Greater Greater Washington

Development


Understanding the tools in the affordable housing toolkit

Smart Growth advocates want to make it possible for people of all income levels to benefit fully from living in an urban area. It's helpful to know what we mean when it comes to affordable housing and how America got to where we are today.


Urban renewal on DC's Southwest waterfront. Photo by Mr. T in DC on Flickr.

On a day when we pause to remember a man who dedicated his life to both racial and economic justice, it is appropriate that we understand the background of today's approaches to lifting up the least fortunate.

Two urban planners last week gave an overview of the history of affordable housing policy in the United States at a monthly meeting of Jews United for Justice's Fair Purple Line Campaign.

The campaign supports the Purple Line's construction as light rail, but is working to prevent low-income residents and small businesses in Langley Park from being displaced. There's a significant risk of this, since the area is expected to add many transit-oriented developments once the line opens.

The center of Langley Park is at New Hampshire Avenue and University Boulevard. It straddles the border between Montgomery and Prince George's Counties, and is known for being a very diverse, but lower-income community.

The planners, one of whom is an asset manager at a Bethesda-based nonprofit housing developer, explained that the need for public housing assistance arises from the fact that so many workers aren't paid enough to be able to afford market-rate housing. This is especially severe in high-cost areas like metropolitan Washington.

An often-overlooked remedy to the underlying problem is to increase the minimum wage across the board so that working people can live off of their income without needing other assistance. But this has not been the chosen approach, for the most part, in the United States.

A historical perspective

The first federal housing programs grew out of the Great Depression and the need to house the thousands that the economic crash left on the street. In later years, these programs focused on replacing "slums"many of which were thriving, though poor, neighborhoods.

The resulting development often took the form of high-density apartment buildings in non-urban configurations. Construction of much of the Southwest Waterfront neighborhood is the result of this urban renewal planning.

Public housing was not intended to house families indefinitely, but rather to support them to get back on their feet. The programs that eventually came to be overseen by the U.S. Department of Housing and Urban Development (HUD) were intended not only to house people, but to sustain the economy by encouraging bank lending and to support the housing industry.

In the 1970s, HUD moved from being a financier for the development of traditional public housing projects to using Section 8 of the Housing and Community Development Act of 1974 to create an alternative approach. This new approach took the form of vouchers for private housing.

Policy tools

Section 8 payments are made to landlords on behalf of individuals in need of housing who meet legal residency and income requirements. They may only act as a subsidy to keep prices or rents low, or they may cover most or all of the cost of rent or a mortgage. Generally, income tests mean that households must make no more than a certain percentage of the average median income for their metropolitan area.

Disappointingly, the process for qualifying for a Section 8 voucher has become long and tedious. Over 20,000 District residents currently sit on the waiting list, representing a casework backup of two years or more.

Only 7,000 people nationwide receive vouchers each year. As this 12-minute documentary from the Maine Affordable Housing Coalition illustrates, wait-listed people without stable homes face much greater challenges finding work, healthcare, childcare and other necessities, while many who have gotten vouchers have become productive members of their communities.

Governments also offer tax credits to nonprofit developers of affordable housing. This amounts to a dollar-for-dollar reduction in the developer's tax bill, up to an annual limit of 90% of development costs for ten years.

Nonprofitswhich don't pay corporate income taxes anywaysell these credits to banks, which then give 70 cents for each dollar of tax credit the bank can apply to its own tax bill back to the nonprofit. This helps banks comply with the Community Reinvestment Act of 1977.

More recently, state and local governments (with some HUD assistance) have worked to include minimum affordable housing set-asides in new mixed developments. Hope VI, established in the early 1990s, aimed to replace the most derelict traditional public housing with mixed-use communities. But of the nearly 70,000 public housing residents displaced under Hope VI, only 24% were able to return into the units that replaced their original homes.

Another tool local governments use is inclusionary zoning (IZ): a zoning requirement that a certain percentage of units in developments of certain sizes must be reserved for those of lesser means. In Montgomery County, this means Moderately Priced Dwelling Units (MPDUs). Montgomery had one of the country's first inclusionary zoning ordinances. It was adopted in 1974.

Developers are generally offered enhanced incentives in exchange for their acceptance of IZ. Montgomery County has set a standard for IZ policies [PDF page 19]. A new Montgomery County policy mandates that greater percentages of units within one of the county's nine Metro Station Policy Areas be made affordable than in other parts of the county.

The District enacted an inclusionary zoning policy about two years ago. Unfortunately, however, Prince George's County lacks many of the policy tools that could help the residents of Langley Park stay put.


The heart of Langley Park. Photo by thisisbossi on Flickr.

The sustained level of citizen involvement in the effort to preserve Langley Park's cultural identity while supporting transit improvement and smarter development is encouraging. It should serve as a model for other cases where low-income communities can be disadvantaged by the types of changes that will inevitably increase in our region.

If you support the Fair Purple Line Campaign's goals and want to see it succeed, please learn more about the Campaign.

