September 13, 2007
New Construction is Not the Enemy of Affordability
Austin’s rising population and stagnant housing supply have resulted in increased housing prices. Even though there are a lot of condos under construction, few have hit the market. Our pal Wells Dunbar over at the Chronicle has a nice article discussing the complicated answers to the problem of affordable housing. One undiscussed simple answer would be to get people to stop moving to Austin. Despite our commenters efforts, that plan isn't working [ed: isn't working yet - keep trying guys!]. The other undiscussed simple answer would be to increase supply. That is difficult in Austin, where every new development (or replacement of an old development) is met with protest and outrage, and requires repeated appeals to various city bureaucracies.
Why are people opposed to increasing the housing supply? We all bemoan the loss of local flavor, but that is seldom enough to motivate action (other than blog commentary). The hardcore fight against new development consists mainly of two groups with economic incentives: the individuals being displaced (and the people fighting on their behalf) and nearby homeowners.
The individuals being displaced see new development as the enemy of affordability because when an old apartment complex is torn down and replaced with a new complex, the new units are more expensive than the old ones. If you are only looking at one apartment complex (which is understandable if you live there), then affordability is being harmed. However, if the new complex increases the local housing supply, then there will be a lower relative price for other housing in the area. In Austin, we haven’t added enough density to meet the influx of people, so we haven't gotten ahead of the curve enough to push prices down. The supply we have added has kept prices from increasing as much as they otherwise would, but prices have still gone up.
The other opponents to new construction are the owners of the other housing in the area. This is often couched in phrases like “loss of neighborhood character” or “increased traffic,” but there is also an economic motivation. New construction down the street increases the supply for people interested in buying the neighborhood, which results in lower prices. Homeowners profit by restricting local supply, because it increases the price of what they own.
If we aren’t going choose a simple answer, what are the complicated answers? The city is going to spend $300,000 studying the question. Some lawyers from UT came up with a few alternatives: get the government to pay for it through public funding or "private" finance tools, or get the government to force the developers to pay for it through tax tools, zoning/land use ordinances and regulatory tools. These may be good ideas, but they don't reduce actual housing prices - they just shift part of the price to taxpayers or developers. There are only two real ways to reduce housing prices: reduce demand or increase supply.
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Is Construction supposedto be spelled like you did? "Constrcution"?
It's encouraging to see a balanced report on the affordable housing debate. There are no black-and-white answers. The whole gentrification issue is just a shrill "Go back to California" argument on a smaller scale: people who have been living in an East Austin neighborhood for years saying, "Go back to Pflugerville."
As you say, increasing the housing supply benefits us all in the long run by lowering housing costs. In addition, building in blighted central neighborhoods improves the quality of life, boosts property values and leads to so-called urban infill.
New housing will never be low-income. Housing filters downward by age and quality of upkeep. Is it sad or surprising that you get what you pay for, and the more you can pay, the more you can get? You are correct, Shilli - the key to affordable housing is to increase supply, when done right.
Coming from Houston, it's great living in a city where land use issues are actually a subject of interest and debate, and that there are actual tools at the disposal of citizens and local government. It's amazing what happens to the character of a city when anything can be built on any parcel at any time with no recourse.
tornados are the enemy of construction. mark my words.
And in the end its all about money.
...Until the tornados kill the banks.
heyzeus,
Houston has the worst aspects of zoning and none of the good parts - they absolutely do NOT allow the "build anything you want on any parcel at any time" that most people, including you, think.
What they allow is basically building almost any LOW DENSITY stuff anywhere at any time, as long as you pave over a bunch of the lot for parking. Big difference.
Can't we fight through blogging though? People bitch and bitch and bitch about the need for affordable housing in Austin and guess what - the media starts listening and city leaders start listening and people start studying the issue. I don't think it's fair to people that have harped on this issue to either make fun of them or tell them their thoughts were worthless or not seen as any sort of action when the city is actually starting to take affordability seriously.
Wells also talks about condo conversions - and addressed them in a followup on auschron; but still didn't talk about the fact that many, many, many (maybe even a majority) of condos are rentals (same as apartments, except you deal with a single owner who likely has more incentive to offer lower rent more quickly when economic conditions change).
