Building a Better Understanding of the Dimensions of Housing Supply

By Michael A. Spotts

Conversations about housing affordability (that is, the relative attainability of market-rate housing) and efforts to provide committed affordable housing are often contentious. First, even in progressive areas there is no consensus that affordability is something worth promoting – a debate that is often tied to conceptions of economic status, property values, and most perniciously, prejudice. However, as affordability challenges worsen, there can be sharp disagreement even among those that believe affordability matters and there is a government role for promoting housing choice. These disagreements are varied and it is outside the scope of a single blog post to comprehensively address each. However, one of the main points of debate (at least in the context of hot markets) centers on whether new market-rate development makes things better or worse.

During the research process for the Northern Virginia Affordable Housing Alliance report on Building Northern Virginia’s Future, the Neighborhood Fundamentals research team explored existing literature and analysis on this issue. We found that the answer is “it depends,” particularly as it relates to who benefits from adding housing supply. Development has different impacts for renters vs. homeowners, median-income vs. low-income households, etc. This is not because housing fails to conform to the fundamentals of economics. Rather, it is because there is no singular “housing market.”

In the last week, Shelterforce has published two thoughtful, informative articles that provide more information on the data and economic theory that inform discussions of housing economics. In reality, a housing market is made up of interrelated sub-markets that vary by scale, geography, tenure, building/unit type, and targeting (luxury, middle, affordable), among other aspects (which I often refer to as the various “dimensions of supply”). For more information on those market dynamics and the challenges in predicting the impact of new supply on affordability at the sub-market level, I encourage you to read the full articles featuring Jamaal Green, Miriam Zuk, and Vicki Been and Rick Jacobus.

In recognition of these dynamics, the policy recommendations offered in Building Northern Virginia’s Future were explicitly designed to address the various dimensions of housing supply. Specifically, we argued that the region cannot focus solely on the aggregate number of units that its constituent jurisdictions permit. High-end production has its place, particularly in reducing the pressure that leads to moderate-rent apartments “filtering up,” as investors rehabilitate and reposition existing properties. However, special attention must be paid to eliminating the barriers to housing that will more directly serve low- and moderate-income households.

First and foremost, the production and preservation of subsidized, income-restricted affordable housing serves that goal, both by directly providing housing for low-income households and reducing competition for lower-cost market-rate units. In addition, local governments should review their land use and zoning codes to identify barriers to the development of more naturally affordable housing types. There is strong regional demand for duplexes, triplexes, townhomes, and walk-up apartments. However, we found that these housing types are (generally speaking) more difficult to build from a regulatory perspective than the much criticized “McMansions” that are replacing more modest detached single-family homes throughout many of the region’s neighborhoods. Promoting new construction of more modest housing requires revising land use and zoning rules. In addition, it is necessary to examine the aggregate impact of other associated development requirements related to minimum lot sizes, floor-area ratios, lot coverage ratios, and off-street parking, which can make ostensibly legal housing types impossible to build. As difficult and controversial as achieving such policy change may be, there is precedent from cities such as Grand Rapids, Portland, Minneapolis.

As the aforementioned Shelterforce articles illustrate, both policy design and coalition building efforts to advance reform require a more informed and nuanced conversation about supply-demand dynamics across sub-markets. Otherwise, at best we will advance half-solutions that fail to address the underlying systemic challenges of our housing system. It is to the region’s benefit that we can draw on the lessons from a growing body of housing research and the real-world experiences of policymakers in other jurisdictions to create a better, more equitable development paradigm.