New Housing Does Not Have to Be Affordable, Which is Good News

Filtering is our only real hope for lots of inexpensive housing

As discussed previously, the two paths to inexpensive housing are growing supply and decaying quality, which both have the effect of reducing price. If we can agree that the fundamental driver of the housing affordability crisis is a literal, actual, numerical shortage of homes, then the essential question becomes how to build more.

There are three major stories we can tell ourselves to answer that question. They are not mutually exclusive but can come into tension. Government officials definitely see trade-offs between them, including local electeds shaping a city's housing policy and spending, or considering whether to approve a proposed development project and what special conditions to place on it, if any.

1. Let private developers build lots of new privately financed (profit-driven) housing, much of it too expensive for many or most people to afford. Then rely on the people who move into those new units to open up space in less expensive, older housing. That process is called filtering or moving chains, because a succession of vacancies allows some low-income people to move into very cheap housing.

2. Build significantly more committed affordable housing, which is subsidized and income-restricted. That means only people below a certain income threshold are allowed to move into the units. They can remain in place even if they win the lottery, paying a capped amount of their income as rent.

3. Stand up a vast public enterprise to build and manage a huge amount of new housing units. This approach is called public housing, with government squarely in the driver’s seat, perhaps as part of a public-private partnership.

YIMBY is a broad movement with enthusiastic advocates for all of theses approaches. We often champion an eclectic vision. Positivity is politically potent, more people should try it. Nearly all YIMBYs including myself like the first two answers. All three have unique appeal, especially when you are thinking politically.

My purpose is to explain why the first answer is by far the most convincing, on its own merits and relative to the others. This conclusion makes me inwardly bristle when I hear that, ‘Of course we need to build more housing, but we have to focus on affordable housing,’ meaning subsidized housing. Here I reply: No, we don't.

New housing absolutely does not have to be affordable to make housing in general affordable. That is good news — salvific news — because making new housing affordable for all of the people who very clearly need inexpensive housing would be almost impossible. We can help all of these folks, not just a few, by — you guessed it — building a lot more housing. Only developers and private capital markets have a demonstrated the capacity to do so. We must have abundance to have affordability.

Why Subsidies and Public Housing Fall Short

This is not a broadside against committed affordable housing. That approach does some real good, but it does not scale. Many subsidized housing residents had to win a lottery to get in. Waiting lists stretch for months. As I had the chance to explain in Newsweek, housing subsidies do not scale. I laid out subsidies’ two major limitations:

First, they are expensive. Increasing subsidies to match the scale of the housing crisis would cost tens or hundreds of billions of public dollars — well beyond what is politically realistic in most of the U.S. Second, subsidies might exacerbate the problem. Injecting that much money into the housing market risks further increasing prices by boosting demand while supply remains limited.

Skeptical of the first point? Check out the back-of-the-napkin math I did to try to prove it. The DC region’s housing shortage dwarfs LITHC’s annual total budget. This is vitally important to understand. Building lots of housing requires lots of money, which has to come from somewhere. The tens or hundreds of billions of dollars needed can only plausibly come from private markets. Congress cannot be expected to cough up that kind of cash for housing, nor state legislators.

Housing subsidies are an important tool that has to be used in a targeted manner. The status quo has left many people who truly need subsidies living in overcrowded slums or in a friend’s spare room or on the street. We must be clear-eyed about the current housing policy paradigm’s comprehensive inadequacy.

Savvy and personal resources partially determine who gets a subsidy. I live in Alexandria, Virginia, which has a program that gives people meeting certain income criteria the opportunity to purchase a home in the city below market value. I qualified for that program with two kids and an income just shy of $90,000. Sure, I have underachieved for this area in terms of income (do message me if you want to work together in the housing industry) but it is crazy that I was eligible for subsidized housing. Especially given my capacity to work the system compared with, say, a single mom juggling three part-time jobs.

I previously used a “why not both?” framing to discuss subsidized and market-rate housing. I still believe that, but was being polity when I called housing subsidies moderately overrated. They have serious limitations. Downplaying that makes it easier to convince ourselves, especially as observers with stable housing, that subsidies are a full-scale solution. Committed affordable housing at least has a proven track record in the U.S., which is more than I can say for public housing.

