Cities become affordable when lots of new housing is built, not when a larger percentage of a small stock of new housing is made "affordable" by mandate.
Why Building a Lot of 'Affordable' Housing Is Bad News for Affordability | Reason | Christian Britschgi:
January 7, 2025 - "On New Year's Eve, the Boston city government issued a press release touting the good work of its newly reorganized Planning Department at approving new development. The city reports that 3,575 net residential units were approved in 2024, of which a little over a third were 'income-restricted.' That top-line number is not necessarily anything to brag about.... Despite having some of the highest home prices and rents in the country, Boston is permitting fewer homes than less-expensive peer cities with equivalent populations....
"Even more concerning than Boston not permitting a lot of new homes is how many of the homes it is permitting are 'income-restricted.' Those are units (often also just called 'affordable,' 'below-market," or 'deed-restricted' units) that are reserved for lower-income residents and where rents are capped at steeply discounted below-market rates. Despite the city's celebratory touting of that figure, such a high share of new housing being income-restricted housing is very bad news.
"That data point suggests that not only is Boston not building a lot of housing, but that it's vastly under-building what the market demands. It says most of the projects getting approved in Boston are either dependent on public subsidies or command such high rents that they can bear the cost of the city's punishing affordable housing mandates. Understanding exactly why cities don't become affordable by raising the 'affordable" share of the tiny amount of housing that they do build is crucial for getting housing policy right....
"In a free market without subsidies and price controls, there wouldn't be such a thing as 'income-restricted" units. All housing would be rented or sold at market rates for a profit (save for whatever housing is provided by charitable nonprofits and religious groups). New housing would be pricey under such a system. But without zoning or other artificial caps on production, housing would still generally be affordable thanks to filtering.
"Filtering is the process by which high-income people move into pricey, newly built units, lowering demand (and prices) for the older units they leave behind. Those units are then snapped up by lower-income people, who themselves leave behind an older, less-expensive unit to be taken by even lower-income people. Studies that follow the filtering process down the income ladder find that the addition of new market-rate units kicks off a chain of moves that ends up leaving more units available in the most affordable neighborhoods.
"Boston, of course, does not have a free market in housing.... One measure of regulatory burden finds Boston has the strictest land use rules in the country. A consequence of such strict regulations is that the natural market filtering process is thrown in reverse.... Units become more expensive over time, not less. Lower-income people economize by moving into older, worse housing.... People at the bottom rung of the income ladder either move out of town or move onto the street.... When filtering has broken down in a city, the obvious move for policymakers is to get rid of the zoning rules, permitting requirements, impact fees, taxes, mandates, and more that stymie new housing production. Instead, cities like Boston have decided to fix the ill consequences of overregulation with more regulation....
"The voluminous research on inclusionary zoning policies finds that they're an effective tax on new housing that lowers housing production and raises housing prices. For-profit builders need to make a higher rate of return on their market-rate units in order to make up for the tax imposed by 'income-restricted' units. If the returns on market-rate units in a project don't cover the costs of the inclusionary zoning tax, then that project just doesn't get proposed at all. That means that in Boston, fewer units overall get built and the market-rate units that do make sense to build are incredibly expensive.... Housing becomes affordable when a lot of it is built, not when capital-A 'affordable housing' makes up a larger slice of a tiny new housing pie."
Read more: https://reason.com/2025/01/07/why-building-a-lot-of-affordable-housing-is-bad-news-for-affordability/
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