Malcolm Kenton lives in the DC neighborhood of Bloomingdale. Hailing from Greensboro, NC and a graduate of Guilford College, he is a passionate advocate for world-class passenger rail and other forms of sustainable transportation, and for incorporating nature and low-impact design into the urban fabric. The views he expresses on GGW are his own. 

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I think the best way to promote affordable housing is to build more housing units. We should use vouchers (or conditional cash transfers) to deal with distributional issues.

The zoning code (or rent control) is a blunt, inefficient way of achieving the goal of affordable housing. Really the best way to lower housing costs is to built more housing units. Higher supply=lower price. This raises distributional issues, where are the subject of this post.

Rather than use governmental requirements, like zoning codes, to force the issue, we should use cash to subsidize PEOPLE and not the UNITS. This way, we get affordable housing and greater economic efficiency.

by WRD on Jan 17, 2011 12:48 pm • linkreport

The underlying assumption that jobs only exist in cities ergo, we have to subsidize people to live in them, is false. Similarly the assumption that you are entitled to live in the place where you grew up is similarly false. Americans can and should relocate to those places where their economic means match their locale. We have never lived in static communities like those of Europe and it has served this country well.

by Debilla on Jan 17, 2011 1:18 pm • linkreport

I've always liked the concept of using value capture tools to support affordable housing in gentrifying areas. Apply a benefit assessment to property benefiting from public investment (like the Purple Line) and use the resources that are created from the appreciation of property value to support affordable housing within the benefit area. That's only a tool in concept, though, not reality...

by jnb on Jan 17, 2011 1:27 pm • linkreport

Thank you for presenting all this information on affordable housing and highlighting the work of the Fair Purple Line campaign. While I absolutely want to see more transit and more transit-oriented development, it is true that, as formerly low-income areas are redeveloped, the people who lived there get "priced out." This is a fact that we must wrestle with and your piece gives us a lot of background on the history and past attempts to remedy this.

I heard a panelist at a Brookings Institute seminar remark: "The only reason housing is so high-priced near transit, is because so many people want to live near transit and supply does not meet the demand." Let's plan more housing near transit (and more transit near housing).

by TinaS on Jan 17, 2011 1:51 pm • linkreport

Yeah, I gotta say, I was kind of disappointed to read through this whole article and not see a single reference to the idea of just increasing supply, as the commenters before me have suggested. Government programs are all well and good, but at the end of the day, you're only going to be able to help out a select few unless you take the radical approach of upzoning and letting the market match supply with demand.

by Stephen Smith on Jan 17, 2011 2:29 pm • linkreport

There's really only 7,000 people on HUD vouchers in the whole country? That seems exceptionally low to me. I'd have guessed there's close to that many in DC alone.

by jcm on Jan 17, 2011 2:35 pm • linkreport

Good points, great campaign.
Beyond enabling higher densities along its route, the great advantage of the PL is to enable educational and job mobility in both directions along its route.
Prince George's has long claimed that it (naturally or not) has more than its share of affordable housing without subsidy, and has resisted Inclusionart Zoning and other programs on these grounds.
Homeowners are subsidized through the mortgage interest deduction for more than $100 billion per year currently. When the HUD budget gets to that level, I'll worry about subsidy - its now around 35 billion.
The American housing market has never been able to accommodate all its citizens in rental or ownership - the issue is how we do it.
We need to petition the incoming Congress to 1) implement the Housing Trust Fund, and 2) increase the number of Vouchers - whether they like it or not. And then 3) work for income diverse housing everywhere and 4) work for immigration reform - a major cause of Langley Park's problems.

by Ralph Bennett on Jan 17, 2011 2:37 pm • linkreport

I believe the best thing to do is to actually promote more density in new built high rises. When I see the swanky new condos along the red line in montgomery county, I see a giant waste of space usage.

Should every 2 bedroom unit have 2 bathrooms? Should most of them have a gym and/or a swimming pool? Should the material used to decorate the hallways always be to the highest standards (marble...) Do you really need free coffee every morning? All these things add up to the cost of maintaining and building new properties and make a typical 2 bedroom place in a good location cost between 1800-2500 dollars.

Small is often not only beautiful but also cheaper...

by Vincent Flament on Jan 17, 2011 2:55 pm • linkreport

According to CBPP, there were 2,030,000 families using Section 8 vouchers in 2008. I'm not sure what the 7,000 number refers to. Maybe PG county alone?

by jcm on Jan 17, 2011 2:58 pm • linkreport

Yes, I should have mentioned the idea of increasing housing supply across the board. However, I did mention the equally radical idea of raising minimum wages across the board so people earn enough money to afford market-rate housing. The former is a radical supply-side measure and the latter is a radical demand-side measure. America has so far been unwilling to try either option except in certain localities.

by Malcolm K on Jan 17, 2011 3:04 pm • linkreport

The reason Langley park's immigrant community will be harmed is because it's being improved? But if we don't invest in these communities, we will also hurt them! I'm playing devil's advocate a bit, but this dichotomy is frustrating but obviously true to a degree.

