America’s Affordable Housing Problem
How America got to be so unaffordable, and what we can do to make it more affordable; an analysis of good-in-theory v. outcome based policies
America has been struggling through a crippling housing crisis for much of the last decade. Many may intuitively feel this, but the data is even starker than emotions suggest.
Nearly half of all renters, amounting to 20 million households, are burdened by housing costs. 10 million renters are severely burdened, spending more than half of their gross income on housing. It’s not much better for home owners. The average national price to income ratio is 5.4, but far higher in the least affordable metro areas. San Fransisco, that bastion of unaffordability, had a price-to-income ratio of 9.6 as of 2020, where median home prices and incomes were $1.15M, and $120k, respectively. Of course, this is a very high salary. For most working class families, after high state & city taxes, expense of raising kids, and general cost of living are factored in — without even considering the ability to enjoy one’s self every now and then — it could take well more than 25 years to afford the median home. More likely, working class, and increasingly middle class, families will never be able to afford a home in San Francisco. Most end up moving to find housing that’s more affordable elsewhere. This has disastrous consequences on the composition of our communities, and society writ large.
The story is the same in countless cities and towns around the country, where people are forced from their communities in search of affordability. It has dominated traditional news outlets, social media, and casual conversation, as housing is one of the few institutions (nearly) all Americans can resonate with, and are compelled by. Where we live forms our identity, is responsible for what friends we make, how we view the world, and even contributes to the opportunities we get in life, including our economic prosperity. It’s unsurprising, then, that trying to understand the structures that could enable such a failure has become our new national past time. How can anyone be settled in any other aspect of their lives if they’re anxious about where they’re going to rest their head at night?
This is particularly true for those groups who keep our communities running. If we believe in the title that’s been bestowed upon those “essential” workers who fuel our economy, why do we not make sufficient provisions to ensure that they feel they’re essential? Pricing someone out of the community they serve isn’t conducive to maintaining that community. Eventually, it will fail. If our teachers, nurses, firefighters, cooks, hourly workers and other “essentials” can’t live in the places they work, we won’t have proper communities. When they’re forced to commute hours each way just to do their jobs, these aren’t proper places, but resorts, fiefdoms, and failed cities.
Naturally, the solution to ensure that people of all means can participate in their communities is to make housing more affordable. But how do we actually go about doing that? Is it enough to simply build with affordability in mind, or are there important things that we miss if we solely focus on price?
Affordable Housing versus Housing that’s affordable
There are two schools of thought in how to address our housing crisis. Well, three, but as we’re 5.5 million homes short, have 600,000 people living on the streets on any given night, and 10’s of millions of households struggling to afford basic housing costs, the third group that doesn’t believe there’s a housing crisis isn’t worth spending much time on. We’ll focus on the first two.
The first believes that affordable housing should exclusively be solved through government built, subsidized, and incentivized developments. I define this as “capital A” Affordable Housing, as it’s a cohesive idea and movement; A proper noun. It’s what most non-housing people picture when they think about Affordable Housing. Public Housing falls into this first category as well.
It’s important to note that what generally constitutes affordability is “housing on which the occupant is paying no more than 30 percent of gross income for housing costs, including utilities.” This may seem like an arbitrary number (it is), but it’s what you should have in mind as we move through this topic.
The second group posits that the best way to solve this crisis is through market-based solutions that unlock artificially constrained supply to meet high demand. This group originally hails from the Market Urbanism school of thought. If enough housing is built, they reason, prices will drop because there will be less competition over a finite amount of housing. As housing is viewed as an existential need — i.e. an inelastic good — people’s demand doesn’t change much as prices increase. The only thing that changes is how much they spend. This is why people will pay more than half of their gross income on rent, and not on Mountain Dew. If enough is created (housing, not Mountain Dew), cities will have a surplus of places to live, leading to less competition, and more housing that’s naturally affordable — i.e. cheaper without requiring support from government programs.
So, we have one group who believes in Affordable Housing, and the other who thinks we should build enough housing such that it’s naturally affordable. Who’s right here? Does it even matter? Why can’t we just build more housing and be done with it! Well, it’s not that simple. In order to adjudicate these questions, we have to understand how we’ve arrived at where we are today, and what the biggest road blocks to developing more housing that is affordable (Capital A, or otherwise) are.
Why Can’t We Just Build More Affordable Housing?
№1 — Unresponsive Market. The first thing to understand about housing in the US is that it doesn’t work like most other markets. In most markets, if large aggregate desire for something materializes, a supply chain can kick into gear to appropriately meet demand. In the case of fruit — let’s say bananas — farmers can till, dig, sow seeds, and 9 months later or so, ripe bananas will appear, ready to be shipped off to all corners of the world and enjoyed.
Unlike the market for bananas, however, housing isn’t responsive. While there’s still a lag time between digging and delivery — which may likewise take 9 months for single family homes or smaller apartment buildings — you can’t simply go out and till the soil to create more homes where they’re needed. Enter zoning. (Almost) every new building in America must adhere to underlying zoning codes in order to be processed by city departments before they get approval to be built. The presumed intention of this system is to moderate the use and intensity of land, but in reality, it’s primarily been wielded to exclude certain types of people from living in certain places, like racial and religious minorities, and preserve large swathes of our communities as the sole domain of single family homes. This is the first stumbling block in building the amount of housing we need, to say nothing of its relative affordability.
In most major cities, upwards of 70–90% of the land is exclusively zoned for single family homes. Not the suburbs, where almost all of the land is exclusively single family zoned, but the heart of our cities. This is a problem because it doesn’t allow the market to kick into gear and provide housing where it’s most in demand. All else equal, if there’s more demand to live in a certain area, those who have more means will outbid those with less. This effect can be mitigated by building more, but that’s currently illegal.
When we restrict how many homes can be built, we’re guaranteeing competition. A competition that only gets more fierce the more desirable (read expensive) an area becomes. This disproportionately impacts the supply of housing that’s affordable. It indiscriminately effects both public sector and private sector developers.
It’s not feasible to continue building outwards ad infinitum, which is demanded by a single family development pattern. Our infrastructure, environment, personal health, and municipal coffers can’t sustain this mode of building. The amount of land mandated by this system not only increases costs by imposing artificial scarcity on the amount of housing that can be built, but increases relative infrastructural costs as well, which must be passed on as higher housing costs. Such a system is easily co-opted by NIMBY’s (Not In My Backyard’ers), who weaponize codified single family zoning in order to preserve their property values. Our local officials and planning departments have been all too happy to acquiesce to the demands of the wealthiest few, at the expense of the many who are struggling.
№2 — Superfluous Regulations. There are many restrictions beyond zoning that impact our ability to produce housing at reasonable price points. Perhaps most famously, parking minimums. Parking minimums are pretty straight forward — they mandate how many parking spaces a building must have, at minimum. They’re also fairly pseudo-scientific. A 2 bedroom apartment may be required to have two off-street parking spaces, while a 2,000 square foot commercial building may require 12, regardless if one is in a more walkable context than the other. There’s no real discernible reason why, other than the fact that these numbers sounded good enough when the regulations were crafted decades ago. This is a problem as cavalier regulations impose real consequences on affordability.
When parking is mandated, it reduces the amount of space a building can take up on a lot. For smaller lots, parking minimums can often render development infeasible because the area required for cars would have a greater square footage than the building — or sometimes the lot — itself. We’re trading parking spaces for homes, and the dependency that comes with prioritizing this mode of transportation. What’s worse, this trade is very expensive. A surface level parking space may cost $20,000 to build. A space in a parking garage may cost upwards of $50,000. This is directly passed on to residents.
One bad regulation begets two, which becomes 4, until we arrive at a state where so many hurdles have been thrown up that it’s nearly impossible to navigate the system. It’s not difficult to see how we’ve arrived here, then. What’s difficult, though, is that ideas sound good in theory. Take prevailing wage requirements. Who can argue against competitive wages? No one. And that’s the problem. Regulations aren’t passed because they’re outlandish. They’re passed because they plausibly make sense. But dig deeper, and they lose this benefit of the doubt. In the case of prevailing wage requirements, the headline regulation obscures already high wages for construction workers. In some analyses, this one regulation is attributable for a 20–25% increase in construction costs. This is untenable. And as we’ve seen before, these costs are passed directly onto the renter or homeowner.
