Time for Some Game Theory: Five ways building market-rate housing helps affordability

How do we handle the growing unaffordability crises in many cities? Most people agree that building more subsidized Affordable Housing can help by providing an opportunity for people who struggle to pay market rates with more options. But that’s not the only type of new housing that can help. Here are five ways that building more housing–even if it’s not subsidized or rent-limited–can help affordability.

1) Fewer folks competing for existing affordable housing

In growing cities, standing still in housing stock means going backward on affordability. As new residents look for housing, they’re looking at the same houses and apartments as everybody else. If folks with money can’t find something in their price range, they often still pay more–but for housing that used to be affordable. Providing them with something new can mean fewer move into existing affordable housing and drive up rents.

2) Residents of New housing pay taxes

Most below-market-rate housing gets government subsidies in one form or another: tax credits, fee waivers, grants, loan guarantees, etc. The ability to provide these subsidies depends on having a large enough tax base to generate funds without making taxes too high. Market-rate housing builds up this tax base. Of course, the new residents will also require other government services that require taxes. In the long-term, infill housing–where new residents make use of existing streets, buses, pipes, schools, etc–can be more affordable for cities than adding miles of pipes, wires, and road networks to maintain.

3) Today’s luxury housing is tomorrow’s affordable housing

Many of the new, fancy buildings of today will eventually become the ordinary, affordable buildings of tomorrow. Some people like paying the extra dollar for brand new appliances, cabinets, floors, etc. Others would rather save some money and move into a place with a little less shine and a little more character. But the existence of twenty-year-old housing twenty years from now depends on us building new housing today!

4) Transportation

Where new housing is built in central cities, it opens up possibilities for more people to live without the expenses of car ownership. This means that, even if rent is higher, your overall place-based costs (rent, utilities, transportation) may be lower. Down the line, when rents for the building are no longer the top of the housing market, this effect can be even greater.

5) Political pressure on Affordable Housing

In growing cities that don’t build much new housing (like San Francisco or many other cities in California), prices skyrocket until a larger and larger percentage of the population struggles to pay rent. Politically, the pressure for politicians to allow middle class people to take advantage of programs originally intended only for poorer people becomes immense. The result is that, for people who struggle the most with housing costs, they have even less of a chance of getting government aid. Building enough housing to keep market costs down reduces the pressure to spread out housing supports away from the population they help most into the broader population.

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Time for Some Game Theory: Five ways building market-rate housing helps affordability