Interesting article: Alan Ehrenhalt argues in The New Republic that cities throughout North America are undergoing a “demographic inversion,” in which the center city is once again becoming home to the well-off rather than the poor.
Chicago is gradually coming to resemble a traditional European city—Vienna or Paris in the nineteenth century, or, for that matter, Paris today. The poor and the newcomers are living on the outskirts. The people who live near the center—some of them black or Hispanic but most of them white—are those who can afford to do so.
That certainly rings true for Portland, Seattle, and Vancouver, too. In fact, Ehrenhalt discusses Vancouver, with its “forest of slender, green, condo skyscrapers,” at some length. So apparently, the problems of urban housing affordability aren’t just local ones; they’re international in scope. (At least we’re in good company.)
The article also makes a trenchant observation: the recent North American view of the city as a dumping ground for people who are too poor to escape is something of a historical anomaly. More typically, cities have been magnets for wealth, not repositories for the impoverished. Recent trends are, as much as anything else, a return to historic norms.
Still, Ehrenhalt argues that the urban resurgence is being driven by some ahistorical demographic shifts: later childbearing, professional couples choosing fewer (or no) kids, more empty nesters in good health. Those kinds of shifts are likely to persist—which will mean plenty more people will opt for urbanity over suburban living. And high demand will likely mean higher prices for homes close to downtown.
So my question in all of this is: given that people with lots of disposable income are choosing to move closer to downtown, is there a good way—or, indeed, any way—to retain decent, affordable housing for middle- and lower-income folks close to downtown jobs?
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I used to think that the best answer was simply to build more housing close to downtown, in part by getting rid of unhelpful restrictions on development. Build enough housing, I figured, and supply and demand would meet at a more amenable price point. But I’m no longer sure how much that will help; Vancouver’s center city has grown enormously, but prices haven’t moderated. It could be that downtown development is a virtuous cycle with a vicious edge: as the city gets wealthier, its amenities get better and better, attracting even more wealth—and making it harder and harder for middle-income folks to find a decent, affordable place to live that doesn’t require a long and fuel-wasting commute.
I’m not sure that there’s a simple solution here. I think it’s worth a look around. Has any city—from Paris to Chicago to Vancouver—found a good antidote to high housing costs near the city center? If anyone knows of effective, tried-and-true models for urban housing affordability, I’m all ears.
Then again, this is not the worst sort of problem for a city to have. Consider the alternative. For decades, wealthy folks avoided downtown, and many urban centers became concentrated enclaves of deep poverty. The results—economic segregation of the inner city—fostered far worse social ills than housing affordability presents today.
Of course, some folks are opposed to gentrification in any form; but it’s worth remembering that back in the 1970s and 1980s—when cities had far less little wealth and economic vitality—life for downtown residents was pretty lousy. Idealizing that past is a mistake. In comparison, current trends in downtown revitalization—despite the affordability problems—are in many ways a breath of fresh air.
Photo courtesy of Flickr user hfabulous under a Creative Commons license.
Matt the Engineer
I’m afraid you’ve jumped to a few all-too common conclusions that I disagree with.1. They put in new condos, but housing prices increased. I guess more housing = higher prices. Basic economics says this has to be wrong. An increase in supply decreases the average price, given a constant demand. Sure, demand may be going up faster than supply – but that’s no reason we can’t keep pace with demand. In the end, with dense housing the environment wins. Also, keep in mind supply decreases the average price. This means that although the new condos are $500k each, the older condos down the street go down in value – and a ripple follows throughout the market. Suddenly these cheaper condos are more affordable for people that would have bought condos in run-down neighborhoods, and those condos become affordable for people that would have rented, then those higher end apartments become a little cheaper (etc.).2. Affordable = cheap (ok, not explicitly one of your conclusions, but it often follows). Buying a house in a car-free area can save you half a million dollars over the life of your home loan compared to a house way out in the exurbs. That’s half a million dollars that you get to keep, rather than sending to oil-producing countries and car makers. Now getting a bank to lend you the extra money if you’re a blue-collar worker is another story. But the lesson is that a house in the city that costs much more than in the exurbs can still be just as affordable (or, likely more so).
Matt the Engineer
Oh, and for examples – how about New York City? Sure, now it’s sprawled outward. But roll back the clock and you’ll see huge areas of the city with tenement buildings filled with low-wage workers.My guess is that if you build enough housing, and add enough industry for people to work, you can change any city into an affordable one.
Forget about buying. Rent in the city. Very often the owners of these new condos downtown are investors who make them available for rent. The rents do not cover the mortgage payments. All of those investments are cash flow negative for the owners. In the old real estate boom, they were praying to make up for it with appreciation. Now that the real estate boom as stalled, they are all underwater with the value less than their mortgages.For a low to middle income family, it makes no sense to buy in the city. Renting is far more cost effective. You get a lot more bang for your buck.Look at Craigslist rentals in Seattle. I see $1,500 rent per month for homes/condos that are over $400,000 in value. There is no way somebody could buy that for $1,500 per month. Either the owners have owned a long time at a much lower price, or they are cash flow negative on their investment.Clark, the solution is “do nothing”. The housing market is correcting. We will easily have a 20% to 30% decline here, just like everywhere else. In fact, we will likely have developers selling a huge discounts when the foreclosure wave of properties start hitting the market during 2009 and 2010.
