By Michael A. Spotts
Last week, the Northern Virginia Affordable Housing Alliance released: Building Northern Virginia’s Future: Policies to Create a More Affordable, Equitable Housing Supply and a companion Research Justifications report, which were produced by Neighborhood Fundamentals (see full overview). Over the next several weeks, this blog will highlight some of the key findings and recommendations from this research. Today’s post takes a closer look at how supply growth and preservation can be complementary approaches to improving affordability across the income spectrum.
As part of Building Northern Virginia’s Future, the research team reviewed a wide range of literature regarding the impact of supply growth on affordability in high cost, high growth markets. Available evidence confirms the basic economic theory that constraining development contributes to increased housing costs. However, the evidence also suggests that benefits of new development do not accrue evenly. While median costs may fall (or rise less quickly), specific neighborhoods can see significant cost increases and the stock of homes affordable to lower-income households may decline. Therefore, adding housing supply is necessary but not sufficient to meeting the full range of housing needs. Efforts to produce committed affordable housing for low-income households, and preservation in particular, are critically important to ensuring that the most vulnerable households do not bear disproportionately negative impacts.
Market conditions in the Washington, DC and inner-Northern Virginia region demonstrate the need for preservation. Since the end of the Great Recession, new development has lagged compared to historical trends.
The nature of regional population and economic growth also creates challenges. Growth has been disproportionately at the highest and lowest ends of the income spectrum, particularly among renter households. With insufficient new supply to absorb this demand, the cost of existing units has increased. As we highlighted in our June 2018 report on Northern Virginia’s Preservation Challenge, new construction has been focused on higher-end units, leading to some investors shifting their focus to purchasing more modest apartments. These “value-add” investors often conduct light rehabilitation work to reposition the property and raise rents. While this helps fill the housing gap for middle-income households, it often reduces the number of relatively affordable options for lower-income renters.
As we highlighted in Building Northern Virginia’s Future:
From 2000-2018 the cost to rent a two-bedroom apartment in Alexandria increased by 104 percent (Seau and Jovovic; City of Alexandria). Had Alexandria’s rental housing costs simply increased by the rate of inflation, rental costs for such units would be nearly 43 percent lower than current rates. The City of Alexandria saw an 88 percent reduction from 2000-2018 in market rate units affordable at 60 percent of AMI (from 18,218 to 2,236 units).
From 2000-2017, Arlington County lost over 14,500 rental units affordable to households earning 60 percent of area median income (AMI) or less, mostly as a result of increases in rent (Arlington County). There were only 2,445 such units left in the County, with approximately 11,000 additional units affordable between 60 and 80 percent AMI.
A separate analysis found that the inflation adjusted increase in rents from 2011 -2017 was 4.0% in Arlington and 3.9% in Fairfax County. During this period, Loudoun County had the largest rent increase in the Washington, DC region, at 11.3% (Urban Institute).
Therefore, despite being superficially counter-intuitive in nature to discussions of increasing housing supply, preservation of existing housing affordable to low- and moderate-income households is an important component of a comprehensive strategy. From the perspective of “first do no harm,” preservation can reduce short-term displacement and minimize the disruptive impacts of development to a given household. For those who oppose new development on the basis of potential loss of affordability, a robust preservation strategy can provide evidence that the jurisdiction/developers are acting in good faith when adopting development-friendly policies meant to increase overall housing supply. Finally, preservation can also enable future increases in affordable housing supply. Bringing increasingly valuable land under mission-driven control provides the flexibility to participate in a redevelopment strategy later, at current acquisition prices. Future development can utilize increases in density and/or other incentives to replace and potentially expand the number of affordable units.
Northern Virginia’s Preservation Challenge offered a wide range of policies that can support preservation in the region. From the various specific recommendations offered by the report, the four highest-level policy priorities include:
More effectively using public subsidies to leverage/attract private capital for preservation;
Building capacity to preserve smaller-scale buildings in high-opportunity neighborhoods;
Adopting or improving property tax abatement programs to increase utilization by private, market-rate owners;
Encouraging equitable redevelopment through zoning and land use flexibility.
Efforts to balance supply growth with preservation are even more important in the context of potentially catalytic investments by the public and private sectors. Notably, the arrival of Amazon and a new Virginia Tech campus will create demand pressures, particularly within a short commuting distance of Crystal City/Potomac Yard. Stay tuned to the Neighborhood Fundamentals blog for additional analysis of this subject and other key takeaways from Building Northern Virginia’s Future.
Interested in learning more about addressing housing affordability challenges in your community or region? Email info@neighborhoodfundamentals.com.