Below are some common questions about the housing crisis, as answered by an economist.
Commonly heard objections:
Possibly. About half of all major cities in the USA are in a housing crisis. The rent of their inexpensive apartments is much higher than in other large growing cities.
I looked at the 50 largest metro areas and the worst ones were (in order): Boston, San Francisco, San Jose, San Diego, Los Angeles, New York, Miami, Riverside (California), Virginia Beach, Atlanta, Providence, Washington DC, Portland, Denver, Sacramento, Austin, Seattle and Orlando.
You can determine if your city is in a housing crisis by looking at the price of cheap "acceptable" apartments in your city. For my study, I defined "acceptable" as being listed on Zillow and defined "cheap" as the 1st percentile in rent. If that cheap rent is much higher than $750, there is a housing crisis. $750 is achievable by other large growing cities, like Dallas, Houston, Jacksonville, and Oklahoma City.
Essentially, yes. I checked the 50 largest metro areas for housing crises. 4 of the worst 5 were in California. (San Francisco, San Jose, San Diego, and Los Angeles) California had 2 other cities in the top 50, Riverside and Sacramento, and both were worse than Austin. California has bad housing crises and Austin seems headed in that direction.
No. I believe the government has an important role to play in defining and regulating markets. For example, the government should regulate healthcare, both for safety and to make sure insurance covers pre-existing conditions. In housing, the government should regulate building safety, utilities, and "externalities" like noise, pollution, and traffic. Despite what you might have heard, most economists are not pure libertarian/capitalist. We try to identify the right government regulations for the particular situation, in order to make the most people happy.
When a market is appropriate, most economists are in favor of a free market. There should be no limits on the size/number of the product, no limits on the price of it, and anyone can sell to anyone. History has shown that these limitations do bad things - some people end up with too much of the product and some end up with too little. For example, Venezuela put a maximum price on certain foods, which caused too little food to be made. It created widespread hunger, even though the country has the most oil in the world!
Austin currently has a minimum lot size and maximum building heights. By requiring a minimum lots size, some people buy too much land — leaving others without. And by setting a maximum building height, some people have buildings that are too short. These are what is causing our housing shortage.
We need to make it easy to split a lot in practice. It is currently legal to split some lots, but developers have stopped doing it because it takes too long and costs too much. In addition, there other regulations, like curb-width requirements, that effectively prevent lot splitting.
We need, in many places, to take people out of the process. If builders want to build, they must please the Planning Commission, City Council, and neighbors who live nearby. An objection by any of these can stop the building from being built. In order to please them all, builders build smaller buildings or spend time and money building the building. I'm not saying that people shouldn't review the plans and, in extreme cases, be able to force changes to the plans. But we need to let builders build what their customers want.
We need to re-evaluate the fees on new construction. These drive up the cost of new construction and, therefore, drive up the cost of housing. Fees do have a place — the city spends more on infrastructure in a sparse suburb than in a dense city block — and we should charge more for those. But, for the most part, city services should be paid by annual property taxes and not construction fees.
I am not an environmental expert, but I can say that, if we build taller and denser near the center of the city, it will mean less sprawl. That should improve nature at the edge of the city.
As for carbon usage, it should drop for transportation, because more people will be near the center of the city and need to travel shorter distances. Carbon usage should also be lower for heating and cooling, since more people will live in condos or apartment complexes with shared walls. As for construction, my understanding is that wood is a carbon sink and that steel and concrete result in greenhouse gases. Since taller buildings use more concrete and steel, that may produce more greenhouse gases. We can (and should!) encourage wood and new technology by passing a "carbon tax" on the material used in construction.
A density bonus or "inclusive zoning" allows an apartment building to be built taller in return for guaranteeing that some apartments are reserved for capital-A "Affordable Housing". "Affordable housing" (with a capital-A) means apartments whose rent is lower than the market rate and can only be occupied by families earning less than a certain amount. E.g., the apartments might rent for less than $1,650 per month and are only available to families earning less than $66,000 per year. (If you care about numbers, $66,000 is 60% of the income of the median family of 4 and $1,650 would be 30% of $66,000.)
Density bonuses will not solve the housing shortage. First, the income from rent is lower and, therefore, fewer buildings will be built. Second, the building design is more complicated, with different apartment styles, which increases the cost and, therefore, fewer buildings will be built. Third, complying with all the regulations, such as checking the income of its residents, increases the costs and, therefore, fewer buildings will be built. The result is that this form of "Affordable Housing" is very expensive to the city.
A better approach to housing the poor is housing vouchers and building a lot more housing.
