May 10, 2012
by David Alpert
When discussing housing affordability, there are 2 groups of advocates who are constantly talking past each other. Affordable housing groups do not engage with the economic arguments for building more housing, while proponents of expanding the housing supply don’t spend enough time thinking about how to ensure that an increased supply benefits everyone.
This week, Lydia DePillis critiqued affordable housing advocates for only talking about public programs that help lower-income people afford housing.
[A]ffordable housing shouldn’t be all about setting prices artificially low—it’s also about letting builders build the amount of housing this city needs.
I asked the author of the report, Jenny Reed, whether she’d thought about the land use aspect of affordable housing. She said that she’s interested in it—mentioning New York City’s consideration of changing its zoning to allow for micro-apartments, which would be useful in D.C. as well—but hasn’t done much research. It’s time to do the research. You can’t pretend to have a holistic housing strategy without addressing one of the biggest reasons why we don’t have more of it.
DePillis wonders if this partly stems from a cultural divide; affordable housing advocates may not want to stand on the same side as developers. I suspect there’s another cultural divide as well: folks in the affordable housing movement don’t seem to be as comfortable talking in economic-speak.Just subsidizing housing doesn’t solve the problem
On the one side, we have a group of people, like Matt Yglesias and Ryan Avent, explaining rising housing prices based on economics. In DC, zoning and federal laws limit the supply of housing. Demand has risen, and therefore prices are going up.
If you give one group of people money to afford that housing, it only means that the recipients can now outbid someone else, but you’ve just substituted one group of residents for another. A city could simply redistribute housing from the rich to the poor (at considerable expense), these folks say, or it could grow the pool of housing so that both sets of aspiring residents can live here.
Affordable housing groups have not engaged with this argument on the economic plane. They make compelling emotional arguments about people who can’t afford to stay in their neighborhoods, and there’s a strong case to make that completely segregating society into rich places and poor places doesn’t make for very healthy communities. But none of these arguments fundamentally address the supply-and-demand argument.
Just building housing doesn’t solve it either
Avent, Yglesias, Ed Glaeser and others recommend that cities relax restrictions so that property owners can build more housing. The principle of supply and demand would suggest that the prices of housing would then decline.
We absolutely should add more housing. It’s the right thing to do, and it’s good for DC economically; more residents means a stronger tax base, more patrons for local businesses, and more.
But just as government programs on their own won’t fix the affordability crisis, neither will just building more housing.
The housing market isn’t quite the simple supply-demand graph of basic economics. For one thing, housing is not all the same. It’s a continuum of products and demand at different price levels.The problem with “just build more” is that there is unmet demand at most levels of the spectrum today, including at the top end. Understandably, most property owners want to build the most lucrative housing they can, which means that new construction generally satisfies the top end of the market first.
If one could wave a magic wand and create massive new housing instantly, the entire market might get saturated and everyone could find housing. But that’s not realistic. We’re not going to abolish zoning tomorrow, and shouldn’t. Building takes time, and developers need to find financing, which is very limited, Yglesias notes.
Also, it costs money to build housing. At some price point, it’s not worth it to build an extra unit. The taller buildings get, the higher that point. In cities with lots of empty land, this is what “affordable housing” program are: subsidies to build a building in a place where the market would not build any housing on its own.
DC has some of that land east of the river, but residents there understandably feel that they’ve already accommodated more than their share of lower-income housing. If one goal of affordable housing policy is to create multi-income communities, then putting more affordable housing in the poorest parts of the city doesn’t help.
Where can both sides agree?
This is why inclusionary zoning was, and is, a great policy. It raised the cap on housing construction in places with significant demand and high housing prices, but forced at least that small increment to satisfy some demand at various points on the price curve. In practice, though, inclusionary zoning can make at most a very small dent in the overall problem.
DePillis concludes, “[Building more housing] should be a place where the two sides make common cause with one another.” We do need economists and affordable housing advocates make common cause. Just saying, as some commenters have, that everyone outside the top earners should just move to Bowie is not a housing policy. It’ll lead to greater segregation and ultimately greater conflict between rich and poor. It creates terrible transportation and land use problems, as the people least able to afford it have to drive the farthest and commute the longest. It’s simply unfair.
“We just need to crank up the government subsidies” isn’t the answer. “Just eliminate all restrictions on building and let the market sort it out” isn’t, either. It’s not clear what the right answer is, but we need affordable housing groups thinking about economics and economists thinking about human factors to figure it out.
Source: Greater Washington
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