We all know that many areas in the US are suffering from an affordability crisis but what’s less known is the impact of broader economic influences on weak versus strong sub-markets within a single city or region. Housing affordability issues are incredibly complex, and they take different forms depending on how well the overall economy is performing. As always, however, it is those at the bottom of the economic pyramid who find themselves squeezed out of the housing market.
Weak markets versus strong markets
In this article, I examine one aspect of affordable housing; intra-city migration where residents are driven out of neighborhoods with affordable home values as higher income residents seek alternatives once their own first-choice neighborhoods become too expensive.
Some weak housing markets such as Philadelphia on the Eastern Seaboard and Pittsburgh in the Rust Belt, were filled with a substantial amount of naturally occurring affordable housing in the early ‘90s. Unlike cities where space was at a premium, such as Manhattan or Miami’s South Beach, it was easy to find affordable housing in these weak housing markets. However, easy availability came at a price. It meant that most housing was under-invested in, not well maintained or in disrepair.
This underinvestment affected not just the individual homes, but also the infrastructure built-up around the homes and the neighborhoods they could be found in. We see examples of this in places like Flint, Michigan, with its failing water pipe infrastructure, as well as New Orleans, Louisiana, with its need for levee maintenance and storm protection issues.
As housing markets boom, previously affordable areas become more expensive and prices rise, forcing increasing swaths of the home-buying population to seek housing in areas initially less desirable to them, but more affordable. This affects home buyers at all levels of the economic spectrum, but most deleteriously those at the bottom who find that, as prices rise everywhere, they have nowhere to go because areas less expensive than their own used to be no longer exist.
Initially, there are advantages to this kind of migration process. New residents can help to widen the local tax base, which in turn helps pay for infrastructure repairs and maintenance, better schools and the like. And new residents tend to keep up with the upkeep of their homes more effectively than their new lower-income neighbors, because they can afford to.
This newfound economic diversity initially provides a much-needed fillip for these lower income areas, but soon cracks emerge. Rising property values and rising rents begin to drive out existing, lower income residents and businesses, who soon find themselves unable to afford their newly desirable neighborhood and who discover that there are few, if any, affordable options for them to move to.
One of the major disadvantages, therefore, of a booming economy is that as these lower income sub-markets grow stronger, displacement is a potentiality, if not a probability. The disappearance of naturally occurring affordable housing can become prevalent on a macro scale affecting entire cities and even entire regions, like the Bay Area.
However, although most developers, stakeholders, and neighborhood representatives are aware of the deleterious effects of a strengthening real estate market, we must realize that only creative solutions to providing naturally affordable housing will have an impact. Naturally affordable housing comes with its own set of problems especially when the entire housing stock is rising in value. These problems need to be addressed before those most harmed by booming economy can find quality, affordable housing.
Naturally affordable housing may have been more prevalent in the early ‘90s, before the United States’ housing boom, but there are still many areas of the country, like Pittsburgh, or Philadelphia, that still possess significant affordable housing stock. Should developers choose to work in these areas, they should embrace strategies that reduce displacement. Some of these strategies may include offering reduced-rent housing to displaced residents through partnerships with local government, developing in ways that provide units that are affordable to residents without government intervention or choosing to develop in regions where displacement will have a less prominent effect on local populations.
Image of Bloomfield, Pittsburgh courtesy of Eve Picker.