An accessory dwelling unit ("ADU") is a small house built behind an existing house. These buildings go by many names, including "granny flat" and "pool house" (when by a pool). They sit on the same lot as the existing house and are used to house relatives or are rented.
ADUs do increase the amount of housing in Austin, but not many are being built. Fewer than 300 in 2016. We should build what people want and, it appears, few people want an ADU.
A housing bond is a general obligation bond, that is, money borrowed by the city and paid back by city taxes, where the borrowed money is spent on housing. The money from Austin's housing bond has been spent on many different programs.One of the largest programs gives money to developers to build capital-A "Affordable Housing". The usefulness of that program is answered here.
"Affordable housing" (with a capital-A) means apartments whose rent is lower than the market rate and can only be occupied by families earning less than a certain amount. In one case, the apartments rent for less than $1,375 per month and are only available to families earning less than $55,000 per year. (For those who care about numbers, $55,000 is 50% of the income of the median family of 4 in Austin and $1,375 per-month would be 30% of $55,000 per-year.)
We're in a housing shortage so the important question for a housing program is "How much more housing gets built?". This report by HousingWorks Austin says that $79 million was spent to create 1712 units, of which 1649 were Affordable. That's a cost of $46,144 to the taxpayers for each unit. But, if this money had not been available, what would have happened? The families in those units would still have had to find somewhere to live. That is, they still put demand on the market. The land where the building was built would have been available for a for-profit company to build on. So, housing probably would have been built. It might have been luxury units, rather than Affordable Housing, so richer people might live there. Those richer people would leave units open somewhere in Austin, so the "poor" families (they earned up to $88k per year) would probably have found a place elsewhere. So, it seems Austin spent $79 million and ended up with: (1) about the same number of housing units, but crappier ones (2) less property taxes, (3) 1649 "poor" families in nicer units and paying slightly less rent and (4) a costly bureaucracy to make sure only "poor" families live in those units.
A better approach to housing the poor is housing vouchers and building a lot more housing.
Middle housing is a residential building between a single-family home and a large apartment complex. A common example is the duplex, which is 2 units in a building slightly larger than a single-family home. A triplex is a slightly larger duplex, with 3 units instead of 2. The term "Missing Middle Housing" refers to the idea that not enough middle housing exists, possibly because zoning laws have discouraged it. The term "Triplexes Anywhere" refers to a plan to eliminated single-family zoning and allow any lot in the city to have a building with 1, 2 or 3 units in it. Minneapolis enacted Triplexes Anywhere in 2018.
Allowing middle housing, such as duplexes and triplexes, can increase the amount of housing in Austin. However, it is worth looking at Minneapolis. After they enacted Triplexes Anywhere, fewer than 100 duplexes and triplexes were built. Minneapolis saw an increase in building, but most of the new units were in apartments (a.k.a. "multi-family"). So, while "Triplexes Anywhere" grabbed the headlines, the success in Minneapolis was due to building more apartments.
Public housing is when the government owns housing and rents it. The government may rent it below market rates. The government may make or lose money renting the building, with any profit or loss going to/from the taxpayers.
Public housing will not solve the housing shortage, unless the government builds more housing than private companies. Remember, right now, private companies want to build more housing — taller buildings and more houses on split lots — except the government is preventing that. It seems simpler to just get rid of the restrictions on private companies building more housing.
Rent control is when the government stops landlords from increasing the rent. Rent stabilization is when the government sets the rent increases allowed by landlords.
This does not create new housing and will not solve the housing shortage. In fact, it decreases the incentives on for-profit companies to build new housing.
A land trust is when the government or a non-profit buys land and allows a resident to own the house on the land. The resident usually plays a small annual fee to rent the land. This allows poorer residents to own a house, because the mortgage covers only the house and not the expensive land. The residents save money because the fee is cheaper than the mortgage payment for the land would have been.
Land trusts will not solve the housing shortage. In general, they do not create new houses. Moreover, land trusts are costly: buying the land is expensive and the city loses the property tax revenue from it.
Manufactured homes are built in factories and transported to a site. These are commonly called "mobile homes", but many cannot be moved once they have been installed at a site.
Manufactured homes would allow a lot of housing to be built quickly. Since we are in a housing shortage, they should be encouraged. Also, manufactured homes tend to be cheaper, meaning poorer families can afford them.
