So you want more affordable housing?
Just keep building those luxury apartments and wait until they age
One of the most common refrains in the affordable housing discussion is that “developers are targeting the high end of the market” and that new apartments are just unaffordable.
Of course, it’s not that simple. Demand for new housing that isn’t met by the construction of new high-end units doesn’t disappear, it spills over into more modest housing, driving up rents for everyone. Building more highend housing helps with affordability, because it keeps those with high incomes from outbidding those with lower incomes for the existing housing stock. (Just imagine what would happen to housing prices if you suddenly demolished 10,000 units of expensive housing.) And often, today’s luxury units become tomorrow’s affordable homes.
To understand this, just look to Portland, Oregon’s recent history. Housing blogger Iain MacKenzie, who tracks new housing and commercial developments at the definitive Next Portland website, shared with us a couple of fascinating historical clips from the city’s paper of record, The Oregonian. They show that today’s affordable housing often started life as selfdescribed “luxury” housing when it was originally built.
The first example dates back a half-century, to the 1960s, when, in the wake of urban renewal, the city was building a wave of new apartments. The Oregonian on Jan. 9, 1966, described the city’s booming market for new luxury accommodation: Luxury apartments, which start at $135 for a one bedroom unit and rapidly climb out of sight, have been sprouting in Portland at a breathless rate, and more are planned or a building. The total investment in such properties is certainly above the $100 million mark here.
One of these complexes was the Timberlee in suburban Raleigh Hills, a close-in suburban neighborhood. According to The Oregonian, the Timberlee was one of the most prosperous of the 13 apartment complexes examined in its story, with 97 percent of its 214 units rented.
The Timberlee apartments are still around today. While none of the units are currently for rent, according to Apartments.com, rents in the area run from about $1,000 for studios and one-bedroom units to $1,300 and more for two-bedroom and larger apartments. By today’s standards, the Timberlee seems modest, and a bit dated, rather than luxurious.
The Timberlee apartments are typical of those built around the country in the 1960s and 1970s. Similar vintage apartments in the Atlanta suburb of Marietta, for instance, started life as the preferred housing of (mostly white) young couples and singles, but as they aged, became so affordable that they constituted low-income housing. The city spent $65 million of taxpayer money to buy and demolish these apartments, displacing hundreds of families.
A second clipping goes back just more than a century, to Christmas Day, 1910, when Portland was enjoying a small construction boom — interestingly, triggered by the advent of a tougher building code that would have made apartments more expensive or impossible to build in some neighborhoods. There was a land rush as developers filed for building permits in advance of the deadline.
The 1910 article plays up the luxury of the new dwellings under construction.
The purpose of the builds is to establish a model for high-class apartments … The building will follow the latest style of construction in vogue in New York, and will embody the extreme of luxury with every possible attention given to comfort. Some new features in the way of modern conveniences will be introduced, the aim being to attract the desirable class of patrons, those who will be willing to pay as high as $150 a month for the five and six room apartments which they house will contain.
One of the new luxury apartment buildings constructed in 1910 was the Belmont Court, on the city’s growing East Side. Plans called for a modern 24-unit apartment building with a range of conveniences. More than a century later, the Belmont Court building still stands. In fact, two of its apartments are for rent just now. According to Zillow, average apartment rents in Portland are about $1,600 per month. With studio apartments renting at just under $1,100, the Belmont is not exactly cheap, but apartments there cost less per square foot than newly built units, and with a Walk Score of 92, they are located in a neighborhood where one can conveniently live without a car.
Another interesting historical change: Described as three-room apartments when they were built, the Belmont Court apartments are today described as studios. They have a separate living area, kitchen and bathroom (each of which, a century ago, merited counting as a separate room). In an era when a large fraction of urban residents were boarders in boarding houses, a private kitchen and bathroom may indeed have been a luxury.
New housing is almost always built for the high end of the market. It was that way 100 years ago and 50 years ago. But as it ages, housing depreciates and moves down market. The luxury apartments of two or three decades ago have lost most of their luster, and command relatively lower rents. And the truth is, that’s how we’ve always generated more affordable housing, through the process that economists call “filtering.” And the new self-styled “luxury” apartments we’re building today will be the affordable housing of 2040 and 2050 and later.
What causes affordability problems to arise is when we stop building new housing, or build it too slowly to cause aging housing to filter down-market. When new high-priced housing doesn’t get built, demand doesn’t disappear; instead, higher-income households bid up the price of the existing housing stock, keeping it from becoming more affordable. Which is why otherwise prosaic 1,500foot ranch houses in Santa Monica sell for a couple million bucks, while physically similar 1950s-era homes in the rest of the country now are either highly affordable —or candidates for demolition.