A look at affordable housing in American cities

October 2, 2016

 Nearly invisible on the national political stage, housing affordability and access have become critical issues for metropolitan areas across the country since the end of the Great Recession. Despite a much-touted recovery, economic growth since June 2009 has been increasingly concentrated within a few lucky cities, separated from their less fortunate counterparts by higher educational attainment and the presence of skill-intensive industries such as IT, finance or government. Economist Enrico Moretti warned in his 2009 book “The New Geography of Jobs” that this trend is likely to continue, polarizing have and have-not parts of the United States. He also predicted that the “successful” areas would become increasingly unaffordable, a forecast that has thus far been borne out. The powerful economies of cities like New York and San Francisco have driven demand to unsustainably high levels, forcing low-income residents to sink higher and higher proportions of their income into housing--if they can afford to live in such a place at all. But more affordable areas like Cleveland and Buffalo have stagnant economies, making it hard to earn a living. If lower-middle class and low-income Americans are to find work in the country’s dynamic urban cores, a change in public policy is needed. 


In the past, such affordability crises were met with investment in public housing. Despite their infamy as reservoirs of poverty and violence, “the projects” were originally intended to relieve the financial stress of living in the city for a wide range of people; many of them catered to the lower middle class as well as the poor. But enthusiasm for the idea of publicly owned housing complexes died out a long time ago. Consequently, few publicly owned housing complexes have been built since the early 1990s, and availability has not kept up with population growth and declining incomes. A 2015 report from the Congressional Research Service found that the neediest people in the United States often spend months or even years on their local housing authority’s waitlist, and those slightly further up the income spectrum--the “working poor”, who hold low-paying and part-time jobs--have little chance. But the moment to break ground on new buildings and relieve the strain on existing public apartment complexes may have passed. Upper-middle class neighborhoods have experienced a strong housing recovery in recent years, driving the cost of construction back up to nearly pre-recession levels. Other expenses could prove nearly as bad; at a time when even large and prosperous cities are struggling with pension obligations and municipal debt, towering apartment buildings are expensive to maintain.


To head off the overhead costs of mass public housing, most cities and states use rental assistance, giving low-income residents vouchers to pay for privately owned houses or apartments. While this solution has the lowest overhead costs, it remains drastically underfunded and overused. A 2015 study from Harvard University’s Joint Center for Housing Studies found that over 14 million people who need rental assistance have never received benefits. A fully funded voucher system would consume $40 billion per year, a midsize cost by federal standards. But vouchers are much more vulnerable to market pressure than public housing. The average rental assistance recipient receives just over $600 per month in 2014, the most recent year for which data are available. In cities like Los Angeles and New York, where landlords can charge $2,700 to $3,000, respectively, for a one-bedroom apartment, the steady flow of rent guaranteed by a local housing authority is outweighed by the high prices urban professionals can pay. Consequently, landlords have an incentive to renovate cheap housing units for the luxury market, making them unaffordable for lower-income residents. Housing authority officials face a difficult task trying to persuade building owners to keep their apartments accessible to the people who need them most.


But is such government intervention needed to increase housing availability? In recent years, a small sect of economists have argued that while some public policies like rental support can lower prices, others can drive average rents up. Zoning laws in particular can inflate housing prices by making high-end and historic neighborhoods unaffordable, pushing high-income renters into formerly poor neighborhoods, and by making it almost impossible to construct affordable private housing in expensive downtown areas. For this reason, some cities have chosen to reject zoning altogether. In his 2013 book “Average is Over,” economist Tyler Cowan noted that the average home in Houston, which has almost no zoning or construction restrictions, is larger, newer and cheaper than its counterpart in New York (while still boasting access to a vibrant urban economy). However, few cities are willing to curb regulations as drastically as their government-skeptical Texan counterparts, and few neighborhoods are open to a surge of new construction. Direct government solutions to the housing affordability crunch in America’s economic hubs may prove necessary after all.


Left to its own devices, the cost crunch in vibrant American cities will continue to grow. Millennials are drawn to walkable, prosperous regions like the Tri-State and Bay Areas, and will continue to drive up rents in the near term. Some commentators have argued that the wealth may spread out instead. They point to the revitalization of smaller cities, among them Cleveland and Buffalo, which have attracted businesses and people unable to afford bigger urban cores. But such renewal is little different from previous periods of growth in cities like New York, and is likely to fall into the same pattern: As local governments are hamstrung by debt and political gridlock, low prices attract artists, young people and entrepreneurs, who improve the economic and social climate of their chosen cities until prices drive them out, along with longtime residents. 


In some ways, the increase in American housing prices is a good sign. After decades of decline, some of the country’s largest cities have once again become good places to live, work, seek entertainment and raise a family. But the benefits of such a revival are currently going to just a small slice of society. America’s persistent income inequality is perpetuated by this cycle, as many lower-middle class and low-income workers are unable to seek better opportunities in areas they cannot afford. Without some form of government action, whether in the form of direct support or indirect policy changes, current trends toward unaffordability will repeat themselves again and again. 

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