MesaZona: Table of Contents |Re/Generating The New Urban Downtown Mesa
30 December 2016
City Observatory Moves Into The Void About "Affordable"
Urban myth busting: New rental housing and median-income households
By Joe Cortright
Please pay attention, dear readers, this conversation - and the political dynamics that go with - is an ongoing public conversation here in The New Urban Downtown Mesa
"After fourteen seasons, Discovery Channel’s always entertaining
series is coming to an end later this year. If you haven’t seen the show, co-hosts Adam Savage and Jamie Hyneman construct elaborate (often explosive) experiments to test whether something you see on television or in the movies could actually happen in real life.
At City Observatory, we feel compelled to enter into this void, and we’ll start by doing our own urban myth-busting.
1. Does building new high-priced apartments, affordable only by middle- and upper-income families, make housing less affordable for lower income households?
. . .
the key context missing here is that in the United States, we have
almost never built new market-rate housing for low-income households
New housing—rental and owner-occupied—overwhelmingly tends to get built for middle- and upper-income households.
So how do affordable market-rate housing units get created?
As new housing ages, it depreciates, and prices and rents decline, relative to newer houses
. (At some point, usually after half a century or more, the process reverses, as surviving houses—which are often those of the highest quality—become increasingly historic, and then appreciate.)
What really matters is not whether new housing is created at a price point that low- and moderate-income households can afford, but rather, whether the overall housing supply increases enough that the existing housing stock can “filter down” to low and moderate income households.
As we’ve written
, that process depends on wealthier people moving into newer, more desirable homes. Where the construction of those homes is highly constrained, those wealthier households end up bidding up the price of older housing—preventing it from filtering down to lower income households and providing for more affordability.
This isn’t theoretical: [see screenshot in right image]
As we’ve discussed before at
, the vast majority of today’s actually existing affordable housing is not subsidized below-market housing, but market-rate housing that has depreciated, or “filtered.”
Syracuse economist Stuart Rosenthal
estimates that the median value of rental housing declines by about 2.2% per year. As its price falls, lower-income people move in. Rosenthal estimates that rental housing that is 20 years old is occupied, on average, by households with incomes about half the level of incomes of those who occupy new rental housing.
New Cars are Unaffordable to Low Income Households, too
Here’s another way to look at the connection between affordability and the price of new things: cars. (After houses, cars are frequently the most expensive consumer durable that most American’s purchase.)
Exactly the same thing could be said of new car purchases: Most new cars aren’t affordable to the typical household either—the
average sale price of a new car
is nearly $34,000.
In fact, using the same kind of approach that Harvard’s Joint Center for Housing Studies used to assess rental affordability,
reports that the median family can afford to buy the typical new car in only one large metropolitan area. Similar to the “30 percent of income” rule widely—and in our view
—used to gauge housing affordability, they assume that the typical household makes an 20 percent down payment, finances its purchase over four years and pays no more than 10 percent of its income for a car payment. They report in most metros that the typical family falls 30 to 40 percent short of being able to afford a new car. So most households deal with car affordability pretty much like they deal with housing affordability: by buying used.
But there’s no outcry about America’s “affordable car crisis.” The reason: high-income households buy newer cars; most of the rest of us buy used cars—which are more affordable after they’ve depreciated for a while.That’s even more true of housing, which is much longer lived. Nationally, 68 percent of the nation’s rental housing is more than 30 years old—so only about 10 percent of the nation’s renters live in apartments built in the last decade.
New houses, like new cars, are sold primarily to higher income households—and affordability comes from getting a bargain when the car (or house or apartment) has depreciated. Building more high priced new apartments, in fact, is critical to generate the filtering down of older housing that constitutes the affordable housing supply.
This myth is busted: building more high end housing doesn’t make housing less affordable.
Friday, December 30, 2016
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