Why We Need Market Rate Housing

This article makes the case for market rate housing, addressing a complicated problem through smart public policy.

Introduction

In 2008, the housing market crashed because people could not pay their mortgage loans. However, the status quo is showing similar signs of a housing catastrophe. Millions of Americans are struggling to afford a roof over their heads. In fact, a study conducted by the NLIHC (National Low Income Housing Coalition) in 2018 quantified that the United States is deprived of over 7,200,000 affordable housing units. Unfortunately, the current housing shortage that is skyrocketing home prices is only going to worsen this problem. Bryce Covert from the Nation in 2018 explains that in the status quo, in cities such as Los Angeles, the issue of the housing crisis trickles down to “its poorest renters, with just 17 homes for every 100 extremely low-income families. Thus, nearly half of all renters cannot afford rent”. Thus, the case could be made for the United States to adopt a model and implement policies that increase the amount of urban development through housing. A large part of the debate stems from social media. Edward Kessler, author of Social Media and the Movement of Ideas expounds the concept that social media had been able to generate conversation and debate around key issues. It begs the question to what extent should the federal government promote market rate housing in urban neighborhoods? Simply put, market rate housing are homes that go for market value, and that do not have rent restrictions. In order to alleviate low income families of the inability to put a roof above their heads, the United States federal government ought to seek to maximize production of market-rate housing.

Filtering

In the long run, the wealthy move to new housing, freeing up space for lower income residents to live in pre-existing units at a cheaper cost. Hills of the Washington Post explains that “Filtering is the process by which, as housing ages, it becomes less desirable to wealthier residents, thereby becoming affordable to the middle class and poor” (Hills 2018). Therefore, by increasing the amount of housing available, the chance for filtering to materialize significantly increases as well, because there are more homes that can reach those who need it the most. “One study, by the Hudson Institute, found that 45.2 percent of the rental units that were affordable to very low-income renters in the United States had filtered down from owner-occupied or higher-rent categories” (Hills 2018). Market rate housing filters annually and consistently, meaning that the homes are able to reach low income families at a stable rate. Furthermore, by increasing the quantity of market rate housing, the wealthy are encouraged to move up, and upgrade to these newer homes. This is what allows their old homes to filter down to low income families. Such a discrepancy is imperative, as in the status quo, rich families are taking the households of lower income families because of the simple lack of housing available. The current situation however, is not just a problem of supply; rising demand is also playing a massive role in the increasing house prices and the worsening of the housing shortage. Thus, by increasing the supply of housing units, the demand per home decreases, which lowers its value and makes it more affordable. Some argue that the effect of filtering takes decades to ever actually materialize. However, this is simply not true, as it is a scalar impact, rather than one that is required to meet a brightline. That is because homes get filtered down annually, and throughout the year; therefore, the impact of filtering is always taking place, however, the argument that the particular housing unit takes a while to get filtered is true.

Supply and Demand

Economics teaches us that decreasing the price of a home can be achieved through increasing the supply of housing on the market. Surprisingly, Diamond of Stanford finds in December of 2018 that “in San Francisco, rent control [housing that is not market rate] resulted in a 15-percentage point reduction in the rental supply of small multi-family housing [which] likely led to rent increases in the long run” (Diamond 2018). That means that rent restrictions only worsen the affordability of renting units. Thus, due to the effect of driving up costs, poorer individuals are ultimately displaced, fueling the gentrification of neighborhoods. Indeed, by incentivizing wealthy residents and pushing out minorities and low income families due to rising cost and a constricted supply, there is a widening of income inequality. Fortunately, market rate housing solves the problem. The Daily Californian last week reports that “the construction of market-rate housing increases housing affordability for residents of all economic backgrounds. By meeting the demand for housing, it adds to the community’s stock of future low-income housing, reduces competition between middle- and low-income families, and slows the growth in prices and rents” (Chen 2019). In turn, this cuts down on housing costs for low-income households and lessens displacement. The impact of reducing the prices of homes is poverty. Staff in 2018 notes that nearly “27% of people in Los Angeles County live in poverty once they’ve paid their rent” (Staff 2018). Simply put, rent is far too expensive.

Inclusionary Zoning

Inclusionary zoning is a policy that seeks to expand the amount of affordable housing by subsidizing a portion of the costs from other wealthy and high-end housing. Inclusionary zoning policies prompt landowners to cut out a piece of their profits of market rate housing, and use it to aid in the construction of affordable housing, which helps lower income families. Inclusionary zoning rely on successful market-rate housing development because there are not enough homes to make a large enough profit to build more affordable housing. “Our analysis and research find that local zoning policies can effectively encourage the development of workforce housing, mostly in strong real estate market environments where communities provide the optimal mix of incentives” (Riggs 2016). Therefore, through promoting market rate housing, more inclusionary zoning policies are likely to be implemented, which takes some of the profits from landlords, and forces this money into the construction of affordable units. Such policies would severely help the low income families, who cannot afford the high end market rate housing. Moreover, while many focus on the benefits of an increased amount of affordable housing there are also other justifications for the implementation of inclusionary zoning policies. For example, its goal to tackle racial and socioeconomic segregation. This is done, as exclusionary zoning policies often zone out poor people from wealthy individuals. Therefore, by forcing cities to construct affordable housing in proximity to the luxury market rate housing, segregation and concentrated poverty drastically reduces.