These regulations, and dozens more, exist without accountability. There’s no cost-benefit analysis to see whether they’re successful or damaging, and so they remain with impunity. Politically, there’s no appetite to strike plausibly good regulations. This makes sense. Why roll back policies that your constituents approve of, when doing so is no easy task. But it’s absolutely imperative our officials and planners to dig a little bit deeper than the surface level to see what the downstream consequences of their regulations are, to understand if they’re actually providing the benefit. If they’re not, they must be rescinded. Fear not, public officials, as this is an opportunity for another, and even greater win; making housing more affordable.
A bit more controversially, let’s look at development impact fees. Fees extracted from new construction seem like both an easy and politically palatable way to fund community services. Who would oppose taking money from fat cat developers who can easily be parted with it, to fund schools, roads, and infrastructure improvements? Why not tack on a fee for water and sewer upgrades, and another for a new community center? Sure, makes sense! But these fees add up. It’s not uncommon for impact fees to reach into the tens of thousands of dollars per unit, amounting to hundreds of thousands of dollars in fees on smaller developments, and millions on larger ones. In some cases, these fees prevent projects from ever getting off the ground. For those that do rise, the fees, you guessed it, get passed on as higher housing costs. Wow, these costs are adding up!
A recent analysis from the National Multifamily Housing Council found that 41% of all development costs are attributable to regulation. Said another way, the average development costs 41% more than it otherwise would absent regulations. The extent and impact of added costs has been corroborated with increasing frequency, including in a 2015 paper which explained “[t]he vast majority of studies have found that locations with more regulation have higher house prices and less construction.”
In an industry where margins are already very tight, those extra fees, or months waiting in entitlement, can be the difference between a vacant lot and 50 new homes. From a community perspective, it’s clear that the tax revenue & economic development generated from 50 occupied housing units far outweighs punitive fees. But this understanding can only be reached once one digs several layers deep into byzantine policy — not a very fun thing to do. We’re far more comfortable occupying the realm of theory, blissfully ignorant of the effects that policy has on practice. This is an endemic problem.
I’m not advocating for the dissolution of all fees, or a wild west of development, barren of regulation. Hardly. But a strict analysis of the role cities play in their own housing crises is imperative. While it might be easier to blame the scapegoats du jour, like Private Equity, Zillow, or developers, our officials must do better than shirking their responsibility with weak excuses. If we could make housing 25% cheaper simply by rolling back excess regulations, it’s a violation of one’s covenant to their constituency not to do so. These moves might not be as flashy as cutting ribbons, but they may well be more impactful in delivering more housing that’s truly affordable.
Distressingly, there appears to be some cognitive dissonance between the barriers put up by cities and their purported goals. If a place’s goal is to realize more affordable housing, then staunchly defending parking minimums, impact fees, minimum unit sizes and other unnecessary regulations make it nearly impossible to do so. Policy must align with practice. Intention is not enough.
The effects of unresponsive policy have become increasingly dire. Though the country has been struggling through a housing crisis for a decade, we haven’t yet approached our peak housing production from the last cycle, which was almost 20 years ago. We’ve seen fewer homes permitted over the last decade than any other period in the last 60 years.
The upshot of this regulation is that apartments have become expensive to build. Very expensive. In markets where these regulations and entitlement periods are most severe, like California, an Affordable unit can cost well over $1 million to construct. In notoriously expensive & anti-housing San Francisco, $740,000. In New York, the median cost of a new Affordable unit is $500,000, with average costs are considerably higher. And it’s only getting worse. Indeed, the multifamily construction price index has risen by 8.5% this year, the highest rate in 40 years. Construction costs have increased 53% in the last decade.
While there isn’t a national database that tracks the construction costs of Affordable Housing — there should be — a limited survey from 2011–2015 conducted by the GAO found that the average cost of newly developed Affordable apartments was $218,000. As costs have inflated significantly since then — we’ll assume 40% — those same units would cost $305,200 today. But as a disproportionate amount of the units surveyed were in smaller cities or rural areas, and the absolute number of Affordable Housing units needed is far higher in expensive urban areas, the average is likely closer to New York, or San Francisco, than Columbus, GA. A reasonable expectation for the average cost of an Affordable Housing unit in America might then be around $400,000. Although the cost in the most expensive cities is twice this, for all calculations moving forward, we’ll be using this number as the analyses herein are meant to address a national housing crisis, not a localized one.
№3— Funding & Financing Mechanisms
Our troubled legislative and regulatory foundation has made it such that it’s nearly impossible to build anything in the areas that need it most. What little does get built is dramatically more expensive than it ought to be.
Could the government not help us out here? Surely federal orders, subsidies, tax incentives, or any other discretionary measure would mitigate this, right? Unfortunately, likely not. Two reasons. The first has already been addressed; unless the underlying causes of housing affordability are solved, federal intervention that doesn’t address supply-side barriers will have limited benefit, potentially compounding the precarious circumstances of those who do not receive demand side benefits. Construction costs won’t get cheaper until regulations are lifted, and housing prices won’t get more affordable unless we provide more housing.
Second, the financing and funding available to Affordable & Public Housing is limited. Projects require money to get built, and the short truth is there isn’t enough money to go around.
In 2019, HUD’s entire budget was $44.1 billion. It was $47.9B in 2020. While this might seem like a lot of money, it’s not for the scale of housing markets. If the entire budget for the federal agency tasked with crafting policy and programs to aid the country’s housing needs were to acquire homes with the goal of stabilizing them, it would only cover less than 0.1% of the total supply of homes, or 111,733. This is calculated by assuming each home would cost $428,700, the median value for a home nationally today. However, most of these funds are dedicated to grants and rental assistance programs — demand side protections that do little to add desperately needed housing. While vouchers and tenant protections are important, they’re Duct tape on the bottom of a bucket leaking water at a rapid rate. We need a new bucket entirely, else the water (precariously housed individuals) may threaten to overflow in great chaos (mass homelessness).
The primary tool used by the federal government to encourage the development of more Affordable Housing, LIHTC, is only projected to leverage a further $10.9 billion in funding for 2022 (the most it’s ever received). Since its inception, LIHTC has placed 3.44 million units into Affordable service, or roughly 100,000 a year. In the last few years, this has worked out to ~$90,000 in public subsidies for construction costs per door. At our $400,000 per unit estimate from the last section, this $90,000 in subsidy accounts for ~22% of a project’s cost. This ironically adds more costs to projects, as developers have to find additional sources of funding to fill financing gaps, and navigate added complexity to be compliant.
Not all of these units are developed, however. Some are merely renovated, or acquired with the goal of stabilizing them. In any given year, somewhere between 40,000 and 60,0000 units are newly built through Low Income Housing Tax Credits. Or, said another way, the number of homes built nationally through LIHTC falls somewhere between the amount that Phoenix (35,400), and Houston (61,770) built in 2020 alone. We can’t solve our Affordable Housing needs if the country is failing to build an amount of units comparable to individual cities. This is simply not adequate from the largest Affordable Housing development program in the US.
Though there are other funding sources emerging, like the National Housing Trust Fund (HTF), they’re hardly more than an incremental few pieces of tape on the bottom of our bucket. Since 2016, when funds were first disbursed for the HTF via a set proportion of business from Freddie Mac and Fannie Mae, $2.68 billion has been allocated to States. $739.6 million was allocated in 2022 alone. But this, too, isn’t exclusively reserved for new housing, with renovations, and rental assistance getting proceeds as well. Since 2016, only 855 new units have been completed through this program. That’s a shockingly low number for the amount of investment it has seen.
The limited Federal funds available for Affordable Housing (~$96 billion in 2022, including $68.7 B earmarked for HUD and a few billion here and there for other programs) are barely making a dent in our dire housing needs. Worse, there’s significant overlap in where those dollars are spent. Many tenants living in LIHTC projects still need to use vouchers or other subsidy programs to afford rent. This reduces the amount of people who can benefit from already scarce funding.
How scarce is it? If we wanted to build our way out of our 5.5 million home shortage we would need to spend $2.2 trillion at a $400,000 per unit cost— to say nothing of additional proceeds needed for maintenance or rental assistance. Even at our low end estimate of $305,200 per unit that’s $1.678 trillion. We simply do not have the money publicly available to fund this. As this isn’t a static problem, the bill will only get more expensive if we don’t act quickly. Conditions will continue to deteriorate further.
Is Building Affordable Housing Even Desirable?
Knowing why we can’t build Affordable Housing is only part of the story. Yes, it’s illegal to build the housing we need in the places we need it. Yes, superfluous regulations make what little does get built far more expensive than it ought to be. And yes, a lack of Federal financing & funding allocations severely limits how many homes can get built, in the limited areas they can get built, for the exorbitant costs they require. But these three points leave out an important question: should we even be pursuing Affordable Housing at all, in the form it comes in, in the United States?
