Ease Regional Housing Crisis: Four Tasks

According to a Nov. 26, 2019 Boston GLOBE editorial, there are four tasks necessary to ease the housing crisis in the Greater Boston Region:

Champion housing production and affordability at the state level.
Urge private-sector investment in housing solutions.
Drive inclusive growth.
Get more involved locally.

This editorial by Paul S. Grogan, president and CEO of the Boston Foundation and Arlington resident, Karen E. Kelleher, executive director of LISC Boston, explain these four tasks. They also describe how much other, comparable urban areas around the US are doing to solve similar housing problems. We are not keeping up with solutions. It will take a collective effort. “Next Level Housing Solutions” is a collaboration of concerned organizations and community leaders intended to move the region toward housing solutions.

Join the Conversation. Click here to join the Next Level Housing Solutions conversation. This just means you will receive information and event updates.

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Housing

Does Building More Housing Reduce the Market Price?

Report by Vicki Been, Ingrid Gould Ellen, and Katherine O’Regan, Supply Skepticism: Housing Supply and Affordability, NYU Furman Center 8/20/18

Some affordable housing advocates question the premise that increasing the supply of market-rate housing will result in more affordable housing. This paper addresses the key arguments these “supply skeptics” make. Considering both theory and empirical evidence, the authors conclude that adding new market-rate homes moderates price increases does make housing more affordable to low- and moderate-income families.

At the outset, the authors review the relevant studies and conclude that “the preponderance of the evidence shows that restricting supply increases housing prices and that adding supply would help to make housing more affordable.” They then turn to several arguments the supply skeptics make. One key issue is whether adding housing in a part of the housing market will affect prices in another. The housing market is not uniform but composed of various submarkets. These submarkets relate to each other in complex ways. Critically, however, if demand forces up prices in a higher-end submarket, some buyers will turn to the next segment down and bid up prices there, generating a cascade. Adding supply at higher levels reduces this cascade and relieves price pressure all the way down. Empirical research indicates that this “filtering” process happens surprisingly quickly.

Supply skeptics may also fear that construction of new housing will exacerbate affordability problems by raising neighborhood rents or prices, fueling gentrification, and potentially displacing existing residents. New construction can have both positive and negative effects on prices or rents of nearby homes. New housing may an amenity that makes a neighborhood more attractive – and expensive. But it also absorbs demand and may reduce the incentive to upgrade existing housing to please high-end buyers. The evidence on the net effect of these effects is unclear. An important California study indicates that the production of market rate housing was associated with a lower probability that low-income residents in the neighborhood would experience displacement. But more research is needed.
The authors point to additional disadvantages of limiting supply, including pushing lower-wage workers to live in distant suburbs, where long commutes add to regional traffic woes and greenhouse gas emissions. They stress, however, that increased supply, while essential, is not sufficient to address the affordability challenge. Government intervention through subsidies and other measures is critical to ensure that housing supply is added at prices affordable to a range of incomes, and especially the lowest ones.

housing affordability market rate affordable housing more housing does reduce price Vicki Been

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The 1988 Fair Housing Report

I recently came across a report from Arlington’s Department of Planning and Community Development, titled “Overview of Affordable Housing Challenges and Opportunities”. The report begins:

Greater Boston’s revitalization is provoking an unexpectedly severe housing challenge in Arlington. Throughout eastern Massachusetts, growth in regional demand has caused housing prices to soar. Additionally, Arlington’s neighborhood stability and recently improved accessibility makes the town particularly attractive. While this is an initial boon for property owners, it harms others.
The surge in demand and resulting tight housing market have restricted residential choice, currently locking many households into existing living situations, even as they enter new lifestages and their needs change. Although all income levels and types of households are affected, these changes tend to hit tenants harder than homeowners especially the elderly, the poor, young singles, along with growing families, minority groups, and those with special housing needs.

This report was commissioned for Arlington’s Fair Housing Committee, and presented to them in February 1988. Despite being written 32 years ago, it’s quite descriptive of the housing challenges facing Metro-Boston — and Arlington — today. These challenges include rising home prices, conversion of rental properties into condominiums, the phenomenon of being “house rich and cash poor”, pressures of speculation, and insufficient new housing production.

Figure F from the report provides a summary of what was required to purchase a median-value home in Arlington. I’ve reproduced the table here, with a few small adaptations.

	1970	1980	1986
median value	$30,000	$62,700	$169,000
20% downpayment	$6,000	$12,540	$33,800
Mortgage	$24,000	$50,160	$135,200
Interest	8.25%	13%	12%
Monthly Principal & Interest	$180.29	$559.95	$1391.21
Monthly Real estate taxes	$75.00	$110.00	$140.00
Total monthly cost	$255.59	$669.95	$1531.21
Annual income required	$10,491	$28,780	$65,623

Here’s the same table, where all values are converted to 2020 dollars [1], and where I’ve added a column for 2020 [2].

	1970	1980	1986	2020
median value	$204,739	$207,902	$397,784	$771,900
20% downpayment	$40,948	$41,580	$79,557	$154,380
Mortgage	$163,791	$166,322	$318,227	$617,520
Interest	8.25%	13%	12%	3.25%
Monthly Principal & Interest	$1,230	$1,857	$3,275	$2,687
Monthly Real estate taxes	$511	$365	$330	$711
Total monthly cost	$1,741	$2,222	$3,605	$3,398
Annual income required	$71,597	$95,429	$154,460	$135,920

This is an interesting comparison. Buying a house in Arlington today is actually less expensive than it was in 1986 (i.e., the annual income requirement is 12% less), but this is predominantly due to today’s lower interest rates. That said, the income threshold is significantly higher than it was in 1980 or 1970. (The report’s introduction refers to 1970’s home prices as belonging to a “bygone era”.)

