Luxury Development is Making Our Housing Crisis Worse

Rent control. It’s on the ballot in California this November, as tenant campaigns pick up steam across the country and revive an old refrain: “The rent is too damn high!” The real estate industry’s biggest argument in opposition? Rent control will hurt new construction. And – as the developers would have us believe – the only way to pull ourselves out of our dire housing shortage would be by building new construction.

This unquestioning reliance on new construction – a code phrase used by developers to signify for-profit building – is deeply flawed.

For one, for-profit new construction is overwhelmingly geared at the upper end – the luxury market, so to speak. But it’s lower-income households who face the severest affordable housing shortage. While our high-end stock has steadily grown – think towering market-rate apartments downtown – since 1990 on balance we’ve lost over 2.5 million affordable units renting for under $800. To what? In large part, rent increases.

Meanwhile, new units then take decades to depreciate down to prices actually affordable to most renters (see here also). “Trickle down” isn’t happening fast enough.

Even worse, however, new construction actually fuels displacement in the short term – even when no already existing housing is knocked down. Why? Numerous studies show market-rate housing development has price effects on surrounding neighborhoods – driving up rents and increasing the burden on lower-income households. Many residents in communities transformed by gentrification can already attest to the connection between for-profit development, rising living costs, and the mass exodus of lower-income residents. Maybe this won’t play out in Malibu, or a sparse neighborhood with very few low-income folk, but otherwise the above effects are widespread in our cities.

Market-rate construction brings wealthy in-movers. One study found that in neighborhoods with an influx of higher-income groups, working-class residents moved at three times the rate of their counterparts in other areas – usually to leave gentrifying communities (see also here and here).

Location – including proximity to high-end development – also affects price changes. During housing booms, it’s the poor neighborhoods bordering rich ones that suffer the largest rent increases. The trend applies to neighborhoods near transit stations and luxury housing, too. Prices ripple across place.

We know that most low-income residents who manage to remain in gentrifying neighborhoods, from San Francisco to New York, do so only because they live in public housing or rent-controlled apartments insulated from the above price dynamics. Only 1 in 15 poor renters remaining in gentrifying New York City neighborhoods, for example, rent in the unregulated market.

In the very long run, market-rate construction might bring down median rents – but these might still be unaffordable to poor households.  And by then, today’s low-income residents will likely already have been forced out, barred from enjoying the benefits of development in their former neighborhoods.

So if these developer-approved methods won’t tackle the housing crisis, what will? We must pair rent control with any strategy of new construction, to prevent displacement. On a practical level, rent control would immediately stop the hemorrhage of remaining affordable units, provided allowed rent increases are appropriate to low-income renters’ finances, and it includes strong protections against eviction and landlord harassment.  Rent control would also preserve and potentially even recover the affordability of tens of millions of homes nationally – working on a scale unrivalled by Section 8 vouchers and any new construction.

Rent control costs the public little. Unlike Section 8, which follows market prices and doesn’t prevent rents from increasing overall, rent control would make sure landlords get a fair return but cannot price gouge. Section 8’s targeted subsidies, supposedly more efficient because they reachonly a few of the neediest, can perversely reward landlords who impose large rent increases. But rent control’s more universalist approach, covering all renters, better protects the public good.

And we cannot rely on the private market to provide the new construction we need.  Our housing market is broken. Most renters now direct unaffordable levels of their income towards rent.  But for-profit housing cannot meet most renters’ needs. And that’s by design: when profit determines pricing, the housing needs of low-income folks never matter as much as the demand of a few rich individuals at the luxury end.

Instead, we must massively expand the non-profit financing, development, and construction of social and public housing.  We must protect land and housing from the vagaries of the market by creating community land trusts, cooperative housing, and mutual housing on a large-scale. Other rich countries have done it. Sweden addressed its dire postwar housing shortage with hundreds of thousands of cooperatives and an even more massive boom in public housing construction.  Thanks to these policies – along with strong rent regulations – a much larger swathe of its population enjoys extremely low housing costs than in the U.S.

So where do we begin? We can start by pooling our own money into cooperative banks to finance these non-profit housing schemes. The current administration, headed by a tax-evading slumlord-in-chief, might be attempting to gut all our safety nets. But they can’t stop us from taking non-profit housing into our own hands.