I think one needs to keep in mind that traditionally, immigrant neighborhoods change the most rapidly becasue as the people become Americanized, they tend to enter the mainstream and leave the hood.

Also, the premium placed on rail transit accessible neighborhoods only highlights the lack or supply this market craves. Where rail transit is omnipresent, (NYC), there isn't such a direct paralell between gentrification and transit because the whole city (by and large) is serviced.

In other words, build the dang trolley lines!

by Thayer-D on Jan 17, 2011 3:18 pm • linkreport

@ jcm - 7,000 new vouchers were distributed last year -- there are many more people using vouchers nationwide and there are many, many more on waiting lists waiting to get one.

by eb on Jan 17, 2011 3:24 pm • linkreport

@Malcolm K--

Raising the minimum wage has--at very, very best!!!--an ambiguous effect as "a radical demand-side measure." I'm all for helping increase incomes across the board, but the jury is VERY much still out as to whether the minimum wage helps or hurts. Links with support below. Not that this is inclusive of all debate, but they're interesting.

Greater housing supply, on the other hand, is a much more sound policy.

@Vincent Flament:

I agree that the large condos seem wasteful. And they are, especially with hidden subsidies like the mortgage interest deduction (and Fannie/Freddie!!). But the owners are paying for the land. They bought it, of course, so our opinions are sorta besides the point. I guess because of that, I have a hard time getting behind you on your point. But if you're making a statement about taste and not housing market efficiency, I totally agree.

http://www.marginalrevolution.com/marginalrevolution/2006/09/the_minimum_wag.html

http://www.marginalrevolution.com/marginalrevolution/2004/07/minimum_wage.html

by WRD on Jan 17, 2011 3:42 pm • linkreport

@ eb Ok, that makes sense. Thanks for helping me understand.

by jcm on Jan 17, 2011 5:19 pm • linkreport

@ WRD: Neither of the links you cite are relevant to the argument here. We're not talking about reducing poverty: plenty of working people live above the poverty line but still struggle to pay for housing & other necessities. Also, to suggest that teenagers who work minimum wage jobs shouldn't be able to afford housing on their pay, like anyone else who works, smacks of ageism.

I wonder if the effect of higher minimum wages, in places like Albuquerque, on the housing market and the demand for Section 8 vouchers in those areas has been studied.

I think it's hard to argue against that if low-wage workers earned more, they'd be less reliant on assistance like Section 8 vouchers, which are based on percent of AMi earned, not the poverty level.

by Malcolm K on Jan 17, 2011 5:31 pm • linkreport

@Thayer-D,

If you follow the link Malcolm provides to JUFJ's campaign, you'll see that the campaign strongly supports building the Purple Line. But it believes in doing so in a way that benefits the people living there, rather than one that will push them away. I don't think that it's too much to say that we can build transit in Langley Park AND ensure that residents simply pushed by high costs into another area that's just as underserved as Langley Park is today.

by Mister Goat on Jan 17, 2011 5:58 pm • linkreport

I'm not really sure what "smacks of ageism" means, but maybe that's because I'm just an accountant. And this is about reducing poverty, or at least increasing income. Forget the "poverty line" let's try and make people richer across the board, right? But I insist the effects of a minimum wage change are ambiguous. The better policy is allow more dense, taller development, thus increasing housing supply.

But if you want more links to economists debating about the minimum wage, here we go:
(1) Casey Mulligan argues the minimum wage reduces the number of low-wage jobs, consistent with Keynesian sticky wages. http://economix.blogs.nytimes.com/2010/12/15/sticky-wages-sticky-prices-and-the-keynesians/

(2) Nick Rowe links to evidence that the minimum wage has probably negative effects but "at the very least, the results of [the quoted study] suggest the need for more research on the nexus between the minimum wage and poverty." Note that this site contains several posts on the minimum wage. It's also Canadian data.
http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/01/minwage2.html

(3) Here's a contrary view finding a spillover effect:
http://economistsview.typepad.com/economistsview/2010/10/does-a-higher-minimum-wage-reduce-jobs.html

(4) Here's some economists debating what other economists have said. http://econlog.econlib.org/archives/2010/09/dorman_on_minim.html

(5) Econbrowser on the effects. Key quote: So this is a plea, not for thinking that minimum wage increases will necessarily have a positive net effect (The Bhaskar and To paper does not make that point), but rather for not blindly reaching for the standard off-the-shelf neoclassical model to answer policy questions. I think the case for a thorough and sophisticated debate is further buttressed by the fact that it has proven difficult empirically to identify negative employment effects from increasing the minimum wage.
http://www.econbrowser.com/archives/2006/12/the_economic_de.html

(6) Greg Mankiw points to a survey of economists. 79% agree with the following: "A minimum wage increases unemployment among young and unskilled workers."
http://gregmankiw.blogspot.com/2009/02/news-flash-economists-agree.html

(7) Finally Mankiw links to a UC Irvine economist who argues against it.
http://gregmankiw.blogspot.com/2009/06/case-against-minimum-wage-hike.html

Now that everyone's ignored the links, I'm not trying to argue one way or the other. As I said, the jury is still out. There is much heated debate about what the effects would be and I tend to come down slightly against any change in either direction.

