Friday, January 13, 2012

Friday Read: Affordable Housing, Filtered, not Subsidized

Despite the enormous amount of attention that has been given to the subject of affordable housing in the recent past, and the wide array of programs and initiatives in response, including low income housing tax credits, inclusionary zoning and voucher programs, to name a few, there's been relatively little formal study made of filtering, the process in which housing gradually declines in relative price, and in rental value, as it ages. To fill this gap, economist Stuart Rosenthal has released a new paper in which he concludes that filtering, more so than many place-based subsidized housing programs, can provide a viable long-term source of low cost housing.

Using data from the American Housing Survey, and examining the income of owners and renters at various points in time, Rosenthal constructed charts showing the change in inflation-adjusted incomes of residents for homes of ages ranging from one to 86 years:

Based on the observed rates of downward filtering, which range from .5 percent per year for owner-occupied housing to 2.5 percent per year for rental housing, Rosenthal concluded that "policy makers should take seriously the market’s ability to generate lower income housing, and especially in the rental sector of the
market."  The study noted that differential rates of filtering by city and state also have implications for the efficient apportionment of federal housing money.

An interesting finding was that homes over 50 years old showed an increase in owner or renter income, even though the survivorship effect was controlled for by following individual houses over time.  Rosenthal hypothesized that older homes may have intrinsic structural qualities that make them more desirable to  buyers.

That hypothesis tracks my own finding which I discussed here, suggesting that the process of filtering, at least for initially high-income older neighborhoods, was a temporary result of rapid suburban dispersal in the 1940-1970 time period, and since that time has been steadily reversed.  On the other hand, some persistently disfavored quarters have remained poor throughout the 1940-2000 time period, showing little evidence of further decline or imminent gentrification.

Is filtering, then, partially an artifact of a temporary and unsustainable process of suburbanization, with gentrification representing a reversion to a pattern determined more by centrality of location and quality of housing stock or urban environment rather than size or newness of the home?  What that trend holds for the future of market-driven affordable housing is not entirely clear, although dire prognostications of coming suburban slums have appeared repeatedly in recent years.

One could hope that increased demand for existing urban neighborhoods might at least translate into a  process of steady upgrading and intensification of urban areas, yet the opposite seems to have occurred in most places, with residents holding fast to exclusionary zoning measures designed to impede new construction or conversion to higher value uses, even to the extent of zoning out larger single family homes.  The ultimate antidote to urbanism and densification, zoning, remains strong even nearing its 100th birthday.


  1. Sounds about right. In the 60s, the older neighbourhoods of Toronto were mostly low income and the middle class lived mostly in the suburbs, including in large amounts of apartment buildings. Now, these apartment buildings are 40-50 years old and home to a lot of low-income immigrants.

    If the apartment is in a good neighbourhood and in good shape, it might sell for about double the price of one in bad shape in a bad neighbourhood, and about 50% less than a new one in a good neighbourhood.

    The cheapest single family homes are often those built around 1920-1970 in the suburbs. As for older homes, they are more expensive but it's hard to say how much of that is due to land values.

  2. Excellent. It is stunning how many affordable housing activists fight against an increase in inventory.

  3. Earl hits on the explanation more than he knows. It is the very sort of liberal who professes to support affordable housing who makes it nearly impossible to find — by also supporting all sorts of restrictions on building.

    Harvard's Ed Glaeser and various co-authors have pretty much demonstrated absent impediments to and restrictions on development, housing will cost somewhat under $50 a square foot to build. Even in Manhattan, with high land costs and more expensive high-rise construction, costs would likely be only slightly over $100 a square foot. At these prices, you could work at McD's and still earn enough to have a nice house.

    A government that actually cared about affordable housing could greatly increase the welfare of all its people by simply banning many antidevelopment tricks and streamlining some necessary safeguards.

    Of course, if housing prices plummeted, there'd be both a brutal short-term downturn and a long-term problem with some very marginally functional people suddenly being able to move next to highly functional ones. The first problem could be weathered but the second one could not, so the policy would not get support unless the government could find a creditable way, beyond housing prices, upstanding high-IQ people to segregate themselves from dodgy ones. Lawyers will not live next door to people who have a bouncing car and a fridge on the porch. More importantly, they will never send their daughter to a school where the antisocial charisma of a classmate who is also a gang leader will leave her knocked up and with a drug habit. It simply won't happen. Absent another creditable way to keep clear of people who are less functional than we are, people will not support laws that cut housing prices, despite the massive, massive benefit of cheaper houses.

  4. Definitely I think Toronto's housing prices would be much lower if there were fewer restrictions on development. Like most cities, most of Toronto is single family neighbourhoods, and the kind of intensification that can occur there is limitted. However, on top of that it has a greenbelt that restricts outwards growth. I think this is part of the reason so many highrises are being built instead of more small scale intensification.

    There was a discussion related to the issue of many neighbourhoods being zoned to prevent intensification on, although it mostly revolved around TOD, not so much affordability.

    @aka_Scoop: There is some truth to that, but a few points to consider... First, when you have an area that's more mixed income, it's often said poor people are less likely to be involved in crime. Also, if housing is more affordable, people might be less pushed into crime to make ends meet. Even so though, I'm not sure how many bad people would move into wealthy neighbourhoods. Chances are that the neighbourhoods that were previously wealthy will still be the most expensive ones in the city, even though overall they are cheaper. What kind of people would move to these wealthy neighbourhoods if the poor ones are cheaper? Probably poor people trying to make their way up, but would the "troublemakers" want to live there too?

  5. @Nicolas: Thanks for linking that interesting discussion. Toronto appears to have large amounts of single-family attached housing (on fairly large lots) closely surrounding its downtown core area in a pattern similar to heavily-zoned Washington DC, so it makes sense that there would be similar regulations in place. The downtown highrise phenomenon, as you suggest, could be a partial result of development restrictions in the bulk of the city -- Vancouver seems to have the same sort of growth pattern, where extremely restrictive zoning applies to 80%+ of the city, banning all but modest detached homes, yet residential highrises are permitted in the commercial downtown.

    @aka_Scoop: I generally agree with Glaser's point about the link between building restrictions and New York housing prices, but there are other factors as well, most importantly rent control, and, increasingly, affordable housing mandates, which seem to have a similar anti-development (and therefore price-inflating) effect. Low-density zoning, at least, was more or less honest about its intent to inflate per-unit real estate values.

  6. If we are to succeed, we must recognize that the community redevelopment is not solely the rehabilitation of housing, or putting a mall in the business strips.

  7. Good to know that 'highly functional' includes those smarties paying $1800 and $1900 for an efficiency.

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