Admittedly, I know very little about public housing proposals, and yet I am pretty sure they will not work. The politics are almost impossible, to put it mildly, especially after Trump’s popular vote win. Our country lacks the state capacity and bureaucratic competence, at any level of government, to manage such huge development projects and serve as a compassionate landlord to millions of people.

DC’s public housing authority is an extreme example. A 2022 Washington Post investigation found that almost a quarter of the city’s public housing units were vacant, because many were uninhabitable. A 2023 investigation found that the DC Housing Authority was overpaying rent by millions:

Arthur Simpson, 73, lives on the third floor of an apartment building in Northeast Washington. The elevator doesn’t work, so he climbs the stairs. He has no electricity, so he sees by the light of the street at night. The hallway outside reeks of musty carpet and cigarettes, so he shoves a towel against the door crack to block the stench.

The D.C. Housing Authority pays $2,467 in monthly rent for Simpson to live there, but his apartment at the Havana was never worth that, even when new. One real estate consulting firm recently put the median market rent for one-bedrooms in the area at $1,613.

DCHA agreed to the amount anyway, because it doesn’t check to ensure rents it pays on behalf of low-income voucher holders are in line with market prices, as required by local and federal regulations. As a result, the agency overpays landlords by millions of dollars every year, a Washington Post investigation found.

If you want to work toward public housing in our time, so be it. Maybe “real public housing has never been tried.” Maybe the real thing, whatever that is, would work. But there is no reason to wait for a revolution that may never come. We have a private industry that can build the housing we need. We should let it, even at the risk of someone who plays golf making more money. My children are getting old enough to wonder why so many people live in tents. I struggle for words when we talk about it.

Some people will always need some kind of housing subsidy. The key issue I see is that most people with an income should be able to afford a decent home, but many are deprived of the opportunity. The shortage creates insane bidding wars, even for old shacks. Forget giving a fish versus teaching to fish, there are not enough fish! The housing crisis is a shortage, a numbers game. We can win it, and YIMBYs are starting to learn how. Personally, I want to run up the score. I am here to fix the problem, not to feel vindicated or morally superior. Al Davis put it best: “Just win, baby.”

YIMBY Success Stories: Minneapolis and Austin

YIMBY critics, who flail wildly to land a rhetorical punch (and even talk big about actual fisticuffs), frequently complain that our theory of change is unproven, made up, even a trickle-down conspiracy. They demand clear, transferable examples of zoning changes and housing supply increases reducing rents. No, not Tokyo, humanity's largest ever metropolis. Japan is ethnically homogeneous. Its culture is weird. NIMBYs want proof in their backyard.

We have proof, not that it would prevent goalposts from suddenly relocating. YIMBYs have begun glimpsing abundant, inexpensive housing in the U.S. There is a growing list of local affordability success stories including Houston, Minneapolis, and Austin. Houston has been pretty affordable for decades. Minneapolis and Austin built lots of new units in recent years and rents actually fell.

As discussed last post, parking reform was a big factor in Minneapolis, enabling the construction of many new apartment buildings. Correlation does not equal causation but after being in the trenches of this issue, it is nice to see any U.S. city, other than distressed ones like St. Louis, adding housing faster than residents and reaping the benefits. Minneapolis is economically vibrant too. Governor Tim Walz has long boasted that Minnesota has some of the best quality of life indicators of any U.S. state for health, education, etc. Minneapolis has a lot of things going for it, from Target to Justin Jefferson. For it to also have falling rents is a serious housing policy victory.

The story I found in Austin is more complex, maybe because I took a closer look, but still encouraging. Friend of the blog

Ryan Puzycki

wrote about Austin’s experience for California YIMBY’s Metropolitan Abundance Project (MAP). He has a deep understanding of the housing crisis and Austin’s place in it. I got to meet Ryan at YIMBYtown 2024. After moving to Austin from San Francisco late in the pandemic he joined the board of AURA, an original proto-YIMBY group. (I urge you to subscribe to Ryan’s City of Yes newsletter, where he just interviewed a leader of California Forever.)