Austin's current zoning rules prevent putting a "mobile home" on most lots. As faras I can tell, they are only permitted on a few lots zoned "MH : Mobile Home Residence". This is probably because most residents of Austin do not want to live near a "mobile home". Some are visually different from site-built houses and are associated with poor people. One fix to this problem is to allow manufactured homes in most zones, but put some visual requirements on the design to appease neighbors.
Housing vouchers are government-given vouchers that help pay for rent. The most common program is Section 8, which hands out rent vouchers to low-income residents. The holder of a voucher can rent any compliant lower-than-average-cost apartment. The voucher guarantees that the holder never pays more than 30% of their income for housing, no matter what the rent. E.g., if the rent is $1,000 and the holder only made $2,000 that month, the holder would pay $600 (30% of $2,000) and the voucher will be good for the other $400 of the rent.
Vouchers make more money available to buy housing. This can incentivize for-profit companies to build more housing to rent to voucher holders. But this only works if more housing can be built. If it cannot, vouchers will drive up the cost of housing. Low-income residents who do not have vouchers will pay more or go homeless.
So, vouchers are a good way to help the poor afford housing. (Much better than rent control, rent stabilization, land trusts, density bonuses, or housing bonds.) But they will not solve the housing shortage.
"Filtering" is the idea that poorer families live in older houses and apartment buildings. It is no different from the idea that poorer families tend to drive used cars, rather than new ones. Or that poorer people tend to wear used clothing from a thrift store, rather than new clothes. The name "filtering" comes from the process where new houses are bought by richer families and, when sold, are bought by middle-income families and, when sold again, are bought by poor families. Thus, as buildings age, they filter down through the income levels.
Despite the common preconception, buildings do age. Repairs get more common and more expensive. Even a well-cared for old home may be less valuable than a new home, because the new home has an up-to-date style, is more energy-efficient, or has new technology built into it. Thus, like cars, the rich are more likely to buy new ones than old ones.
This intuitive idea has been studied by economists. City Observatory has a summary. The 2021 Austin Housing Analysis measured filtering in Austin and saw its effects in houses up to 50 years old. Houses older than 50 years saw prices increase, but most of those are close to downtown. Most likely, the land under the building has gained more value than the building lost.
Filtering is important because most of the lower-cost housing in a city is older housing. That is, most of the affordable housing was upper-income housing when it was new and has filtered down to the poor.
An approach to create more affordable housing is to build more new housing for upper-income customers. Residents from all income-levels will move into better housing and this creates more housing for low-income residents.
Critics refer to this pejoratively as "trickle down" housing or "supply side" housing. These terms are a reference to the debunked macroeconomic policy known as trickle-down economics or supply-side economics which was pursued by Republicans in the 1980's. However, filtering is a microeconomic policy and the effect of more supply lowering prices has been a fundamental of economics since the 1700's.
In general, it is better for a city to creating more low-cost housing by building more high-end housing and using filtering rather than directly building low-cost housing. Any brand-new low cost must be deficient in some aspect. It must be smaller, lower quality, missing a new technology, or lacking in some other aspect. Since buildings last for 40 to 100 years, it is better not to build something deficient.
During a housing crisis, it might be worthwhile building brand-new deficient housing. These might be individual "sheds with beds" or shared "bunk houses", where small rooms are packed with bunk beds, like in a hostel. That housing would be fast and cheap to build and be better than sleeping on the sidewalk or in a tent in a park. But, these solutions are rarely proposed.
Displacement is when a community is forced out of a part of a city. By "forced", I means families leave who normally would have stayed. Families leave due to things like rent increases, evictions, foreclosures, abuse from landlords, etc.. Displacement (in the economic literature) does not refer to gradual change, which happens when home owners die or voluntarily move away and the new residents moving in are not of the same community. In Austin, displacement usually refers to Black and Latino communities being forced out.
Displacement and gradual change are serious problems. A community is not just its residents, but its cultural institutions and gathering places: churches, halls, music venues, restaurants, bars, etc.. The movement of a community's members far from these will decay the community. The community will lose its ability to organize to accomplish projects (such as using political power) and lose its ability to help its members in need.
From what I've heard, most of the displacement and gradual change in Austin is caused by higher rent and home prices. One person has told me that home loans are difficult for Black residents to get. I'm not of the Black or Latino community, so there may be other things happening that I haven't heard of. It shouldn't be a surprise to anyone that, as land prices have increased in Austin, it is harder for low-wealth communities to buy homes in Austin. The best solution is to lower home prices and rents. So, solving the housing shortage is a major part of the solution to displacement and gradual change. Recent research has show that building more housing decreases displacement.
