Housing Market Myths and Truths

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The Moda development on Parsons Blvd in Jamaica. A model of mixed-income housing — with a 50/30/20 affordable housing mix. 20% of the units are low-income and 30 % are market rate.

The New York Times recently reported that the Federal Low Income Housing Tax Credit Program (LIHTC) has promoted rather than reduced the racial and economic segregation of housing. (https://www.nytimes.com/2017/07/02/us/federal-housing-assistance-urban-racial-divides.html.) This should not come as a surprise to anyone familiar with the program’s requirements. There are programs and incentives that increase diversity– but the LIHTC does the opposite by design! It subsidizes only housing for very low-income people, and incentivizes the construction of housing in low-income areas. The LIHTC program by its structure produces economic and racial segregation.

The idea behind the program is to spur housing production for the most economically distressed by requiring that the income requirements for residents be set at a very low cap on family income. In order to provide a preference to low-income people, it also gives increased benefits for housing built in neighborhoods that already house low-income families. This produces the effect of segregating those with the lowest incomes both by building and by neighborhood.

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The Crossing at Jamaica now under construction on Sutphin Boulevard. 700 hundred units of mixed income units — although the second building at the rear of the rending, being financed with Federal Low Housing Income Tax Credits, will as a result be entirely low-income units.

Housing advocates seek to prioritize the expenditure of subsidies for the lowest income, most needy families, as well as for the homeless. Much of the policy discussion around affordable housing in New York City is about the appropriate bands of income that should be required of proposed developments. Housing advocates demand that resources be devoted entirely to the least well off. But why is that? And does it produce the most desirable policy outcomes? My observation is that it does not.

First, while there is a superficial logic to steering limited housing subsidy dollars to the least economically advantaged, this logic actually fails with deeper scrutiny. The ability of a family to afford housing in an expensive urban market is a binary situation – either you can or you can’t afford adequate housing given your income. Your income either reaches the minimal threshold to be able to afford market rents or it doesn’t. If families are being provided with subsidy to afford housing, anyone below the line is similarly situated, and I would argue, equally entitled to sufficient subsidy to get them over the line. One also could argue that a family working multiple low-wage jobs that gets them close to, but not over, the affordability goal is a more worthy recipient of public largess to assist them in bridging the gap than a family where no one is working. But, in any event, there is no good argument as to why that family would be less worthy of subsidy.

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Clustered New York City Housing Authority (NYCHA) buildings in Far Rockaway.

In addition, it takes less subsidy to get that working family into affordable housing then it would for a very low-income family. As a result, assuming limited resources to subsidize affordable housing, more working families can be assisted into housing with the same dollars. Each very low-income family requires more subsidy and as a result each one helped to get over the line lowers the total number of families that can be assisted. That is an argument as to why to focus housing subsidy dollars on middle class and working families – you are able to assist more families. Some kind of argument that these families might be less worthy of assistance because they are economically better off seems not terribly persuasive or appealing when it comes to housing (while it might be and does with respect to other forms of social service and transfer payments).

This is one of the reasons why I would argue that mixed-income housing is a preferable social policy to one focusing housing subsidy dollars entirely or mostly (as does the LIHTC program) on very low-income families. There is another reason, though. All of the evidence indicates that mixed-income housing is more socially successful; promoting racial, economic and geographic integration. By definition, mixed-income housing produces economic integration. As a practical matter mixed-income housing, particularly if it includes market rate units, produces racial integration. What also seems to be true is that concentrating low-income families in buildings and neighborhoods produces the kind of social dysfunction you find in the Rockaways – where government promoted racial and economic segregation by building concentrated low-income housing in an isolated location, far from the city’s economic centers. There seems to be a tipping point above which the number of very low-income residents dissuades higher income residents from renting in a development and above which social dysfunction seems to occur. That number may be about 30% of the units in a development.

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Mixed income affordable housing now under construction at Frederick Douglas Boulevard and 110th Street.

There is some evidence that when lower-income families live in the same building with working and middle-income families their social circumstances improve. Both the tipping point, and the social benefits of mixed-income housing are areas that ought to be a focus of more social science research. It makes sense that economically and racially integrated housing will result in more racially and economically integrated classrooms. Placing a small number of low-income kids in classes with higher income children may improve their academic performance – in addition to contributing to the kind of integration that seems to be eluding the New York City public schools. If we are serious about integration, mixed-income housing is key tool – and New York City’s robust affordable housing subsidy programs are producing these kinds of results. The De Blasio Administration has achieved great success in expanding and preserving a laudable number of affordable apartments across the city. This will provide a long-term stable housing situation for tens of thousands of families.

The most significant constraint on affordable housing production in New York City is a lack of appropriate sites. Many communities resist affordable housing out of a perception of negative external effects from social dysfunction associated with the concentration of housing of low-income people. Those effects should be mitigated by the benefits of mixed-income housing. Promoting mixed-income development should address much of the community concern and open more neighborhoods to affordable housing production – and produce increased racial and economic integration as a result.

A similar set of issues surround giving preference to the homeless in New York City Housing Authority and other affordable units. Again, it makes some superficial sense that in order to get people experiencing homelessness out of shelters and off the streets, they should go to the head of the line for available apartments. But, given that Housing Authority and affordable apartments are a limited resource, how is it in any sense fair to a working family to provide a preference to a family in a shelter over them? In addition, the social service needs that often contribute to an individual or family’s homelessness means that those individuals are likely to continue to need intensive social service support in order to make a successful transition to permanent housing – and neither NYCHA or other affordable units necessarily come with such support. In the absence of support, families or individuals experiencing social dysfunction can have a negative impact on their neighbors, contributing to the perceived harmful social external effects of City and affordable housing resisted by many neighborhoods.

One thought on “Housing Market Myths and Truths

  1. Dan Cohen

    Hi Andy: Some good points. It would help your blog if you provided specific links to stats or statements (i.e. “There is some evidence that when lower-income families live in the same building with working and middle-income families their social circumstances improve” or “Placing a small number of low-income kids in classes with higher income children may improve their academic performance” for example) rather than just stating it. Helps bolster your argument. Also, there is a proposal being kicked around that would income average LIHTC, whereas now you must have everyone at 60% AMI, in the revision, the AVERAGE AMI is 60%, while you could have one unit at 100% and another at 20%, the average AMI is still 60%, which has the benefit of still targeting the overall low-income threshold, while also providing for more mixed income units where the market would support it without penalizing the development of units over the 60% line.

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