New research from economist Evan Mast of the W.E. Upjohn Institute for Employment Research looks into the impact luxury housing has on overall housing costs. Here’s a summary of Mast’s work from City Lab…
Mast looked at 802 new multifamily developments across 12 central cities, from the “Texas doughnuts” of Dallas to luxury high-rises in New York City. Using commercial address data, he found out the moving history of the residents of these new units. The first round of moves are roughly what you might expect: Approximately 70 percent came from nearby neighborhoods with above-average incomes, with the remaining 30 percent moving from below-average neighborhoods. These aren’t exactly inspiring results for activists focused on helping households at the bottom of the market.
But when a household moves into a new unit, they initiate a kind of housing musical chairs by vacating their existing unit. A second household then moves into that unit, in turn vacating a third unit. For each new market-rate building, Mast follows this trail of movers back through six moves, tracking where residents are moving from, a process he calls the migration chain. By the sixth link of this chain, Mast finds that approximately half of the movers are moving out of census tracts with below-median incomes. As many as 20 percent of movers are coming from the poorest tracts in the city.
These findings suggest that housing markets aren’t nearly as segregated as some might fear, if you work your way down the migration chain far enough. His model suggests that for every 100 luxury units built in wealthier neighborhoods, as many as 48 households in moderate-income neighborhoods are able to move into housing that better suits their needs, vacating an existing unit in the process. Somewhere between 10 and 20 of these households are coming from among the city’s lowest-income neighborhoods, vacating units and reducing demand where housing is most likely to be affordable for working families.
This suggests that even pricey new units could free up a lot of existing housing. Accounting for possibilities like units sitting vacant, out-of-town movers filling the units, or units being used as second homes/pied-a-terres/safe deposit boxes in the sky, Mast’s model still indicates that for every 100 new market-rate units built, approximately 65 equivalent units are created by movers vacating existing units. If the migration chain is as robust as this paper finds it to be, as much as half of theses newly vacated units could be in low- and moderate-income neighborhoods. This new supply, combined with less demand, could play a major role in easing pressure on rents in the short run.
The paper itself also calls out some complications – situations where someone buys a new unit as a secondary home or investment breaks the chain along with scenarios like children moving out. It’s not a guarantee that every unit triggers a full chain of people moving up, and they specifically call that out in very expensive markets.
At a broad level the study makes sense, it’s basic supply and demand. What I’m not as sure about is how the chain distributes people moving up – if we add luxury apartments in Newton is that opening up more affordable homes within the city or are people moving in from outside? The problem we’re trying to solve is lack of housing diversity -within- Newton, so if people are moving from other cities into luxury development that’s helping at a regional level but not at a local level. There’s also the added complication of tear downs, if someone moves out of a smaller home into a luxury apartment but sells the home to a developer who tears it down for large luxury two unit we’re not really opening up more affordable homes within the city. The chain breaks because the more affordable unit is immediately replaced with a new luxury unit.
I would speculate that Newtonians who move into luxury apartments in Newton are downsizing and thus are selling a home that is larger and more expensive, or to Patrick’s point selling it to a developer. Even if this theory has some applicability to the Newton housing market there cycle is very long. There have to be more effective ways to address housing affordability in a shorter term than this “trickle down” theory.
+1 on the fact that this is thinly disguised “trickle down economics” and that any affordable housing stock created is likely in a more affordable town (not here).
This doesn’t take the rate of teardowns in Newton into account. If we sold my little house in a prime location and moved into an expensive luxury condo, I am pretty sure that my house would be torn down and replaced with more expensive luxury condos.
MMQC is absolutely right, there is a lot this doesn’t take into account. The housing economy is a complex system. Fixing our housing crisis requires multiple solutions, including disincentives for teardowns. The current system disincentivizes smaller apartments and incentivizes teardowns for large single family homes and new single family homes outside 495 and far from mass transit – true in Newton and throughout the cities and towns of greater Boston.
We have tools to start moving in a better direction. But we can’t afford to pretend doing nothing is a viable strategy.
Yes – there was an opportunity to deal with teardowns back in 2014 but sadly – folks were more interested in property rights than actually addressing the issue.
I agree with @Bryan that this is very complex ecosystem. Another paper (referenced in the article above) notes that the housing affordability problem is closely tied to the overall inequity built into our system that just continues to get worse.
My question is: what problems are we trying to solve? Some focus on climate change and the role of density in reducing our overall carbon footprint. Others focus municipal economic development and how new homes can help drive more local jobs and revenue (this is related to Newton’s unfunded liabilities). Others focus “Affordable” housing while still others want housing to be affordable.
Nothing can solve all of these. Which ones are residents interested in solving?
You earned your paycheck again Greg! Well done!
Keep up the great lobbying!
Nicely said. Housing affordability isn’t something you can build directly; instead we need to build more housing (of any kind) which makes all housing more affordable.
To draw an analogy: one can find cars for sale at prices that range from a few hundred dollars to a few hundred thousand dollars. It’s not reasonable to expect auto makers to manufacture vehicles at the low end of this scale. Instead, they manufacture market rate vehicles which eventually become affordable.
“Luxury” housing is just housing. It’s called luxury when it’s marketed initially by the developer, but then it just gets added to the local housing stock. Same fundamental laws of economics.
See my post on another one of Greg’s threads. This is like SO getting old 🙁
Chuck,
I promise a post in the next few days enumerating and classifying the various dimensions of housing need.
@David Htuska
On you analogy. I tend to think people tend to sell cars when they are likely to be become unreliable. Who better else than to sell on to the needy who have no option but to take a risk?
@Simon: The analogy was trying to show that in other areas, the free market does a reasonable job providing many options for consumers at different price points. I think it’s better to have many choices available, even if some of them aren’t great, than to have those choices taken away. Of course, this doesn’t preclude the government or anyone else from offering transportation assistance to the needy.
In the world of housing, government activities (e.g., restrictive zoning) distort the market and reduce the available options.
why has my comment not shown up?
just the same boring regulars
get theirs posted
my comment was lets
put
some luxury apts on
west newton hill
Suffolk rd
montalevale rd