On the surface, Affordable Housing seems like it should be a universally endorsed institution. How could anyone be opposed to providing housing for the most marginalized people? The moral argument, it would seem, is on the side of Institutionalized Affordability.
Indeed, this is the argument many activists and progressive thinkers wield when discussing the topic. It’s become popular to say something along the lines of; “I support new housing, but only if it’s 100% Affordable, or 100% Public.” This, again, may seem rational and ethical, especially when discussed within the context of gentrification. We don’t want marginalized communities to become displaced, so we must be thoughtful in how we redevelop and reinvest into neighborhoods such that we don’t remake the mistakes of the past, where entire neighborhoods were destroyed through racist urban renewal programs that displaced hundreds of thousands of people. This legacy is inseparable from contemporary urban development, as the scars of midcentury planning are still highly visible, intimately felt, and deeply woven into city governance.
But, this isn’t an excuse to prohibit new buildings that don’t meet this standard. This only prolongs the damage these neighborhoods experience. Calls for the exclusive development of Affordable Housing, and a rejection of development that’s affordable through market means, remakes the mistakes of the past through creating a tight funnel where only a few projects can be realized, leaving vacant lots, boarded up homes, crumbling infrastructure, and for the few projects that do get approved, concentrated segregation.
Within this framework, any non-institutionalized housing falls prey to the popular, abstract, and misunderstood concept of Gentrification. The word is used as an ideological rationale for not improving communities at all, as any level of improvement induces wealthier individuals to move into a neighborhood with the theoretical effect of displacing existing residents. Or so the thinking goes.
Blithely stating that every project should be Affordable not only defies the economic reality of getting projects built, but the lived reality of communities as well, to great consequence. Simply funneling more dollars into the existing structures of Affordable Development will exacerbate these embodied challenges. We must give careful consideration to our actions, or else we’ll have a housing, and community crisis, as severe as anything we’ve experienced in modern urban development history.
№1Deep Subsidies Required
We briefly touched on this in the last section, but it’s worth making a finer, more tangible example here: housing is expensive. By our conservative estimates, we would need $1.67 trillion to satisfy the cost of building new homes through Affordable mechanisms (and likely $2.2T), to say nothing of deferred maintenance, or future housing needs. This is already an inflated price, as Affordable Development is estimated to be 20% more expensive per square foot than market rate projects. Building more Affordable Housing isn’t a simple process, either, as many wrongfully proclaim. This is especially true when efforts to build it are quashed by those who aren’t acting in good faith, or politicians who exacerbate the already difficult process of delivering new, Affordable Homes through a misunderstanding of land use economics.
One might simply say, “all we have to do is spend more money, and eventually it’ll be solved for”. But if money is being spent in a system that’s designed to inflate costs, and has proven it cannot manage properties adequately, these dollars will be incinerated in that system. This isn’t just because housing is expensive up front — if only it were, several hundred billion dollars in public funds a year, for a decade, might make a meaningful difference (though it would increase taxes and inflate costs, but let’s be generous).
No. A project must make financial sense once it’s operating, whether it’s built by the government, a non-profit developer, or a for profit one. Operating expenses like maintenance, insurance, property management, taxes, etc., cannot exceed the revenue a building brings in, or else it will operate at a loss. In the private sector, this means a building won’t get built in the first place. In the Public/Affordable sector, this means that more public funds, subsidies, or taxes will have to be used in order to prop up the operating loss. This may be manageable at one property, but not across millions of homes. One quickly sees we don’t have a limitless reserve of cash to cover up the shortfalls.
If this doesn’t comport with a given ideology, one must only look at the numbers to learn housing policy has to be ideologically agnostic. This tool from the Urban Institute is helpful in understanding these imperatives. For our purposes, we’ll run through the numbers below to analyze a market rate development versus an Affordable one to prove the point more finely.
For both projects, we’ll assume the same parameters; the lot is 5,000 square feet along a street zoned for multifamily housing. The site allows for an FAR of 2, meaning 10,000 square feet can be built on the site. Because there are relatively few lots in the city that allow for apartments, the land is expensive, as many people would like to develop the property. This is especially true as the median price for an apartment in this city is at a record high. With these parameters set, here are a few assumptions for the projects:
Price for the land: $2 million
Construction Costs: $400 psf (market rate), $480 psf (Affordable, 20% more)
Apartment Count & Size: 10 apartments, 1,000 gross square feet.
Rent: $4,000 (market rate), $1,800 (Affordable to a household making less than $65,000 per year, though one could easily imagine this being less)
Expenses: Affordable expenses shall be 20% cheaper than market rate expenses due to assumed tax break
Bridge Equity & Construction Loan: 60% loan to project costs for market rate development, 50% for Affordable (banks won’t finance a higher proportion for Affordable projects)
As we can see, without a meaningful subsidy, the Affordable property is operating at a pretty significant loss of $181,200 per year, whereas the market rate building is returning just under 3%. This illustration shows two important things. One, most Affordable units require deep subsidy just to operate. Two, market rate developers don’t make big margins on projects. In fact, they’re paltry, even at $4,000 in rent a month.
This only tells part of the story, however. Most properties are built today with the intention of being sold on at a later date. In order to value properties, a capitalization rate is applied that implies how much a property is worth based off of the stability, and kind, of its cash flows. There is an inverse relationship between cap rate and value: a property with a lower cap rate will have a higher value, while a property with a higher cap rate will have a lower value. A brand new apartment building in the hottest neighborhood in town will have a low cap rate, while an old, half-vacant office building will have a relatively high cap rate.
As we can see in the sale analysis below, the market rate development will have a lower cap rate because it’s achieving higher rents without being encumbered by restrictions on rent. As such, it will be valued at nearly $8 million ($336k NOI / 4.25% = $7.9M), while the Affordable Development would generously be valued around $2 million based on its cash flows.
After the costs of selling the properties (6%) and the value of the outstanding mortgages are considered, we can calculate the returns for both projects. The market rate development returns $3.9 million in profits off of an initial $2.5 million equity investment, for an annualized return of 16%. While this might seem like a great return, on a risk adjusted basis it’s likely comparable, or worse, than if one were to hold all of their money in an S&P 500 tracking account (10.5%), as they wouldn’t have to deal with the many obstacles, illiquidity, and risk of a real estate development project. As such, it’s doubtful whether or not it would get built.
For the Affordable Development, the project would lose $2.35 million on an initial equity investment of $3.525m, for total losses of $5.875 million. As the original project costs were just over $7 million, and the property loses $180k a year, each of the 10 units would need roughly $720k in subsidies in order to satisfy all debt and equity needs.
As it’s very difficult to justify deep subsidies in an expensive area where $4,000 apartments barely pencil, Affordable Housing developers have a few levers they can pull to get their projects built. They can try to build smaller units (though the rent they could charge would drop). They can try to cut corners in construction to reduce the costs of the building. Or, they can try to find land in a cheaper area, with more permissive zoning. Usually, they pull all three, as this is the only way to get Affordable Housing built. This has grave consequences on our communities.
№2 Segregation For New Developments
Because of exorbitant input costs and the need to stretch limited dollars as far as they can go, much of the new Affordable Housing that does get built is concentrated in a few neighborhoods. These neighborhoods, overwhelmingly, are the most marginalized, and economically disadvantaged areas of a given city. Or, said another way, the development of purely Affordable Housing profoundly deepens economic segregation.
New York proves an illustrative example. Despite being home to less than 10% of the population, the poorest 8 community districts saw 41% of all new low income housing built in the last decade. These neighborhoods all had median incomes less than half that of the city ($73,000), with the lowest income areas, Morrisania/Crotona & Belmont/East Tremont, having an AMI one third of the city’s median ($24,800), and poverty rates above 40%.
These community districts are also disproportionately home to minorities, meaning new Affordable Housing is deepening racial segregation as well. In New York, Hispanic ($49,554) and Black ($53,715) families make less than half the median income of White ($106,697) families. When the maps of neighborhoods broken down by race are overlaid on the maps of Affordable Housing development, they bear an eery resemblance.
The Furman center, a respected urban policy research institution, affirms these troubling Affordable Housing trends in New York, stating:
“New government subsidized units targeted to low-income households were built in areas with higher Black and Hispanic population shares, higher poverty rates, and lower prices and rents than those of new units overall. In addition, new units targeted to low-income households that are suitable for families (with two or more bedrooms) were located in higher poverty census tracts than smaller units. These patterns raise concerns about whether the location of new income-restricted units is doing enough to counter patterns of economic segregation and to connect low-income children, in particular, to well-resourced neighborhoods.”
