epstein of the Hoover Institution summarizes how conservatives might approach affordable housing:

The key challenge is to choose the correct path for housing reform. Many of Carson’s critics think the proper line is to require new developments to save a proportion of units for low-income residents, which will ensure, they claim, “that economically diverse neighborhoods and housing affordability will be preserved for generations to come.” The implicit assumption behind this position is that government agents have enough information to organize complex social institutions, when in fact they are slow to respond to changes in market conditions and are often blissfully unaware of the many different strategies that are needed in different market settings. No one wants to say that governments should not lay out street grids and organize infrastructure. But they operate at a huge comparative disadvantage when it comes to real estate development on that public grid.

Far superior is an alternative view that I have long championed. The first thing to do is to abandon the assumption that there is a systematic market failure requiring government intervention. The second is to remove all barriers to entry in the housing markets, so that supply can increase and prices can fall. These barriers are numerous, and include an endless array of fees, taxes, and permits that grant vast discretionary authority to local officials. A removal of these burdens will allow us to harness the private knowledge of developers who will seek to work in those portions of the market that hold the greatest profit opportunities…

The so-called housing experts all sign on to the general mission of HUD to deal with the various ills of housing shortages, but none of them have the slightest interest in the market solutions that could improve the overall situation. To make the point more clearly, market solutions do not include letting developers steamroll small property owners through eminent domain abuse, or allowing local communities to pass restrictive zoning and permitting requirements that are intended to block low-income housing. Rather, the correct answer is to stop eminent domain abuse, to peel away layers of regulation, and to cut out the extensive network of government grants that impose strings on how housing can be built. Perhaps Carson does not know much about the current programs. But if he puts the necessary reforms in place, he will have no need to master the details of endless federal, state, and local regulations that have created the affordable housing crisis in the first place.

Epstein sees two issues: there is not “a systematic market failure” and too many regulations limits supply and discourages builders. While I am not suggesting federal government programs alone can solve affordable housing (see this earlier post where I discussed this idea with other academics who study public housing), I am skeptical about this line of argument.

First, the “systematic market failure” often discussed by academics is related to race: whites made rules (and then institutionalized them with lending institutions and the federal government) that ensured whites did not have to live with other racial and ethnic groups. Even before some of this was institutionalized, the relatively freer housing market of the late 1800s and early 1900s was already promoting residential segregation. See the case of the Black Belt on the South Side of Chicago or separate black suburbs (see Places of Their Own by Andrew Wiese). And if people didn’t make market decisions about housing based on race, they would do so regarding class. The idea of exclusionary zoning is that wealthier communities set up conditions that do not allow for the construction of cheaper housing. Epstein suggests at the end that exclusionary zoning might have to end but then how would he balance the interests of lower-income residents versus the property rights (often an important cause among conservatives) of existing owners?

Second, regulations may discourage builders. But, loosening regulations does not necessarily mean that they would suddenly build cheaper housing when they could make more money on larger houses. This is a common conservative argument about the Bay Area in California: if regulations protecting land could be done away with, more housing would be built and prices would drop. This could happen broadly though I suspect some of those existing homeowners would not like this (and property values are of utmost importance to many homeowners) and it is not clear that builders would construct housing that is that much cheaper (even if they are contributing to increased supply). Perhaps Epstein could provide some examples where this – builders have moved to fill cheaper niches in the market – has happened. And it may be hardest to do this in places where there are already a lot of regulations; moving to a lot fewer regulations or no regulations requires a major shift on everyone’s part and probably must be demanded by a majority of the public (requiring some sort of political movement).

Come to think of it, there are ways these arguments could be evaluated with data. Are there places in the United States that have more or less housing regulations and whose housing outcomes can be compared? Are there any truly free markets in housing that working in providing affordable housing?

Additionally, it may be time for some more creativity regarding housing. Could we have different locations – cities, states – try different approaches and see what works?

