Austin Contrarian

Affordable housing and neighborhood activists

In July, the City formed an affordable housing task force made up of the usual players:  developers, neighborhood activists, and affordable housing advocates.  They will look for solutions to Austin's affordable housing "crisis."  (I suspect that relaxing zoning restrictions will not end up on their short list of solutions.)

What kind of affordable housing solutions should we expect the neighborhood activists to push for?  If we assume their behavior is consistent with home-price maximization, the answer is easy:  affordable housing quotas.  That is, require developers of multifamily units to reserve a specific percentage of units for sale or rent at below market prices.  The recent commercial design guidelines reflect this thinking; they require developers of vertical mixed uses to reserve 10% of their units for households making 80% of the median household income. 

This will be the NA's preferred affordable housing solution because (i) it will raise home prices, either directly or by discouraging additional construction; and (ii) it will mitigate a political risk posed by the rapidly escalating home prices in Central Austin.

Affordable housing quotas and house prices

Let's suppose Austin adopts a mandatory 10% affordable housing for multifamily housing developments with 10 or more units.  This will have real bite, at least in high-priced parts of town.  (Such a set-aside is probably redundant in the less expensive parts of town.)  For example, suppose a developer proposes to build a 20 unit condo with the units priced at a fair market price of $400,000.  With the set aside, the developer must reserve two units for below market value, say $100,000.  Unless the prices are adjusted, the project will bring in $600,000 less than originally proposed.

If demand is strong, the developer might be able to adjust the prices of the other units to make up the difference.  This means the other units would cost an extra $33,000 each.

If the demand is not there, though, the developer will have to absorb the $600,000.  Some projects might still go forward.  But there also will be projects -- projects that would have been only marginally profitable -- that will not get built. 

The affordable housing quota thus will either raise prices directly (by causing the developer to pass along the cost of the subsidy to the buyers) or indirectly (by discouraging housing supply).  Either way, area homeowners will see their home prices artificially inflated. 

The political benefits of affordable housing quotas

Affordable housing quotas also have a political kicker.  In the long term, they may soften a community backlash against unduly restrictive zoning.

The kind of exclusionary, suburban zoning practiced in Austin is typical of relatively small, homogenous suburbs, where the residents have similar incomes, political views, tastes in housing, etc.  There's not likely to be serious controvery over zoning policy in such places.  Outsiders might not like it, but they don't get a vote.

But Austin is a diverse city, with lots of renters, lots of people who'd like to live close in but can't, and (lots of?) residents who prefer denser development as a matter of taste.  As our central city neighborhoods increasingly become enclaves of the wealthy, the risk grows of a backlash against zoning practices that artificially maintain low densities.  Because the beneficiaries of these practices are a distinct minority (but a well organized one), the risk of a backlash is real.

Affordable housing helps mitigate that risk.  Sprinkling a few lower income residents on the fringes of the pricey neighborhoods may reduce the perception that Central Austin is just for rich yuppies.

As I've noted before, my take is a "behavioralist" one; I'm not making claims about the subjective motives of NA's.  For example, I can't dispute that some of these homeowners feel genuine concern about the lack of affordable housing in Central Austin.  I just don't care.  NA policies should judged by their likely effects and not NA's subjective intentions. 

Incidentally, there's at least some anecdotal evidence to support my view, and not just the city's recent commercial design guidelines.  Anyone who's followed City Council debates on high rise construction knows that NA's constantly push the City to mandate affordable housing in new high-rise construction. 

Objections to affordable housing quotas

I've got three.  One is that they're not very effective.  Two are fairness objections.

First, this kind of affordable housing program is an inefficient form of housing assistance.   With quotas, some low income residents reap huge windfalls, perhaps tens or even hundreds of thousands dollars in home value.  But this kind of housing is scarce, and few will enjoy the benefits.  As a result, quotas are essentially a lottery system.  A few low-income residents will receive huge benefits, but the rest will be unaffected. 