As is also sadly the case 100% of the time these days at the Chronicle, they completely let the ANC off the hook for, over the last 2 decades or so:
1. Opposing every single apartment complex in the world
2. Writing neighborhood plans which mostly set us backwards in affordable housing (like NUNA banning garage apartments in its cheaper sector)
3. McMansion (penalizes existing duplexes and garage apartments and discourages new ones).
Apartment complexes don't lower house prices because of increased supply. Living near an apartment is just flat out not as desireable as not living near one.
mdahmus, you're wrong about Houston's "zoning" but you present it with such certainty that I have to admire it.
tornados are the enemy of houston.
New construction is not the enemy of affordability when the homes are made small and tidy and energy efficient without luxury spa tubs and marble fireplaces.
That's the problem with new home builders, there are none making simple little homes. Little homes that would fit into Springdale or off of Manor. They probably still could build a home for under $100,000 in Austin, but nobody wants to and that's sad.
So, seeing there are a lot of supporters on here for development and the condo boom. How many of you actually own one of them or have put a deposit on one? I find it amusing that the prices for some of these developements jumped by $100K or more per unit in just over a years time - this for projects that are not even built yet.
heyzeus,
Houston's minimum lot size ordinance and parking lot ordinances are public record. I covered it a while ago in this crackplog.
Since the paper I linked to only has abstract available these days, here's another.
And more recently:
And still more, although this seems to be cited from the original (now available in abstract-only) paper from my first link.
guest 14: Even new expensive housing supply affects the overall market, as the housing market is not rigidly segmented (a landlord will not let their unit lie unrented because a bunch of new luxury construction took away his customers; he's going to lower the rent a bit and move downmarket - this happens all the time with older buildings which were considered the best stuff around when built).
#15, I own a condo downtown and love it.
One could say that Austin is building the equivalent of $100k houses. It's just that they're actually $300k houses and they're getting snapped up. A builder's only putting in a couple grand for the marble and the jacuzzi, so that's not really the issue at all. We have something like 98% rental occupancy in this town. Even if they infilled the old neighborhoods with only $100k cottages, we don't have enough land to keep up with demand, and the people who bought them would immediately flip them, take their $200k profit and go buy a mansion in the suburbs. We need an enormous amount of density to bring down prices. And all the people complaining now are definitely not going to be happy then. Because if the price of a house in Central Austin ever drops to "affordable" levels, then you can be assured that your house in Pflugerville is going to be worth about the same as a used SUV and you're not going to be able to afford the down payment on that "affordable" house anymore.
Just like the majority of us will never be able to afford to live in Westlake Hills on a lake, the majority of us will never be able to live downtown. That's the way the system is rigged. If you want to live there, chances are someone else does too, and chances are they make more money than you.
i wish they'd build condos downtown for middle-income people. why are all the condos downtown, "LUXURY" condos? do i really need those expensive appliances and tacky tile? can't i just make my own decisions about that when i buy my own, and fix it how i want it?
The city seems to have a big problem. It wants to keep building condos but doesn't want to build anything that will actually bring people into the city. The outlying areas have all that. Round Rock has the Ikea, outlet mall, RR Express. Cedar Park is getting a water park and an amphitheater. The toll roads make it extremely easy to go from one location across to the other, but its a major pain in the ass to get downtown. What does Austin have? A bunch of bars and restaurants for the college crowd, a horrible high end mall on mopac and braker, and a ton of new high-end condos. That's about it. But I guess they don't care if they can bring a couple million down for music festivals then the college kids fill in the blanks at the bars the rest of the year.
Then you have these crazy hippies that want no one around them and refuse to agree to any kind of advancement in their city. Talk like that will kill a city. Local flavor is one thing. Trashy gross dive bars and restaurants are another. Austin has too many of those that the crazy people call "local flavor".
South Austin might as well be a totally different city. Not even worth going down there anymore.
#20, good luck when the tornados come to seek their vengence on the condos.
