Did We Forget Affordability?
Discussions on affordable housing in the United States frequently feel like stories about Greek fire or Roman concrete: ancient technology lost to time. Homelessness and affordability only surfaced as major issues in the mid-twentieth century. What solutions existed prior to that? How did it change? How do we get back? Do we want to go back?
Building the Current System
Cities as Ecosystems
Generally, cities have been grown organically through a series of steps:
- Pioneers would establish some sort of encampment at a location believed to have some strategic advantage (trading port, lumber camp, military post, etc.). Places of business would be established where needed, residences would generally be as near as practicable, given the type of industry.
- Newcomers would arrive and set up experimental attempts to serve the pioneers and their clients.
- The newcomers who found success would establish “roots” in the community in the form of permanent buildings, structured businesses, and so on.
- Economies of scale through the use of shared infrastructure and agglomeration benefits (concentration of talent, idea sharing, access to markets) enabled the growth of cities. As residents gained wealth, they would move from the cramped inner portion of the city to locations with more space, but still accessible to the commercial center, given the transportation technology of the time.
- The city would continue to expand as more residents gained wealth and moved to outer rings of the city. As the peripheral population grew, entrepreneurs would serve these these areas, hence developing neighborhoods.
The Industrial Revolution significantly accelerated urbanization, as factories created job dense areas and mechanized agriculture and transportation systems could serve larger population centers. While the new cities were much larger and expansive than pre-industrial cities, the format was generally the same as before: a commercial center in a location of strategic significance surrounded by mixed use neighborhoods built by individual actions. It should be noted that individual construction doesn’t exclude multi-family buildings. Apartment construction was a specific type of entrepreneurship where landowners would utilize their property and provide a service to those needing a place to rent.
Individuals generally built what they could with the resources they had available. If they couldn’t afford to build, they would purchase or rent an existing home. If they couldn’t afford a place of their own, more creative options had to be pursued, such as sharing spaces, dividing existing dwellings into multiple homes, or cobbling structures together using whatever materials could be scrounged up.
Different Standards
This system worked, although with flaws. Cities became jungles. Individuals with means lived comfortably, those without had to make do in cramped, unsanitary conditions. Affordable housing was a byproduct of living within your means, regardless of the quality.
By the start of the twentieth century, it was becoming clear that the organic growth model of city building was not scaling up at the rate needed to provide acceptable living conditions. Major cities were the homes of tremendous slums where poor residents lived in incredibly cramped and unsafe conditions. After Jacob Riis’ How the Other Half Lives showed the world these conditions, progressive reformers called for improved standards of living for the urban poor.
Two significant factors played into the reforms that came out of this movement: the Great Depression and the rise of the automobile. The shrinking availability of capital as a result of bank failures during the depression led to more and more people being forced into the slums. New Deal legislation focused on getting people out of overcrowded urban areas and stabilizing the middle class.
Housing as Investment
Prior to the New Deal, property was typically purchased with a 50% down payment, short (5–10 year) loan life, then a large balloon payment at the end. This meant that relatively few individuals actually had the capital required to get a loan. The Roosevelt administration decided that reducing these barriers would help get more families a stable investment and an asset that could be passed down to future generations. The Federal Housing Authority (FHA) was created in 1934 and introduced 30 year mortgages with low down payments and low interest rates to the market. This lowered the barrier required to purchase and made the monthly cost comparable to renting. In order to enable private banks to comfortably offer this product, the federal government had to find a way to reduce the risk of the individual loans defaulting in their 30-year payback period. The solution was to establish the Federal National Mortgage Association, better known as Fannie Mae. Fannie Mae’s purpose was to purchase individual mortgages from banks and bundle them into large securities that could be bought and sold on exchanges. This bundling and selling meant that if a small number of loans defaulted, the risk would be spread out across multiple corporations and be insulated by the other loans in the bundle.
