Low-income market-rate housing is possible, necessary, and desirable
Subsidized or social housing is good, but will not be enough
Definitions
To start, by “low-income market rate housing,” I mean unsubsidized housing that is affordable to people making below ~$20K/year, or otherwise very low cost housing. Types such as residential hotels, boarding houses, and micro-units all fall under this category.
The High Price of Affordable Housing (At least currently)
Right now, the way we try to help homeless or housing-insecure people is by creating subsidized “Affordable Housing” (henceforth “income-restricted housing”), with rents set at statutory rates determined by a federal or state agency. The problems with this system, especially in a state like California, are numerous:
Developers of income-restricted housing have to cobble together many different funding sources as detailed in this LA Times story.
Many of these funding sources are oversubscribed, meaning high rejection rates for funding.
NIMBYs (ever the problem)
Once they are built, income-restricted housing is also heavily oversubscribed due to the surrounding high rents meaning lots of people are rent burdened.
The primary proposed solutions to this problem on the part of nonprofits and an until-recently very influential section of urban policymakers was to merely increase funding for income-restricted housing, without dealing with the major supply constraints within cities such as single-family zoning, minimum lot sizes, and the aforementioned parking requirements. Nor did they deal with the discretionary permitting regime that often serves as the death knell for housing of any kind, not just income-restricted housing.
The primary other way to build income-restricted housing is what’s known as “inclusionary zoning,” which is not the opposite of exclusionary zoning, but rather a tax on market-rate apartment developers to build income-restricted housing, leaving rich single-family landowners in the clear from having to bear some of the burden of subsidizing housing. This is not a serious solution to build housing for low-income people at scale.
Update: the excellent UCLA Housing Voice podcast has recently released an episode with Mercatus fellow Emily Hamilton on inclusionary zoning and problems with it.
Recently, though, there has been a push for a different kind of subsidized housing, mostly known as “social housing,” where rather than provide tax credits for nonprofits to sell to companies with large tax burdens, the government builds and operates housing. In California, Assembly Bill 2053 attempted to create such an agency, which would fund itself through rent collected by social housing tenants and provide subsidies to low-income tenants in this manner.
These social housing bills attempt to model cities like Vienna and Singapore. While social housing is better than the current system of income-restricted housing in many ways, the minimum standard in social housing might end up higher than what many people may prefer, so the levels of funding needed for housing insecure and homeless people to afford may not be able to be provisioned from tenant rents alone.
This doesn’t mean that social housing isn’t desirable or necessary, but it won’t be the silver bullet, and disastrously implemented social housing proposals, with locations far away from jobs and transportation as was the case for South Africa’s early public housing program, very well might end up worsening the crisis.
Location, Location, Location
One of the central facts of an urban area is that people make a tradeoff between proximity to urban amenities and land consumption. Proximity to transit, retail, offices, etc. increases land prices, so people are forced to economize as they approach the city center or these amenities. Large lot single family homes become small-lot single family homes, which transition to duplexes, then small apartments and larger apartments, or in the case of developing countries, slum housing for the poorest.
Or at least, that is what would likely happen in a place with few development regulations — that is not the United States. Cities implement zoning ordinances that specify a certain “minimum housing standard” (such as a minimum square footage for a unit or minimum lot size) that prices out some subsection of the population.
These kinds of minimum standards are often set for the primary purpose of exclusion, such as single-family zoning, which was created in Berkeley in reaction to a dance hall serving African Americans potentially opening up in the posh Elmwood district. However, many people often have good intentions for regulations such as minimum unit sizes, often along the lines of “people shouldn’t have to live in such a small space,” but setting a minimum unit size does not allow people to live in larger units.
The urban planner Alain Bertaud, in Order Without Design, discusses how the amount a household consumes in land and housing is at least partially dependent on their level of income — if someone is rich, they will live in a larger unit than if someone is poor if the location (and land prices) stay the same. This also means that for expensive land in a desirable location, creating a minimum housing standard will prevent people from being able to live in that location who would otherwise prefer to live there, reducing their overall welfare.
The Virtues of the Boarding House
Of course, I am fully on board with efforts in social/income-restricted housing, I believe that they perform a crucial role. However, funding for housing is often subject to political whims and unless there is a healthy supply of market-rate housing that serves most people, the funding for social/income-restricted will not go far enough even if we are able to get costs under control.