This is not a novel finding, sadly. Anyone studying the space thoughtfully enough would discover this, as the fabric of the built environment is easy to read, and the data doesn’t lie. So, why do we keep building in this manner?
Perhaps it’s because new development and funding allocations into marginalized communities are seen as goods in and of themselves. I’m sympathetic to this, as disinvested neighborhoods seeing money expressly dedicated to existing community members is a good thing. I do, however, worry about the downstream consequences of what, on surface level, appear to be noble investments.
Take Elton Crossing in the South Bronx, for example. On the surface, it’s a nice new building where 199 homes & 8,600 square feet of medical space were built on vacant land, with rents starting at $396 a month. Access to a rooftop patio, fitness center, and courtyard, included. Located across the street from a college, Elton Crossing has activated a formerly seedy site, bringing more eyes & vibrancy to the street, lending safety to an area sorely in need of it. Even better, flanking Elton Crossing on one side is a permanent supportive housing complex with 59 units and social services for veterans. Bronx Commons, a 305 unit Affordable building with a 14,000 sf performing arts hall, borders it on the other side. Surely these are very good things, with the neighborhood inarguably being better for their creation.
Across the city, there are dozens of projects similar to this going up, adding much needed homes, neighborhood services, vibrancy and safety to neighborhoods for whom these improvements have for too long been foreign. If these are the only areas where new development can pencil, and we desperately need new housing to be built, perhaps it’s best to take what we can get, with the added benefit of revitalizing struggling communities?
However, I worry we’re failing to learn from the mistakes of the past. Indeed, there are deep parallels between the Affordable Housing that’s being delivered today, and those that rose in the midcentury period. The (significant) caveat being that today’s buildings aren’t rising on the lots of newly demolished neighborhoods, as happened in urban renewal, but on the skeletons of failed policy from that generation. In both era, new buildings have delivered much needed housing and improved services that even market rate tenants would have had difficulty securing. Where elevators, gyms, and courtyards in new buildings are rarities in the free market today, central heat, running water, and playgrounds were the in-demand amenities of the past, in buildings likewise designed by prominent architecture firms.
But the generations have more troubling parallels, as well, including long wait lists and intense segregation. Where the first NYCHA projects received 3,800, 14,000, and 20,000 applications for buildings with 122, 574, and 1,622 units respectively, today only one in every 593 applications is approved to live in NYCHA buildings, a system hardly better than the lottery.
While racial integration is better today than it was in the past (not by much, though), economic stratification is not. According to research from Pew, the share of lower-income and upper-income households living mainly among themselves increased significantly from 1980 to 2010. In New York and Philadelphia — the cities with the worst economic segregation in the country — 41% and 38% of low income households resided in majority low income neighborhoods. It’s expected that this has only worsened in the last decade.
This is incredibly damaging. Not only in the danger it poses for an ever more polarized society, but also, and more importantly, because people’s lives are at stake. Potentially, generations of families, as sociologist Patrick Sharkey has shown. When marginalized groups are concentrated in neighborhoods — through force or by lack of choice — they get stuck, as it were, and are unable to mobilize themselves out of disadvantage. This is because, among many other factors, there are fewer resources invested into education, fewer jobs and economic opportunities, worse environmental/public health conditions, and increased violence — all of which further compound spatial inequality, and marginalization. The data is clear: when neighborhoods are segregated by class, those with concentrated disadvantage remain disadvantaged, with opportunity severely inhibited.
If we look back at LIHTC, the federal government’s largest program for enabling the delivery of newly built Affordable units, unfortunately, many of these buildings are located in disadvantaged neighborhoods with high poverty rates, near industrial sites, or next to insalubrious and loud highways.
At a time where inequality is deepening, and access to opportunity is shrinking, one of the worst things to do is restrict where people can live based on income. It further compounds disadvantage. Though the promise of Affordable Housing is a noble one, because of the state of land use economics in expensive American cities, its insistence is potentially doing more harm than good in the neighborhoods that are already struggling the most.
It should come as no surprise, then, that the solution isn’t to lord over prescriptive income bands, either. Unfortunately, this idea has become increasingly popular. But make no mistake of the marketing materials. This is an ever more strict, and arbitrary, segregation of peoples by class. As the chart for a new housing development in Brooklyn illustrates, if a single person wants to move into a one bedroom, they must make between $21,086 and $45,840 a year. No more. No less. This not only boxes out those of lesser means from finding housing, but it caps one’s mobilization potential, and boxes out those of middle income, as well.
If someone makes more than $45,000 a year, they can’t qualify to live by themselves in these apartments because they’re perceived as not needing aid. This is, of course, outrageous. It’s not as though if someone makes $1 more than the maximum threshold — or even $20,000 more — they’re well off. So, people are faced with an unenviable dilemma: either don’t take a job opportunity in order to save your housing, or take the opportunity with higher economic upside, and fend for yourself in the precarious housing market.
The upshot is that firmly working and middle class people like teachers, firemen, nurses, and deli clerks are forced to spend 40%, 50%, or more of their income on housing, or else they can’t live in their own communities. If they’re forced to move and want to keep their job, they may have to commute several hours each way, whose negative impacts need little explaining. While the wealthy need no aid, and those of lesser means are prioritized (though not nearly sufficiently), the middle class is hollowed out. This institutes, and locks in, urban segregation. It exacerbates polarization of our cities through prescribing just who can live where. This profound failing of policy is unacceptable.
№3 Lack of Expertise, Mismanagement, Downstream Consequences
Even if we could get comfortable with the costs, delays, and increased class based, normative demographic segregation — which, to be clear, we shouldn’t, but we must recognize that these are the consequences of the current state of “Capital A” Affordable Housing — we’d still have one final hurdle to surmount. Namely, that the Public sector is woefully ill equipped to deal with the challenge. This deficiency leads to more inefficiencies, costs, and severe declines in quality of life for those we’re meant to be protecting.
Principally, the issue is that public agencies aren’t designed to be developers, as Jenny Schuetz explains. The role of a real estate developer is complex, requiring specialized knowledge across various disciplines, from finance, design, local zoning and entitlement programs, construction, property management, accounting, investor relations, infrastructure, and many more fields. There is a great deal of risk involved, faced even by the most experienced, competent developers. Forcing our public agencies to become developers would make an already confused system of 3,300 local public housing agencies ever more disorienting, resulting in an inferior product. As the New York Times notes of Houston’s struggles with homelessness, “As in other cities, dozens of local aid organizations, public and private, were operating in silos — competing for federal funds, duplicating services, not sharing information or goals, housing precious few people.”
Beyond this, there’s no funding for Public Development. As the Urban Institute explains: “Federal public housing construction has seen almost no new funding in nearly 40 years; current funding for public housing is primarily for maintenance and operations of existing properties, and even this is extremely inadequate.” Even if these non-developers wanted to try their hand creating the spaces that matter more than any where else in someone’s life (hint — this is not something one can, or should, try their hand at if they’re not equipped), they don’t have the people required. Staff are short everywhere for the existing mandates of housing authorities, particularly in cities that are struggling the most. Calling for the creation of an entity that is set up to fail isn’t just senseless, profligate, or inefficient. It’s catastrophic for those who would have to live there.
How can we say it would be catastrophic? Because these agencies have proven abysmal failures at even maintaining the properties under their purview. The conditions of Publicly managed buildings could be called intolerable at best, but would better be described as inhumane. Residents of Public Housing in the US often live without heat in the winter, air conditioning in the summer, or hot water year round, but this is just the tip of the ice berg. Pests run rampant. Violations for basic fixes go unanswered for years, and deleterious conditions compound. Thousands of apartments fail to pass inspections for basic habitability, yet remain neglected without any accountability or pathway for improvements. This is leading to materially worse health outcomes for Public Housing residents— including young children — less access to opportunity, worse mental health, social exclusion, and yes, segregation.
Returning to New York, where perhaps the crisis of Public Housing is as severe as anywhere else nationally. The New York City Housing Authority (NYCHA) manages 177,000 homes for 536,000 New Yorkers across 335 developments. Across its 162,000 apartments in 277 NYCHA built developments, it houses 340,000 people, or roughly 4% of New York’s population. This is a significant operation, and makes it all the more distressing at just how bad the conditions have gotten. According to NYCHA’s CEO, the buildings they manage are $40B back in repairs, or roughly $23,000 per unit. Bringing these buildings up to basic habitability would require nearly the entirety of HUD’s 2019 national budget, which, as we saw above, is disproportionately skewed towards rental assistance, not maintenance or capital improvements.
