California has a serious housing shortage. California’s housing costs, consequently, have been rising rapidly for decades. These high housing costs make it difficult for many Californians to find housing that is affordable and that meets their needs, forcing them to make serious trade–offs in order to live in California.
In our March 2015 report, California’s High Housing Costs: Causes and Consequences, we outlined the evidence for California’s housing shortage and discussed its major ramifications. We also suggested that the key remedy to California’s housing challenges is a substantial increase in private home building in the state’s coastal urban communities. An expansion of California’s housing supply would offer widespread benefits to Californians, as well as those who wish to live in California but cannot afford to do so.
Some fear, however, that these benefits would not extend to low-income Californians. Because most new construction is targeted at higher-income households, it is often assumed that new construction does not increase the supply of lower-end housing. In addition, some worry that construction of market-rate housing in low-income neighborhoods leads to displacement of low-income households. In response, some have questioned whether efforts to increase private housing development are prudent. These observers suggest that policy makers instead focus on expanding government programs that aim to help low-income Californians afford housing.
In this follow up to California’s High Housing Costs, we offer additional evidence that facilitating more private housing development in the state’s coastal urban communities would help make housing more affordable for low-income Californians. Existing affordable housing programs assist only a small proportion of low-income Californians. Most low-income Californians receive little or no assistance. Expanding affordable housing programs to help these households likely would be extremely challenging and prohibitively expensive. It may be best to focus these programs on Californians with more specialized housing needs—such as homeless individuals and families or persons with significant physical and mental health challenges.
To low-income residents and the groups that fight for them in expensive cities, new market-rate housing often feels like part of the problem. If San Francisco and Washington are becoming rapidly unaffordable to the poor, why build more apartments for the rich?
New housing, these voices fear, will only turn affordable neighborhoods into unaffordable ones, attracting yet more wealth and accelerating the displacement of the poor. And so protestors rally against new market-rate apartments in Oakland. Politicians propose halting construction in San Francisco's Mission District.
Economists typically counter with a lesson about supply and demand: Increase the sheer amount of housing, and competition for it will fall, bringing down rents along the way to the benefit of everyone.
It's understandable that skeptics raise their eyebrows at this argument. It's theoretical, based on math models and not peoples' lives. It seems counterintuitive — that building for people who aren't poor will help the poor. But the California Legislative Analyst's Office just released some very good data backing up this point: Particularly in the Bay Area since 2000, the researchers found, low-income neighborhoods with a lot of new construction have witnessed about half the displacement of similar neighborhoods that haven't added much new housing:
None of this dismisses the very real fact that displacement from specific homes happens when low-income housing is literally knocked down to build high-end towers. A good amount of new supply in cities, though, can rise on under-utilized land (former industrial plots, surface parking lots, abandoned properties, etc.). And the cumulative effect of all that new supply can hold down rents across neighborhoods and cities, including for the poor.