Housing shifted from an individual consumer good to a commoditized investment. If there is an original sin to the modern affordable housing crisis, this well intentioned change is it. For most individual consumers, their home was now the most important asset in their portfolio. It needed to be protected from losing value. This means better upkeep, but it also often means fighting to keep “undesirable elements” out of the neighborhood. Many of the regulations to protect the newly developed neighborhoods are strongly founded in racism and classism. For the sake of brevity, I am going to focus more on the unintended consequences of the more well-intentioned regulatory shifts.
For banks and investors, homes were no different from oil or pork bellies. A homogenous product was better than the traditional methods of building properties to meet unique circumstances. Single family, detached homes built in large quantities next to other single family, detached homes became the standard for the lending industry.
The desires of these two parties squeezed the organic evolution out of city building. Homes and neighborhoods needed to be predictable, built at scale, and unchanging. This prevents the gradual intensification of neighborhoods by adding on, replacing buildings, and starting neighborhood-serving businesses. The only way cities could grow was through new neighborhoods. Communities across the country adopted zoning codes to ensure that these new developments were adequately uniform and predictable.
Infrastructure Shifts
Cities have historically been built to the extent of the transportation methods available. Many cities largely developed before the industrial revolution are 2- 3 miles in diameter because that makes for a 20–30 minute “commute” from the central city to the outer edge. See historic Boston, Lower Manhattan, or the (slightly Illuminati-ish) L’Enfant plan for Washington D.C. for some American Examples of this phenomenon. As rail transportation systems became feasible for localized travel, cities expanded as private developers built streetcar lines (or subways where the land value was high enough to justify the additional cost of underground systems) and developed the properties around the transit stations. This increase in transportation speed made the 30-minute radius larger. Since the rail lines were private, for-profit ventures typically operated by the developer of the lands near the stations, the incentive structure was to build dense, mixed use neighborhoods near the stations to increase ridership and increase the land values.
In order to make the New Deal concepts of static, homogenous single-family neighborhoods a reality, cities would need a lot more land to turn into houses. The 30-minute radius needed to get a lot bigger. Transit systems, even operating at very high speeds, were only effective for the land within a short walk of a station and required the trains to run at high frequencies in order to be competitive with walking times. The solution was to make the automobile the standard mode of transportation, make sure they could operate at high speeds anywhere in the city, and make sure that it would be a short walk from the parking spot to the final destination.
The era of freeway construction began at the conclusion of World War II and continued steadily through the 1970s. Interstates were built through traditional neighborhoods to facilitate the high speed movement of people in vehicles from the newly constructed, easily financed homes in the newly opened up land. Many of the buildings in the inner ring neighborhoods were torn down in favor of parking facilities for downtown office towers.
The homogenization of housing not only made it more difficult to find a home suited to a family’s unique needs, it also made living more expensive. In order to be an economically productive member of society, you needed a car to get to and from your job. In order to maintain the standards of the neighborhood, you needed a lawn mower, maintenance tools, and time to work on your house.
Fixing the Problems We’ve Caused
This ball has been rolling for nearly a century now and is reaching a breaking point. Making housing an asset that only appreciates has forced a separation between market values and household incomes. The cost of providing infrastructure to a huge area of low tax producing properties has made the provision of basic city services challenging. So how do we fix it? Here are a few suggestions:
Understand the Underlying
I am very aware that the underlying mechanisms around the commoditization of mortgages is not what people go to planning school for. Neither is mediating shed disputes, but both are things that planners need to know about. Even less exciting is the underwriting and lending requirements for development loans. I’m imploring all of my fellow planners to embrace the pain and really research how development money gets invested and why. Until the profession has a strong understanding of the complexity of real estate finance, any attempts we make corrections to the market will be educated guesses at best.
Research Locally, Act Locally
One of the key flaws in the New Deal housing efforts was that it tried correcting local issues at a national scale. Overcrowding was a major issue in Industrial Revolution boomtowns such as New York, Boston, Chicago and Detroit. For the majority of small cities and towns, the organic growth model could scale fairly well to meet the needs of the community. In an era before GIS and large scale data analytics, it was easier to get caught up in anecdotal evidence and national media portrayals of urban life. We now not only have computer tools to conduct research at a local level, but there are also file rooms full of data on years of development projects. Find the places in the community that are meeting the needs of its residents the best, research it’s origins and evolution, then adapt local regulations to enable the creation of more of these places.
