By | March 31, 2014

House under constructionHousing affordability has become one of the hottest issue in America’s urban centers, and one popular solution is to ramp up housing construction. In his first State of the City address, New York City Mayor Bill de Blasio emphasized that in order to solve its affordability problem, the city must work with developers to build more housing. San Francisco Mayor Ed Lee similarly focused his own annual address on an ambitious plan to build 30,000 units of housing by 2020.

The logic behind this building push rests on the simple principles of supply and demand and the assumption that increasing the supply of homes will lower housing costs. The reason rents are too high, it’s claimed, is because there is great demand for a relatively small number of apartments. Therefore increasing the supply of homes will lower housing costs. But while building seems to be the obvious solution, it’s a policy choice that comes with complex questions. Who should build the homes, and who should live in them? Where should the homes be built? If we don’t get the answers to these and other questions right, a pro-building policy will do little to ease housing costs of low-income residents, and will likely end up accelerating their displacement from our cities.

The choice of who builds new homes will influence who lives in them. Private, for-profit developers are only likely to build affordable housing if it’s profitable and if there aren’t more attractive business opportunities. If we chose to deregulate zoning and rely on the private sector to build (a policy currently championed by liberals and conservatives alike), we’ll end up with more housing for the wealthy, as that’s what makes developers the most money.

It should be obvious that the development of luxury condos is not a solution to a housing affordability crisis, but advocates of deregulation, like popular economics blogger and The Rent is Too Damn High author Matt Yglesias and urban economist Ed Glaeser, insist that even those who can’t afford to live in these homes will benefit. When a high-income person moves into a new luxury unit, the argument goes, she frees up her old home for a slightly lower-income person to move in. This scenario repeats itself, providing new housing opportunities all the way down the economic ladder.

However, this model doesn’t take into account who is really buying these new luxury properties and why they’re buying them. In cities that attract new real estate buyers from around the world, such as New York and San Francisco, the homes left behind by new luxury condo residents will often be in another housing market, providing no new housing opportunities for existing residents. The most stunning example can be found in Central London, where 70% of all newly built homes are bought by foreigners. In New York, foreign buyers accounted for one out of every three condo purchases in 2011.

And in some cases, the purchasers of these new properties don’t leave any homes behind at all—luxury condos are often bought as real estate investments or second homes. Housing appreciation is so high in these cities that investors have little incentive to rent out their property, leaving some stretches of Manhattan looking like ghost towns.

This spatial mismatch between people and housing, as well as speculative real estate investment, mean that private sector housing development will have diminishing returns as we move down the economic ladder. Vacant homes will be snapped up by speculators and out-of-towners before they ever reach low-income tenants. This creates a scenario where a city will have to satisfy external housing demand before it can even begin to address the housing needs of its current low-income residents. At best, this is a spectacularly inefficient way to deliver affordable housing to those who need it the most; at worst, it doesn’t deliver at all.

The federal government must again focus on subsidizing the construction of more affordable housing. New subsidized housing is especially needed in depressed housing markets where no one is interested in building and dereliction has rendered much of the affordable housing supply uninhabitable. A new Urban Institute study shows that low-income residents in depressed markets like Detroit and Buffalo face an even greater shortage of affordable rental housing than their counterparts in New York and San Francisco. It’s also no coincidence that the same study found Atlanta and Chicago, two of the country’s most prolific demolishers of public housing, to be among the cities that made the least progress toward meeting their affordable housing needs over the past decade.

Whether it’s governments or developers, or both, that end up building, it’s clear they will have a lot of work to do. We’ll need to drastically change parts of our cities in order to build enough housing to make them affordable again. This raises a final question: Which parts of our cities—or, more appropriately, whose parts—will be transformed by this building boom? America’s experience with urban renewal and gentrification has taught us that it is largely low-income communities that are destroyed in order to create new housing opportunities. If upper- and middle-income residents aren’t willing to share the burden this time around, or if governments lack the political courage to enforce an equitable development plan, then a building boom may only exacerbate the housing problems of low-income residents.

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