‘Housing can’t both be a good investment and be affordable’

Joe Cortright, writing for cityobservatory.org:

But even markets with large amounts of affordable housing demonstrate the contradiction. Since at least the second half of the 20th century, the vast majority of actually affordable housing has been created via “filtering”: that is, the falling relative prices of market-rate housing as it ages, or its neighborhood loses social status, often as a result of racial changes. Low-income affordability, where it does exist, is predicated on large portions of the housing market acting as terrible investments.

Huh? This is only a contradiction if the type of housing remains constant, which it does in zero-development, extreme-construction-cost markets like San Francisco where public policy forbids the modification of (almost) any housing to increase density.

Here’s how it would work otherwise: family buys single family home in year A for $100k. Lives there for a while, then sells in year B for $200k. The buyer is a developer, who then constructs a larger building on that same lot consisting of 4 apartments that now each sell for $100k again. Original family gains in wealth, developer makes tidy profit, new families can still buy a place to live for $100k. All numbers inflation-adjusted, you pick A and B to make whatever return you think is reasonable.

This is how densification happened almost everywhere until zoning laws went crazy mid-century.

Note what you don’t get out of this arrangement: a neighborhood that doesn’t change for 40 years; the ability to live in the same type of house your parents did, in the same neighborhood, for the same price. But you could have the same amount of (indoor) space they did, and outdoor space through public parks and the like.

What’s not sustainable is everyone having a suburban style detached single family home without increasing density in perpetuity. That is what leads to this contradiction.

The non-density alternative is sprawl, where prices rise in long-established neighborhoods, and outlying new developments are where you can buy new houses for less—which is what you observe all over California.

(via news.yc)