To be clear, increasing the amount of housing will allow the communities to remain in their parts of the city, but the increased housing may also allow other communities to move in too. But that's fine (unless you're against integration). The original community will still have access to its cultural institutions and gathering places.
Gentrification is when the average income increases, in a part of the city. That is, a neighborhood gets richer residents. This is usually accompanied by businesses that serve richer customers: fancy grocery stores, craft breweries, dog groomers, etc.. It may mean fewer businesses to serve the neighborhood's poorer residents. Gentrification is often accompanied by increased rent and may cause displacement.
Removing minimum lot sizes and maximum building heights will cause gentrification in some of Austin, but not creating more housing will cause gentrification in all of Austin. If we remove minimum lot sizes and maximum building heights, it is likely that tall luxury apartment buildings will appear on major roads within 2 miles of downtown. Those neighborhoods might get richer residents and new businesses to serve them. But the larger supply of housing will help push down the price of housing outside those neighborhoods. If we do not build more housing, the price of housing will go up everywhere. Every community in Austin will see higher rents and may experience displacement.
I hear this question often. And often, in the same conversation, I hear how it is a shame that they're closing the school nearby. There aren't many families in the neighborhood, now a days. The asker, with their spouse within arm reach, tells me how they're getting on in years and soon they'll have to sell their house and, when they do, they hope it is to a young family. A family like they were when they moved into the neighborhood.
Austin's neighborhood character has changed. Slowly over time. Young families don't move into Hyde Park or Zilker. The houses there are expensive. Parents would rather live some place cheaper and spend money on their kids, not their mortgage. I recently heard a UT professor bought in Leander, because it was the closest place she could afford.
So, yes, removing the minimum lot size and maximum building height will change the neighborhood character. Yes, it may mean new houses will be built on smaller lots, but it will also mean families can afford to live there. If you want to see children playing and UT professors cycling to work, we need to change some neighborhoods' character back to what they were.
Developers can profit most by fixing the housing shortage. In any shortage, the business that can provide what you need will make money. We're in a housing shortage and the developers can provide housing. I'm fine with them making money.
Developers are not profiting from the shortage. Landlords are profiting from higher rents and land sellers are profiting from higher land prices. If anyone is "evil", it is they.
Allowing more housing to be built near downtown will probably cause more car traffic in those neighborhoods. Keep in mind that people choose where to live based on their travel patterns and developers will take that into consideration when building.
There will be more demand for street parking in many neighborhoods. And the city should pass laws to deal with it. Many residents bought houses and bought cars based on the expectation of free available street parking near their house. Those residents don't own that street parking — the city does — but we should respect that they made big financial decisions based on it.
We can put in parking meters, to prevent the street parking from becoming full. And we can create parking passes for residents who bought cars based on the expectation of free parking.
I'm not an expert on this. I'm sure the city can limit the number of units in some areas based on infrastructure. I'm also sure the city can expand the infrastructure if there is enough demand for housing in an area.
I am not an expert on taxes, but my understanding is that people over 65 get a "senior freeze" on increases to their homestead for school property taxes. The state puts other limits on increases too. So, where taxes will increase, the effect may be limited for many on a fixed income. Unfortunately, state law restricts what the city can do to limit the effects further.
Yes, changing the law may hurt some of Austin's residents. But not changing the law will also hurt some residents. And I think those hurt by not changing the law are more numerous and on tighter budgets. So, I think we should change the law.
To see who might be affected by higher taxes, see the answer for How will this affect you financially?.
To fix the crisis, we need to allow housing to be built over a large portion of the city.
The biggest (economic) reason for allowing housing to be built everywhere is that no one knows where people want housing. Certainly, the city's experts make educated guesses and try to plan for infrastructure appropriately, but they don't know for sure. Also, we don't know how new technology and tastes will shape the city. By allowing small lots and tall buildings everywhere, we allow flexibility for the city to fulfill people's housing needs.
By "fault", this question makes it sound like we can solve the problem by kicking out the "tech bros" or keeping more from moving here. And that isn't a solution. America is a free country and people can live where they want. Austin cannot build a border wall to keep out "tech bros".
Even if we could, we shouldn't. Austin is lucky to have a growing industry with high-salary employees. I grew up in Allentown, PA. The steel companies and truck manufacturers had left. The city was shrinking. Jobs were scarce. It was dirty. There was property crime. I'm glad my family left and moved to Austin. We are blessed to live in a city that thrives due to its growing industry. Many cities would gladly take our "tech bros" if they could.
A high-profit industry does cause growth and growing pains. We can fix most of our growing pains by fixing our zoning.