What percentage might be helped?  There are 170,000 households in the metropolitan area with household income of $35,000 or less.  (The data is here.) $35,000 is less than 80% of median household income, which is usually bandied as the benchmark for affordability.  We might have 5,000 or 10,000 condominiums built with the 10% set aside.  This works out to just 1,000 affordable homes.  This won't make a dent in the need. 

Second, I think quotas are unfair.  At least if the City buys units in expensive areas to reserve for affordable housing, the population as a whole bears this cost.  Under the developer set-aside program, the "tax" falls either on the buyers or the developers.  Essentially we get a system that transfers wealth from the few to the few.  That doesn't seem like a fair wealth redistribution scheme to me. 

Finally, the central neighborhoods rapidly are becoming unaffordable for households making a lot more than the median income.  They are not any less deserving of a chance to live in these neighborhoods than the low income folks.  But these programs don't help them; if anything, they make affordable market rate housing even more scarce.

Why South Lamar neighborhood groups prefer used car lots to office space

The South Austin neighborhoods are agitating for a new zoning classification:  "Mixed use -- retail and residential only."  (See the SLNA minutes.)  Apparently, they're worried that South Lamar will be overdeveloped with commercial and office space.

Why?

AustinContrarian

This blog is devoted to things Austin, mainly zoning and land use issues, but perhaps other topics from time to time.

I'm a lawyer, but my viewpoint (I hope) will be relentlessly economic.  I'm just an amateur economist, which means I'll mainly borrow my ideas from others.  I'll try to provide references.  (The side bar has links to academic papers on the economic impact of zoning regulations.)

I'm a 40-ish lawyer who likes living in an urban environment.  I live in an "urban home" near Oltorf and South Lamar.  I like density because it attracts lots of amenities.  Not just more restaurants, bookstores, theaters, and Starbucks.  Intangible amenities, too, like less crime, more interesting architecture, arts, and a more lively mix of people.

Austin is not a dense town, though, and not likely to get denser any time soon.

According to 2000 census figures (see here), Austin had a density of just 2,610 per square mile, a little less than Phoenix.  Houston (3,372/square mile) and Dallas (3,470/square mile) were much denser, not to mention San Francisco (16,633/square mile), Seattle (6,717/square mile) and Portland (3,939/square mile).

These figures are calculated by dividing city population by land area.  That's a pretty crude measure of density (e.g., a city might have an unusually large amount of parkland per capita).  But even using more precise measurements, Austin is not very dense.  You can  check out data compiled by Austin's demographer.  (Download NPA_Comparative_Data.pdf)   For example, the Bouldin neighborhood, just across Town Lake from downtown, is an "inner city" neighborhood.  In 2005, the Bouldin neighborhood had just 8.1 people per acre (or 5,184/square mile).  This density is typical of a suburb, not an inner city neighborhood of a large American city.  This shouldn't be surprising.  The Bouldin neighborhood was just a suburb when it was developed in the '40s and '50s.

Although rapidily rising home prices prove the demand for housing in inner city neighborhoods, I don't expect Austin (except for downtown) to get significantly denser any time soon.  Austin's zoning regulations are stacked against dense development.  And Austin's neighborhood associations implacably oppose any liberalization of zoning.  (The McMansion ordinance they just pushed through actually tightened zoning.)

Austin's neighborhood associations are well organized.  The activists who run them have endless amounts of time to campaign against development.  The City Council cannot ignore them. 

Among other things, I'll talk about why Austin's neighborhood activists are such enemies of increased density.  The short answer, IMHO:  they want to maximize home value.  I don't know that you can expect anything else, really -- people generally will act to maintain or increase their net worth.  But we should be spared the moral posturing.  There's nothing noble about asking the city council to crimp the housing supply for your economic benefit.  These same neighborhood activists who do their best to limit the supply of housing and drive up home values are also the most vocal advocates of affordable (i.e., subsidized) housing, environmental protection, and the preservation of inner city schools -- all goals perfectly incompatible with their agitation for less density. 

These inconsistencies will be one of the main themes of this blog.