What Happens When Affordable Housing Efforts Get Mismanaged?

As housing costs continue to creep upward, city governments have begun taking matters into their own hands, issuing reforms that attempt to solve the affordable housing crisis.

Too often, though, what seem like popular or common-sense policies fail to have any impact — no new housing gets built — or they make the situation worse: Prices start climbing even faster. Rather than trying to fix symptoms like rising rent and decrepit housing conditions, cities need to consider policies that address the roots of the housing shortage itself.

The National Multifamily Housing Council has put together a Housing Affordability Toolkit that lays out the legislative and regulatory levers that city governments have at their disposal to address the housing shortage. The toolkit examines some of the ways that affordable housing efforts commonly get mismanaged, and why some policies seem to backfire.

“Our hope is to put it in the hands of anyone interested in solving the housing crisis,” NMHC President Doug Bibby said. “We want to help everyone have a more informed discussion about what policies tend to work to create more housing and which ones don’t usually pan out." 

Bisnow sat down with numerous NMHC members to walk through some of the most common ways that affordable housing efforts go awry and the policies that led to that conclusion.

Weaker Communities

Through the 20th century, many local governments expanded low-density zoning laws, which carved out huge swathes of cities and restricted them to detached homes. Even as demand for housing rose, the laws effectively shrink-wrapped single-family neighborhoods. Low-density zoning laws drive prices up by keeping density artificially low, and also keep residents isolated from one another.

“The strongest communities are the ones with the greatest variety of housing options,” said David Schwartz, CEO, chairman and founder of Waterton Associates. “Denser zoning allows for more units on a parcel of land, expanding the local tax base and driving economic activity. Building multifamily is also more efficient than building single-family homes.”

More recently, cities have been making conscious efforts to upzone districts for denser development. Some, including Minneapolis, have eliminated single-family zoning citywide, with the hope of increasing affordability and fostering diversity.

While so-called NIMBYs may lobby to keep their neighborhoods as they are, densifying and simplifying zoning laws are among the most effective ways to spur affordable housing development, according to NMHC’s toolkit.

Not Enough New Affordable Units

Cities can offer as many incentives as they want — it still takes developers to build new housing. If incentives aren’t well-calibrated, the results can be underwhelming.

Some cities have been turning to voluntary inclusionary zoning policies, which offer developers incentives such as increased density in return for setting aside a percentage of their units for affordable housing. These policies can be attractive, especially in neighborhoods where development is already booming — new affordable housing is being created right as current residents are at risk of being priced out.

But when inclusionary zoning policies are mandatory, they can artificially drive market-rate rents up as developers try to make up for the lower rents they receive on mandatory affordable units. Onerous or overly complex policies can also discourage development in general. 

“The best thing cities can do is keep inclusionary zoning policies flexible and apply them carefully, rather than with a broad brush,” said Sue Ansel, CEO and president of Gables Residential.

Higher Costs

A city’s first instinct when addressing housing affordability may be to pass new legislation, add more oversight or make a new requirement. But with each added piece of bureaucracy that developers have to work through, the rent they need to charge climbs.

A 2018 study from NMHC estimated that regulation can account for over 30% of multifamily development costs. Those costs are not exclusive to affordable housing, but can be especially crushing for affordable units, which often require more bureaucracy. 

“There’s a need to simplify the development process, eliminating superfluous layers of costly regulation and moving to a rules-based system,” said Caitlin Walter, vice president of research at NMHC.

Rather than placing pending projects at the mercy of a series of discretionary decisions, cities can move toward by-right development, a system that automatically approves new housing projects if they satisfy a set of carefully calibrated regulations. By-right development can be especially effective at bringing new, denser housing to highly desirable neighborhoods that might otherwise provide backlash to new developments.

Serving The Wrong People

New affordable housing should go to those that need it most: the underserved and the vulnerable who might otherwise be squeezed out of neighborhoods where they have lived for decades. It may seem as though curtailing increases in rent could protect those in need, but that isn’t always the end result.

“Municipalities see rent control as an easy fix to affordability challenges, but it’s anything but,” Trammell Crow Residential CEO Ken Valach said. “Rent control is a blunt tool that doesn’t usually hit the right targets.”

The beneficiaries of rent control are not always the most needy members of the community — they may simply have begun renting the right apartment at the right time, and now have incomes that would let them live in market-rate housing. And while a measure to verify incomes and enforce application of rent control could solve the targeting issue, it adds a large administration cost for rent control policies.

Because they don’t actually create any more affordable units, rent control measures tend to address the symptoms rather than the cause of the housing crisis. Rent control can disincentivize property owners from investing in their properties.

“There’s no silver bullet for the housing crisis,” NMHC's Bibby said. “But we hope that the toolkit can provide stakeholders with more context around what works and doesn’t work, so that the right incremental steps are taken.”

This feature was produced in collaboration between Bisnow Branded Content and NMHC. Bisnow news staff was not involved in the production of this content.