Here are two ideas that, if you’re like most Americans, you probably mostly agree with:
Government policy should help keep housing broadly affordable, so as not to price out people of low or moderate incomes from entire neighborhoods, cities, or even metropolitan areas.
Government policy should protect residential neighborhoods from things that might negatively impact housing values, because homes are an important investment and wealth-building tool.
Having read them together like that, you’ve probably already jumped ahead to the big reveal, which is that these two ideas are almost entirely mutually exclusive. The first essentially says, “Use housing policy to keep home prices down”; the second says, “Use housing policy to keep home prices up.”
It’s no wonder, then, that housing policy is a bit confused. The same municipal governments that require that housing on scarce urban land be taken up only with resource-intensive, high-building-cost single family homes; that use zoning to separate out unwanted apartments, shops, transit lines, and other uses on the grounds that they might hurt home values; and promote neighborhood beautification and other projects on the grounds that they will raise housing values, also issue affordable housing reports trying to understand why home prices aren’t lower, and levy “impact fees” on new development for the alleged crime of, you know, raising home values.
The problem is that, at least in certain contexts, both of these goals are legitimate and important. Of course, especially in the wake of the Great Recession’s housing market collapse, a number of people have expressed skepticism about homeownership as a wealth-building tool; surely there are less risky—that is to say, less potentially ruinous—ways to a retirement income or college fund than investing hundreds of thousands of dollars in a single asset whose appreciation, as we all now know, is far from guaranteed.
And perhaps, if we could go back to the New Deal and talk this over with President Roosevelt before he inaugurated the era of mass homeownership with a federally regulated and subsidized mortgage market, we would want to make that point. But today, some eighty years later, it’s a bit late. That’s because homeownership has already provided a route to middle-class stability for tens of millions of households—and those households are mostly white. As the Washington Post wrote in a fantasticseries earlier this year, public and private housing discrimination has led to a situation where home prices in black neighborhoods—even ones where the vast majority of households have solidly middle-class incomes, or higher—are much, much more unstable than in white neighborhoods.
This inequality is buttressed by the fact that our homeownership subsidies have worked selectively to the benefit of higher-income homeowners: the mortgage interest tax deduction, for example, gives larger tax expenditures to people who own more expensive houses. The more your home appreciates in value, the more benefit you get from the exclusion of home sales from capital gains tax. Ditto the value of excluding imputed rent, and deducting property taxes. The net result, according to the University of Chicago’s Atif Mian and Amir Sufi, is that homeownership has significantly magnified wealth differentials in the US.
One result of all this is that many white families have built generations of wealth through homeownership, while black families have made barely any progress: In fact, The Atlantic reported on a study suggesting that homeownership has been a net financial lossto African Americans since 2000. In 2013, the median white household held $126,000 in wealth from their home, while the figure for the median black household was just $31,000. That gap, in turn, represents a massive difference in the ability of a family to withstand a big financial shock—unexpected unemployment, for example, or a serious medical crisis—that may go some way to explaining why black middle-class workers are much, much more likely than their white counterparts to fall back into poverty.
Giving up entirely on the idea of homeownership as a path to wealth-building would essentially be saying that black Americans have just missed the boat on this one, and will have to remain behind forever. On the contrary, in the relatively few places where housing values finally do go up in mostly black neighborhoods, it represents—at least in part—a kind of justice: giving black homeowners the same access to financial gain that their white counterparts have enjoyed for the better part of a century.
Unfortunately, that gain also represents a loss for people, especially renters, who can’t afford to pay much more than they already do, and for whom artificially low prices in largely minority neighborhoods meant access to locations that they would not be able to afford in a normal market where race did not play such a major role in housing prices.
There is no good reason for East Garfield Park, 20 minutes west of downtown Chicago, to be so cheap—except for issues related to being a segregated black neighborhood. Credit: Eric Allix Rogers, Flickr
So how to square that circle? Well, that’s basically the challenge of housing policy in a nutshell. Perhaps a start would be to acknowledge that there is, in fact, a tension here—that “protecting” or “promoting” property values is the same thing as “making housing more expensive.” It’s somewhat discouraging, for example, when community organizations claim that “affordability doesn’t mean housing values have to remain stagnant,” without acknowledging that if housing values aren’t stagnant—ie, they’re growing—that means they’re also becoming less affordable.
But there is some hope. For one, robust production of housing that isn’t priced by the market, and therefore isn’t affected by rising market prices. That can be accomplished through public housing, privately-developed affordable housing with programs like LIHTC, and housing vouchers. At the moment, few places produce non-market housing at anything close to a scale that would provide broad affordability, but there are encouraging examples: Portland, for instance, has created 2,300 units of affordable housing in its redeveloping Pearl District, adjacent to downtown, supported largely with funds from tax increment financing.
In many places, having a wide variety of housing types and sizes can also make room for people of a wide variety of incomes. My street in the Edgewater neighborhood of Chicago, for example, contains a handful of single family homes, whose value at this point probably reaches into the seven figures; expensive newer condo buildings; older multifamily buildings, some of which have large, luxuriously updated units, and others whose apartments are somewhat smaller, or have less up-to-date finishes; and a few single room occupancy buildings, with minimal accommodations. As a result, there is market-rate housing for everyone from upper-middle-class professionals to working-class immigrant families to low-income elderly adults. Of course, that sort of diversity is typical of a pre-zoning “illegal neighborhood”: a vanishingly small proportion of American neighborhoods allow that sort of mix to be created today, which is a large part of the problem.
We are, in conclusion, profoundly conflicted as a nation when it comes to housing: we want it to be affordable, but we also want its prices to rise fast enough to be valuable as a financial investment. That’s a contradiction we need to acknowledge if our housing policy debate—and, ultimately, our housing policy—is going to be coherent and constructive.