Luckily, the majority of the federal policy was contained in the financial sector. Zoning codes are implemented at the city and county level and can be adapted to meet local needs. The problem is that they are complex legal documents. At the time of their implementation, it was more expedient to adopt a model code with very few localizations, both because that would enable new commoditized development and the staff at the time was not terribly well equipped to make modifications.
The planning profession is now a mature discipline. We can and should do better. Many zoning codes still contain provisions for “adequate air and light.” This refrain is a direct response to very tall buildings in New York blocking the sun from the street, which was remedied by introducing setback requirements for the upper stories of new tall buildings. There are very few places in the United States suffering from this particular malady, and those that are have an easy fix available. Reading zoning codes with the awareness that they may be attempting to solve other places problems can go a long way in identifying unnecessary and harmful laws.
Make Good Easy, Bad Hard
Turning a farm into a series of tract homes is all too common for one specific reason: it’s easy. The product is predictable, banks are confident that they will sell, and there are relatively fewer surprises that may come up and kill a project. Conversely, developing in developed neighborhoods is hard. Sites are cramped, it can be difficult to know what surprises are under it, and neighbors are unpredictable. Local leaders can help to cure this imbalance. Growth boundaries and transferrable development rights programs are tried and true methods for containing the bad but easy type of development. Making infill easier is more complicated but there’s still a lot that can be done by local governments. Easing up arbitrary regulations such as setbacks, minimum parking requirements, and barriers to changing uses can make it a lot easier to layout a site and use adapt existing buildings. Making easement and utility line data available and easy to research can help to minimize surprises, thereby easing investor worries. Similarly, creating a community culture of involvement and support for quality projects will create a more conducive environment for creative infill development.
A more interesting challenge is the financing of small projects. For the reasons mentioned earlier, banks tend to prefer more “canned” development. It’s much easier to offload the risk on a standard single family loan than a loan to convert a duplex into a triplex. The obvious route is to revise Fannie Mae and Freddie Mac’s standards, but that is a very heavy lift. I believe there are opportunities for entrepreneurs here to find some rent sharing lending system to profitably provide capital for unique projects. Once a few entrepreneurs have come up with something that works and have found success, the bigger financial institutions will come on board.
Make Lasting Investments
Letting the air out of the housing price balloon would mean financial ruin for a huge swath of American families. I think we can also agree that we can do better than the overcrowded slums of industrial cities. The trick is to find the middle ground between the sparse, homogenous development pattern of the recent past and the overcrowded cities that precluded it. It’s important to understand the difference between density and overcrowding. Like most things related to city building, Jane Jacobs has explained this nicely:
This confusion between high densities and overcrowding, which I will go into briefly because it so much interferes with understanding the role of densities, is another one of the obfuscations we have inherited from Garden City planning. The Garden City planners and their disciplines looked at slums which had both many dwelling units on the land (high densities) and too many people within individual dwellings (overcrowding), and failed to make any distinction between the fact of overcrowded rooms and the entirely different fact of densely built up land. They hated both equally, in any case, and coupled them like ham and eggs, so that to this day housers and planners pop out the phrase as if it were one word, “highdensityandovercrowding”. — Jane Jacobs, Death and Life of Great American Cities
It’s worth noting that we’re currently getting both of these worlds simultaneously. Housing prices in places like San Francisco, New York, and Washington D.C. have made renting out closets, kitchens, and garages to sleep in a fairly normal practice. If the price of housing continues to be divorced from income, this practice will spread to other cities.
Lasting, market-based change is not going to happen overnight. The process can be started quickly, but lasting results take time. Providing affordable housing in the meantime is going to require some form of subsidy. Placing the subsidy in the property, rather than the individual or family, can help the limited resources last longer. Systems such as community land trusts, housing cooperatives, and resident owned manufactured home parks all have the capacity to provide long-lasting affordability and empower residents to be involved in their community.