 

Apartment construction increases in the Chicago suburbs

The construction of apartments in the Chicago suburbs reached some high marks in 2016:

Meanwhile, in the suburbs, more apartments were opened last year than in any time in the past 20 years and demand for those units meant suburban rents grew more than the increases downtown, according to research by Appraisal Research Counselors…

The rents in new or almost-new units in the suburbs increased 6.7 percent in 2016, while they increased just 2.85 percent downtown, according to Appraisal Research. The median rent was just $1.39 per square foot in the suburbs in 2016, while downtown it was $2.89 a square foot for space in a newer building. In other words, for 1,000 square feet a renter would pay on average $1,390 in the suburbs and $2,890 for one of the new downtown apartments. An older but well-kept Class B building downtown would be $2.52 a square foot, or $2,520 for 1,000 square feet…

The strongest occupancy in 2016 was in DuPage County, with 95.7 percent of the apartments full and the median price of a two-bedroom apartment at $1,315. Northwest Cook County was 95.4 percent full with a two-bedroom apartment averaging $1,390. The weakest area was the North Shore at 93.8 percent occupancy and a two-bedroom apartment at $2,446…

“From Schaumburg to Naperville, you are starting to see new construction,” said Stephen Rappin, president of the Chicagoland Apartment Association. It’s a trend that’s occurring nationally after the surge of construction in downtown areas.

This is where the debate between whether cities are growing or suburbs will win the day breaks down. What if the American future is denser suburban development and a shift away from single-family home ownership even as people stay in the suburbs? This would represent a change from “typical” suburban life – single-family home, lawn, lots of private space – while better mimicking some urban conditions such as denser housing, renting, and giving up a home to be near certain amenities.

As this article suggests, it is not surprising that the suburban apartment demand would be high in places with more economic and quality of life opportunities, places like Schaumburg and Naperville that have little greenfield space but where people would still want to live. Just like Chicago where apartment construction has boomed in the Loop but lagged elsewhere, a similar process will likely take place in the suburbs. This may be good for developers since there will be high demand for certain places but isn’t necessarily good for aiding issues of affordable housing.

The middle class finding it difficult to find city housing – what to do?

Some urban neighborhoods are hot but this can lead to housing prices that limit how many middle class residents can move in:

The casualties in this war are mostly the middle class. In 2016, rents continued their years-long rise, incomes stratified further, and the average price to buy a home in major US cities rose. The strain pushed the middle class out of cities like Boston, San Francisco, Los Angeles, New York, Austin—the so-called “hot cities.” Some families move to the suburbs. Others flee for less expensive cities. But across the US, the trend holds: cities are increasingly home to high-rollers who can pay the high rents or down payments and lower income people who qualify for subsidized housing.

Macroeconomists say this a good problem to have. These cities are growing. People want to live in them. Stagnating economies in the Rust Belt might envy this kind of trouble. From the perspective of the overall wealth of cities, the middle class being pushed out doesn’t matter. But it matters on the human level, the neighborhood level. In Fort Hill, it means that a teacher at the local elementary school cannot afford to live in the neighborhood where she works. The effects on inequality, mobility, and the demographic composition of cities are very real, their causes multifold, and the solutions difficult…

“It’s very hard to get people to understand that the affordable housing crisis is not for the very poor,” says lawyer Mechele Dickerson of the University of Texas, an expert in housing and the middle class. It’s for people with good jobs who are not poor enough to qualify for subsidized housing, nor rich enough to pay the rising housing prices. “A family that makes $100,000 can’t afford to buy a house in most US cities,” Dickerson says…

The incoming administration has given experts no reason to expect it will prioritize fixing the affordability crises for the middle class. “In terms of the federal government, I see no hope,” Dickerson says. But as with immigration reform and climate change, housing affordability is something that states and cities can tackle on their own. In 2017, this trend toward decentralized power will continue—that is, if cities make retaining middle class residents a priority. That means relaxing the zoning laws to permit more housing stock to enter the market. This is the single most helpful thing the city of San Francisco could do, for example, to counter the tech money forcing prices on the limited housing stock up, says Shulman.

Four quick thoughts:

  1. This article seems to suggest that the government should do something to help middle class residents live in cities and the Trump administration may not help much. So, we do still in America subscribe to the idea that the federal government should subsidize middle class housing (whether in suburbs or cities)?
  2. I’m a little skeptical that the real problem is middle class housing rather than housing for poorer residents. Either this is a very broad definition of the middle class – which is entirely possible since most Americans consider themselves to be middle class – or cities really don’t care about poor and working class residents. I know cities want to keep middle-class residents but about people with less education and job prospects with less pay?
  3. This is an area that could really use some innovation. Big government doesn’t seem to have all the answers (what is the long-term effect of HUD?) nor does the free market (which tends to lead to residential segregation by race/ethnicity and class). What could really work well here is for a number of cities to try new ideas and see what might work.
  4. As the article notes, one of the biggest barriers is existing residents who don’t want to be near “affordable housing.” I’m not sure how you can get around this though there have been some indications that well-designed affordable housing limits some of the stigma. How do you get Americans (urban or suburban) to get past the mentality of pulling up the drawbridge after they move into their desirable neighborhood?