Inclusionary zoning, where a developer is required to provide a small percentage of low to moderately priced units (10-15%) in exchange for bonuses that offset additional costs is being used in several areas to bring more equity to housing markets. The most notable program is in Montgomery, Maryland. However, even here in the Puget Sound, ARCH, http://www.archhousing.org/, has had success in helping eastside cities establish housing policies that preserve and increase the supply of housing for low and moderate income households. For instance, the City of Redmond, requires at least 10 percent of units in new housing developments of 10 units or more in their City Center neighborhood to be affordable units. At least one bonus market rate unit is permitted for each affordable unit provided, up to 15 percent above the maximum allowed density permitted on the site (RMC 20D.30.10).We seem to have jumped onto the sustainability bandwagon regarding ecological issues, but it doesn’t seem we have fully jumped onto sustainability bandwagon regarding equity issues. Perhaps we can add another E to LEED – Leadership in Equity, Energy, and Environmental Design to bring about greater awareness of the impacts of new development on equity in our communities, and of the strengths of true diversity.
Matt the Engineer
[Gwen] I’m curious how that works. Are “affordable units” smaller or cheaply built? If not, won’t these units just be a windfall for whoever buys them at discount prices – then resell at market rates?
[MTE]cities require legal agreements, such as covenants running with the land, to maintain the affordability of these units over time. To purchase an affordable unit a buyer must agree to sell the unit at a similarly affordable price when they decide to sell. The length of time agreements must be in place varies. Some cities require they last the length of the development, other cities state they must maintain affordability for at least 30 years. Bainbridge Island has a interesting mechanism which allows the City to capture a share of the appreciation when the affordable unit is sold at market rate. The city’s share of the proceeds is then placed in its housing trust fund.As for the size and construction quality of affordable units, cities often allow affordable units to be smaller and/or built with less expensive materials, but often they will require the exterior design of affordable units to be compatible and comparable with the rest of the units in the development. They will also often require the affordable units to be dispersed throughout the development. Another effective nonregulatory instrument for preserving housing affordability is a community land trust. Community land trusts can acquire land and remove it from the speculative, for-profit market and thereby make housing available to those of modest means. For more information on a successful community land trust located up in Bellingham see http://www.kclt.org/index.htm.
Lots of smart comments here.Matt, I’m not sure that I’m making the error you think I’m making—though I made my point poorly. It’s not just that housing prices are still going up in Vancouver, it’s that (as I understand it) price increases seem to have increased faster than one would expect, given regional real estate and transportation cost trends. I’m not fully versed in the data, though, so I may simply be mistaken about the effect or its magnitude. Regardless, the view that I long held was essentially yours—without new development in downtown, housing prices would have gone up even faster. I’m no longer convinced that’s right. It *may* be, and Vancouver’s astronomical price increases of late may simply be a sign of Olympic-sized speculation. But I feel like I now have reason to be skeptical that increasing the supply of housing, all by itself, will do the trick.Agreed with James: renting is a great option, and often overlooked as an affordability strategy. Some families prefer the relative permanence of ownership, rather than renting. And last I checked, Seattle rental rates were rising as housing prices moderated—with mixed effects on “affordability”. When I have time, I’ll try to suss this out at greater depth in a later post. For this past post, I feel like I was operating as much on impressions about housing prices as on hard data.
Matt the Engineer
[Gwen] Thanks for the great info. But I think I’m still missing something. Won’t this just be a windfall for the first person that shows up to buy a unit? They pay less for this unit than the one next door, but who says they couldn’t afford the one next door? Is it just the first person that shows up that gets the good deal, or are developers only allowed to sell to people on some government list? Also, what happens if the resident starts making more money?[Clark] I’ll look forward to your next post. But I really don’t see a way around the basic economics. When evaluating a model, I like to test the extremes to see if it holds up. What if you built a billion condos in Vancouver. Would they all go up in value?
[Gwen and Matt] Another way to ensure on-going affordability (and balance the need of the community for affordable homes close to jobs and services and the need of folks for equity and security) is to create, as over 200 communities in the US have done, a Community Land Trust (CLTs).CLTs are non-profit, community based, membership organizations that act as stewards of affordability and ensure that, at sale, if and when homeowners want to sell their homes, (that they purchased for an affordable price) they do so at a price that is affordable to the next homebuyer. CLTs will, in most cases, own the land under single-family detached homes and/or be responsible for ensuring that the provisions of an (IZ) Inclusionary Zoning (if that’s how a home has “come into trust”) deed restriction are abided by (deed restrictions are used on both SF homes and condos). Often there are income-restrictions if public money is used, but if private capital has made the home affordable initially (as is the case in some IZ ordinances) there are fewer restrictions about who can own the home. Certainly there is some sort of “application process” by which buyers are vetted to determine need, as defined by the goals of the CLT and/or the particular community.If the homeowners start making more money? Good for them! It’s at the time of resale that the unit (single-family detached home, or condo, or townhouse) is “re-captured” into the pool of permanently affordable homes scattered throughout a community.Please see the Burlington Associates website for the most comprehensive information on the approach http://www.burlingtonassociates.com. There are over 25 CLTs in Washington, Oregon and Idaho working to create and retain permanently affordable homes – for ownership – in order to create livable, equitable, and diverse communities in which everyone can afford to live.