Wednesday, May 21, 2014

Housing Affordabilty

The effect of increasing H+T costs is compounded by tenure type. Housing affordability issues are most severe in locations where renting is the primary form of tenure. Renters, unlike owners, are not insulated against increases in housing costs. Rental tenure in America is characterized by short leases, so increases in property value can rapidly be capitalized into higher rents. Rising rents increase housing costs, resulting in the displacement of previous tenants, who are no longer able to afford the higher rents. In contrast, mortgage payments are fixed upon purchase, so that current homeowners are largely insulated from the effects of increases in housing costs. The primary cause of declining affordability for existing homeowners is increasing property taxes, of which homeowners pay only a fraction of the increase in value.

The percent of homeowners also acts to confound actual housing affordability conditions. In the past decade, the appreciation in home value has outstripped appreciation in wages so that many current homeowners could no longer afford to buy their own homes. While they are affordable for the current owners, their appreciated value makes them less affordable to prospective owners. Over time, this compounds housing affordability issues. Lower housing affordability means that fewer households are able to become home owners, and must remain renters. They thus remain vulnerable to further increases in housing costs. As rents rise, so does the premium associated with home ownership, so that households are willing to pay more for property. 

Cities with high monthly rents also have high property prices for a reason.
Policy intervention is necessary to ensure that housing locations near transit stations remain affordable. Without measures to maintain housing affordability, areas around transit stations will see the displacement of low-income renters in favor of medium income owners. There is a strong negative relationship between income and transit ridership, as low income households are more likely to be transit dependent, so this process acts to reduce transit ridership. Changes in the distribution of tenure will also reduce the benefits of self-selection. Household locating near transit self-select for proximity to transit, and are thus the types of households most likely to make use of transit.

Over time, as household characteristics, such as place of work and size of household change, the utility of proximity to transit changes. A single person household is extremely likely to be able to make use of transit, while a two-worker family household is less likely to be able to do so. Unable to make use of transit, such households would then require multiple vehicles, resulting in transportation costs in line with the metropolitan norm. In a worst case scenario, housing units around transit stations are owned by non-transit using households and yet suffer from higher average housing costs. In contrast, households in rental tenure are more likely to relocate in response to changing conditions, so that even if housing costs rise, transit ridership suffers less.

Long term, ensuring a supply of affordable transit oriented housing near stations will require policy intervention. The amount of affordable housing that is constructed is minimal. Most affordable housing results from the depreciation of former medium income housing. Constructing new housing as infill development requires higher density housing than the surrounding urban fabric, because the land value has increased in the interval since the initial development of the area. Constructing new affordable housing requires higher densities, due to the lower return per unit. In combination with parking requirements, new affordable housing is required to ‘go vertical’ to achieve sufficient density.

Reducing or eliminating parking minimums near transit stations would be an effective policy. Reduced parking would reduce per-unit cost of new affordable housing, and reduce the tendency to convert affordable transit oriented rental units to unaffordable transit indifferent owner-occupied units.