But if you want to argue there's effect on housing prices, the onus is on you to make that case. It's possible--maybe even likely--that increasing the minimum wage will raise income for some people and lower it to zero for others! Or maybe it will have a positive effect in one industry (say, retail) and a negative in another (say, construction). Or whatever.

I just don't see how raising the minimum wage is either (1) likely to have the desirable economic effects OR (2) is likely to occur politically. Instead, I think we both agree more housing supply is both politically feasible and likely to lower housing costs. It's also a more direct way to achieve the goal of affordable housing!

by WRD on Jan 17, 2011 6:15 pm • linkreport

An often-overlooked remedy to the underlying problem is to increase the minimum wage across the board so that working people can live off of their income without needing other assistance.

Sorry, no cigar. Increasing the minimum wage destroys jobs. That's Economics 101: put an above-market floor under the price of any good or service and you decrease the quantity demanded and increase the quantity supplied. In the labor market, this gap is known as unemployment. You actually INCREASE the amount of public assistance required as workers are fired and go onto welfare. Moreover, the minimum wage has the insidious effect of making the least-skilled workers permanently unemployable. Their labor is worth less than the minimum wage, so they're not hired in the first place. By not working, they do not acquire the skills needed in the workplace making their skills even lower relative to the rest of the labor force.

by Chuck Coleman on Jan 17, 2011 6:41 pm • linkreport

Increasing the minimum wage destroys jobs. That's Economics 101

That's fact-free ideology 101. Empirical research shows the opposite.

by Ben Ross on Jan 17, 2011 8:04 pm • linkreport

The fundamental principle is that anyone who works full-time, no matter how menial the job, should be able to make enough to live on. This is a matter of justice. It is up to government, to an extent, to rectify this inequality created by the regular operation of capitalism.

by Malcolm K on Jan 17, 2011 8:28 pm • linkreport

That's fact-free ideology 101. Empirical research shows the opposite.

One non-peer-reviewed paper from a left-wing think tank cannot stack up against the weight of theory backed by hundreds of empirical papers. Years ago,, the Congress commissioned a report about the minimum wage. The first three volumes covered the empirical aspects and found, indeed, that it destroys jobs. The fourth volume, written by politicians, said the opposite. I trust economists over politicians any day.

BTW, if you want to find the effects of the minimum wage on employment, look at Black teenagers. That's where the effects are strongest: the least-skilled workers. You can go to www.bls.gov to do your research. Moreover, the long-run effects are much harder to pry out of the data.

The fundamental principle is that anyone who works full-time, no matter how menial the job, should be able to make enough to live on.

Nice goal. Now, how are you going to accomplish it, knowing that minimum wage does not work? The fundamental economic problem is that we have infinite wants and finite means by which to satisfy those wants.

by Chuck Coleman on Jan 17, 2011 8:42 pm • linkreport

@Ben Ross--

The study from the EPI is not dispositive. That's my point, in fact. This is a complicated issue. I've linked to plenty of contrary studies and plenty of studies that agree your link. Let's not call names, either.

@Malcolm K--

You've just made a much broader claim than your original article supported. I don't want to get into an ideological fight here. Suffice it to say I think: (1) we should increase housing supply and (2) the data doesn't back up your claim that if we increase the minimum wage enough, it will alleviate housing problems.

I strongly disagree with your statement that "An often-overlooked remedy to the underlying problem is to increase the minimum wage across the board so that working people can live off of their income without needing other assistance."

I am open to changing my mind on this, but please provide some evidence! More likely, the minimum wage is "often-overlooked" because it would not be effective and the costs are large.

For what it's worth (hint: not much at all), I agree that the government does have a role, to an extent, to rectify inequality. I also believe it must do this in an efficient manner.

by WRD on Jan 17, 2011 8:46 pm • linkreport

Nice job. Write a nice detailed article, only to derail it with a throw-away reference to the minimum wage which naturally brought every moonbat and wingnut out of the woodwork. Note that more than half of the comments center on 5% of the article.

The rest of you learn from this - if it isn't relevant to your overall point, leave it out. Concise and targeted - that is the way to get your point across.

by movement on Jan 17, 2011 9:49 pm • linkreport

@movement--Or the readers can simply ignore the folks who are fixating on one minor point, and focus on a good article. It's a good piece, Malcolm. Don't let the flame wars get you down.

by Mister Goat on Jan 17, 2011 11:11 pm • linkreport

@movement

As an economist, I am duty-bound to educate others about economics. It used to be that economics was a required high school course. I have a theory as to why that changed. The upshot is that there is a tremendous amount of economic ignorance. We're also seeing this factoring into the HSR discussion, among others. Suggested reading: Henry Hazlitt, Economics in One Lesson.