Payton Chung’s Greater Greater Washington piece “How DC once fit 800,000 residents” provides an interesting illumination into life in Washington DC in the 1950s.
The 1950 census found 14.1% of the District’s 224,142 occupied housing units to be “overcrowded” (with over 1 person per room). By 2011, that figure had fallen by 2/3, to 4.7%, similar to the 5.3% of homes in 1950 that were extremely overcrowded (more than 1.5 occupants per room).
The reason that there were many more overcrowded housing units in 1950s DC than in 2010s DC was two reasons: Americans got richer, and so were able to “buy more house,” so to speak, and in a more sinister turn, cities started zoning out boarding houses and other low-end housing. Matthew Yglesias’s Slow Boring article “Homelessness is about housing” summarizes the effects of banning boarding houses in cities as so:
It took a while, but over the generations, the planners have been very successful at mostly eliminating the accommodations for down-and-outers with the consequence that if you are down and out in a city where real estate is expensive, you end up on the street.
Low-income people who cannot afford the “minimum standard” housing and aren’t able to win the lottery for an income-restricted unit already do live in market-rate housing — however, this market-rate housing is not a micro-unit or a room in a boarding house, but a store-bought tent in a park, under a freeway, or in their car.
While most people find street homelessness repulsive and advocate for the police to brutalize homeless people to keep encampments “in check,” those very same people’s forebears fought against the boarding houses that allowed low-income people to stay off the streets.
Emily Hamilton, in an old Market Urbanism piece, discussed the need for “low-quality housing,” namely boarding houses, micro-units, residential hotels, and other forms of indoor living arrangements that the general population may find not socially acceptable. However, I think the term doesn’t properly describe the use for these living arrangements — they are for people who value location more than they value the perceived quality of their living arrangement.
Tenements provided housing that… was conveniently located and provided residents with easy access to jobs… [Affordable] housing is not only a regional issue, but that low-income people need to be able to live within a reasonable commute of the jobs that will allow them to improve their standard of living.
Simply put — some people will accept a lower “standard of housing” in exchange for an opportunity to earn a higher income, be closer to job centers, or save more money. Millions already do live in this manner — college students live in dormitories, which provide them access to social spaces, college classes, and amenities such as restaurants and bars. If college students place a higher priority on location than housing size by living in college dormitories, why can’t working adults be allowed to show the same preferences?
Where we go from here
First of all, we need to legalize apartments. Even better if they’re single-stair parking-free apartments, which can easily fit on currently single-family lots. We need more social housing to stabilize construction across the business cycle. We need to get rid of minimum lot sizes, lower minimum floor space requirements, but if we want to fully get rid of homelessness and provide deeper options in the housing market, we must allow boarding houses and residential hotels to be built in more places.
Henry Garbar’s Slate article “The Hotel-Spirit” goes into detail about the rise and government-pushed decline of residential hotels, with an emphasis on how allowing this type of housing would not only help low-income and housing-insecure people, but also would help the broader population:
Options for affordable midlength hotel stays in many nice city neighborhoods are absent. So too are longer-term options for single people, who wind up cohabitating in family-size houses and apartments in the absence of smaller, affordable units… Traditionally, hotels didn’t just provide an off-ramp for people chased out of traditional housing; they also created an entry point. Once, new arrivals could be confident they had a place in a city to lay their head for weeks or months as they looked into more permanent options.
As household sizes fall, micro-units and residential hotels will become even more in demand, and with their rise in demand, so we will have to provide them. Some may deride them as “luxury tech dorms,” but they are likely the future of housing, and a chronic undersupply will mean that only the rich are able to access this increasingly demanded style of living.
However, while legalizing apartments, micro-units, residential hotels, and boarding houses will certainly put quite a dent in the housing shortage and bring down rents to levels affordable to the vast majority, it is almost certain that there will still be people who cannot afford a room accommodation or micro-unit. For these people, the best options are to either provide a housing voucher (fully fund section 8!) or cash assistance such as a universal basic income, preferably funded from a land value tax.
We need an all of the above approach — putting all our eggs in one basket such as going all in on social housing in an attempt to avoid legalizing the less socially-accepted types of housing is not going to solve a problem decades in the making.