Blocking new development will only accelerate demand for existing homes
The moratorium makes flipping houses even more lucrative
Atlanta’s making a major investment in Westside Park at Bellwood Quarry, not far from the Beltline that has triggered a wave of redevelopment around the city. It’s going to be a gem. When completed, Westside Park will be the city’s largest, at 280 acres and will transform a former quarry into a spectacular water feature. The city’s first stage investment of more than $25 million is expected to lead to other investment, both in and around the park. The concern with the improved park, as with the Beltline, is that these improvements will trigger gentrification, and lead to the displacement of existing residents, who are disproportionately low income and Black.
In response, Mayor Keisha Lance Bottoms has issued a moratorium on new building permits, zone changes and similar land use actions in the area around the park. The moratorium is scheduled to last six months, and serve as a kind of “time out” to consider what might be done.
If the Mayor’s objective is to keep existing residents in their homes and discourage speculation, blocking the construction of new housing in and around Westside Park is actually likely to backfire. The problem is a moratorium does nothing to address the growing demand for urban living, which we’re seeing not just in this neighborhood, but in many places in Atlanta and in cities throughout the US.
Americans, particularly well-educated young adults are looking for neighborhoods that offer diversity, walkability, density and other urban amenities like great parks. The improvements to Westside Park, make it a powerful draw to new residents.
That’s true whether you build new houses and apartments for them or not. And by not building new houses, you intensify the competition for the existing housing stock. If people who want to live in the neighborhood can’t buy a new condo or rent a newly-built apartment in the area, they may be able to rent or buy an existing home. It’s a good bet that lots of people will be looking for “fixer-uppers” whether they’re planning to become long-term neighborhood residents, flip the property for a profit, or rent it out for income. If you are a flipper, knowing that there won’t be any nice, new apartments or condos down the street means you’ll be able to charge even more when you finish upgrading the property. In all these cases, the moratorium has the effect of focusing the demand from investors, homebuyers and prospective renters entirely on existing homes.
Writing in The Atlantic, the Brookings Institution’s Jenny Schuetz explained how just this dynamic plays out in the market for apartments. Many cities make it difficult to build new apartments, which actually makes affordability problems worse because investors choose to fix up old apartments (and raise their rents) rather than building new ones:
In places where regulation limits new apartment construction, acquiring existing buildings is less risky than trying to build new rental housing. There are stronger financial incentives to maintain and upgrade old apartments in tightly regulated markets, because they face less competition from new, high-amenity buildings. This process of upward “filtering” among existing apartments is particularly harmful to housing affordability because it results in higher rents without expanding the number of homes available.
Blocking one path (new construction) doesn’t ease gentrification pressures, it intensifies them. In all likelihood, the moratorium will lead to more property price appreciation and more displacement than if new construction were allowed to go forward. Studies by the Anti-Displacement Project at the University of California show that the construction of two new market rate dwellings has the same effect in reducing displacement as building a single unit of affordable housing. Given the city’s limited resources for affordable housing, relying on private developers to construct new homes to accomodate new residents is a more effective and cheaper way of reducing displacement.
A moratorium is a flashy way of exhibiting concern about gentrification, but isn’t a solution. If anything, its likely to make all of the negative aspects of change worse. A more constructive approach would focus on ways to acquire or build more affordable housing in the neighborhood. One promising practice is to capture the tax increment from rising property values (and new construction) to create a fund to help subsidize affordable housing.