$40B is a comically large number, so what does it mean on the ground? It means fixing dilapidated buildings where 83% of apartments have at least one severe health hazard, and 73% of the common areas have similar hazards. It means fixing the more than 600,000 open work orders to bring residents to the precipice of basic habitable conditions — not quite desirable — but barely approaching acceptable. It means prioritizing lead abatement in paint, walls, & water lines. Treating asbestos, mold, sewage leaks, exposed electrical hazards, and fixing long broken elevators that leave residents trapped hundreds of feet in the air, functionally imprisoning them.
This $40 billion wouldn’t include making the apartments particularly nice places to live. It wouldn’t address the psychological or physiological ramifications of decades of mismanagement, or embodied environmental injustices. It can’t change the fact that these areas were designed poorly from the beginning, as towers in the park that segregate, turn their backs on the city, trap residents in, and limit opportunity, or the racist ideologies that accompanied their creation in the first place. When put in these stark terms, it’s no wonder NYCHA has been given the ignoble crown of worst landlord in the city for four years in a row — a title with steep competition.
Proponents for Public Housing point to the Faircloth Amendment, a 1998 provision of the Quality Housing and Work Responsibility Act that prohibited the net new creation of Public Housing units above the 1998 mark of ~1.28 million homes, as the reason why Public Housing exists in the state it does today. But this doesn’t pass muster, as Public Housing Authorities cannot even manage the existing assets they have. If their current 1 million units were exemplars of management with the highest standards of quality and living imaginable, this is an argument I’d be sympathetic to. But they’re not. Nationally, it’s estimated Public Housing Authorities require $70B just to fix outstanding issues and renovate current properties, a number that threatens to grow larger despite 10,000 Public Housing units being lost a year due to inhabitable standards. The Amendment stands as protection against further profligacy and expansion of deleterious conditions.
Beyond Public Housing, the previous New York Mayoral administration spent at least $83 billion to create or preserve 200,000 Affordable, stabilized units (134,000 units were preserved). This amounts to $415,000 per unit, spread across the preserved, and 66,000 new Affordable homes created. With tax breaks added as inducements, the upshot of this policy has been to lower the city’s revenue, while increasing its costs. This is not a winning equation, and cannot be sustained when the city has so many other pressing capital needs. They must get out of this business.
Public Agencies are slowly realizing that they cannot adequately build or manage housing. That’s good. Less hopeful, though, is their proposed solution; inclusionary housing.
Inclusionary Housing
As Emily Hamilton describes, inclusionary housing “policies require or incentivize developers to designate a portion of new housing units as affordable for households making low or moderate incomes in exchange for density bonuses, allowing developers to build more market-rate housing than they would otherwise be allowed.” Like most well-intentioned housing policies, this seems pretty good on the surface. More Affordable units, more market rate units. Seems like a win-win!
But look a little deeper, and the effects of this ill-considered policy are more troubling. In many cases, the costs of adding new income-restricted housing is not outweighed by the density bonuses offered. Instead of the win-win scenario where more home are built for everyone, fewer units are built as the return of capital is not sufficient to compensate for the costs & risks of new development. In New York’s first 25 years of inclusionary housing, only 172 units were built per year, according to scholar Alain Bertaud. Where inclusionary housing is mandated by localities, as opposed to being a discretionary program, these effects are even more pronounced. For those few market rate units that do get built, they’re more expensive (in some places 20%!) than if they didn’t have to comply with the programs, as they must make up the costs for insufficient bonuses elsewhere. They’re smaller, too.
As the variance between designated Affordable and market rate units can be significant in high cost cities, bonuses would likely need to be much higher than housing-skeptical municipalities might be willing to allow. If bonuses aren’t high enough, the programs act as massive subsidies for the lucky few who are able to get housing, sometimes rising to $100,000 per unit, per year. Where Bertaud compares this system to having the same impact as a lottery — many try, few win — a comparison isn’t needed. New York has a literal lottery system for those looking to live in Affordable or Inclusionary units. The demand is obscene.
There is now a 700:1 ratio of NYC Housing Lottery applicants to openings for new income-restricted apartments. In some buildings, waitlists may get as high as 60,000 applications for a few units. These odds are worse than scratch off tickets. In other Affordable programs, one’s chance of securing housing is even worse, amounting to a dedicated source of revenue for cities made on the backs of struggling families.
Rent Control & Stabilization
This system is little better than other favored Affordability programs that have similarly been mismanaged, like rent control and rent stabilization. In these programs, in units where tenants (or their family) have been living for decades, rent is held constant in order to preserve housing costs and stabilize low income communities (control), or their rents are capped and increases are heavily regulated (stabilized). On the surface, again, this sounds great! It helps keep lower income individuals and families in their communities when market rents threaten to displace them. But once again, we must look deeper.
When someone is able to move into one of these apartments, it’s unlikely they’ll want to leave. And why would they? If you can secure a $1,000 apartment in a neighborhood where comparable homes rent for $4,000, it doesn’t make sense to leave, even if you make a considerable sum of money. Who wants to pay more for housing? That’s the point. It’s great for those who can find places to live. But not many can, as there are far more people who qualify for income-restricted units than can get them. Beyond this, there are many people who don’t qualify for income-restricted housing, but still desperately need somewhere to live. If the city that enacts these programs doesn’t marry stabilization with new supply, the price for all unstabilized units will dramatically increase as more people fight over fewer homes. This makes it even harder for marginalized groups to find habitable and affordable housing, leading to more intense class-segregation. Vacancy rates plummet as people desperately try to find — or hold onto — ever more scarce housing. This is exactly what’s happened in New York.
You might be thinking that if there aren’t enough income-restricted units for those who need them, we should simply enact stabilization laws such that all who are threatened by unaffordability are protected. This is roughly what many progressive cities have passed, or have contemplated, in recent years. But they shouldn’t do this. Not only is it a fairly nebulous mandate, as a theoretically well off family making $150,000 can still face severe affordability challenges in expensive cities, but it isn’t a sustainable mandate either — economically or practically.
It’s unsurprising, then, that when these programs are extended into the private market, the consequences are equally unsustainable, as they’re bound by similar rent & land use constraints. In simple economic terms, when the amount of rent one can yield cannot keep up with ongoing operational expenses, landlords will either only make essential building improvements, or none at all. If a city caps the amount of improvements a landlord is able to carry out, and does not allow them to recapture the value of these investments by setting a new rent, those landlords have no incentive to improve the units.
It’s not because landlords are bad people, hate marginalized communities, or are greedy. It’s because they’re rational. Without subsidy, why would one spend $100,000 when they can only generate a few hundred dollars more over the course of a year? No one would. So those units and buildings that require maintenance go unimproved, decay, and lead to far worse conditions for residents who have no other options. This is true for both the Public and private markets. It’s not dissimilar to what happened with NYCHA. We’re facing a housing supply crisis today, but in a decade, we’ll be facing a housing quality crisis.
What’s disheartening is that the deleterious impacts of rent stabilization have been well known for decades, with mountains of empirical data disproving the flawed policies working in isolation. We know they lead to more expensive housing, deteriorating conditions, less tax revenues, and, improbably, displacement, when we don’t marry these policies with new housing. And yet, we continue to leverage these programs with a dangerous ignorance of basic cause and effect. Minneapolis & St. Paul, cities so close they’re called twins, illustrate the divergence policies can have. Minneapolis, who passed one of the most progressive pieces of zoning regulation in decades by making exclusive single family zoning illegal, permitted 2,317 units in the first half of 2022, while St. Paul, who recently passed a rent control measure has seen a significant reduction in housing permits, with only 342 getting approved.
Two cities facing housing challenges, two dramatically different results. Policy matters. It’s time we act like it.
Though it might not seem like it at surface level, what these policies amount to is picking winners and losers. Such is the inevitable result of programs that cannot possibly cover the breadth of an issue so large as housing in America — a $54 trillion asset class split between $43.9T of single family value and $10T in multi family value based on average unit price of $214k — no matter how well intentioned. Our policies privilege the few who can gain access to rare units, whether through arbitrary lotteries, in-connections, or other means, and makes the circumstances much, much worse for those unable to attain them.
We can’t tie the fates of our most marginalized groups to dumb luck, with pretty bad odds. If we allow policies like rent control and rent stabilization to gain favor without an acknowledgment of the importance of supply, it shifts the burden away from producing housing to preserving housing. This enshrines narrow economic realities for the select few, which by and large, leaves the many out in the cold.