Demolitions

A common objection is the issue of demolitions. The amount of land to build houses on is running short. Because of the scarcity of land, developers are beginning to demolish homes – primarily affordable housing – to replace housing without taking new space. In fact, Redmond writes that the demolition of affordable housing is replaced with luxury housing that is too expensive for many. Moreover, he quantifies that “SF is losing affordable housing almost as fast as it can build it” (Redmond 2018). “Nationwide, 250,000 public-housing units have been demolished since the 1990s” (New York Times 2018). This is problematic as incentives to tear down public-housing ,which is often times what low income families rely on, hurts the poor. Moreover, these homes are not being replaced with affordable units, but rather market rate units that are often too expensive for these families. However, there are a couple of drawbacks to the argument that market rate housing results in affordable housing being torn down. First, demolitions only occur to housing that is not livable. This means that low income families are not being impacted on the level proclaimed, as the housing was not occupied in the first place. Second, people who are evicted are compensated with housing vouchers. In fact, this is extremely efficient, as Chyn finds that those who receive vouchers “are 9 percent more likely to be employed in the future, earn 16 percent more as adults, and gain a net of forty five thousand dollars” in their lifetime as a result of better opportunities (Chyn 2018). Third, the single family units that are destroyed turn into multi-family units. This is important as homes that could only meet the demand for one person now meet the demand for an entire family, lessening the demand pressure elsewhere, bettering the housing crisis.

Conclusion

The housing shortage is plaguing America and its poorest members. In order to end the madness, the United States ought to promote the construction of market rate housing to combat the issue of low housing as well as to increase affordable housing. There is a shortage of over 7 million homes, meaning there are 7 million families who lack a roof over their heads. Market rate housing is the best solution to the housing crisis. In the short run, the supply will increase and through policies such as inclusionary zoning, the amount of money allocated to affordable housing will also increase. In the long run, filtering will aid in giving low and middle income families a home. If no public policy is passed, the continuation of skyrocketing housing prices and the amount of gentrification will only rise, worsening racial segregation and concentrated poverty. Thus it’s clear that we ought to accept these policies. To see a world where the housing shortage is fought face on, and that affordable housing exists for those who truly need it.

Works Cited

Austen, Ben. “The Towers Came Down, and With Them the Promise of Public Housing.” The New York Times, The New York Times, 6 Feb. 2018.

Covert, Bryce. “The Deep, Uniquely American Roots of Our Affordable-Housing Crisis.” The Nation, 25 May 2018,

Staff, Curbed. “Thanks to Expensive Housing, 27 Percent of LA Lives in Poverty.” Curbed LA, Curbed LA, 29 Apr. 2015,

“Op-Ed | We Need Affordable and Market-Rate Housing.” The Daily Californian, 26 Feb. 2019,

Hernandez, Benjamin. “To Save The American Rust Belt, Stop Looking Backward.” Forbes, Forbes Magazine, 13 Aug. 2018,

Renn, Aaron. “Rust Belt, USA.” City Journal, 30 May 2018.

Jr., Roderick M. Hills. “Why Do so Many Affordable-Housing Advocates Reject the Law of Supply and Demand?” The Washington Post, WP Company, 18 Sept. 2018.

“The U.S. Has National Shortage of More Than 7.2 Million Affordable & Available Rental Homes for Families Most in Need.” National Low Income Housing Coalition, 2018,

Chyn, Eric. “Moved to Opportunity: The Long-Run Effect of Public Housing Demolition on Labor Market Outcomes of Children.” Paper: Moved to Opportunity: The Long-Run Effect of Public Housing Demolition on Labor Market Outcomes of Children, Appam, 2016.

Diamond, Rebecca. “What Does Economic Evidence Tell Us about the Effects of Rent Control?” Brookings, Brookings, 18 Oct. 2018.

Redmond, Tim. “Halting the Epidemic of Housing Demolitions.” 48 Hills, 12 Dec. 2018.

Riggs, Trisha. “How to Best Use Zoning Policies to Spur Workforce Housing Development.” Urban Land Magazine, 5 Oct. 2016.

Kessler, Edward. “Social Media and the Movement of Ideas.” Berghahn Books.

Montgomery, Mark R. “The Urban Transformation of the Developing World.” Science, American Association for the Advancement of Science, 8 Feb. 2008.

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