The Challenges of Building Middle-Income Housing

In a piece in Greater Greater Washington, Patrick McAnaney explains the challenges faced by affordable housing developers in trying to build for middle-income families.

According to McAnaney, “In expensive cities, middle-income housing developments—new homes and apartments that residents earning about the median family income can afford—simply cannot win the competition for land.” Because land is a commodity, lots will be sold to the highest bidder, and developers will outbid each other to ensure the sale, passing on the cost to future tenants or buyers.

“There is, of course, far more to this story. Zoning laws, transportation networks, the advent and dominance of private vehicles, and many other factors affect the geospatial layout of cities,” McAnaney concedes, but market competition largely explains the clustering of similar uses common in U.S. cities.

McAnaney explains how competition from different housing developers also drives up the cost of land and thus rent costs. Ultimately, when the “highest and best use” is defined as the one that brings in the most revenue, “This ‘highest and best use’ dynamic largely explains why developers are not able to produce more middle-income housing in urban areas. Even relatively small differences in rents can cause huge differences in land value.”