What solutions were proposed in 1988? The ideas put forward included transfer taxes, accessory apartments (aka accessory dwelling units or ADUs), and encouraging models for cooperative ownership. While I’m unsure of what may have been done to encourage cooperative ownership, I’m pretty certain that the transfer tax and ADU options were never implemented. At the very least, they’re not a part of today’s bylaws.

Between 1975 and 1991, Arlington’s Town Meeting voted in favor of a series of downzonings, and I believe the general sentiment during this period was one of anti-growth/anti-development. Apparently we studied the town’s changing demographics and increasing cost of housing, recognized there was was a problem, but never acted on the recommendations.

Two of the ideas for mitigating housing cost have come back in recent years. Accessory dwelling units were proposed in the 2019 town meeting (Article 15), but defeated by a vote of 137–82 (zoning articles require a 2/3’s supermajority to pass; although the majority voted in favor, that wasn’t enough). The 2020 town meeting may have the opportunity to consider a new ADU article (Article 37), along with the establishment of a real estate transfer fee (Article 20).

Here is a copy of the 1988 report to the Fair Housing Commission.

Footnotes

[1] Inflation adjustments derived from https://www.bls.gov/data/inflation_calculator.htm

[2] The 2020 median value is the median value of Arlington single-family homes, based on 2020 property assessments. The 2020 tax rate is $11.06/mil.

Fair Housing

Written by Steve Revilak September 20, 2020

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Housing
News

AMI Explained

by Steve Revilak

The term “AMI” or “Area Median Income” comes up in almost any discussion about affordable housing, because it’s used to set rents and the household incomes for people who are eligible to live in affordable dwellings. AMI is a fairly technocratic concept and my goal is to make the concept (and the numbers) easier to understand.

AMIs are set each year by the U.S. Department of Housing and Urban Development; broadly speaking, an AMI is the median income of a region. Arlington is part of the “Boston-Cambridge-Quincy, MA-NH HUD Metro FMR Area” which consists of more than 100 cities and towns in Massachusetts and New Hampshire. Median incomes represent the “middle” family income of an area—half of households make more, and half make less.

In the process of turning median incomes into income limits, HUD also considers household size: larger households are assigned larger AMI limits than smaller ones, in order to reflect the higher cost of living for more family members.

How do these limits translate into affordable housing regulations? Arlington’s affordable housing requirements (aka “inclusionary zoning”) require that rents for affordable units be priced for the 60% area median income, but the dwellings are available to households making up to 70%. Let’s show an example with some numbers.

Household size	60% Income Limit	70% Income Limit	60% Rent
1	$68,520	$79,940	$1,717/month
2	$78,360	$91,420	$1,959/month
3	$88,140	$102,830	$2,203/month

HUD considers an apartment suitable for a household if it has one bedroom less than the number of household members, so a two-bedroom apartment would be suitable for a household of three, a one-bedroom would be suitable for a household of two, and a studio would be suitable for a household of one. The monthly rent for a two-bedroom apartment would be calculated as follows: $88,140 ÷ 12 × 30% = $2,203. The 30% comes from HUD’s rule that affordable housing tenants should not be cost-burdened, meaning that they pay no more than 30% of their income in rent.$88k or $102k/year can seem like a lot of money (and once upon a time it was). To get a better sense of what these income levels mean, I looked into what kinds of jobs pay these wages. To that end, I found wage information from the Arlington Public Schools report to Town Meeting, the Arlington town budget, and wage data from the Bureau of Labor Statistics. Here are a few scenarios:

Scenario 1: single adult

Scenario 1 represents a single adult living alone, and earning between $68,520 and $79,940. Jobs in this pay range include:

Elementary classroom teacher ($62,000 – $75,000)
Town planner ($75,000 – 79,000)
Animal Control Officer ($72,000)
Firefighter ($73,640)
Librarian ($70,395)
Lab Technician ($70,710)
Social Worker ($71,470)
Subway operator ($72,270)
Licensed Practical Nurse ($75,690)
Paralegal ($77,500)
Chef ($78,040)
Carpenter ($78,000)

Scenario 2: single parent with household of two

Scenario 2 represents a single parent earning between $78,360 and $91,420/year. Jobs in this pay range include:

Office Manager – Assessor’s office ($80,399)
Assistant Town Clerk ($77,375)
Town Engineer ($74,000 – $80,000)
Police Department Patrol Officer ($87,000)
Town Budget Director ($88,488)
Telecommunications equipment installer ($80,350)
Plasterer and Stucco Mason ($82,250)
Electrician ($82,380)
Cement Mason ($86,250)
Plumber and pipe fitter ($90,580)

Scenario 3: household of two, both adults

Scenario 3 has two adults, each earning $39,180 – $45,710 per year. Jobs in this salary range include several that we’ve come to know as “essential workers” during the pandemic.

Special education teaching assistant ($34,290)
Arlington Public Schools Paraprofessional ($36,290 – 42,440)
Substitute Teacher ($34,921)
Inspectional Services Record Keeper ($44,481)
Food preparation worker ($39,590)
Bartender ($39,730)
Childcare worker ($40,470)
Ambulance Driver ($40,890)
Waiter ($41,440)
Pharmacy aide ($41,460)
Bank teller ($42,270)
Tailor and dressmaker ($43,790)
Restaurant cook ($44,140)

You may have noticed gaps in these lists — for example, there are no jobs listed in the $50,000 – $60,000 range because it’s in between the income limits for one- and two-income households. It’s also worth noting that a fair number of town employees’ salaries would qualify them for affordable housing (the town is Arlington’s largest employer).

So who qualifies to live in affordable housing? People with a lot of ordinary, working-class jobs, including many town employees.

Affordable housing AMI area median income

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