Austin Contrarian

A couple of affordable housing statistics

I'm still digesting this Neighborhood Housing and Community Development report on affordable housing in Austin (pdf).  For now let me cherry pick two interesting statistics:

• Number of affordable multi-family units built under the S.M.A.R.T. Housing program since 2000:  5,966.  (p. 6)
• Number of multi-family units removed from the market since 2006:  3,000. (p. 11)

Two thoughts:

1.  I was surprised that the S.M.A.R.T. program has produced that many units; but

2.  an average production of 1,000 multi-family units per year is well below the replacement rate. 

I'm not knocking S.M.A.R.T. housing.  5,966 affordable multi-family units are better than 0 units, and there are other affordable housing programs (although the S.M.A.R.T. housing program is touted as one of the more successful ones).

But these statistics suggest that the S.M.A.R.T. Housing program can satisfy only a small percentage of the total demand for affordable housing.  Most people will have to look elsewhere.  S.M.A.R.T. Housing's real benefit is in directing affordable housing to desired (i.e., otherwise expensive) locations.

Housing + Transportation Affordability Index

Check out this totally cool site that maps housing plus transportation costs (plus a whole bunch of other statistics, like average block size) by census block group.  They use census data to estimate the average home and transporation costs as a percentage of median income. The map's creators' point is that those suburban homes are a whole lot more expensive when you factor in transportation  costs. 

I'm fuzzy on their methodology for estimating transportation costs.  I spot-checked the block groups around my neighborhood, and found big differences in transportation costs that I'm skeptical exist.  And bear in mind that housing + transportation costs may take a huge bite out of, say, a Pflugerville household's income, but they would probably be a mere nibble compared to the bite of a central Austin mortgage payment.

Still, this is the coolest thing I've seen in a while.  (I admit that I probably have a warped sense of "cool.")

H/t Smart Growth around America.

Condo conversions

One argument frequently trotted out against zoning for greater density is that it encourages the redevelopment of low-income rental.  But it is silly to believe that zoning can maintain the stock of affordable housing.  When rents lag behind home prices, owners will simply convert the apartments into condos. 

I'm aware of three condo conversions on South Lamar, one on Thornton (around the corner from my house), one off Oltorf, and one on South Congress.  There apparently are many more:

Last year, 824 apartments were converted to condos in Austin, from the downtown area to the suburbs. This year, 1,167 more units are expected to be converted in the Austin area, said Robin Davis, manager of Austin Investor Interests LLC, which tracks the apartment market.

That's a lot of low- to moderate-rental taken out of the market.  On a positive note, the converted condos are a lot cheaper than the new stuff being built.

I suppose Austin could take the San Diego/San Francisco/Berkeley approach of limiting condo conversions.  A saner approach would be to permit small infill projects that blend in with the neighborhood.  And lots of dense multi-family projects on transit corridors.  The stuff built today will be the affordable housing 20 or 30 years down the road.   

The McMansion ordinance as an anti-gentrification tool

The Organization for Central East Austin Neighborhoods (OCEAN) wants to drop the McMansion ordinance's guaranteed minimum home size of 2,300 sq. ft. for Central East Austin lots:

Over the years, Rudolph Williams has watched house sizes grow in Central East Austin. More and more, two- and three-story houses are replacing the one-story, 1,500-square-foot houses typical of the area.

Although the city clamped down on home sizes in proportion to lot sizes last year, he has been working to tighten the rules even more for the smaller lots in his area — those less than 5,750 square feet — as a way to protect the area's character, culture, diversity and history.

. . .

Currently, the rules say that on lots of all sizes, a property owner can build a residential structure that is 2,300 square feet or has a floor area that is 40 percent of the area of the lot, whichever is greater.

The neighborhoods organization wants to remove the 2,300 square feet allowance for lots less than 5,750 square feet. So on a lot that's 5,000 square feet, the biggest house could be 2,000 square feet.

The article implies that OCEAN's main concern is gentrification:

Limiting the size of houses on smaller lots would help reduce tear-downs of rental units, the primary affordable housing option for low-income people in Central East Austin neighborhoods, and force developers to build smaller, Williams said.

