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Dr. Emily Hamilton: Affordable housing
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Many cities are pursuing or considering strategies to address shortages of affordable places to live.
On Thursday, February 10, SciLine interviewed: Dr. Emily Hamilton, a senior research fellow and director of the Urbanity Project at the Mercatus Center at George Mason University. See the footage and transcript from the interview below, or select ‘Contents’ on the left to skip to specific questions.
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Introduction
[0:00:20]
EMILY HAMILTON: I’m Emily Hamilton. I’m a senior research fellow at the Mercatus Center at George Mason University. I’m an economist, and I study housing affordability and the effects that land-use regulations have on housing markets and urban development more broadly.
Interview with SciLine
How have pandemic-linked economic shifts affected housing markets?
[0:00:43]
EMILY HAMILTON: The pandemic has had a big effect on U.S. housing. First off, during the early stages of the pandemic, there was a big slowdown in both localities issuing building permits and homebuilders starting housing construction, due to safety considerations and early efforts to mitigate the COVID spread. So, there was a big plummet in new housing starts in March and April of 2020, and it’s taken a long time to work out of that, as well as ongoing supply constraints, which have made it difficult to complete housing developments in many cases. So, as a result of this big reduction in new houses coming on the market, house prices in many, many parts of the country have increased drastically since the start of the pandemic. More specifically, there have been, of course, increasing challenges of people being able to afford housing that they were already in prior to the pandemic, due to job losses and income insecurity. So, housing affordability has been an important public policy issue more than ever since the onset of the pandemic.
Communities are using a variety of strategies to make renting or owning a home more affordable. When it comes to what the research shows, what actually works?
[0:02:09]
EMILY HAMILTON: The root cause of housing affordability problems is there not being enough houses and particularly relatively low-cost types of housing for the amount of people who would like to live in a specific market. So, the most successful strategies for improving housing affordability are policy reforms that make it feasible for homebuilders and developers to provide more housing, especially at the low-cost end of the market. One example of a locality that’s doing a good job of this is Houston. And Houston is known for expanding outward and permitting lots of new subdivisions at the outskirts of the city. But it should also be known for some of the reforms that it’s done to make more housing within the center city and neighborhoods that are closest to some of its job centers feasible. Houston reformed its minimum lot size requirements, down from 5,000 square feet down to 1,400 square feet, which has made a lot of townhouse construction feasible. And as a result of its overall—the overall ease of building housing, including these townhouses, including multifamily housing in Houston—the median home price there is below the national median, even though Houston has been growing rapidly in terms of its economy and its population for several decades.
Are there affordable housing strategies that don’t work as well?
[0:03:55]
EMILY HAMILTON: One policy I’ve studied that doesn’t work very well in promoting housing affordability is inclusionary zoning. And this is a policy that many localities across the country have adopted in recent years. And under inclusionary zoning, local policymakers require homebuilders to provide a certain percentage of below-market rate units as a condition of being able to build a new development. So, for example, under inclusionary zoning, a new apartment building might be required to have 10% of its apartment units affordable to households who make, say, 80% of that area’s median income. I’ve studied inclusionary zoning in the Baltimore-Washington region, and what I’ve found is that under inclusionary zoning, localities have seen higher market-rate prices than what they could have expected without the program. And inclusionary zoning programs in general produce very few units as a percentage of a locality’s total housing stock, so they’re not doing a good job of serving the populations who they’re intended to help, while they also make housing potentially more expensive for everyone else.
How does racial discrimination persist in today’s housing market?
[0:05:25]
EMILY HAMILTON: Today’s land-use regulations started developing in the early 20th century, and they were really an outgrowth of efforts to segregate neighborhoods and localities by race directly, which the Supreme Court declared unconstitutional. So, when they were no longer permitted to segregate real estate markets with tools that explicitly separated regions by race, local policymakers turned to zoning rules that separated households by income directly and oftentimes by race indirectly. And it continues today, in part as a result of these racial segregation policies that minority households tend to have lower incomes than white households in the U.S. And because lower-income households tend to spend a larger portion of their income on rent or mortgage payments, rules that make housing more expensive disproportionately affect lower-income households and minority households as a result. So, these rules that grew out of efforts to segregate continue to have those effects today.
How can short-term vacation rentals affect housing affordability?
[0:06:55]
EMILY HAMILTON: Short-term vacation rentals can have an effect on housing affordability. Anything that increases demand for housing, including the opportunity to rent out housing to tourists or other visitors, can have an effect on housing affordability, especially in regions and localities where it’s very difficult to build more housing—so, in particular, those coastal regions and other parts of the country that are the most expensive. But it’s important to put the effect of short-term rentals in perspective. While studies have identified effects of tools like Airbnb or Vrbo on housing policy, typically these effects are very small. So, in New York City, for example, one study on the introduction of Airbnb found that it increased market-rate rents by less than 1%. Now, if we look at the effect of land-use regulations on housing affordability, they are much larger. Studies have found that land-use regulations make up up to half of the cost of housing in some of the country’s most expensive markets. So local policymakers may be able to eke out a small improvement in housing affordability with restrictions on short-term rentals, but that pales in comparison to the potential of land-use regulatory reform to improve housing affordability.
What does research tell us about the effects of rent control?
[0:08:38]
EMILY HAMILTON: There have been a few empirical studies that look at the effects of rent control on housing markets, and in general, these studies are bearing out what we would expect from Econ 101. Once rent control goes into place, less rental housing gets built, and some of the existing stock of apartments, rental housing, gets turned over to condos because that becomes a more attractive option when property owners can no longer charge market-rate rents for rental units. That’s not to say that rent control doesn’t have benefits. It certainly has large benefits for people who get to live in rental units over a long time period that may become much lower-priced, relative to market-rate rents in the long term. It can help people stay in their neighborhood and their city when, without rent control, that might not be feasible for them. But it comes at the cost of housing construction and cities that are open to newcomers who don’t get to benefit from rent-controlled units and who have fewer market-rate options as a result of the policy.
When it comes to factors that affect housing affordability, what trends are you seeing?
[0:10:15]
EMILY HAMILTON: We’ve seen a really discouraging decades-long trend in seeing less housing permitted and built, relative to the number of people who are in the country. There was a big drop-off in housing permitting during the 2008 financial crisis, of course, unsurprisingly, but more than a decade later, housing starts still haven’t recovered. And this issue that in the past was really a big problem for a few coastal markets—like the Bay Area and New York City and Boston—is increasingly becoming a problem across the country as a whole, as cities in the Mountain West—places like Austin—are increasingly becoming expensive and not offering opportunities for people who want to live there to do so at prices they can afford. So, this is increasingly becoming a nationwide problem of not enough housing being built to serve all of us.
