Impact of Affordable Housing on New Home Prices

Feb 22, 2016

Do affordable housing requirements for new, large-scale development projects raise local real estate prices, as many critics of affordable housing requirements contend?

In many big cities, yes.

But that shouldn’t stop local agencies from enacting them anyway.

Thanks to a judicial ruling over the summer, California cities can now require developers to include affordable housing in new projects with 20 or more units, or pay into city coffers.

This sparked debate about whether new laws would bump up already super-pricey West Coast development – fewer market-rate units per project means more competition for what’s available, and higher prices so builders can make their profit. Or, perhaps such measures would dissuade builders from starting projects, leaving little relief for the house crunch. Similar arguments could be made for high-cost, booming East Coast cities too, like New York – or the D.C. metro area, including Northern Virginia, notes a local land use planner with experience in public and private development. She agrees that it does drive up the prices, but finds it difficult to see how it would work otherwise.

There are not many alternatives, and the need for affordable housing is great and vital for cities and their suburbs.

Affordable housing, in this context, means units that are sold or rented below market rate, to people who meet certain income requirements, usually a percentage of the area median income (AMI).  The owners or renters do earn an income – it’s just that in many areas, those incomes aren’t enough to afford decent housing. And that’s a shame.

For example, many teachers likely can’t afford market-rate housing in Alexandria– they would have to save the equivalent of a year’s full salary, before taxes, for an industry-standard 20 percent down payment.

Let’s look at some numbers for Alexandria:

  • Median family income: $109,000
  • Average home sale: $487,000
  • Mid-career teacher salary: Around $80,000
  • Average monthly rent: $2,000
  • Hours per week needed to rent a 2-bedroom at minimum wage: 155 hours

A teacher with a growing family who can’t afford a home near the school where he or she works will live elsewhere; perhaps start teaching closer to home when the commute gets too much; or face over an hour to get to school at 7 a.m.

Multiply this out by police, firefighters, small business owners, retail and other employees, and a lack of affordable places to live can have a huge negative impact on a community. For local small business owners, it’s keeping their business afloat with reliable employees who don’t spend half their day commuting. For police departments, it’s officers who know their communities, and the people who are their neighbors.

The Institute of Sustainable Communities offers this definition of sustainability:

“A sustainable community is one that is economically, environmentally, and socially healthy and resilient. It meets challenges through integrated solutions rather than through fragmented approaches that meet one of those goals at the expense of the others.”

A healthy and resilient community relies on diversity of income and participation. Where land is scarce, and rents are high for everyone, it’s worth trying to develop residential housing that serves everyone who needs housing.