Can Housing Supply Meet Demand?
by David Levine, President/CEO
In her recent newsletter, Lisa Sturtevant, a local housing market expert, discussed the affordable housing supply quandary. The problem is a shortage of affordable housing units. The Fairfax County government estimates a need for an additional 15,000 affordable housing units (for households who do not earn more than $60,000 a year).
So, thinking back to our first-year freshman economics class, it would seem that we would want additional supply to meet the growing demand for affordable housing. While that looks good on paper—and who wouldn’t agree with the classic supply-and-demand curve?—it is not clear that additional housing supply will meet the demands for affordable housing.
According to the authors of this study by NYU’s Furman Center, the additional supply of new housing does moderate housing prices. It also will enable skilled job-seekers to take jobs and live in areas where economic growth is strong (such as in northern Virginia).
But at the same time, it is unclear that there are benefits from additional housing supply for affordable housing. Housing researchers do not know how housing “filters up or down in various submarkets.” The authors go on to write: “Skeptics rightly are wary…because high-end housing rarely filters down to become affordable housing to those with very low incomes.”
The authors note, too, that the preservation of existing affordable housing is a challenge. In an environment where the market pushes prices and rents higher, it is next to impossible to keep unsubsidized market-rate affordable housing from becoming too expensive. The existing affordable housing will quickly become unaffordable to most low-income households.
All kinds of forces work on the housing market (e.g., environmental, local zoning rules, construction costs, preferences in housing, and location). The market forces of supply and demand are only one element.
So much else goes into it. There are no simple solutions for generating additional affordable housing.