I’ve previously discussed the difference between two kinds of affordable housing: the mandatory kind (means-tested, reduced rent programs) and the market kind (housing that is inexpensive on the open market). In the Burnet / Rockwood case (history: 1, 2), however, there were really three concepts of affordable housing under discussion: lowering market rents, providing selective rent reductions, and providing deeply affordable housing for the very poor.
Reduction in the market price of housing
While affordable housing is often contrasted with “market housing,” one of the chief components of the Burnet Road debate was how to reduce market rents. Council Members who voted for the project spoke about the need for more homes to keep up with the number of people living here and temper rent increases. For example, here is Sheri Gallo:
[I]ncome inequality is also widening in Austin just like in the rest of the country. In addition, no one in the political class is really talking about the housing needs of middle income people (median *family* income in Austin=$62,000) who don’t already own a paid off house. This despite the fact that there is evidence that the entire middle-lower middle class in Austin is “cost burdened” with regard to housing…Our leaders seem oblivious to the fact that 55% of homeowners and 65% of renters are cost-burdened in Austin… essentially everyone under upper middle class +. People are upset about it, I think it’s valid to be upset about…
In addition, two Council Members made points about how lack of new market-rate housing affects existing market-rate housing. Greg Casar invoked the concept of “filtering up”: when relatively expensive new housing doesn’t get built, landlords “filter up” older housing to serve a higher income market by charging higher rent (and, sometimes, upgrading the apartment). Delia Garza invoked the concept of gentrification, and said that, if inadequate supplies of housing are built in places like North Shoal Creek, this would add to gentrification on the East Side.
- Aesthetics. Some opponents expressed a distaste for buildings the size necessary to hold 225 (let alone 300) units.
- Traffic. Although residential buildings bring less traffic than commercial ones, many opponents expressed fear that new building would add more drivers to the neighborhood and expressed preference for fewer homes.
- Leverage. City Council cannot make rezoning conditional on participation in rent reduction programs. Nevertheless, developers often pledge to enroll in these programs to sway Councilmembers to pass the rezoning. At the first two readings, Kathie Tovo asked pointed questions of the developer regarding his affordability pledges and voted against the rezoning, perhaps indicating a willingness to rezone if the pledge were greater.
Rent Reduction Programs
The developer of this project pledged to participate in the SMART Housing program. SMART stands for Safe, Mixed-income, Accessible, Reasonably-priced, Transit-Oriented. In this program, a number of apartments are set aside for a number of years for people making below an income threshold, and those folks are charged reduced rents. In the end, the developer pledged 45 units (20 studios, 15 one-bedrooms, 7 two-bedrooms, 3 three-bedrooms) would be reserved for 10 years for households making less than 80% of the Austin area’s Median Family Income.
Most on the council support this kind of affordable housing. Mayor Adler, for example, said in an aside that all of the Council would be supportive if the whole building could be SMART housing. Councilmember Casar spoke to a reason for supporting greater SMART housing: economic integration. By one measure, Austin is the most economically segregated large city in the United States. Statistics speak to the detrimental effects of the concentration of poverty, while Councilmember Renteria spoke to a more mundane, but perhaps more relatable effect in his Austin Monitor interview: when he lived in de facto segregated East Austin, he couldn’t get a pizza delivered; today, as East Austin has become more gentrified, there’s a wide variety of commercial offerings east of I-35.
What arguments are there against these programs? None were aired at this hearing, but here are some I’ve heard:
- By putting costs of economic integration and redistribution specifically on new development, you raise the costs of new development and discourage it from being built. This cuts against the “new supply” method of reducing market rents. A more detailed economic argument can be read, for example, here.
- As economic redistribution goes, this gets you less bang for the buck than other measures. It is an odd welfare program that mandates that economic redistribution take the form of stainless steel ranges.
- The income threshold was set at 80% MFI. For a two-person household, this is $48,250. Although this is a ceiling, not a floor, only people with enough income to pay the reduced rent qualify, so the program only helps people who can afford the reduced rent.
80% MFI is the highest income level allowed under the SMART program, but developers can choose lower levels, all the way down to 30% MFI ($18,100 for a two-person household). There is no sharp dividing line between “rent reduction” and “deep affordability”; it is more of a spectrum. The spectrum goes all the way to permanent supportive housing, a housing type that provides permanent housing virtually rent-free to individuals who were sleeping on the streets. Although there was no “set” line being asked for, Mayor Pro Tem Tovo definitely asked questions of the developer leading toward asking for deeper affordability, and I believe that Councilmember Pool did as well.
At this deepest affordability, there are additional benefits to the community beyond rent reduction. Some studies have found that, expensive as PSH is to provide, it may actually reduce overall costs to the community through reducing Emergency Room visits, EMT calls, and other very expensive social services. Some of the same arguments also apply to 30% MFI SMART: it addresses those in deeper need, who are more likely to have other needs that might be helped by having access to low-rent, accessible, transit-oriented housing.
On the other hand, some of the same arguments against SMART housing generally also apply: putting the burden of solving economic inequality on new development may result in less of it. Additionally, under the current arrangement, the developer is already agreeing to forego more than $1m in rents through the 10-year period. Adding even more foregone rent may push the project from profit to loss and result in the whole thing not being built. Alternatively, reducing the number of units reduces the number of people who can benefit.
Putting It All Together
Although this is presented as alternatives, there’s a real sense in which all market affordable housing enables the other two. There is no way that Austin can SMART-house its way out of a housing shortage. In a game of musical chairs, setting chairs aside for those who lost last round doesn’t result in everybody getting a chair; it just results in new losers. But, as CM Garza and Casar, point out, adding new market-rate housing can reduce the need for rent reduction programs, grow the tax base from which to fund these programs, and enable more of them to be targeted at those with the greatest need.