The Zen of Affordable Housing

Housing affordability is a critical ingredient of sustainable development in cities, but also one of the most vexing challenges. Not surprisingly, it’s also an issue that often gets tangled up in contention and misunderstanding.

If we hope to accommodate growth in a sustainable fashion by creating dense, walkable, transit-rich urban centers that also have economic diversity, it seems we could all use a little Zen-like focus and clarity on what we’re dealing with. And so I invite the reader to meditate on the following wonky koans:

The urban density debate is over. An ever-growing mountain of density research unequivocally demonstrates the benefits associated with energy, greenhouse gas emissions, water, habitat, farmland, economics, human health and safety, etc.  It’s not hyperbole to say that in America, our future prosperity will depend heavily on the densification of our urban areas. Accordingly, high-density housing should be recognized as a public benefit in itself.

Density does not cause higher housing prices. Yes, many densely populated cities are expensive, but that does not imply causality.  In fact, it would be more defensible to claim the converse, that higher prices cause density.  Throughout history, the value that prosperous cities offer to people’s lives has made them desirable and therefore expensive.

High density housing is inherently inexpensive. Compared to typical low-density alternatives (e.g. the single-family house), multifamily housing consumes less material per unit to build, uses less land, is more energy efficient, and requires less utility infrastructure.

The rules of supply and demand apply to housing. This is easily demonstrated by comparing the prices of similar homes located in different cities, say Seattle vs. Cleveland.  It is also borne out in the data that shows how rental rates respond to cycles of apartment production. Because demand is also part of the equation, increasing supply does not guarantee affordability for everyone or even that prices will see a net drop. But more housing supply will drive prices lower than they would have been absent that increased supply, and that helps affordability across the board.

Demand for density is increasing. Massive economic, cultural, and demographic trends are creating increased demand for multifamily housing in walkable, transit-rich neighborhoods. These are the forces that have led to the current multifamily development boom in Seattle’s urban villages such as Capitol Hill, Ballard, and West Seattle. In many locations demand is still outpacing supply, which is driving prices up.

Blocking private development will not stop gentrification and displacement. Most multifamily infill development occurs on empty lots or replaces buildings that have outlived their useful life, but yes, in some cases preventing a redevelopment project may save an existing building with low-rent units.  However, if a neighborhood is desirable, the result will be even greater pent up demand that will inevitably accelerate gentrification and displacement.

The cost of producing housing affects affordability. The expense, delay, and risk caused by over-regulation or NIMBYism increases the cost of producing housing. As with any free market transaction, most owners will charge what the housing market will bear regardless of the cost of production. But when costs are reduced development becomes a more financially attractive pursuit, which the free market ensures will inevitably lead to increased production, and the resultant uptick in supply will exert downward pressure on price.

The private market cannot deliver housing for the lower end of the income spectrum. A variety of economic factors sets a hard lower limit on the rents or sales price of housing produced in the private market.  To convince yourself that’s it not just about greedy private developers, consider the fact that non-profit low-income housing developers have to scrape together every possible source of subsidy they can find to make their developments pencil.*

Private development should not be a primary source of subsidy for affordable housing. In limited cases where value is very high, it is reasonable to extract some of the profit from multifamily development to subsidize public benefits, including affordable housing.  However, in the more typical case, that kind of extraction encumbers the production of multifamily housing for people with incomes in the mid-range. This results in reduced supply, upward pressure on price, and a lost opportunity to gain the sustainability benefits of new multifamily housing.

Other household expenses are a factor in housing affordability. If a certain location offers unique economic benefits or amenities, households can and will spend more on housing to live there. The most important example is transportation—in walkable, transit-rich areas households can significantly reduce their total expenses by not owning a car.

Family housing is inherently expensive. In most urban markets, a multifamily building filled with one-bedroom apartments is substantially more profitable than the same building filled with three-bedroom units. This is a result of construction economics and market rents. However, production of small units can help indirectly by offering childless couples and singles more housing options, thereby reducing demand and putting downward pressure on prices for existing family-sized housing.

Growth changes everything. When population growth stagnates, housing tends to become affordable. But when an urban area is in demand and growing, as is the case with Seattle, housing prices can be expected to rise no matter what. Growth presents a tremendous opportunity to build the kind of  high-density housing that makes sense for future urban sustainability. But growth can also create an affordability gap as demand and increasing wealth inevitably drive up housing prices.

Densification means change. It is human nature to resist change, but change is imperative in the face of paradigm-shifting factors such as global warming and peak oil. There is no getting around the fact that for most of our urban areas, creating compact, walkable neighborhoods means significant change, and we have a collective responsibility to ensure that the burden of that change is not inequitably borne by the most vulnerable. But at the same time, we  should also recognize that these changes have the potential to create something better for everyone.

Income inequality is the core reason why housing affordability is such an intractable problem in the United States. In pretty much every other industrialized nation on earth, greater redistribution of wealth helps ease the problem of affordable housing. This includes social investments that significantly reduce other major household expenses, such as healthcare, education, childcare, and transportation, thereby freeing up more income to pay for housing. Here in the U.S, we will be beating our heads against the wall forever trying to provide enough affordable housing to make up for this underlying inequity.

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No doubt some will have issues with the above assertions, and thoughtful criticism is welcome. But on my interpretation, there are several clear conclusions:

• Density is a win-win both for housing affordability and sustainability overall—it is self-defeating for affordable housing advocates to bash density.
• Far greater government subsidy for the production of low-income housing is necessary, especially under conditions of demand and growth—the greater the value offered by a neighborhood, the greater the subsidy needed to provide affordability.
• We must find sources of subsidy that place the burden of providing affordable housing on society as a whole, because in most cases, taxing the production of market-rate housing to subsidize affordable housing is like robbing Peter to pay Paul.
• Efforts should be made to reduce financial, regulatory, and political encumbrances to the production of high-density multifamily housing, whether it is market rate or subsidized.
• Targeted incentives should preferentially promote the development of multifamily housing—both market rate and subsidized—in areas with access to high-quality transit, because such locations effectively make housing more affordable by reducing household transportation costs.
• Potential displacement should be addressed not by trying to freeze a place in amber, but with targeted subsidies for housing and other social programs that help existing residents remain in place so that they can benefit from the positive change in their neighborhood.
• If we hope to succeed in giving lower-income households—especially families with children—the opportunity to enjoy all the benefits of living in a prosperous city, then we must start to take on systemic income inequality, and push for the expansion of socialized investments that offset the burden of expensive housing.

Now listen for the soft gong, breathe, and slowly let your mind ease back into normal consciousness…

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*To appreciate the sensitivity of the pro-forma for multifamily housing development, compare the current rate of multifamily development in Seattle’s Capitol Hill—where there are 20-some large-scale private developments in construction or in the pipeline—to the adjacent Central District, where there are none (unless I missed something?). A change in location of maybe a dozen city blocks is enough to sour the real estate development deal. And what this demonstrates is that demand matters a lot more than public policy in determining where and when high-density housing development occurs. There are urban neighborhoods scattered from Everett to Tacoma that are inside designated growth centers and have zoning that allows plenty of density, but that are getting pretty much zip for multifamily development because demand is low, and therefore rents are too low for development to pencil.

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Dan Bertolet is the creator of Citytank and doesn’t meditate enough.