Why America can’t make up its mind about housing
Here are two ideas that, if you’re like most Americans, you probably mostly agree with:
Having read them together like that, you’ve probably already jumped ahead to the big reveal, which is that these two ideas are almost entirely mutually exclusive. The first essentially says, “Use housing policy to keep home prices down”; the second says, “Use housing policy to keep home prices up.”
It’s no wonder, then, that housing policy is a bit confused. The same municipal governments that require that housing on scarce urban land be taken up only with resource-intensive, high-building-cost single family homes; that use zoning to separate out unwanted apartments, shops, transit lines, and other uses on the grounds that they might hurt home values; and promote neighborhood beautification and other projects on the grounds that they will raise housing values, also issue affordable housing reports trying to understand why home prices aren’t lower, and levy “impact fees” on new development for the alleged crime of, you know, raising home values.
The problem is that, at least in certain contexts, both of these goals are legitimate and important. Of course, especially in the wake of the Great Recession’s housing market collapse, a number of people have expressed skepticism about homeownership as a wealth-building tool; surely there are less risky—that is to say, less potentially ruinous—ways to a retirement income or college fund than investing hundreds of thousands of dollars in a single asset whose appreciation, as we all now know, is far from guaranteed.
And perhaps, if we could go back to the New Deal and talk this over with President Roosevelt before he inaugurated the era of mass homeownership with a federally regulated and subsidized mortgage market, we would want to make that point. But today, some eighty years later, it’s a bit late. That’s because homeownership has already provided a route to middle-class stability for tens of millions of households—and those households are mostly white. As the Washington Post wrote in a fantastic series earlier this year, public and private housing discrimination has led to a situation where home prices in black neighborhoods—even ones where the vast majority of households have solidly middle-class incomes, or higher—are much, much more unstable than in white neighborhoods.
This inequality is buttressed by the fact that our homeownership subsidies have worked selectively to the benefit of higher-income homeowners: the mortgage interest tax deduction, for example, gives larger tax expenditures to people who own more expensive houses. The more your home appreciates in value, the more benefit you get from the exclusion of home sales from capital gains tax. Ditto the value of excluding imputed rent, and deducting property taxes. The net result, according to the University of Chicago’s Atif Mian and Amir Sufi, is that homeownership has significantly magnified wealth differentials in the US.
One result of all this is that many white families have built generations of wealth through homeownership, while black families have made barely any progress: In fact, The Atlantic reported on a study suggesting that homeownership has been a net financial loss to African Americans since 2000. In 2013, the median white household held $126,000 in wealth from their home, while the figure for the median black household was just $31,000. That gap, in turn, represents a massive difference in the ability of a family to withstand a big financial shock—unexpected unemployment, for example, or a serious medical crisis—that may go some way to explaining why black middle-class workers are much, much more likely than their white counterparts to fall back into poverty.
(And the resistance of many neighborhoods to growing property values is quite strong indeed: look at how much of central and southern Brooklyn has actually lost property value since 2004.)
Giving up entirely on the idea of homeownership as a path to wealth-building would essentially be saying that black Americans have just missed the boat on this one, and will have to remain behind forever. On the contrary, in the relatively few places where housing values finally do go up in mostly black neighborhoods, it represents—at least in part—a kind of justice: giving black homeowners the same access to financial gain that their white counterparts have enjoyed for the better part of a century.
Unfortunately, that gain also represents a loss for people, especially renters, who can’t afford to pay much more than they already do, and for whom artificially low prices in largely minority neighborhoods meant access to locations that they would not be able to afford in a normal market where race did not play such a major role in housing prices.
So how to square that circle? Well, that’s basically the challenge of housing policy in a nutshell. Perhaps a start would be to acknowledge that there is, in fact, a tension here—that “protecting” or “promoting” property values is the same thing as “making housing more expensive.” It’s somewhat discouraging, for example, when community organizations claim that “affordability doesn’t mean housing values have to remain stagnant,” without acknowledging that if housing values aren’t stagnant—ie, they’re growing—that means they’re also becoming less affordable.
But there is some hope. For one, robust production of housing that isn’t priced by the market, and therefore isn’t affected by rising market prices. That can be accomplished through public housing, privately-developed affordable housing with programs like LIHTC, and housing vouchers. At the moment, few places produce non-market housing at anything close to a scale that would provide broad affordability, but there are encouraging examples: Portland, for instance, has created 2,300 units of affordable housing in its redeveloping Pearl District, adjacent to downtown, supported largely with funds from tax increment financing.
In many places, having a wide variety of housing types and sizes can also make room for people of a wide variety of incomes. My street in the Edgewater neighborhood of Chicago, for example, contains a handful of single family homes, whose value at this point probably reaches into the seven figures; expensive newer condo buildings; older multifamily buildings, some of which have large, luxuriously updated units, and others whose apartments are somewhat smaller, or have less up-to-date finishes; and a few single room occupancy buildings, with minimal accommodations. As a result, there is market-rate housing for everyone from upper-middle-class professionals to working-class immigrant families to low-income elderly adults. Of course, that sort of diversity is typical of a pre-zoning “illegal neighborhood”: a vanishingly small proportion of American neighborhoods allow that sort of mix to be created today, which is a large part of the problem.
We are, in conclusion, profoundly conflicted as a nation when it comes to housing: we want it to be affordable, but we also want its prices to rise fast enough to be valuable as a financial investment. That’s a contradiction we need to acknowledge if our housing policy debate—and, ultimately, our housing policy—is going to be coherent and constructive.
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