However, the change wouldn't be effective alone, Williams said. It must come with other protections from local government and school authorities, such as tax relief for renters and increased homestead protection for poor homeowners, he said.

"We're at a tipping point right now. Can we create a neighborhood where rich and poor can live together?" Williams asked. "Or will this be another gentrification story? Another Clarksville?"

Gentrification is a complex issue.  I don't want to tackle it here.  But if you think you need to adopt anti-gentrification measures, I question whether you should start by stripping equity from the small lot owners.

Given the prices in Central East Austin, the loss of 300 buildable square feet would probably be worth $10,000-$20,000 to the small-lot owners (lots with around 5,000 sq. ft.).  Eliminating the McMansion minimum would hurt them and no one else.  It would not penalize the owners of lots that have already been redeveloped -- i.e., the yuppies living in spanking new $300,000 homes.   

I haven't been to a single OCEAN neighborhood association meeting.  Perhaps the people who would be adversely affected by this uniformly support it (in the hope of lower taxes, for example).  But I'm always skeptical of plans that would put all of the burden on a small minority, particularly a minority that had the least to begin with.  Neighborhood groups aren't as homogeneous as they sometimes claim to be.  The City Council should do its due diligence this time:  Before ordering small-lot owners to fight gentrification on behalf of everyone else, it should make sure they are volunteers rather than conscripts. 

Note:  I inadvertently published an earlier, very rough draft below the fold.  (There wasn't supposed to be a "fold.")  Sorry for the gibberish.

Oh, I missed the final report

When I wrote about the Affordable Housing Incentives Task Force last week, I didn't realize it had submitted its final report.  (The task force's web site only had the draft report at the time.)

Here's the final report.

Disappointing.  I guess the draft recommendations would have produced too much new, permanently-affordable housing.

One of the draft's best ideas was to permit automatic up-zoning of multi-family property in return for "deep" affordability guarantees.  That is, a developer who set aside 10% of the units for 60% MFI would get to develop any MF-2 or denser property at MF-6 densities.

In English:  MF-2 property is limited to a density of 24 or fewer units per acre.  (It depends on the number of bedrooms in the units).  MF-3 has a slightly higher cap, and MF-4 and -5 even higher.

MF-6 doesn't have a hard cap.  It has minimum open space requirements (100 sq. ft.) per unit.  And it has height limitations and setback limitations.  But there is no pre-set density limit, even though there is a practical limit.  Depending on the height and setback limitations, an MF-6 property might hold two or three times as many units as an MF-2 property.

The draft report allowed a developer to redevelop low-density property as high-density property in exchange for reserving 10% of the units for families who make less than 60% of the median family income.

The draft report protected the neighborhoods by imposing hard height limits on up-zoned properties.  It also required developments to comply with neighborhood compatibility standards.  This was a good compromise: increased density + affordability in return for protecting neighborhoods from "inappropriate" mass and scale.

The best part of the deal, in my opinion, was that it would apply pretty much everywhere.  Any MF-2 or denser property, developed or undeveloped, would be eligible for denser development.  That's a lot of property.  There are a lot of 70s-era, low-density complexes out there.

Alas, it was too good to be true.

The final report limits this up-zoning entitlement to "greenfield" sites:  "sites that are zoned multifamily but have no developed housing units."  I haven't conducted a survey, but I'll wager there aren't a whole lot of large, completely undeveloped, multi-family sites in central Austin.  (Some people call these "meadows," although the more accurate term for many may be "flood plain.")

So between the draft report and the final report, most multi-family property was taken out of play.  And this particular recommendation lost any real bite.

Oh, if you want to know who fought to obstruct dense redevelopment, read the task members' draft comments here.  (The task force had affordable housing advocates, developer representatives, and neighborhood/ANC advocates.  If you can't tell who is who, the people complaining about the multi-family recommendation are the neighborhood reps.)

The Affordable Housing Incentives Task Force

The City Council got spooked by spiraling condo prices downtown last summer.  It did what city councils everywhere do when they get spooked:  it created a task force.  The Affordable Housing Incentives Task Force opened for business back in July.  As its name implies, the Task Force is working the incentives angle; it's leaving subsidies to the advocates and the city.

