Note: the following is a distillation of multiple housing and economic presentations from 2016 to the present. It is intended to provide context for discussion, not to imply judgement or assign blame. —Erik Kingston, PCED
Healthy and diverse housing markets create stability and prosperity
An essential principle of the Fair Housing Act is the concept of ‘housing choice,’ the right of all persons to live where we choose and can afford. Where we live determines access to essential community amenities: good schools, diverse employment options, quality health care, and government services. In addition, we know the health and prosperity of children and families are impacted by air and water quality, fresh produce, transportation and recreation options, and opportunities to build strong social capital, defined as the networks of relationships among people who live and work in a particular society, enabling that society to function effectively.
Taken together, these factors support and expand economic opportunity and financial stability. Housing affordability is achieved in one of two ways: by raising local wages so a full-time worker can afford to live near the workplace, or keeping housing costs within reach of existing local wages and incomes. In other words, housing types and prices that reflect local needs and incomes represent a perpetual wage subsidy to local employers. Conversely, when wages and housing costs are in balance, this means a higher percentage of household incomes circulate in the local economy and reduced demand for social programs over the long term.
When the housing ecosystem is out of balance, we inevitably see a significant rise in poverty, evictions, homelessness, despair, substance and domestic abuse, illness, and crime. This leads to ever-increasing social and health costs, lost opportunities, unemployment and social unrest.
Strategies that create or preserve local housing affordability are what Alexis de Tocqueville described as ‘self-interest, rightly understood.’ It’s the equivalent of fixing your roof before it rains, helping out with a barn-raising, or passing a levy to build a wastewater treatment plant or flood control system.
Affordability is key
Affordability is important to the real estate industry as well. Windermere Economist Matthew Gardner warned a Boise audience that, “Loss of affordability can stop a market in its tracks.” (JUMP, 10.10.17) During the run up to the last housing bubble, the proliferation of new REALTORS®, house flippers and speculative investors were a warning sign. “House flipping shows,” Gardner pointed out, “are precursors to a bubble.” And in some markets, agents outnumbered listings. When the bubble burst, homeowners and many others saw their credit ruined, which eliminated them as potential home buyers for a prolonged period.
Just as fishing industry professionals know the the value of preserving fisheries, REALTORS® would do well to support diverse and healthy ‘housing ecosystems.’ First, to ensure the next generation of credit-worthy home buyers is on deck, and second, to offer options for existing home owners to downsize or move, knowing they have options. The current overheated market is effectively locked up, with home owners reluctant to give up their current homes and new home production hampered by labor shortages and high construction costs.
“Housing is for living in, not for speculation” —Xi Jinping
With ‘commodification,’ it’s about supply and demand
When housing is treated as a commodity and industry profits are indexed to sales price, there is little incentive to preserve housing for families, retirees or a stable workforce. At the government level, local taxing authorities see only the increased revenue, and capital investment or private development interests can take precedence over local residents, livability, and workforce development. In areas driven by a narrow focus on growth at all costs, potential residents are courted, while long-term existing residents are simply taxed.
The primary focus becomes the financialization of housing, as seen in the period leading to the last recession. A 2017 U.N. report on ‘Foreign Investment in Housing‘ describes a new emphasis on “…structural changes in housing and financial markets and global investment, whereby housing is treated as a commodity, a means of accumulating wealth and often as security for financial instruments that are traded and sold on global markets.”
The report outlines several net outcomes of commodification (paraphrased below):
Undermines democratic governance and community integrity
- Credit agencies trump human rights
- Remote control of housing use, cost, location or existence
- Real estate industry plays central role in government and policy
Exacerbates inequality and social exclusion
- Encourages gentrification
- Displaces marginalized populations
Detaches housing from community, human dignity & security
- Increases wealth and income disparity
- Housing as a speculative commodity becomes dehumanized
- Outside investors detached from local residents or housing needs
- Remote ownership lacks accountability
Several factors currently threaten the stability of our housing supply:
- First, global investors view North American real estate as a means to offshore, launder and/or store wealth. According to the 2017 U.N. report referenced above, this ‘new colonialism’ creates “…greater income inequality, spatial segregation, inadequate housing provision and growing homeless populations.” This has given rise to ‘ghost apartments‘ in major coastal cities.