BTW, calling me a "wingnut" and "moonbat" is an ad hominem. You should know better than to insult those with whom you disagree. We have far too much of this in our political discourse.

by Chuck Coleman on Jan 18, 2011 7:02 am • linkreport

Let's keep the debate civil, please.

I'm not deleting any comments at this time, since no ad hominems were made. I'd like to keep it that way.

Mr. Coleman, "movement" did not call you a wingnut or a moonbat. He or she suggested that talking about the minimum wage brought wingnuts and moonbats out of the woodwork.

He or she did not reference a particular commenter, and I would assume that his or her definition of wingnut/moonbat would exclude anyone who is using a civil and well-reasoned argument. So I think you're probably safe.

by Matt Johnson on Jan 18, 2011 8:49 am • linkreport

Arlington County is hosting an affordable housing tools forum next week. Experts will discuss best practices from around the country that could be applied to Columbia Pike.

http://www.arlingtonva.us/departments/CPHD/planning/docs/pdf/tools_forum_flyer_eng.pdf

by sdw on Jan 18, 2011 9:56 am • linkreport

I appreciate the opportunity to continue the discussion, and I will make sure to redouble my efforts to be polite and sincere.

To refocus a bit, the article is called "Understanding the tools in the affordable housing toolkit." The minimum wage was only one of the tools, and it seemed to be a "throwaway" sentence anyway. I believe it's not a tool in affordable housing toolkit. To beat a dead horse, let's assume the increase has the desired effect of increasing incomes and allows people to afford houses. With a fixed supply of housing, wouldn't this just increase the price of the existing housing stock and bring us back to where we were before?

I don't know. Really. But it's a possibility and we should consider it with an open mind.

I appreciate that Malcolm K., the author, was willing to admit increasing supply is a good idea. That was the point of my original comment. It seems like we both support demand-side efforts to increase affordable housing, too. I mentioned specifically programs like conditional cash transfers or vouchers. Malcolm mentioned Section 8 vouchers.

I totally agree that Section 8 vouchers are an administrative nightmare. There are more efficient ways to conduct demand-side intervention and many of them involve just simplifying our existing programs! That kind of reform should be a winner.

However to me, the easiest and fastest way to lower housing costs remains on the supply side. Regulations, like a burdensome zoning code, restrict housing supply. The Height Act, in particular, is hugely costly because it restricts supply of housing. It should be repealed or reformed.

The article said: "the need for public housing assistance arises from the fact that so many workers aren't paid enough to be able to afford market-rate housing. This is especially severe in high-cost areas like metropolitan Washington."

Metropolitan Washington is high-cost precisely because we have restricted the supply of housing! Our city is so nice, more people want to live here than the existing stock of housing can support at affordable prices. Market effect bring us into alignment by (1) higher prices which (2) encourages more housing construction. Regulations, both the good and the bad, have stopped (2) from countering the effects of (1).

We've made the implicit choice that we would rather see higher prices than more supply. I believe this is wrong.

Yet the devil is in the details on HOW to reform the system, even if you agree with me so far. And there are open questions when it comes to fairness and justice. I don't have those answers. My guess is there isn't one "set of answers" to housing and development justice anyway!

by WRD on Jan 18, 2011 10:16 am • linkreport

@Matt

I'm sorry if I seemed a little hypersensitive. That remark obviously ticked me off as it seemed to refer to all minimum wage opponents. If only people would say exactly what they mean... ;-)

@WRD

You hit the nail on the head. It's the supply side that's driving the housing "shortages." I do appreciate your humility. Nobody has all the answers to anything.

by Chuck Coleman on Jan 18, 2011 11:52 am • linkreport

I don't think it's particularly helpful to lump a serious discussion about the minimum wage into one focused on affordable. As someone who knows quite a few workers (high school grad, not an ex-con, not parents etc.) who benefit from minimum wage increases, I get the sense that this conversation is too academic and sorta high-minded, at least as it relates to minimum wage. There really are people out there who welcome .75c increases you know?

BTW, the convo has been civil if you ask me. Please don't turn GGW into a whitewashed site of conversational purity. Sometimes people may need to be called assholes. From my experiences here, people make insulting comments and the rest keeps it moving. Not the end of the world.

by HogWash on Jan 18, 2011 11:58 am • linkreport

One place to study and drill down on this issue is Columbia Heights; however, in my experience Smart Growth folk affiliated with GGW tend to avoid looking a CH closely like the plague. I believe primarily because quickly the simiplistic assumptions usually break down quickly in the face of reality. As well, politically Smart Growth folk depend on political allies who would be embarassed if things are really evaluated.

1. DC has leveraged so-called affordable housing resources to subsidize so-called market rate housing. Not the other way around. For example Donatelli Development projects.