Here is the Task Force's draft report.

The Task Force has both affordable housing advocates and developers -- i.e., people who want more affordable housing and people who know the obstacles.  That's a good combination.  It's produced some good suggestions, at any rate.  For example, the draft report suggests automatically up-zoning low-density multi-family to high-density multi-family if the developer agrees to set aside 10% of the units as affordable housing.  The new project would have to meet neighborhood compatibility standards, but FAR requirements would be waived.  This would permit densification in neighborhood interiors, where it is needed the most.

The Task Force is spiked with ANC representatives.  They don't seem too excited about the relaxed multi-family standards.  I'm shocked. 

Interior vs. exterior space

We live in a small neighborhood of "urban homes" -- 1600 to 2400 sq. ft. homes on small (3500 to 4500 sq. ft.) lots.  We live close to downtown and have a large home by central Austin standards.  But to get this at Austin's prices, we had to give up a real yard.  That was a good trade for us.  We knew we wouldn't use a yard very much, and it would be a headache to keep up.  We care more about the interior space.   

Not everyone shares our preference.  That's fine with me.  But my neighbors obviously do.  And I've always thought there were probably lots of others who would make the same trade if they could.

Here's empirical evidence that our preference for interior over exterior space may not be that weird.  (h/t Matthew Kahn.)  These UCLA anthropologists followed 24 Los Angeles families around for four days to study how they use their house space.    Most of the them ignored their yards:   

Although the back yard is a purported center of family leisure, enjoyment, and privacy, the tracking data from Families 1 to 24 reveal limited uses of back-of-home spaces by family members, despite the fact that every sample included many weekend daylight hours and some afternoon and evening daylight hours, and the weather was generally mild and pleasant enough to be outside on most days. The most salient trend in the data is that 13 of the 24 families did not spend any leisure time (neither kids nor parents) in their back yards during the four days per family available for review. . . . In quite a few of these cases, no family member so much as stepped into the back yard. Sporadic activities in other cases were confined to non-leisure chores such as taking out trash or briefly feeding dogs or washing off chairs.

The yards seemed to function mainly as status symbols.  On the other hand, most of the families had converted their garages into storage rooms or extra living space.

The fact that most households in this sample––and millions visible throughout the U.S.—have converted their garages to spaces not focused on car storage signals a changing need of middle-class families. Families living in average-sized homes (1500–2000 sq ft), as most of these are in our sample, simply do not have enough living and storage space for all of their possessions, and they value garages more for these purposes than for housing cars.

It sounds like many of these families would be willing to trade exterior space for interior space, too.  Like I said, if you want a house with a big yard, that's fine with me.  I think Austin could use more neighborhoods like mine, though; there's probably plenty of demand, even among families with children.

Irreversible unaffordability

We are stuck with pricey single-family homes in central Austin.

Rents are volatile; they can go up or they can go down.

Condo prices tend to be volatile, too, for reasons I don't understand.

Single-family home prices are sticky, though.  Even when a housing market collapses, single-family home prices don't tend to fall, at least not in proportion to the collapse.  Sales activity just dries up.  Homeowners hold onto homes they otherwise would have sold.  Buyers wait for the trough.

Aside from an out-and-out collapse, it is rare to see single-family home prices trend downward.  If you do, you know that calls for new city leadership are just around the corner. 

This is worth remembering when you scan the listings for, say, South Austin, and see a 1,800-square-foot home priced at $400,000 or more.  No matter how much the supply of single-family housing grows, that $400,000 home will not get any cheaper, and I don't pretend otherwise.

Still, there is a very good reason for letting the supply half-way keep up with demand:  a growing supply can help hold price increases in check.  We don't have to let things get worse.

Take South Austin.  Homes fetched an average of $210-$215/sq. ft. in South Austin (MLS 6 & 7) in 2006.  Prices per square foot rose by more than 12% over the year before.  That may be what we can expect for the next few years, unless the economy falters or we allow more (= denser) single-family construction.