- Second, this ‘primary market’ inflation magnifies gentrification and segregation, then spills over into secondary markets (like Idaho), where it displaces locals who live and work in those communities. Speculative investment and the commodification of housing leaves behind those without the financial ability to compete against multiple cash offers over asking price.
- Third, purchase and conversion of legacy multifamily properties push rents up and tenants out, while conversions of traditional residential housing to short-term rentals is creating ghost neighborhoods and further shrinking rental supply—pricing locals and millennials out of housing markets. Institutional investors play a large role in conversions—with devastating impacts on working families—as detailed in this 2007 Reveal podcast, After the bubble burst, featuring an investigation of key players. This problem was further highlighted by Fannie Mae in its 2016 report, Many Starter Homes Have Shifted from Owner Occupancy to Rentals.
- Finally, federal funds that stabilize families, neighborhoods and communities are at risk in a time of widespread poverty and nearly $4 trillion in consumer debt—a 45% increase since 2008.
All this has a profound impact on housing supply and demand and drives prices up. The U.S. rental vacancy rate is at near-record lows relative to demand, with 1.89 fewer vacant rentals than during the fourth quarter of 2009, while the number of households has increased by 9M in the same period.* High costs of land and new construction mean we can’t simply build our way out of the current crisis, so the way forward will require a number of strategies to preserve affordability and inventory, increase capacity and make efficient use of limited land and resources. *Source. American Fact Finder
On the tenant side of the equation, debt and poverty create barriers to housing choice. After the recession and crash, big investors added to the problem. They bought up tens of thousands of distressed properties at pennies on the dollar, then rented them at highly inflated prices with onerous fees and penalties designed to result in eviction and court appearances. One such company was Colony Starwood Homes, featured in After the bubble burst.
Evictions have emerged as a business model and driver of poverty. Pulitzer Prize-winning author and McArthur Fellow Matthew Desmond documented the business and consequences of eviction in Evicted: Poverty and Profit in the American City. The Pulitzer Prize citation read, “For a deeply researched exposé that showed how mass evictions after the 2008 economic crash were less a consequence than a cause of poverty.” Despite—or perhaps in response to—growing awareness of this issue, some landlord associations want to make it even easier to evict tenants.
What can be done to slow the loss of legacy residential infrastructure? How do we build housing that is affordable when the cost of construction is not? And who bears responsibility for these challenges? If this were easy, we’d have figured it out. In general, some concepts to keep in mind can help guide local discussions.
- Integrated housing framework—embed housing strategies with other essential infrastructure planning
- Make housing planning inclusive—expand participation to ensure limited- and moderate-income populations are represented
- Expand affordable housing stock now & always
- Improve conditions in rural and urban housing, with investments contingent on rent stabilization and/or deed restrictions
- Cultivate resident-driven, organic settlements and communities when common goals can be met
- Explore models featuring local/impact investment in permanently affordable rentals, community housing trusts, resident ownership opportunities, mixed-use/mixed-income properties, housing cooperatives and forms of ‘social housing’ traditionally used in the EU and Canada.
- We all bear responsibility for creating solutions, just as we all bear the costs of gentrification, segregation and homelessness. Poor people are not a target market for private developers, and they lack political influence. It’s not practical for housing advocates and enlightened taxpayers to expect private developers to build housing they will lose money on. Without political will, taxpayer support or long-range strategies, government is unlikely to address the problem. As one mayor sums it up, the only thing citizens hate more than sprawl is density.
- A resort community without diverse, locally controlled housing is just a resort
- A functioning local community and economy create lasting value and attract investment
- Diverse and distributed housing infrastructure yields multiple benefits: social, cultural economic, environmental, employment, etc.
- Housing stability supports social capital; social capital supports independence
© Erik Kingston, PCED 4.17.18
Below are selected news stories that illustrate the complex challenges facing today’s housing markets. Check back for updates.