I don't want to live downtown. I want to live in some crappy cheap neighborhood with other low income people in a house that's well constructed but basic. It may cost the builder $1,000 to remodel a bathroom in a shithole, but he's not going to pass that savings along to the buyer. The problem is, in Austin, the shitholes are few and far between and if a seller has a choice between a low income person buying their house or a mother fuckin' flipper, he's going to pick the mother fuckin' flipper.
I mean, I'm talking St. Johns or far East Austin or North Rundberg area. I'm not talking stick-up-their-ass Tarrytown here.
guest 23:
Building your city to make it easier for suburbanites to drive downtown (with plenty of free parking!) is a recipe for urban disaster - that's what donut-hole cities did. I know nobody likes to hear it, but the way you can tell if a city's worth visiting is by how much it costs to park your car.
#24 my building is 3 stories high and made of cement and bricks. I'm really scared about tornadoes.
On a side note: I believe a whole bunch of plate glass windows DID get shattered by strong winds a few months ago at the Plaza Lofts.
If "Trashy gross dive bars and restaurants" repulse people like you I will scream at the top of my lungs to keep them here and to keep people like you away. Then maybe one day all the people that think "Trashy gross dive bars and restaurants" are worth leveling for condos will move out.
Oh, so you live in the Brazos lofts?
again, this writer writes like someone who lives in a condo and not a house. your simplistic assumption that more higher density construction will bring down home prices is inaccurate.
the builders still have to make a living so the new units will be more expensive than the old. wells' story was about disappearing low rents. these are only going to be available in buda soon.
guest #31, your ignorance of basic economics makes baby jebus cry.
Guest 31 - I live in a house near central Austin, which I own. I personally stand to benefit from inhibiting supply in exactly the way I describe in paragraph 4 of my post.
New units are more expensive than old ones, but those new units push down the price of existing housing. Today's "luxury condo" is tomorrow's budget rental. As long as we increase supply faster than demand rises, prices stay down. Low rents are dissapearing because supply isn't keeping up with demand, which is partly the result of misguided (paragraph 3) or self-serving (paragraph 4) people fighting against density.
Guest 31 - also, I think that current condo owners have the most to lose finacially from new condo construction. A house on a lot and a condo are not exactly fungible, although the prices are related. My guess is that when the new condos currently under construction come on the market, existing condo prices will take a hit (a.k.a. affordability will be improved), but home prices near downtown will not (or at least not as much).
Also, you (and Wells) may be right that low rents may only be available in Buda soon. Wells and I are both trying to address possible solutions to that problem. Wells wants to shift a portion of the price onto taxpayers and developers. I want to promote more dense development. Wells thinks replacing old apartments with denser complexes is part of the problem. I think it is part of the solution.
I love the fact that all those condos are being built downtown (said somewhat sarcastically). The bottom is going to fallout so fast they'll be begging for buyers! I also suspect that renting is going to become substantially more reasonable as well with the glut of downtown housing Austin will soon have. And to all you developers, I can't wait to see you lose your money-grubbing asses.
I think if you double people's property tax burden for each new home they buy, a lot of people are going to try and sell their second or third homes which will create that situation where the need for homes is not as high as the available homes.
"South Austin might as well be a totally different city."
hmmmmm.... might as well!
"Wells thinks replacing old apartments with denser complexes is part of the problem. I think it is part of the solution."
To be fair to Wells, not all of these conversions have resulted in more density - I can think of one in OWANA that replaced a couple dozen rundown apartments with like 8 $800K townhouses.
This is what most of us are hoping for. I for one am not leaving my medium sized house with a pool in a highly desireable neighborhood for a way too expensive/small condo. What I will do however, is buy 2-3 of them as soon as the bust hits in the next couple of years. After that, I'll just rent them out and use one as a guest house basically and the rent alone will cover my mortgages and taxes. I am patiently waiting for the day of free housing.