Look at what this means for a typical 1,500 square foot house.  At the ppsf's listed above, this house was worth $315,000-$330,000 in 2006.  Let's call it $300,000, because the average ppsf tends to skew above the median.  $300,000 is a lot for a 1,500 square foot home, I know.  But just wait.

Suppose home prices increase by 4% per year for the next five years, roughly the historical rate relative to inflation.  Our $300,000 home will be worth $365,000.

Now take the same home and assume the price increases by 10% per year for the next five years.  Price:  $483,000, more than $100,000 more expensive.  Plug in last year's rate and you get  $528,000.   (Historically, that's extremely high, but more moderate than the boom years in California and the Northeast.)  Whatever price we end up with, you can bet it will be sticky, too.

Some people have expressed concern about a potential glut of luxury condos downtown.  I think the worry is unfounded.  If we don't reel in single-family home inflation, people will be moving downtown for the bargains.

What's for sale in central Austin? (1/07 edition)

We all know central Austin is getting more expensive.  If you want confirmation, check out average home prices here or here. 

Here's a less scientific but perhaps more meaningful measure.  If you're looking for a house, what's out there for sale?

My search results (run on 1/29/07) are below.  Here are the parameters I used:  1400+ square-foot; single-family; active MLS listing; $300,000 or less.

Rationale:  1400 sq. ft. is a completely arbitrary dividing line, I admit.  I use it because it's the low end of what I think of as the "medium-size" house.  Certainly, singles, couples, and empty nesters may all be comfortable with a smaller house.  Households with, say, 4 or more members tend to prefer more space than this, though, so I use it as a rough measure of affordability for families. (Before I get flamed by all of you who are raising two or more kids in less than 1400 square feet -- I'm talking about typical preferences, not what is "necessary" or "appropriate" or "optimal.")

I know that $300,000 is not "affordable" under any conventional definition of that word.  On the contrary, I use that figure because it is roughly the upper bound for homes within the reach of even "upper-middle income" households -- those making $100,000 or so, which is approximately 80th percentile in the Austin metropolitan area.  This gives us a good sense of how little there is for the truly moderate income.

Here are the results:

South Austin (MLS areas 6 & 7):  There are three 1400+ square foot, single-family homes listed for sale for under $300,000.  None is larger than 1600 square feet.

North Austin (MLS areas 1B, 2 & 4):  Better.  There are 23 such houses (four between $179,000 and $200,000), most in the Crestview, Wooten and Highland neighborhoods.  One of these is a veritable McMansion at 2300 square feet.  Everything else is under 2250 square feet.

East Austin (MLS areas 3 and 5):  Best.  There are 53 such houses.  (This total includes a number of homes from the subdivisions bordering 183, though, which some people may not consider "central Austin.")

I intend to update these searches periodically to track supply.  Needless to say, I expect these numbers to get smaller.

Here's why there's no affordable housing in central Austin

It's simple:  No one has built multi-family rental housing in central Austin in years.

This isn't much of an exaggeration.  Outside of the Triangle, and some student housing in West Campus and on the periphery of UT, just a tiny number of units have come on line since the beginning of 2001.

Take all of south Austin, zip 78704.  The city demographer keeps stats on each multi-family project built in the city, dated by the date the site plan was filed.  (Open "Third Quarter 2006 Report" in the link; "multi-family" in this data means more than four units.) Let's count all of the multi-family projects that (1) had site plans filed after January 1, 2001, and (2) were actually built (since people can't live in site plans.)  There were only seven such projects in South Austin, with a total of only 167 units. 

This 167, though, includes condos as well as apartments.  Although the city data doesn't say whether a project is rental or condo, I know that four of these projects, with 135 units, are condos.  This means South Austin has had (at most) a measly 32 multi-family rental units site-planned and built since the end of 2000.

For the sake of comparison, south Austin had 9,811 multi-family units, mostly rental, in 2000 -- and that's excluding the student housing around St. Ed's.  (South Austin had 8,244 single family units.)  I'm not sure when apartment-building slowed down in South Austin, but by January 1, 2001, it had come to a dead stop.