I don’t want to come across as cynical, or dismissive of the work being done by folks around the country who are trying desperately to alleviate our housing crisis. There are no shortage of programs, firms, and organizations that are attempting to help. But most of those working on these issues exist outside of the Public apparatus. Brian Balkus, in his excellent piece detailing why America can neither build infrastructure efficiently nor economically, notes that these agencies have become reliant on consultants and middlemen, in order to make up for inadequate staffing and skill. Though he writes about infrastructure, it can just as easily apply to Public and Affordable Housing agencies, which leads to further cost overruns:
“The expertise problem is compounded by the fact that agencies are often staffed with a workforce of people either just at the beginning of their careers or near the end of them. Those at the beginning tend to leave if they are ambitious, which leaves senior positions in the hands of agency lifers. Because of this dynamic, and the fact that it is not economically feasible to have the wide range of expertise needed in-house, public agencies employ consulting firms. These firms fill a valuable niche.”
Neither the agencies nor the consulting firms doing this work have accountability to build these projects well, or under cost. The consultants actually benefit from cost over runs, change orders, and delays, as it increases the fees they can generate from projects. As it’s quite costly to replace consultants (especially with the number of hoops Public agencies must jump through in the hiring processes), and difficult to attract, hire & train talent, the sunk costs of keeping existing parties in place act as a downward effect, pulling projects ever deeper into the red. These costs are a direct hit to project affordability. They must either be recouped via higher rent (which isn’t possible in income-restricted units), or directly hit annual budgets, which results in less assistance, fewer improvements, and fewer homes. None of these are desirable outcomes, and yet there are precious few checks to offset them, or even an awareness that they are major issues.
Our agencies are understaffed, under resourced, under qualified, and overburdened. The programs we use to realize new Affordable homes are antithetical to the stated mission of providing housing at high qualities for those groups who need protection the most. Instead of surface level policy that does little more than ensure politicians will win re-election, let’s go beyond what people think works in theory, and focus on what works in practice. If the results aren’t aligning with our goals, it’s time for a new system. We cannot accept failure, no matter how righteous the talking points, or shiny the social media campaign.
The reality is we’ve failed. Failed at building Affordably. Failed at realizing interconnected, integrated neighborhoods. Failed at the most basic governance over our institutions. And failed the millions who desperately need help.
But fear not, wary reader, for there is hope of turning our failures around!
The Solution To Our Housing Crisis Is To Enable Housing That’s Naturally Affordable, And Support The Most Vulnerable
As this piece has attempted to detail, “Capital A” Affordable housing faces many challenges in the United States, from our uniquely destructive regulatory state & troubled past of urban development, to a systemic failing of oversight, knowledge, and inability to control costs or accept accountability. In light of this recent and contemporary history, one great hurdle remains in rectifying these challenges; Affordable Housing policy is perception based, not outcome based.
Instead of seeking programs, policies and solutions that would alleviate systemic burdens (the disease), most Affordable Housing policy only addresses surface level tensions (symptoms). Housing operates within a market structure. If there is more housing than there are people, housing will be cheaper. If there is less housing than there are people, housing will be more expensive. By way of example, let’s go to dinner.
Let’s say 100 people are invited to a dinner. When they arrive, there are only 60 meals. Naturally, the 60 wealthiest in the group, or those willing to spend the most, will pay what they have to in order to secure a meal. This leaves 40 people out in the cold, hungry. Within our current set of Demand side solutions, the government provides subsidies to ensure a few of those meals are reserved for those of lesser means, regardless of the cost it takes to secure them. Because there are no new meals being added, the incremental cost of securing each additional meal increases. These subsidies don’t ensure better quality, or more nutritious, food. But just food, period. What’s more, the system we’ve devised makes it very difficult, verging on impossible, to provide the additional meals demanded.
No matter how many subsidies the government hands out, if the total meals doesn’t increase from 60 to 100, there will still be 40 people who won’t get any. As the meals get more expensive through scarcity, and existential hunger sets in, an increasing amount of those who are either not able to afford dinner, or are not being subsidized, are forced to go hungry because they’re not considered in this system. This is our current housing crisis and policy response in a nutshell. It’s an abject failure.
Common sense would hold, then, that the solution isn’t to continue playing a demand side game where 60 meals are up for grabs, where every person pays more to secure meals of diminishing quality, but to allow the kitchen to create more meals, and perhaps a surplus of meals, such that every one can get something good and nutritious to eat. Any focus on not providing more meals results in famine. The solution isn’t to go from 5 to 10 subsidized meals, but 60 to 110 meals in total, while keeping the kitchen running so that when more people want to come for food, it can be provided easily. This is the supply side solution.
Enabling more meals is a result of an outcome based system; a structural fix to a structural problem of our own doing, that seeks to improve outcomes across the board. While there will always be people who need help getting to the table, which demand side subsidies can certainly help with, it should not be the focus of our policies, no matter how virtuous they seem on the surface.
It’s here that we return to gentrification, that most misunderstood concept. It’s become fashionable both online and off to ridicule any change in a neighborhood that doesn’t comport with one’s subjective reality as “gentrification”. As cover for this, questions of whether a new development is “Affordable”, are asked, a fairly nebulous barb that’s meant less out of good intentions, and more as a signal to virtue to other in-groups that one is aligned with the “right” set of policies, regardless of outcome or downstream consequence. There are hardly more destructive sentiments in housing circles than this way of thinking, for two main reasons.
The first is that an aversion to any change harms those who need help the most. In a twisted bit of irony, those who purport to defend the marginalized through the lens of anti-gentrification are their greatest oppressors. In neighborhoods that have been disinvested in, under resourced, and in varying states of decay with poor quality services & amenities, new investment and quality of life improvements are precisely what they need!
As we’ve already seen, there is neither the sufficient funding nor the coordination among Public/Affordable agencies to provide the resources marginalized neighborhoods desperately need. But, when enabled, private investment does.
It might feel like that new glassy building housing young, wealthy professionals is causing displacement, but counter intuitively, it alleviates it. New construction has been found to reduce rents by 5–7% in a neighborhood, as more supply reduces competition over homes. What’s more, for every 100 new market rate apartments built, 70 middle-income apartments open up elsewhere, as fewer wealthier people are forced downstream to find housing. This effect is most pronounced in high cost areas. In a process economists call migration chains, each new unit of housing ripples outwards in a chain effect where the wealthiest people move into the newest, most expensive buildings. When the first person moves into a new building, a relatively less wealthy person moves into the first person’s previous home. When the second person moves, a third relatively less wealthy person takes their home, and so on until everyone moves up to the take the housing of the person who lived in the unit before them. Over many years, what was once new housing filters down to lower income groups. If we want to accelerate this process, we need only build more housing.
The research shows that instead of low income families being displaced in this process, they actually move into (!) gentrifying neighborhoods, as new housing is created further in the chain. To the extent that displacement occurs, it’s only for lowest income groups, and only~1% higher than one would expect in any given year, holding all else constant. If sufficient protection is given to the most marginalized groups, new development is an incredible net benefit for neighborhoods. In study after study, and meta-analyses of studies, adding more homes moderates price increases, making housing more affordable to low and moderate-income families. This is how we build housing that is affordable. Through outcome-based, empirical processes.
As we’ve seen, displacement via gentrification doesn’t occur when new buildings are constructed, but when we don’t build new housing. It is not gentrification for a new restaurant to open up. It is not gentrification to have bike lanes built in communities where more people use two wheels than four. It is not gentrification to improve housing stock that’s falling apart. It’s a city finally investing into areas it has long neglected.
So, if we know new development doesn’t make housing more expensive, shouldn’t we embrace the other benefits it brings? Things like grocery stores, better schools, roads, and clean drinking water. Housing without pests or chemicals, and properly functioning HVAC and mechanical systems. Paved potholes, safer streets, better transportation, more places to eat, more places for kids to go after school, etc., etc.
Of course we should! But these improvements won’t come to neighborhoods that are outside the vision of those in power, whose gaze is fixed on areas that are more prosperous. This is how markets work. Wealthier people demand improved services, and the market responds. This isn’t to say it’s fair or right, but it is reality. Instead of willfully ignoring reality to the detriment of one’s neighborhood, change should be embraced and crafted such that it can still meet a community’s needs.
This doesn’t mean mandating 50% or 100% of all units as “Affordable”, as those projects won’t get built. It means listening to the needs of a community such that they can have all of these improvements, and enjoy the progress of their neighborhood, without being displaced. That’s what matters! Besides, the choice is binary; either allow new development and investment that bring improved services and quality of life, and an increase in tax dollars to funnel back into communities, or none of that. The choice is obvious!