I get apoplectic when civic-minded bloggers/writers assert that there is a sort of inalienable right to "affordable housing" in Austin, or in any desirable urban setting. There is affordable housing in many of the residential areas encircling Austin--particularly southeast, which is still in the Austin city limits. By artificially stimulating demand through some type of affordability requirement or price caps--which, presumably, those of you assailing builders and developers must support, and are disastrous by the way (just ask Zimbabweans)--aren't you infringing upon my right, as a homeowner, to reap the bounty from the 'irrational exuberance' that has spurred the Austin real estate market, pushing property values to unprecedented levels? Don't I have property rights, as an inner-city homeowner that should supersede those of a non-owner?
See. If you do what I want with property taxes, #39 up there will have no incentive to cheat poor Joe Schmuck of the Future.
When I read what you wrote, #40, I read it in this irrational screaming kind of voice not unlike a parrot talking.
Why people feel like they have a right to "affordable housing", #40, is because if you're paying them a low wage to cook your meals and watch your kids and clean your house and car for you, then they need to have a place to live, preferably a home. If you don't provide the people you take for granted everyday with an affordable place to live, they will leave and nobody will be there to cook your meals and watch your kids and clean your home and car and you'll have to do all that shit you like to pay others to do yourself.
those affordable houses surrounding austin are crap. pre-fab blights on the landscape. they create longer commutes, more pollution, more stress on the infrastructure. and they're going to fall apart in ten years.
And just in case you do all that important stuff already, you still will need to buy groceries and buy gas and have your trash hauled away and if low income people are driven out of Austin, nobody will be there to take care of the business you can't do yourself for you.
guest #43-45, who I suspect is the same person, the increasing-density model best supports what you're talking about - the dense neighborhoods in Austin are the only ones which provide BOTH expensive AND inexpensive housing - although your ideological compatriots at the ANC keep trying to drive the latter out (through banning garage apartments in neighborhood plans, penalizing duplexes, etc.)
I'm 43 and 45. Some other smart cookie is 44. What neighborhoods are you referring to, mdahmus?
These outrageous prices for new condos are being completely fabricated by their own developers!! Who says it's a 500k condo? They do!! So, by basing their entire cost structure around inflated condo prices, they are making themselves vulnerable to the inevitable collapse of this bubble...or are they? No way they're that dumb...makes me wonder what their overheads really are, and why it would be so painful for them to negate some of the damage they create by displacing people. If people will pay 500k for a tiny skybox, what's an extra 40k added on to pay for affordable units, parkland and such...Developers whine about having to pass on those costs to other buyers, but really, do we think they give a shit about their buyers, no matter how much they pay? They're just greedy; and lazy.
OWANA, where you can get one bedroom apartments for 500 bucks or 2000 bucks. North University, where you can find garage apartments for dirt, or million dollar houses. Hyde Park - yes, Wells, 600 is cheap for an apartment - try beating that up on Metric Blvd. Etc.
When I lived in OWANA, many of the guys that worked at the stores at which I shopped also lived in the neighborhood - in the little apartments you don't always notice (like the really cheap ones in back of Jeffrey's).
48: Demand. Supply. If you think the latter will soon exceed the former, don't purchase a condo, or secure the financial backing and to embark on a hundreds of millions of dollars condo project. But for the time being, some folks seem to think the former exceeds the latter. Please continue to make housing choices as you see fit. This is how markets work.
What the hell is OWANA?
And I'm not asking about rentals, I'm asking about neighborhoods where the high income and middle and low income houses sit side by side. And please don't tell me about Mueller. Their low income housing started out at outrageous prices.
There is no such thing as affordable housing in regards to the condos and what we are talking about. If there was, the people who write these columns who live in houses or rent places would be living in them and others wouldn't be complaining that there isn't affordable housing. The fact that prices have rose over 75-100% for units in the past year is relative proof that oly rich out of towners and in town second home buyers are picking these up. I've got a lot of friends, most with middle to upper middle class paying jobs and none of them can afford to or find the affordability or pracitcality in these "luxury" affordable homes/condos. Living downtown would be great...if there was anything to do there. I've lived in the downtown area for years, but in my own home - there is no way I'm giving up a 1000 feet and a private pool for community living. I may as well just get roommates.