How Building Expensive New Housing Actually Helps Create More Affordable Cities

How Building Expensive New Housing Actually Helps Create More Affordable Cities

Applying the term “housing crisis” to the fact that people increasingly cannot afford to live in many American cities makes it seem like a vast, unfixable problem. But the solution is actually easy: Build more housing. A lot more housing. As soon as possible.

But what kind of housing? Several new studies also point to a seemingly incongruous fact: It doesn’t matter if that housing is for high-income residents or low-income residents. Every housing unit built helps make a city more affordable.

You’ve likely encountered the effects of a housing crisis, or know someone who has. Workers can’t pay to live near their work because rents are too high. Long-time renters are being evicted from their apartments because landlords can turn around and rent those apartments for more money. Those who currently rent can’t afford to buy property in the same neighbourhood. People who buy end up spending half of their income or more on a mortgage.

Although there are many contributing factors to what makes rents or housing prices specifically (and often artificially) high, all of these issues come down to a shortage of housing stock. This wasn’t a problem for many years as cities built plenty of new places to live. But now, increased demand is driving housing prices up: There are more people who want to live there than there are housing units available. And there hasn’t been enough new housing built over the last few years — decades, even — to “trickle down” to these new residents. Over at the Washington Post, Emily Badger explains this process very well:

In tight markets, poor and middle­-class households are forced to compete with one another for scarce homes. So new market-rate housing eases that competition, even if the poor are not the ones living in it. Over time, new housing also filters down to the more affordable supply, because housing becomes less desirable as it ages. That means the luxury housing being built today will contribute to the middle-class supply 30 years from now; it means today’s middle-class housing was luxury housing 30 years ago.

When I look at the places I’ve lived over the last two decades, this makes sense to me. I lived in a giant 80-year-old house with three roommates that was originally owned by a wealthy family, for example. A generation after it was built, it was occupied by young renters.

But there was one part that still didn’t make sense to me: At any given moment in the city where I live, it feels like the only housing that’s being built is luxury housing — you know, the shiny, spiky condo buildings; the places that are still unattainable to 99 per cent of the population. Surely those kinds of places are making my neighbourhood more expensive, right?

Nope. I found a very good explanation for why even pricey condos help, thanks to Joe Cortright at City Observatory. He suggests thinking about new housing like cars:

When it comes to anything new and long-lived, higher-income households buy most of the output. According to Bureau of Labour Statistics data, households in the two highest income quintiles accounted for about 67 per cent of the purchase of new cars in the US in 2001. New car buyers are getting progressively older, and are more likely to be high income. According to the National Automobile Dealers Association, the median new car buyer is 52 years old and has an income of about $US80,000 ($106,959), compared to an average age of 37 and an income of $US50,000 ($66,849) for the overall population.

But there’s no outcry about America’s “affordable car crisis.” The reason: high-income households buy newer cars; most of the rest of us buy used cars — which are more affordable after they have depreciated for a while. That’s even more true of housing, which is much longer lived. Nationally, 68 per cent of the nation’s rental housing is more than 30 years old — so only about 10 per cent of the nation’s renters live in apartments built in the last decade.

But that last figure is also the most damning: Over two-thirds of the housing stock available to renters was built more than 30 years ago. Which means that American cities simply have not been building enough new residential construction, high-end or low-end, over the last few decades to keep up with increasing demand. And this is happening as more people than ever are moving into cities.

Now, for the first time in American history, there has been a targeted effort to build affordable housing — housing that is designed not to debut at the high end of the price continuum, but for middle- and lower-income residents. This kind of housing is increasingly being built at under-utilised urban sites like surface parking lots, to prevent displacing current residents or destroying older building stock. And smart changes in zoning and density requirements are allowing cities to more swiftly address their housing shortages.

So that’s the good news — most cities finally realise that building more housing is the right thing to do. The bad news is that most communities need tens of thousands of these housing units. And they needed to build them 30 years ago.