On the one hand, over the last few years, the growing debate about the root causes of affordable housing crises in high-income, coastal American cities has been robust, passionate, and often nuanced. On the other, there have been precious few “breakthrough” moments, and the rhetoric today often looks pretty similar to what it was a few years ago: one side (including City Observatory) arguing that the basic issue is too little housing; another arguing that new housing is itself the cause of higher prices.
Which is why a new essay by Rick Jacobus at Shelterforce was so refreshing. Writing at an outlet that has published writers who are critical of new market-rate construction, Jacobus’ headline reads: “Why we must build,” but its subheading suggests an unusually nuanced position: “We can’t build our way out of the housing crisis…but we won’t get out without building.”
That sort of “necessary but insufficient” position isn’t new—it’s the one we’ve taken on multiple occasions, for example—but it’s still surprisingly rare, and Jacobus does a particularly good job of articulating it.
More market-rate housing: Necessary but insufficient
The basic idea is this: at a macro scale, the interplay of supply and demand is the biggest influence on average housing prices. Addressing the fact that the median home in the San Francisco metro area costs nearly $800,000 is all about building more housing; the reason Phoenix or Houston can see huge population booms while keeping prices under control (median price in Phoenix: just over $200,000) isn’t that landlords and developers there are so humanitarian, it’s that building more housing is easy, and so the overwhelming competition for housing that drives up prices in the Bay Area just doesn’t exist.
But while more housing can reduce the price of the median home, the median home isn’t all that matters. People at the low end of the US income scale simply don’t make enough money nearly anywhere, and never have, to afford decent market-rate housing—the cost of maintenance, and certainly of construction, keeps a price floor well above what someone living at the poverty line can pay. Direct housing assistance, then, will be necessary—and substantially more of it than we currently provide. Importantly, though, the effectiveness of that assistance depends on having a reasonable “baseline” market price, or else public budgets end up drowning in the massive gaps between what low-income (or even moderate-income) people can pay, and what housing actually costs. Just ask San Francisco, where a historic $300 million affordable housing bond issue is purchasing precious little actual affordable housing.
Geographic scale matters
Jacobus also addresses another important nuance: the question of scale. Again, at a regional level, more housing unambiguously reduces housing prices: we know that not just because we believe in Econ 101, but because all the real-world evidence suggests that’s the case.
But at a neighborhood scale, things are a bit more muddled. New luxury housing might signal to high-income residents that a neighborhood they previously wouldn’t have considered living in is safe, or hip, and increase demand by more than it increases supply. It might bring in high-end retailers that wouldn’t have previously considered the neighborhood, similarly attracting more wealthy residents. Even Stephen Smith, a staunch defender of the idea that more housing is key to solving the affordable housing crisis and writer for the website Market Urbanism, has written about these contradictory dynamics.
That said, we are skeptical about the extent to which this theoretical problem is actually a real-world issue in cities with major housing problems. Why? Well, look at how high-income neighborhoods have spread across the North Side of Chicago over the last several decades, bringing high rents with them:
For the last 40 years, gentrification has followed a very predictable pattern: demand rises in one neighborhood until prices begin to cause people who might have moved to there to move to the next neighborhood over, getting as close to the amenities and jobs in the high-rent neighborhood as they can. As more and more people decide they want to live in central city communities with high-quality amenities, that process repeats over and over, expanding the high-rent zone not in fits and jumps, but continuously out from its center.
As a result, the idea that some neighborhoods might be “saved” from the interest of high-income people if only developers wouldn’t signal the value of the neighborhood by building luxury housing seems far-fetched. By zooming out a bit, we can see that the geography of demand is determined by proximity to the amenities of the high-income zone; not building new housing right next to the edge of the zone isn’t going to convince anyone that they don’t want to live there, and even the most pristine new luxury apartment far away from the zone isn’t going to bring a bunch of people clamoring to pay top dollar.
The temporal mismatch is worse at the neighborhood level
But even if new housing isn’t going to provoke more demand that wouldn’t have shown up anyway, there’s another neighborhood-level problem that Jacobus identifies. Namely, housing demand can change much, much faster, and more dramatically, than housing supply. This is actually true at the regional level as well: an economic boom like the one the Bay Area has experienced can bring in many more jobseekers, much more quickly, than developers can respond with housing, simply because the development process in large, built-up cities is slow, and can take several years to respond to shifts.
But it’s much worse at the neighborhood level. Changes in neighborhood reputation, driven by the sort of spillover process I described above, can take place extremely rapidly—and once they do, an area that previously had nearly no demand from higher-income residents can see interest from a huge proportion of the region’s population that wants to be in the high-amenity urban core.
At the same time, adding housing in a particular neighborhood can be more challenging than adding it at the regional level. For one thing, if we’re talking about the urban core, there’s no suburban greenfield fringe to build on. And in most high-rent cities, even low-rent neighborhoods have few empty lots to build on. Neighborhood politics, obviously, also make building more housing very challenging.
The massive swings in very local demand mean that adding supply might have little effect in that immediate neighborhood, even as it lowers prices in the region more broadly, or allows filtering to take place closer to the urban core than it would otherwise. Here, then, is another “necessary but not sufficient” point: cities need to build more housing to keep regional prices reasonable, and to come as close as possible to meeting the demand for living in high-amenity urban cores. But in the neighborhoods with the greatest demand in the American cities with the greatest demand—New York, San Francisco, Chicago, and a handful of others—it’s likely that demand is simply too high for any realistic amount of new construction to bring market prices down to, say, Phoenix-like levels.
One takeaway is that there’s an intersection of policy and politics here: the problem of geographic scale matters not just as a matter of technocratic interest to planners, but because it means that local activists who care not about median regional prices, but whether they and their neighbors will be able to afford their particular neighborhood in a few years, may have less reason to support more housing supply there—even though that would be by far the best outcome for affordability in the region as a whole. That means it’s even more important for planners and housing advocates to have something to offer them.
The challenge is that any realistic solution will require dramatically increasing the resources we devote to housing assistance. While we’ve pointed out that we could probably pay for housing vouchers (or a refundable tax credit) to every qualifying household just by getting rid of the mortgage interest tax deduction for people making over $100,000, that would require federal action that simply isn’t forthcoming from the current Congress. And at the local level, the focus on inclusionary zoning and impact fees has both fed on and promoted the fantasy that all we need to do to solve the affordable housing crisis is squeeze developers hard enough. In reality, only a broadly-funded commitment to funding housing assistance has any shot at reaching the required scale. And even that won’t have the needed effect unless we build enough market-rate housing to get prices down and reduce the per-unit cost of subsidies.