2. To have mixed income areas you need mixed housing and amenenity types. Developers and many Smart Growth folk are only interested in spending political and social capital on a pretty narrow segment. GGW voices for example. So, Donatelli Development is treated as a hero, but in reality behave in an opposite manner when it really comes to broader smart growth principles. Smart Growth organizations depend of developers and politicians who operate on a "pay to plaly" model.

3. Housing discrimination is still a major force.

4. The market arguement around supply makes sense in theory. But in reality, when prices drop developers stop building until prices stablize or the reduce the size of units in response. Donatelli Development did both with Hightland Park II. Plus got a bailout.

Many Smart Growth folk focus on theory and turn a blind eye to reality. The opposite of what King taught and lived.

William

by W Jordan on Jan 18, 2011 12:42 pm • linkreport

@CC
The comment was directed at the author who allowed discussion of his column to fall into a flame war over a throwaway paragraph that has almost nothing to do with the topic. I don't care who is right, it is a tangent that derailed the discussion. He (and other authors) should be more careful in the future.

by movement on Jan 18, 2011 12:51 pm • linkreport

William, can you give some concrete, cited examples of where GGW has ignored or overlooked the real conditions, and similarly can you provide some examples of developers exploiting the affordable housing system?

by Neil Flanagan on Jan 18, 2011 1:18 pm • linkreport

@chuck Is "destroys jobs" the term of dispasssion economists regularly reach for in an academic debate?

by Read Scott Martin on Jan 18, 2011 1:45 pm • linkreport

@Read

Pick up an introductory microeconomics textbook to understand me better. Once again, in the labor market, quantity demanded > quantity supplied = unemployment. This can only occur when the wage is greater than the market clearing wage at which quantity demanded = quantity supplied.

by Chuck Coleman on Jan 18, 2011 2:14 pm • linkreport

I got the inequality reversed in the last post...I was in a hurry. It should read, "in the labor market, quantity demanded < quantity supplied = unemployment."

by Chuck Coleman on Jan 18, 2011 2:28 pm • linkreport

Folks seem pretty hung up about supply-side issues, so let's see if I can offer a few clarifications:

1) Building and operating rental housing is unbelievably expensive. $175,000+ per unit to build the thing around here, and then maybe $5,500 / unit to operate it annually. I'm not talking about marble lobbies, either.

In other words, a landlord would have to charge $460 / month rent just to break even. Not everyone has that kind of money. Increase supply all you want - it's a great idea, and it will definitely help - but the private market cannot solve this problem on its own. Supply-side subsidies in a vacuum aren't going to be sufficient either, for the same reason.

2) The Low Income Housing Tax Credit that Malcom mentioned is a HUGE supply-side tool. It isn't as strong as it was before the financial markets crashed, but it helped build 90% of the affordable units developed in 2007 - that's 125,000 units! And there are other supply side tools too.

3) Don't insult inclusionary zoning in favor of increasing supply - that's what it does! It just gives for-profit developers an incentive to include affordable housing in the new supply they create.

4) 'Lack of affordable housing' is not a monolithic issue, and you use different approaches based on different conditions and desired outcomes.

Langley Park already has a decent amount of housing, and it is relatively affordable because that's what the market has dictated. The neighborhood is going to change when the Purple Line comes in. We saw it in Columbia Heights and a bunch of other places in DC when they got metro stops. I think it could be really good for Langley Park. It could bring all sorts of amenities, community investment, etc.

The real issue is how to ensure the people who live there now can afford to remain in their community if they want to. Because we saw in Columbia Heights, we got tons of new apartments, but the housing prices went sky-high anyway.

This is the time when we need to put protections in on the existing stock (and clean it up, because some of it isn't in very good shape). We could turn some of it into subsidized units; or enact inclusionary zoning, though that would be hard in this economic climate; or try rent control; or target the area for something more creative. But if you think just building more apartments and letting the market take care of things will be sufficient, you're kidding yourselves.

by sk on Jan 18, 2011 4:19 pm • linkreport

Raising the supply of housing near mass transit stops is not necessarily the best solution to housing shortages. Commercial development may be a better use of such land, and the higher tax revenues from the resulting economic growth could be put toward vouchers for housing in other places. Making zoning less restrictive would be a good move, but not if it simply exchanged limits on density for limits on usage.

Residents may be "priced out" of areas like Langley Park because their homes and apartments are more valuable with the Purple Line nearby. Is it unreasonable to expect someone living near public transit to pay more for the privilege? Keeping housing prices low despite the introduction of additional amenities doesn't really make much sense, and sends the signal that housing in that area is worth less than it really is. Of course, this assumes that people are not just willing, but able to pay more for access to mass transit, which is why the discussion about minimum wage is somewhat relevant.

I think the author's comment that, "anyone who works full-time, no matter how menial the job, should be able to make enough to live on," is noble, but misses the mark a bit. Those supporting an ever-higher minimum wage seem to think that people working "menial jobs" are going to be stuck in them forever, and that workers gain nothing from employment besides a paycheck. In reality, even working at McDonald's teaches a teenager - or someone else previously unemployed - basic work skills required to succeed in any job, such as timeliness, self-presentation, and how to work with others. In a sense, minimum wage jobs can be viewed as similar to paid internships, which few people object to.

