So a developer working with the government and getting incentives builds a nice neighborhood of homes that people can afford. People in the target income group buy the houses. All good. But when housing prices spike, what keeps the houses in the hands of the targeted economic group. When owner goes to sell, won’t the market dictate what happens, opening up the neighborhood to what has been referred to as gentrification?
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At least speaking generally, affordable housing is rental property. Local governments look at average incomes (usually adjusted for size of household), set a maximum qualifying income, then set rent based on that (usually adjusted for number of bedrooms).
Landlords are then required to keep rent prices below those limits.
There’s policy tools out there. For example you could covenant the affordable units so that they can only be sold at below market rates. Or so that they can only be sold to the government.
I think frankly, since the problem there is fundamental market forces, the only “real” solution is an economy with less unequal wealth. And more housing.
Gentrification is somewhat unavoidable when there are people with a lot more money than you nearby, who are willing to live in a poorer neighborhood in exchange for cheaper costs. It’s *inevitable* when those people are themselves being squeezed out of housing that is becoming too much for *them* to afford – that’s why they’re moving from their nice bougie neighborhoods to yours. In all these cities, gentrification is driven by relatively-high-salary workers looking for housing they can afford, further and further away from their city-center jobs, because all the housing that’s closer has already become too much for them, too, because of the people making even more than them.
The fact that housing supply is simply far short of demand is also part of this. Apartments kept vacant or used as Airbnbs, or just a refusal to build denser where there’s demand for it, all keep total supply low and drive up prices. The high prices in the city center are transferred to you in the poor outskirts, as people work in the city but can’t afford to live there.
Don’t take me for some ultra-communist who thinks everyone should have the exact same wealth. But, this problem gets worse as the gaps between income levels get bigger.
You have to build housing to match population growth. If there are more people tomorrow, then you have to have more housing. So more houses have to continue to be built.
A lot of the current price spiking is left overs from the financial crisis when the housing market collapsed. For several years basically no houses were built and then construction starts were slow to recover. So housing is a couple years behind where it needs to be to keep up with demand.
Deed. The affordable house has written into its deed that it must never be sold for more than 80% of fair market value. Ever, no matter how many times it’s sold.
Simple as that.
Source: have built houses.
In whistler BC they tied the rate of growth that was allowed to different markets so that in theory it grows less than the local market which was over heating
This might not be ELI5, but I hope it is informative.
Modern affordable housing has three buckets:
1. Affordable rental housing
2. Permanent supportive housing
3. Affordable homeownership
A. The main federal tool to build affordable housing is the low income housing tax credit. All states get an allocation of these credits. State governments award developers these tax credits that the developer then sells in order to finance their project. The project commits to affordability restrictions for 30 years. There are other programs besides the low income housing tax credit, like the HOME program, the national affordable housing trust, and others through USDA rural development. This caters to “low income” people, which could be as high as 65k /family of four (80% of the area median income)
B. Permanent supportive housing is sometimes known as “Housing first.” In my state, (oregon) this is funded through bonds based on future state revenue, federal tax credits, local funding, and even private equity. It caters to the very low and no income crowd.
C. Affordable homeownership is the realm of habitat for humanity. They can get access to federal, state, and local funds. Sometimes (but not always) these homes are built on a community land trust, where a organization holds the land underneath the house in “trust” and leases the house for 99 years. Sometimes habitat holds the mortgage of their participants, offering interest rates as low as 1%. The house typically has an affordable restriction where it can only be sold to low income families. Often in this case, low income is 80% area median income, but I’ve heard of some projects serving as low as 30% ami.
Here is a link to an in-depth workshop on putting together an affordable housing project: https://youtu.be/XeiuAPFifUc?si=JG9DY5Xg7M9DGeEu
In most countries, when governments want to finance affordable housing, they give the money to a special type of business that does not have the objective of making more money. This special business – most often a nonprofit or cooperative – owns the building and rents out apartments to people with low income. When those people leave, because the special not-for-profit business doesn’t need to make more money to make more profit, it doesn’t increase rents as much as the market would “allow”. This allows it to continue renting its apartments to low income people, which is its mission.
If the government can’t or doesn’t want to work with these not-for-profit businesses, it can do a similar thing with contracts, for example by only giving you money if in exchange you accept to only increase rents by a little bit every year for a few decades. But then the housing won’t stay affordable forever, just for the duration of the contract.
“Affordable” is the key word, and the key is that it’s a meaningless weasel word unless it’s tied to some other metric like average earnings in the surrounding area. Every home in Beverly Hills is affordable as long as the tenants are paid up on rent/mortgage
Build enough (remove local zoning requirements and parking minimums) and grow the economy so that it is cheap enough
or the government owns and runs it at a loss.
Those are really the only good options. Many other solutions cause various problems in the housing market.
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