I fear, however, that there are many who would rather have a community fall apart than see their neighbors enjoy higher quality livelihoods due to their misplaced perception borne of ideological purity that change is a bad thing, despite empirical evidence and community anecdotes to the contrary. It’s also a historical aberration, as the only constant about successful cities is they’re constantly in a state of change. People are fluid, porous beings, going wherever we please so long as we’re enabled to do so. Could you imagine if you were forced to live in the same neighborhood as your great-great grandmother? For some, this might be lovely. But for many others, they must move to where opportunity is, for the chance of a better life. It cannot be deprived from us. In those rare cases where opportunity comes home to you, you’d be wise to take it. That’s precisely the opportunity that new development & investment afford to people across the socio-economic spectrum.
As groundbreaking research from Raj Chetty and his team have shown, where you grow up matters. Upward mobility is much higher in areas where poorer families are integrated among more mixed-income neighborhoods, and lower where poverty is concentrated (which our current system of Affordable housing furthers). This has enormous positive effects. Studies have shown that for every year a child spends in a high-opportunity neighborhood, the likelihood of attending college increases, as well as total lifetime earnings (up to $200,000 more). When people of different socio-economic classes live side by side, there’s a higher chance they’ll interact with one another than if they remained segregated. This can potentially lead to friendship across classes, which has been shown to reduce poverty.
Historically, these opportunity studies have focused on the movement of low income families to wealthier neighborhoods. But why couldn’t similar benefits accrue the other way around? Indeed, they absolutely can. We can still reduce segregation, improve access to opportunity, life outcomes, and the quality of life for existing residents, and we don’t have to force them from their existing neighborhoods if they don’t want to move. So long as existing residents are allowed to take part in the positive change of their communities, this program should be embraced!
The second problem with anti-gentrification activism is a more sinister one, as it wards over who is allowed to eat, and who shall go hungry. This sectarianism usually falls along class lines, but can be wielded along racial lines as well. For many commentators in this space, it’s viewed as bad, or somehow ignoble, to be concerned with the housing needs of those who don’t qualify for arbitrary income-restricted models. This reduces housing to a zero sum, static game. It holds the position that we only need to help a set amount of people who meet some threshold, but ignores the fluidity of humanity.
Sure, there may be 10 people who need Affordable housing today, but tomorrow it might be 20, including 10 who were previously middle class but fell into poverty because of narrow suppositions of who ought to be provided for. While someone might make $60,000 a year, a one bedroom that costs $2,500 would amount to paying half of one’s gross income towards rent, before taxes, food, transportation, and other basic essentials are provided for. If that person is laid off, has a surprise medical bill, or has to take time away to care for a family member, among numerous other potential scenarios, suddenly they’re not able to find housing. As situations like this compound, previously well off folks fall into precarity, forced to fend for themselves or wait years on long lists, which does irreparable damage to their prospects of stability. It’s scenarios just like this that have led to the rise in homelessness in the last decade, a far more common occurrence than many think. Most homeless people aren’t without housing by choice or because they’re mentally unwell, but because they have nowhere else to live.
Everyone needs housing that’s affordable, not just one class, group, or race. The notion that one group of people inherently deserve housing more than the next, despite making an incremental dollar or thousand more, or look a certain way, is ludicrous. This enshrines segregation. It thrives off of factionalization, where groups are pit against one another in a holy war of moral absolutism. Troublingly, it espouses class warfare as something virtuous, demonizing those who fall outside of narrow subjective boundaries.
If we believe in every human’s fundamental right to housing, then we must be honest about what that means! While someone making $60,000 might seem to have it all going on compared to someone else struggling on $20,000, they still cannot afford median rent in most markets, or support their kids, but they don’t have any programs dedicated to help them out. Again, selecting a few winners and losers, while ignoring the wide middle of the country, is no way to run policy. Factionalization is tantamount to pouring gasoline on a fire that has already destroyed countless lives. It’s a symptom of a broken system. A dangerously myopic and destructive symptom, but a symptom nonetheless. It is not the right way to address our most existential challenges.
For those “online” individuals who latch onto a subject with only cursory, surface level notions of a subject and metastasize around it, it’s time to get real. As many of these voices are influential, their misconceptions inform scores who know little to nothing about the topic, but use charged words as cultural signifiers that they’re in the “in-crowd”, too. It can feel empowering to be a part of a group fighting for a noble cause, which further justifies ideological concentration. It is a righteous fight, says the peripherally aware observer, and righteous fights are ones of passion, not data. If we could build housing affordably at reasonable costs, in reasonable time frames, we would! But it’s not that simple. To use this passion for some semblance of cultural clout at the expense of millions who are struggling intimately through their housing is not only the opposite of righteous, but incredibly destructive.
If we use first principles thinking, what is the base element we’re looking to solve in this housing crisis? I, along with many others, believe it to be high quality housing that all people can afford, and keep reasonably well maintained. How do we do this? First, we must reject ideological purity and move forward with solutions that are proven to work. Though Affordable & Public Housing are great ideas in theory, most projects have been unsuccessful in the American context in practice. We cannot keep trying to jam a square peg into a round hole. It’s an injustice to those who are struggling through these institutions daily, and the many others who struggle outside of them.
We know that liberalizing zoning works. We know that building more homes works. We know that byzantine regulations & codes do not work. Outside of a political vacuum, these are all very simple solutions to deliver housing that is affordable at reasonable input costs. It’s imperative we dismantle the failed policies that inhibit us from the base element that we’re fighting for.
If there are non profit or NGO developers who can deliver housing that’s affordable, through leveraging select governmental programs or grants, that’s fantastic! Likewise for larger developments from housing authorities working in concert with external partners. There have been several excellent examples in recent years of this. But they cannot be relied upon to provide all of the housing we need.
This doesn’t mean we shouldn’t try new innovative ideas that hold promise for alleviating our crises, but only that we must be focused on outcomes when we consider them. Social Housing is one of these ideas that holds promise. Overseen by a Public agency or Non profit, the development and management of social housing is not income-restricted. While the funding mechanisms are a bit fuzzy (it may require large Public outlays to an entity expressly focused on, with expertise in, development), the prospects for long-term maintenance makes more sense, with higher incomes groups subsidizing lower income ones, such that the operations aim to be revenue neutral.
Whereas inclusionary housing fails because it requires below-market returns for entities who absolutely must deliver above market returns, and Public/Affordable Housing fails because the rent from the exclusively income-restricted units is not enough to meet basic maintenance and habitability standards, Social Housing blends the two together, with a clear-eyed understanding that it’s not meant to turn a profit, but that it also must generate enough revenue to keep the building standing. As proponents of the California Social Housing Act detail, including assembly member Alex Lee most prominently, the income-agnostic approach in these projects fosters economic opportunity and diverse neighborhoods, without troublingly prescriptive mandates. The beauty of social housing is that it’s intended for all people, not just narrow groups of winners. There are even private developers like Kevin Cavenaugh in Portland, whose delivering some of the most exciting, affordable, dynamic, and truly innovative housing in the country, using creative financing to lower return thresholds.
As of now, however, the majority of housing will have to be delivered by traditional private developers. There simply isn’t the capacity or infrastructure in other modes of building to provide for the sheer volume of homes we need. It’s in this vein, then, that it’s high time to dispel the myth that developers cause the housing crisis or greedily take advantage of it. A developer’s job is to provide housing at whatever rates the market can bear. No more, no less. If there isn’t someone willing to buy or rent a home at a given price point, a developer will adjust their pricing downwards. Likewise, if there’s intense demand at a given price point, they’ll adjust it upwards. We’ve been living in the latter state for decades.
In this way, developers are little different than farmers. Both provide existential goods for people who aren’t capable of creating them on their own. Margins are similarly tight. Most developers earn 3–5% in returns in mature markets on stabilized assets. And both practices are risky and unpredictable.
The parallels run deeper, to more enlightened notions of how each should be practiced. In agriculture, it would be nice to have all organic food (Affordable, for development). But presently, this isn’t possible. Instead of mandating all food be organic, we have to do what we can, or else face the prospect of an even greater crisis down the road. Sri Lanka’s recent disastrous experiment in organic agriculture proved just this, leading to mass hunger, economic depravity, and a toppling of its own government. Ideological purity cannot be policy when people’s lives are at stake and the proposed intervention cannot adequately provide for all those who require aid.
But where farmers are valued for the service they provide, private developers are not. Why is this? It’s far easier to grow food in your backyard than it is to create your home, after all. Beyond this, every building one has ever been in is the result of labor from a developer of some sort, with a disproportionate amount of these coming from private developers. This is a good thing! The practice of building new housing employs millions of people all around the country, both directly and indirectly.