The author also implies that without raising the minimum wage, the government is not doing anything to "rectify this inequality." Skilled workers who find themselves out of a job don't need to take a minimum-wage one, since they have access to federal and state unemployment benefits. Unskilled workers with immediate responsibilities have access to the federal Earned Income Tax Credit, which effectively subsidizes wages. The correct way to go about making sure people have enough to live on is a larger safety net and/or wage subsidies, rather than setting an inefficient price floor on labor.

by jakeod on Jan 18, 2011 4:27 pm • linkreport

If public funds are used to construct rail lines that developers then benefit from in the form of new projects an higher profits, then it's reasonable for the public to ask for a share of that back to serve the greater good. This includes helping people remain in their homes to keep the fabric of a neighborhood alive across generations. I disagree with Debilla that throwaway communities that contribute to sprawl and pollution, and a throwaway culture with it, have served this country well. People need and deserve the stability that comes with a sense of place. Vouchers for housing elsewhere are not adequate because lives disrupted by a forced move and likely longer commute have a human cost that won't show up on a balance sheet.

The minimum wage is a side issue, but one worth noting: a higher minimum wage does not kill jobs because business needs labor as much as it needs business. This is the social contract. We often forget the labor side of the equation when business comes running with claims that this or that regulation will be "job-killing" … what they mean is that it will cut into profits. Life goes on. Our CEOs are already overpaid as it is (6x more than the next country, and their salaries are tax-deductible!).

Upward mobility is becoming a myth in this country (more than it was, anyway). I'm not opposed to making life better for those who are trapped in a job that doesn't completely reflect their skill set in this economy. And in any case, making life easier for those less fortunate makes upward mobility more possible.

Inclusionary zoning, which allows for a mix of full-priced and subsidized housing, should make most of this debate moot anyway. Both sides get a piece of the pie, and there are several success stories across the country already in place. You will always need somebody to be a teacher, a firefighter, a policeman, and it's good for the community if these people can live near where they work. Not everyone is destined for the trading floor of the NYSE.

by Anonymous on Jan 18, 2011 5:11 pm • linkreport

Neil,

One good example is the DCUSA Garage and parking in general. Some GGW folk had spun the under utilization of DCUSA garage as due to lack of demand because of the subway. Therefore, the need to almost eliminate the need for parking. In reality under utilization would more likely be explained by egress issues due to construction, the operational structure of the garage and the fact that many have little idea that the space are available. While, car owenership is less necessary because of CH transit options, developers over built parking because easy financing made it profitable to build and sell parking bundled with units. Financing tightened result glut of spaces.

Donatelli Development exploited the so-called construction of the LaCasa SRO as an affordable community housing benefit for its PUD and etc.. When in reality the tax payer via government subsidy is footing the bill via affordable housing dollar in essence. In fact they used the affordable angle to justify an $8M property tax abatement when the cost of affordability was already part of the land transfer write-down. I've referred the dealings around Donatelli Development as a moral hazard.

by W Jordan on Jan 18, 2011 5:13 pm • linkreport

Now these are good comments!

@sk
1) Yes, it's expensive. There are economies of scale, though. A firm would rather have one large building instead of two small ones (everything else equal!) because you only pay taxes on on plot of land, hire 3 shifts of doormen instead of 6, etc. Taller buildings would improve the situation.

You throw out $460/month as a floor. I see this as a HUGE improvement over current pricing!

We simply can't get around the fact that supply-side constraints increase DC housing costs over comparable cities.

2) LIHTC is nice, but a straight cash program would be better. Also, running things through banks (and the CRA in general) is pretty inefficient. We would get more "bang for the buck" with a different program. Alas, there is no political motivation for changing things, which leaves any streamlining plans...uh...pining for the fjords.

3) Admitted.

4) Admitted to the extent that removing supply-side constraints are only one of the methods. In my opinion, they're the single best method.

@Jan:

1) Admitted. Part of removing "supply-side constraints" is really me saying "get closer to a free market" in a way that's a bit less politically toxic. A huge part of that means allowing commercial development. That's why I hate the Height Act so much, in fact.

2) Second that and well put.

3 & 4) I've been trying to say from the start--minimum wages are complicated. There's a lot going on in the wage market. Much depends on the magnitude of the delta in min wage, enforcement, labor supply and demand elasticities, etc.

