Affordable Housing is a Farce
With home prices rising faster than wages, the dream of home ownership is becoming increasingly out of reach for many Americans. The problem is especially acute in coastal cities, where the cost of living is already high. Many cities, including Boston, are forcing developers to build affordable housing. But is it a solution that scales? And is it even a good idea?
The idea behind affordable housing is to force developers to sell a fraction of their new construction stock at a steep discount to families below a certain income threshold, a threshold that changes every year. In return, the city allows developers to build more units than the existing zoning code allows, or build units that don't conform to standards (required parking, building dimensions, frontage laws, etc.). Boston prides itself as the city with the largest percentage of affordable housing in the country. with 19% of all housing in the city being affordable. Why is it then that Boston, along with San Francisco and New York, routinely make the top of the list for the most unaffordable homes in the US?
On paper, affordable housing seems like a win-win. Developers get to build more units than they would otherwise be allowed to in a certain region, and some of the residents who would otherwise be priced out of this market are able to purchase a home there. That is, until you realize that the real problem driving the prices up aren't developers, but arbitrary zoning laws placed on land use by the city to begin with. The very politicians claiming to be helping the poor are creating the problem in the first place through artificial land scarcity.
Technology drives prices down, we see this in every single industry except real estate. The biggest factors contributing to the cost of new construction are cost of land and labor. However, if you break "labor" down further, you'll realize that a lot of that cost, like land, is directly tied to governmental bureaucracy rather than actual worker salaries. Cost of land is tied to the building permits attached to it and factors in the time it would take to get a variance (often 2+ years in Boston inner core, based on my own experience).
Labor factors in the cost of a surveyor, architect, engineer, attorney and other professionals, who would often need to go in front of Board of Appeals to explain to the city why your project should be approved. To improve the chance of approval, the developer will need to pay a premium for an architect who has a good relationship with the city and knows how to navigate the bureaucracy. Additionally, the developer will often be asked to make additional unrelated improvements to the area (rebuilding a local park, for example, or rerunning a new sewer line for the entire street). Most people think cities pay for these improvements, but more often than not, it's local developers who do.
All of this additional cost gets lumped into labor. And while all of these items are nice to have, they make it cost-prohibitive to focus on any type of housing other than luxury. Add holding costs (debt service, insurance) while the paperwork sits on a bureaucrat's desk, and it's not hard to see why luxury housing is the only kind that makes sense to build in expensive cities.
Most new construction projects downtown today are a mix of 80% luxury and 20% affordable (which gets raffled off in a lottery) rather than a project priced in a way the middle class could actually afford without having to fall within arbitrary income limits. If we want housing to actually be more affordable, we need to relax zoning regulations. We have the technology to build more than enough housing units for everyone, as China has already shown us. And while China is not exactly a paragon of quality, economies of scale work just as well in US as other parts of the world. The problem is not lack of housing, but that our politicians decided that cities of today need to look like those of medieval Europe, and haven't questioned that choice for decades.