How can affordable housing help minimize, rather than perpetuate, income segregation?

At City Observatory, we’ve long focused on the challenge of concentrated poverty, starting with our first report Lost in Place, in 2014.  American metropolitan areas have become more segregated by income, and the results of concentrated poverty have been devastating for families that live in these neighobrhoods and especially for the children who grow up in them.

Many factors contribute to the rise of economic segregation. Exclusionary suburbs with widespread single family zoning (and apartment bans) have made it difficult or impossible to build affordable housing in high opportunity neighborhoods. Less noticed is the fact that much of the affordable housing that is built tends to be built in low income neighborhoods, often because there is a political constituency for improved affordable housing in these neighborhoods, and also because there are local non-profit organizations that depend on housing subsidies for their financial existence.

We recently heard a compelling presentation from Rob Stewart, Executive Vice Chairman of JBG Smith, a Washington real estate firm, speaking at the Brookings Institution convening on transformative placemaking. Stewart’s firm has been at the leading edge of urban development in the DC area for years–it’s the owner of the Crystal City location picked by Amazon for one of its two HQ2’s. Despite the region’s success, Stewart is frank about the problems that remain.

I’ve observed over that period that the system we operate in really does promote the segregation of our community by income and that it has over that period grown to drive the cost of housing and other uses in the urban environment up dramatically.  So it’s made our region, as successful as it is, that much more expensive and that much more inhospitable to people of lesser means. So for the next thirty years, I hope our firm is about the business of trying to make these places more inclusive and more diverse.

Stewart has his own diagnosis of the policies that contribute to segregation, in particular the disparate patterns of public and private sector investment in housing, and the unfortunate tendency of subsidies for affordable housing to flow to expensive projects in already poor neighobrhoods.

I’ll talk about affordable housing and some of the policies that are at work and how they’re counterproductive and inefficient. Fundamentally, what’s happened if you look at our region,and I’m assuming it has parallels in other parts of the country, is you have public dollars flowing into neighborhoods that are struggling and you have private dollars flowing into neighborhoods that are improving and experiencing gentrification.

The public dollars are working at odds with the private dollars and the private dollars dwarf the public dollars. Then you have systems, like low income housing tax credits and housing choice vouchers that ironically serve to further concentrate poverty.
Low income housing tax credit programs are fundamentally complex, difficult, time-consuming and they’re the least desirable buyer of a property. Fundamentally they are going to properties that are already deeply concentrated in terms of poverty.  They also revolve around building new units or doing massive renovation to existing units. New units are obviously much more expensive than existing units that are in good condition so it would be far more effective if you’re concerned about use of resources, to spend the money buying existing units in good neighborhoods rather than building brand new units in bad neighborhoods.

These concerns echo those offered by the University of Minnesota’s Myron Orfield and his colleagues, who have that our current system of housing subsidies  incentivizes and rewards developments in dense urban areas and has been encouraged by a sophisticated “poverty housing” industry with a firm stake certain neighborhoods. While in theory, housing choice vouchers (also known as Section 8), ought to open open housing choice to a range of neighborhoods. But in practice that hasn’t been the case.  In Stewart’s view it’s due in part to the refusal of many landlords to accept vouchers (and the lack of laws preventing this discrimination, but also the tendency of housing authorities to allocate them in ways that lead them to be used primarily in poor neighborhoods.

Stewart also argues that inclusionary zoning turns out to be an expensive and inefficient way of creating a relative handful of affordable housing units, and that–as we’ve suggested at City Observatory–it tends to discourage investment in housing, driving up rents across the marketplace.

Last, if you look at inclusionary zoning, which is in theory about producing housing in good neighborhoods, that’s all about producing brand new units in the most expensive buildings in any market—the brand new luxury unit which is at least double or triple what it would cost to buy a unit in that same neighborhood. So that is honestly fundamental waste of those resources. It also drives up the cost of housing in that neighborhood by making it that much more expensive to build the new units which means rents go up, and the renter that pays those rents is usually a middle income demographic, so your fundamentally tagging the middle income demographic with the needs of funding housing for low income residents.

So here’s the challenge:  our current affordable housing programs produce too few units to make a big dent in housing affordability, and the units they produce tend to be disproportionately built in neighborhoods where they reinforce, rather than reduce, patterns of concentrated poverty.  What’s to be done? It turns out that Stewart has a proposal, which we’ll explore in part II of this commentary.

Editor’s note: This post has been revised to correct formatting errors in the originally published version.