I don't always agree with Matt Yglesias, but he's written on this recently:

http://yglesias.thinkprogress.org/2010/12/lot-occupancy/

http://yglesias.thinkprogress.org/2010/11/housing-would-be-cheaper-if-there-were-more-supply/

http://yglesias.thinkprogress.org/2010/09/maybe-we-should-give-poor-people-more-money/

http://yglesias.thinkprogress.org/2010/08/gentrification-and-housing-supply/

I want to quote from that last link and I hope Malcolm thinks about this (if he hasn't already, which he may have):

[P]oor people in supply-constrained areas are currently caught up in a kind of perverse catch-22. They and their children lack economic opportunity because they live in communities with bad schools, high crime, and few jobs. But if the schools get better and crime goes down and more businesses open, instead of enjoying improved opportunity they face rent increases and need to move someplace with a lower quality of life. If you want to improve the situation facing poor city-dwellers, you need to pair efforts to improve living conditions with efforts to ensure that increased demand is met mostly with increased supply rather than mostly with higher rents.

by WRD on Jan 18, 2011 5:13 pm • linkreport

I think you miss my point, jakeod.

I'm not advocating keeping ALL housing in Langley Park at the same price point. I'm just suggesting that whatever affordable housing is intentionally created / preserved will eventually be the bulk of what exists in the neighborhood.

If the community wants a diversity of incomes in 10 years they can have it, but they have to take action now. They need to decide now what income mix they want, they need to put the protections in place, and they need to do it soon.

by sk on Jan 18, 2011 6:09 pm • linkreport

Raising incomes wont do a damn thing. If we raise the minimum wage all prices will follow along just as they have done over the past 200 years.

@ Thayer-D

A streetcar wont solve the problem what needs to be donw is building a damn subway. DC needs a fully functioning subway like other cities have Metrorail is just a updated more frequent version of Marc & VRE. There are many parts of DC that are not close to a metrorail station.

One way to fix the problem could building a subway line what we currently have the metrorail does not address those living in DC; such as traveling from outer parts of DC to another outer part.

Most people in DC have to take a bus to get to a metrorail station which should not be the case.

Every spot in DC should be one mile or less from a metrorail station. We could build one semi-circular line in DC and it would cover almost all areas in DC which aren't presently served by metrorail.

by kk on Jan 18, 2011 9:37 pm • linkreport

One problem is that if the low income move out into areas cheaper you are increasing sprawl since some would have to move out to Charles, Howard, Prince William, Anne Arundel counties and still coming to jobs here.

There have always been poor people and that will not change any time soon.

by kk on Jan 18, 2011 9:40 pm • linkreport

@sk:

Right, and what I'm saying is that easing zoning restrictions and allowing the market to guide development will produce economic growth, boosting tax revenues. This could allow current residents to either have their income subsidized so they have the option of remaining where they are, or be compensated for their moving costs, material and perhaps otherwise. I think this is a better approach than designating a portion of existing housing stock as affordable, which greatly reduces the incentive to improve it and bars some individuals who would be willing to pay more in rent for better transit access from doing so.

@kk:

If the lower-income residents move further away from the city, that creates space for other workers to move closer. I don't think it really changes the amount of sprawl that much; even the additional demand for housing space created by an improved transit system might be balanced by a tendency (if zoning allows) to develop more densely around stations.

by jakeod on Jan 19, 2011 3:58 am • linkreport

@ jakeod

Think about your typical low income apartment building and now think of a market rate or luxury one.

The luxury one adds more space to each apartment resulting in a building which houses less people. The luxury one will have a larger kitchen, living room and bedrooms perhaps a family room, usually more than one bathroom while the low income one will have small kitchen, small living room and one bathroom; less space overall resulting in more apartments in a building of the same squarefootage.

by kk on Jan 19, 2011 10:03 am • linkreport

@kk

That's assuming the building stays the same height; with tenants who pay more rent and the new amenity of a transit stop, there's more of an incentive to build up. Also, an apartment of a fixed size is more valuable and will rent for more if it's near public transit than if it's not, so there need not be an increase in the square footage of each unit for it to attract wealthier tenants.

by jakeod on Jan 19, 2011 2:35 pm • linkreport

The problem is - at least in Monty County - no one on the county council cares about this issue. County council members have not responded to pleas from residents of Aldon Apartments in downtown Bethesda about severe rent increases. Nancy Floreen's office responded with "there are voluntary guidelines..." answer. Aldon doesn't care. They consistently raise rents higher - often double - that suggested by the county. Citizens in Bethesda have no city government to protect them either. Neither Roger Berliner nor George Leventhal responded to e-mails about this topic.

by Christian Adolf Jugensen III on Jan 20, 2011 8:39 am • linkreport

Debilla said: "Americans can and should relocate to those places where their economic means match their locale. We have never lived in static communities like those of Europe and it has served this country well."

Tax laws - and government policy - strongly encourage people to own their living space. This policy is a strong deterrent to labor mobility, as the housing/finance/foreclosure crisis has made clear. I don't think the government wants a mobile workforce, or the laws would not be written to favor owners over renters so strongly.

by Christian Adolf Jugensen III on Jan 20, 2011 8:42 am • linkreport

The MD legislature recently allocated $100m to help military families moving to MD as a result of BRAC, buy houses in Maryland. The real estate lobby is amazing!

by Christian Adolf Jugensen III on Jan 20, 2011 8:48 am • linkreport

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