The picture is a little fuzzy …

Average Effective Rents in Austin (May 2019 – May 2024)

… but we can see that average effective rent in Austin fell between mid-2022 and 2024. Ryan documents that metro Austin, especially the suburbs, built way more housing than San Francisco in that period:

Rising interest rates have cooled the national market for multi-family housing, namely large-scale commercial projects, though things might be warming up again these past few months. Metro Austin is also seeing big population growth, and the city proper is passing a series of YIMBY reforms.

With so many factors at play, I asked Ryan: What were the policy drivers of the recent growth of the housing stock in metro Austin? What new and existing policy factors enabled it? He kindly replied as follows.

When we talk about housing in Austin, there are really two stories: one about the city itself, and another about the suburbs that surround the city.

Growth within the city has been enabled by successful density bonus programs like Affordability Unlocked, which waives certain zoning restrictions and expedites approvals in exchange for income-restricted affordable housing units, as well as by plan-specific developments allowing for greater density in Downtown, around the commuter rail line, and in other areas.

Austin’s recent slate of pro-housing reforms — most notably the abolition of parking minimums and the rollback of “compatibility” height restrictions — will unlock potentially tens of thousands of apartments throughout the city, but new projects mostly came to halt as interest rates rose and demand slowed relative to new supply. Meanwhile, our “missing middle” reforms, which increased the number of units allowed in single-family zones to three, are having an incremental impact in a city that is otherwise still zoned predominantly for single-family homes.

Austin’s suburbs did not have as many roadblocks to development as the city itself, which has allowed them to grow more quickly; indeed, the bulk of population growth in the region has occurred outside the city.

The thrilling takeaway from Austin and Minneapolis is that we can actually build our way to cheaper housing. We should be confident that supply and demand still apply. Some cities are inching toward abundance and affordability. The local government policies enabling this growth also pretty clearly boiled down to keeping out of the way.

Filtering’s Critical Role in Affordability

You might respond that we cannot assume we understand why housing became cheaper recently in Minneapolis and Austin, even if you concede that building more was part of the equation. I hazard to guess that you are struggling with a specific proposition: that building new housing, which is often expensive by any standard, directly reduces average or median rents, and makes housing affordable for low-income folks. High housing costs have crushed them for decades. We should be building housing for them, not for people who will be OK no matter what, right?

The answer to this question involves the awkwardly named concept of filtering: New housing is built, affluent people move in, vacating less expensive housing, which is occupied by lower income people, who vacate even less expensive housing, which is occupied by people with a more limited income, and so on. As noted, this is also called moving chains. Friend of the blog Justine Underhill, recently elected to the Falls Church City Council in Northern Virginia, has a great video essay on the topic (the moving chains explanation comes around 9:48):

Justine’s goal here is similar to mine, explaining how luxury housing can make housing in general cheaper and even ultimately relieve homelessness. Friend of the blog and Mercatus housing economist

Salim Furth

has a piece that uses spare bedrooms as the unit of analysis for homelessness, adding nuance to the “homelessness is a housing problem” book Justine mentions. She links in the video description to multiple studies documenting moving chains and their impact on affordability.¹

Part of my general optimism about abundant housing is that homelessness as we know it — lots of people sleeping outside, frequent evictions of women and children — is fairly new, emerging around the 1980s, coinciding with the emergence of the housing shortage. We must not accept homelessness as normal or inevitable.

I reject the notion that low-income and essential workers including first responders and teachers cannot possibly afford a decent home where they work.

That defeatist narrative risks demeaning huge swaths of the American public as incapable of supporting themselves. Housing defeatism also risks letting political leaders off the hook for their central role in the housing crisis. If nothing else, YIMBYs have clearly identified a plethora of destructive policies and regulatory processes that make housing artificially expensive, often by design. Moreover, boarding houses were banned, in the hope that the people who relied on them to avoid homelessness would simply go away. Now they live in the tents my children see.

The biggest misunderstanding or, maybe, misrepresentation of housing policy I see among housing advocates and policy professionals is that different parts of the housing market are largely disconnected. Thinking of housing as a market is unintuitive. Thinking in economic terms is fairly unnatural. I cannot blame a regular person who thinks that anyone who says luxury apartments fight homelessness is lying or stupid, maybe downright evil. Is the housing supposed to trickle down?

