Study: Building Market-Rate Housing Improves Affordability for Everyone

We’ve been saying it for years, er, decades: building market-rate housing is one of the most cost-effective ways to improve affordability across all income levels. And a new study by the Federal Reserve Bank of Minneapolis, which adds to a large body of research on the topic, backs it up and puts the lie to false arguments by anti-housing activists that building market-rate housing doesn’t help everyone. The paper found that for every 100 new market-rate units constructed, 70 new vacancies become available in lower-income neighborhoods.

According to the study, “New units help keep current prices down for everyone by opening up new opportunities for low- and moderate-income renters over a few short years through a chain of residential moves.” The study also cites San Francisco as an example of how restrictions on new housing can worsen affordability and displace lower-income residents by breaking that “chain of moves.” Said the Federal Reserve paper: “When there are few homes relative to demand, older homes are more likely to be bought by higher-income households over time. This doesn’t just apply to Victorian-era mansions, but also to the less amenity-rich housing stock that used to be more accessible to first-time home buyers.” 

The paper also undermined claims by critics of market-rate housing that “gentrification” is a major cause of displacement among lower-income residents, finding that “high-income movers tend to create more opportunities through filtering than they take away through gentrification,” with filtering defined as “the process of new construction encouraging mobility across the income spectrum.”

The Federal Reserve research supports the Bay Area Council’s efforts to influence the drafting of a regional housing bond measure that could go to voters as early as November. The Council is seeking provisions in a measure being developed by the Bay Area Housing Finance Authority that would allow the use of some portion of the bond funding to ease the cost of affordability requirements and fees on market-rate housing construction that too often make projects infeasible. To engage in the Council’s housing policy work, please contact Vice President Louis Mirante.