Affordability

AFFORDABILITY

Recent studies say that increased density, aka trickle-down development, reduces the proportion of affordable housing to market-rate housing, contributes to displacement of current residents and businesses, and drives up taxes to pay for demands on services, particularly schools.

Recent studies that looked at the issue with a national lens, including from the Federal Reserve Board and Harvard University Joint Center for Housing Studies, found that building market-rate housing has only a very small and slow impact on affordability.

New high-end units are only effective at moderating the increases at the top end of the real estate market as new vacancies hit the market. These vacancies rarely trickle down to lower-rent units, and lower-rent units are often displaced in this upzoning process.

Two studies from the University of California in Berkeley and Syracuse University that included a specific analysis of the impact of building high-end housing in densely-built, hot-market cities found almost no impact at all on affordability. (see https://anhd.org/blog/does-trickle-down-affordability-justify-mayors-zoning-policy for more details)

This recent study by M.I.T. researcher Yonah Freemark found that after five years of density zoning near transportation centers in Chicago, there was no increase in housing production, only land speculation. The land speculation led to even higher housing costs and rents.

Redevelopment will mean much higher prices for newly developed spaces, leading to the displacement of existing residents and small businesses who will not be able to afford these new prices. The average renter pays considerably below what the average new unit rent is likely to be, and in some cases even below HUD-set affordable rates. The same is true of the home resale value of existing vs. new construction. The result of new development is that existing residents are priced out.

Here's a sample of recent findings from across the country:

~ www.planningreport.com/2019/03/15/blanket-upzoning-blunt-instrument-wont-solve-affordable-housing-crisis

"[Upzoning] will favor those who can pay the price of housing in high-demand areas—marginally improving the housing prospects for highly skilled people at the upper end of the income distribution. What it’s not going to do is solve the housing crisis for the middle classes and lower-income people. Even with so-called affordability set-asides, the trickle-down effect will be small. It could even be negative in the highly desirable areas, if the set-asides (which are in the range of 15-25 percent in current legislative proposals) are lower, or the income threshholds higher, than the current pattern of lower-income, lower-cost housing in those areas compared to the new housing profile. This is just one example of the many unintended consequences that proponents of blanket up-zoning don’t take into account, and that is why it will fail. ... Skilled people with high incomes—those who would benefit most from up-zoning—are going to move into up-zoned neighborhoods and crowd out the middle- and lower-income people who are living there. This displacement is exactly the opposite consequence of what the authors of up-zoning bills claim they want to produce. ... Affordability has to be tackled directly; it’s not going to be created through aggregate supply and trickle-down."

~ www.urbanone.com/building-better-density-bonus-los-angeles-part-1

"Why aren’t developers taking advantage of the density bonus? ... The most likely reason, though, is that the financials simply don’t work out: The additional cost of the affordable units exceeds the profit earned on the extra market-rate units, so the developer can earn a better return without the density bonus, especially when they account for the additional time/money/headache associated with the program’s approval process."

~ https://www.bloomberg.com/news/articles/2019-05-09/-build-more-housing-is-no-match-for-inequality

"Economist Tyler Cowen agrees that the ultimate beneficiaries from zoning and building deregulation are landlords and developers. As he puts it, 'the gains from removing taxes/restrictions on building largely will be captured by landowners … More stuff will be built, urban output will expand, land still will be the scarce factor, and by the end of the process rents still will be high.' ”

~ https://medium.com/@graceholley/what-does-affordable-mean-in-boston-54786aaabf34

"The addition of many new high-priced units to housing stock may result in high-priced rents getting slightly lower, but if tenants are not protected through regulation or subsidies, this often results in lower or moderate rents being raised as area value increases.”

~ www.newgeography.com/content/005896-will-density-make-housing-affordable

"The problem is that high-density housing–that is, mid-rise and high-rise housing–costs 50 to 68 percent more, per square foot, to build than low-density housing. "

~https://www.jchs.harvard.edu/sites/default/files/Harvard_JCHS_State_of_the_Nations_Housing_2018.pdf

"Ongoing losses of low-cost units have fueled this scarcity [of affordable housing]. According to Census Bureau data, more than 2.5 million units priced below $800 in real terms—affordable to households earning up to $32,000 per year—were lost on net between 1990 and 2016. Although adding new supply at the upper end should, in theory, cause older housing to filter down the rent scale, this process has not produced an adequate supply of rentals at the low end."

~ tcbmag.com/news/articles/2018/october/do-the-economics-of-density-really-create-affordable-housing

" “The comment that building housing alone will automatically fix our affordable housing problem is absolutely false,” [Alan Arthur, president and CEO of AEON, a non-profit affordable developer in Minneapolis] says. “Putting $1 billion into an account to produce affordable housing would be better than the four-plex solution. …” Basic economic theory holds that increasing supply can bring down prices. But in the current housing climate, Arthur says it’s not that simple. “The market theory is correct, but you’d have to overbuild for a long period of time,” he says. “I suppose if we overbuilt housing for 15 years, then maybe prices would come down.” Arthur says that focus should go to preserving existing affordable housing units, which is much cheaper than building brand-new apartments."

Redevelopment raises prices, driving the displacement of those who can't keep up.

Older, often smaller, homes list well below new construction prices. And when these older, moderately-priced houses appear on the market, many are snapped up by developers, reducing the supply available to home buyers looking for less-expensive homes.

In 2018 and 2019, single-family houses in our R0 and R1 districts sold to developers for an average of $623,174. They were demolished and replaced by new houses which sold for an average of $1,458,451—more than double their pre-demolition price.

Recent R0 and R1 replacements

In that same time period, the average price of the existing house in our R2 districts (including some single-families) was $758,722. Once redeveloped, each unit in the new 2-family sold for an average of $977,589.

In the R2 examples there was another important trend. In every case, the newly built two-families were sold as condo units. The consequence of this trend is that the town’s rental stock is being reduced, converted into high-price condo ownership. It is also a threat to a traditional path to building home equity, in which Arlington residents would purchase a two-family unit in order to live in one half and rent out the other half.

Recent R2 replacements

Many of these new homes are also overwhelming neighborhoods with square footages well above the US average, which was 2,386 square feet in 2018, according to the U.S. Census Bureau. In Arlington, the average square footage of newly-constructed homes is 3,400 square feet, according to zillow.com.

For renters, the effects of redevelopment and its higher prices lead to displacement. The rents in some "affordable" units created by inclusionary zoning will be higher than Arlington's current median rental rate.

Typical 2018 Rents for the 15% Inclusionary Apartments, based upon HUD guidelines:

1 Bedroom: $1,484

2 Bedrooms: $1,647

3 Bedrooms: $1,806

Current market rate rents:

Total Housing Units 19,925

Occupied Units 18,810

Renter Occupied 7,670 (38%)

Median Monthly Rent $1,645

Cost-Burdened 37% (30% or more of income for rent)

Rental Units with seniors 25%

US Census, 2017 and 2018 American Community Survey

The result of new development is that existing residents are priced out, and those who can least afford it are hardest hit.

Affordability is not delivered by relaxation of zoning protections.

Here's a look at how affordability has actually been created in Arlington:

Building 100% affordable projects works. Market-driven methods are less impressive:

Arlington is already relatively affordable, when compared to other communities in the greater Boston area.

Arlington is a town, not a city. We have more open space and have maintained our human-scale neighborhoods and business districts, compared to many of the communities near us. People want to live here because we have a better quality of life at a relatively lower price than many of our neighbors.

The rankings of home values and rental prices below show that many communities near us are more expensive. Relative to almost all the communities around Arlington, owning or renting here is less expensive.

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