Obviously that is not how I would put it … but the weird thing is … it actually does. More accurately, people move up to the best housing they can afford, creating vacancies in less expensive homes that can be filled by other people with less money.

Signs of What Filtering Would Change

A real-world counterexample is affluent people paying top dollar for deeply flawed housing. Consider Del Ray, a local streetcar suburb I write about a lot. The charming neighborhood is a mix of single-family homes and multiplexes on small lots, plus garden apartments like the one my wife and I brought our first child home to, with lots of street trees and a strip of charming local businesses and great restaurants. JD Vance chose to live there (which is how I once end up at the same mass as him).

The dirty little secret of Del Ray is that the housing stock is pretty terrible. The typical Del Ray home is 50 to 100 years old. The really old stuff is just plain old, while the newer stuff is from the neighborhood’s mid-20th century nadir. There is a peculiar species of Del Ray NIMBY who helped gentrify the neighborhood in the 1980s and ‘90s and now wants to freeze the place in amber.

These Del Ray houses are small: wooden bungalows literally ordered out of a Sears catalog or drafty brick boxes. They are cute, sure, but also terribly out of date, from wiring to insulation. If I wanted to find lead paint and asbestos in my city, I would ask an architect to meet me in Del Ray. And the bedrooms in these sorts of homes are miniscule, basically a dealbreaker for me and my wife.

Then there are Del Ray’s basements, which chronically flood with sewage. Del Ray started as the town of Potomac some 100 years ago, marrying progressive vigor with unvarnished white supremacy, evolving into a working-class enclave that Alexandria city government pointedly neglected, leaving the infrastructure inadequate to this day.

Who in their right mind would want to buy such a home in such a place? Lots of reasonable people, it turns out, not just JD Vance. Del Ray is one of the most desirable neighborhoods in the DC region, even though Alexandria’s public schools are not particularly good. Here are the current home listings:

Ignore the $4 million listing for some kind of condo build. $800,000 is not unheard of in this day and age, except that in Del Ray it only gets you half a duplex with about 1,000 square feet of floor space. Price per square foot is uncomfortably close to $1,000.

The case of Del Ray holds a couple of essential lessons for us:

• People highly value walkable streetcar suburbs, as they should

• Shoveling sewage out of your basement is not an $800,000 experience

If a lot of newer housing were built in the neighborhood, or one like it, Del Ray’s old housing stock would command lower rents or property values. Some of it would be vacated by affluent folks moving into something newer and better. The folks taking their place would pay less than they did and probably, on average, have lower incomes. And so the moving chain would unfold.

What about genuinely decrepit housing that might not even be safe to live in? Should we expect poor people to move into indecent housing? Of course not. Abundance is actually our best hope for helping vulnerable people move out of bad housing.

In a market with more, better options, subpar housing is much more likely to be redeveloped. We worry today about shoddy housing being torn down because we worry that the people living there have nowhere else to go. Ideally they could live in a newer, nicer apartment — nothing fancy, but definitely not hazardous to their health. But that slightly nicer apartment is currently rented by a young professional just starting out or someone else with decisively more earning power. It is a bit odd that they live in that place … but they cannot afford anything better. The more you stare at the housing crisis, the more the solution stares back at you. Build more housing.

This vision is a hopeful one. The future is mutually beneficial abundance, not clawing for every dollar of subsidy from a political class obsessed with cultural warfare. A healthy housing market is full of opportunity, not sacrifice. It is a joyful dance.

P.S. All of this context helps us see why rent control is so destructive. It limits housing production amidst a shortage. Rent control creates visible winners, which makes it easy to defend, but also widespread scarcity. If I wanted to cause poor people to suffer, I would insist on strong rent control. In a famine, it is desperately important to give people more food. If instead we focused on aggressively enforcing price limits, a few people would get cheap food, but our hubris would cause many more people to starve.

Thanks to my 850 subscribers, especially my 13 paid subscribers. If you enjoy this blog or want to work together please contact lucagattonicelli@substack.com. Check out YIMBYs of Northern Virginia, the grassroots pro-housing organization I founded.

1. She links to my blog too, but I only just noticed that! Thanks, Justine!