While anger is directed at caricatures of developers, most of the money in any project goes to the trades — working class, or upwardly mobile middle class professionals like electricians, painters, plumbers, roofers, etc. These men and women need to support their families as much as anyone else. Are they not deserving of compensation? When one understands the actual costs of development, the notion that developers make all of the money on a project is outrageous, and opposition dissipates.
What’s more, much of the money that enables the construction of new housing comes from institutions, like pension funds, endowments, and insurance companies. These firms have minimum return thresholds, so that they can pay teachers and firemen their retirement pensions, offer scholarships to students, or cover insurance claims. Developers take a split of proceeds after all of the risk-intensive work they’ve done, but they’re hardly profiteering. As we learned above, the costs of development make housing more expensive, not caprice nor greed.
This isn’t to say private developers are virtuous and always provide a better product. Hardly. But it’s clear that we cannot continue with a status quo that only privileges the most expensive developments (whether Publicly subsidized or privately built) to get through the door, as they’re the only ones that pencil in our system. If you find yourself wanting to blame developers, don’t. Blame your local officials.
Where does this leave Public agencies and the Federal government? Make no mistake, they still have an immensely important role to play. But that role is different than the one many might have expected of them. Theirs is to be a support system, offering a boost to the most marginalized, while directing policy from a high level that can unlock those best equipped to provide a better lived experience for all.
This support will likely most tangibly come in the form of vouchers. A focus on a voucher based system allows the government to improve what it already has a good deal of experience in, and expand those benefits outwards. Today, 10 million people receive federal rental assistance through various vouchers programs, like Housing Choice and Section 8.
But this system is chaotic, inefficient, and concentrates segregation by class as most vouchers are directed towards low-income neighborhoods. The key to allowing these programs to have maximum impact is to simplify them. There are 160 different housing assistance programs in the country, with very few interacting with one another. This is counter-productive at best, and destabilizing at worst — millions of families wait for years for needed assistance, with some never getting it. What are all of these programs doing, if so many people are left on waiting lists? One gets the impression that there is a great deal of redundancy across programs, leading to delays and inflated costs. An easy solution would be to consolidate all of these programs into one large national agency within HUD, so communication, administration, and implementation improve, as Michael Hendrix has convincingly argued.
In confirmation of this flawed system, only 25% of qualified households receive federal rental assistance due to funding limitations. By cancelling all misadventures in the development and management of housing, focus can be directed on improving our convoluted voucher system — an achievable goal. This is common sense governance. Providing a family $18,000 in rental aid annually ($1,500 a month), is a far better investment for the government to make than allocating $500,000, or $1,000,000, towards poorly managed housing that won’t deliver for a decade. The math still works after 25 years. It’s a win-win-win. The government can unload costs to private or non-profit developers whose job is to deliver high quality housing, and tenants can reap the benefits of an abundance of more affordable housing.
Key to this strategy working, however, is to fully fund these programs and enable housing to be built in areas where it’s scarce. A voucher can’t do any good where there’s no housing to move into, or if they’re inhibited from doing it. Only 1.7% of direct federal spending is allocated towards housing and community development. This just isn’t enough. Thankfully, the trajectory is improving, and I hope it continues with a more targeted focus.
The answer to making housing more affordable in America is not to build Affordable Housing (Capital A). The answer is to build as much housing as possible so that it becomes affordable, without reliance on heavy subsidy, municipal competence, organization, income-restriction, means-testing, segregation, tribalism, or the caprices of successive administrations.
Effectuating this requires us all to take a hard look in the mirror, and a willingness to follow where the data leads. While we all have our own preconceived notions of what’s best, this matters little in crafting policy that impacts the lives of so many millions, so intimately. Our policy must be outcome based, not guided by specious emotional charges.
Though no problem as complex as our national housing crisis will have a set of solutions that can easily be distilled into a few lines at the end of an (albeit long) article, here are a few common sense takeaways that can tangibly help solve our crisis:
Reform, or abolish, zoning to allow for the development of housing where it’s needed most in order to respond to supply-demand imbalances
Cut away at unnecessary regulations like minimum parking standards, set back regulations, and bad-faith environmental reviews, that serve little functional purpose other than to increase development costs and the time to deliver housing
Attract the best and the brightest into planning & development departments with excellent compensation, and enable them to work towards creating high quality built environments
Eliminate zero sum games that allow for the factionalization of existential policies, namely, community review that empowers vested and well intentioned interests to usurp the process of progressive housing. We must operate with an imperative that housing is going to get built as a first priority, with all else following from there.
Build high quality housing for all members of society, not just the wealthiest or the marginalized. We cannot risk the middle class sliding into impoverishment or precarity due to obstinance and incompetence. These are indistinguishable from malevolence.
Stop misadventures in Public and Affordable Housing programs that serve to segregate, marginalize, restrict opportunity, and damn millions to poor living conditions
Consolidate, and adequately fund, rental assistance & voucher programs to ensure those who need help the most can be aided in efficient and economic ways
And 50 other suggestions that I’m sure you won’t want to read after already getting through 14,000 words in this piece
For those who genuinely care about the plight of tens of millions of Americans struggling in these times, we’re all working towards the same thing; to create places that are more affordable, sustainable, community grounded, of higher quality, and offer more opportunity. This isn’t achieved by utilitarianism (build as much as we can, no matter where it’s built, how it functions, or what its impacts are) or tribalism (only certain groups qualify/are worthy of attention), but romantic maximalism.
We need to embrace an abundance agenda such that anyone who wants to live in our cities, towns, and country, regardless of where they’re from, will not only be able to do so at reasonable costs of living, but with incredibly high qualities of life as well. We need to create communities that inspire great pride, joy, and camaraderie, not depression, division, and resentment. When we build great things, a skepticism of change, or fear of others, will be replaced with an excitement about the prospect of the future, and a compassion for our neighbors. This isn’t ignorant idealism, but rational optimism. In a world dominated by pessimists, cynics, and selfish agents, it’s the medicine we’re so desperately in need of. The future of countless millions depends on it.
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This is the longest piece I’ve written so far. It took several months of research, analysis, arranging, and composing, but I’m happy with where it’s ended up. If you liked it, hated it, agreed with it, disagreed with it, or anywhere in between, let me know down below! I’m sure I’ve missed some things here, but I had to cap the article near 15,000 words or else I’m not sure any one would have been able to finish it—you or me! Hopefully this is a meaningful contribution towards a larger conversation on one of the most important topics in America right now. We can’t solve this crisis unless we’re realistic about what it takes, and are willing to do the work. So, let’s all come together and try! The fate of the country may very well depend on it.
Zoning is a real issue, but I think you overstate the costs of regulation. I know a number of spec builders in my area. Regulation is a nuisance for them, but not a big cost driver. It may be different for large scale builders, but they are the ones who tend to get their way with regulators, not the little guys.
There are a few things unmentioned:
A big problem is that land and housing are investment vehicles. Shelter is just a byproduct. That drives up the prices as investors buy in. The surge of wealth at the high end of our economy has led to asset price inflation. Stock prices, art prices and housing prices have all soared.
Another problem is AirBnB and other short term rental mechanisms that serve as a way to get around land use regulation. Short term rentals pay more than long term rentals, so long term renters are priced out by short term renters.
There's also the lack of wage growth for the last 40 years. That has made it harder for people at the low end of the scale to get into their local housing market. It was different when one could expect one's wage to rise. There are two ways to fix the rent to wage ratio. Lowering the rent is just one of them.
If you really want to make housing more affordable - start by removing the ways by which housing can be held for minimal cost: Proposition 13 and its ilk.
Texas and its 3% property tax directly correlates with Texas housing prices being far lower. High property taxes also forces many more people to actually either be using the housing or renting it out.
As it is, an owner of a 1970s era house in San Francisco - even in the highest priced neighborhoods, is paying only $2K a year in property taxes. Someone like that can easily afford to simply let it sit empty until they get that $5K/month or $10K/month rent paying rich person. Or in other words, there is no financial pressure to rent to someone to bring in money.
In addition, while I am fine with rent control to offset the above property tax subsidy - the reality is that rent control legislation causes new housing to be built as "luxury" precisely to avoid rent control regulation.
Thus the argument that it is about supply is simply wrong. The area I live in, in San Francisco, has seen literally a dozen 30 to 50 story high rise apartment/condo complexes go up in the past decade. Rents did not go down because every single one of these new units are priced at the very upper end of the market, and I know for a fact that many of them are sitting significantly empty because either they have absentee owners or the builder is perfectly fine waiting out the market.