There’s No Such Thing as Affordable Housing

(Source: Adrian Pranata/Unsplash.)

Back in October, LAist reported that over the past decade, Los Angeles lost eight times more affordable housing units than it gained for its lowest-income residents. According to city records, from 2010 to 2019, 110,000 houses and apartments affordable to low earners were lost, while only 13,000 were built.

“Affordable,” in this case, means costing no more than 30% of such a household’s gross income—a standard typically used by federal and non-profit housing programs. Statistics like this go a long way toward illustrating the precarity and hardship faced by the working class in high-cost cities like LA that have failed miserably to get a handle on their housing crisis.

Statistics like this can also mislead. The obvious follow-up question to the statement, “Los Angeles lost 110,000 affordable units,” is the answer to the question, “So where did they go?” And I have routinely seen casual observers of the housing crisis misunderstand the answer or make incorrect assumptions.

Were they demolished?

Were they replaced by high-end units?

Were they sucked into space by an alien ship with a tractor beam? (Okay, I haven’t seen any casual observers suggest this.)

The answer is right there in the LAist article, but it’s a few paragraphs deeper. While some were presumably physically demolished, replaced, or renovated, the vast majority were “lost to higher prices.” The house or apartment didn’t go anywhere; the rent just went up.

Housing economists call this “filtering”: the process by which a housing unit moves into a different price tier and houses a different type of resident. Homes can filter up, or they can filter down. Historically, down was the predominant direction—homes and often whole neighborhoods, as they aged, tended to become cheaper (in relative, often not absolute terms) and to be occupied by residents of a lower socioeconomic strata. Research by Freddie Mac has found that in the 2010s, in high-cost cities like Los Angeles, the overall direction of filtering switched from down to up. That’s the story LAist is observing in a nutshell.

These shifts in price without any physical change to the housing stock are by far the biggest part of the affordability story. They dwarf the impact of actual new construction. Affordability for the masses will live or die not by what we build this year or next, but by what happens to the price of homes that already exist, in which the vast majority of people live.

Cruel Musical Chairs

An extremely commonly heard claim, in cities across North America, is “There isn’t an overall shortage of housing. There is only a shortage of affordable housing.”

This sort of claim is frequently backed up by data such as this, from the National Low-Income Housing Coalition’s annual “The Gap” report: The NLIHC reports that for every 100 extremely low-income households, there are only 36 affordable rental homes available. For 100 merely low-income households (50% of the median income), there are 58 rental homes they can afford. For moderately low incomes, there are 93, and for households at or above median income, there are 101 apartments for every 100 households.

A fair summary of this data is that there are enough rental units out there that are affordable to the middle and upper classes, but not nearly enough that are affordable to the working class or the poor.

This feels like a damning observation. In terms of the human suffering it points to, it is. But it’s also a really mundane, obvious one.

One of the best metaphors for the housing market is a gigantic game of musical chairs. You know, the kids’ party game where there are more people in a room than chairs for them to sit in, and when the music stops playing, everybody runs to claim a chair. Those who end up chairless are out of the game.

As the Sightline Institute put it in a memorable explainer video, housing is a particularly cruel game of musical chairs, because the way you get a better chair is by being rich. And those who end up without one—the absolute losers of the game—are literally homeless.

The price of a given housing unit is largely determined by the highest amount that someone who wants it is willing to pay for it. So, when you think about how Housing Musical Chairs plays out, it shouldn’t be remotely surprising that the shortage is entirely of the least expensive homes—in fact, it would be very surprising indeed if it weren’t! The upper classes get their pick of housing, and those less rich than them get what’s left over, until the leftovers are gone—which they are, because there aren’t enough chairs in the game.

What Is “Affordable” Housing, Anyway?

The title of this piece today is a bit of clickbait, I admit. But it’s to make a point.

Why is there “no such thing as affordable housing”? Because affordability is not, and has never been, an intrinsic quality of a building. We draw bad conclusions when we talk about it as though it is.

Developers don’t build affordable apartments or unaffordable apartments. They build apartments. Some are, no doubt, nicer than others, but this alone doesn’t make them expensive or inexpensive. That only happens when those apartments are sold or rented. At that point, the price is determined in a transaction that is influenced by market forces, public policy, or both.

The physical differences between “luxury” and “affordable” housing are largely not consistent or meaningful. A Victorian house in San Francisco doesn’t cost 17 times what a similar house in Scranton, Pennsylvania, costs because one was built to be “luxury” and the other wasn’t. (In this case, they were certainly both high-end homes when built.)

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“Luxury” housing is about the market, not the physical characteristics. This slide is from the Strong Towns Academy housing course. (Click to enlarge.)

The market forces pushing housing prices stratospheric in California are largely about the state’s severe housing shortage. There aren’t enough chairs in the game of musical chairs. Adding chairs to the game—any kind of chairs—will tend to make the competition less cutthroat for the chairs already in play.

This distinction is crucial to grasp if we want to seriously engage the question of how a place like Los Angeles can obtain more affordable housing, and do so quickly.

If 110,000 affordable apartments were “lost” in Los Angeles in 10 years, and only 13,000 affordable housing units were built, we have two options for closing the gap. We can try to get that 13,000 number higher (a noble goal, but one that involves substantial amounts of public subsidy). Or we can try to get that 110,000 number lower, or preferably negative.

It doesn’t help that reporting and the prevailing political discourse alike often frame the entire problem as “how to build more affordable units.” (How to add to the 13,000.) Meanwhile, we fail to stanch the bleeding on the private market, where rents keep rising faster than incomes. As Stuart Gabriel, director of the UCLA’s Ziman Center for Real Estate, told LAist, building a few subsidized units in the face of this is like “pouring a glass of water into the Santa Monica Bay and then looking for a change.”

This failure is largely by design. If you’re a politician, it’s a lot less controversial to talk about your plan to build some nice, subsidized apartments than to talk about your plan to get local home prices to fall. There are simply a lot of vested interests—incumbent homeowners, the real-estate industry, often developers, often local governments—that want to see housing prices resume their decades-long rise. If they get their way, that 110,000 number will continue to grow.

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