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Report: New Market-Rate Housing Affects Low-Income Housing Supply

A new report from California's nonpartisan Legislative Analyst's Office may dispel assumptions that construction of market-rate housing displaces low-income Californians.
February 11, 2016, 6am PST | Irvin Dawid
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A quick summary of the report, which claims that market-rate housing indirectly adds to low income housing, can be heard on The California Report below. "Putting the brakes on market-rate housing is counterproductive in the long run," states KQED's Stephanie Martin Taylor.

"Because most new construction is targeted at higher-income households, it is often assumed that new construction does not increase the supply of lower-end housing," reads the summary of a new report from the California Legislative Analyst's Office (LAO).

In addition, some worry that construction of market-rate housing in low-income neighborhoods leads to displacement of low-income households.

For these and other reasons, some local governments have chosen to tackle the need for affordable housing not by increasing development but instead by "focus(ing) on expanding government programs that aim to help low-income Californians afford housing," notes the summary. But those programs are very limited and expensive.

An alternative approach, "(e)ncouraging additional private housing construction, can help the many low-income Californians who do not receive assistance," states the report. "Considerable evidence suggests that construction of market-rate housing reduces housing costs for low-income households and, consequently, helps to mitigate displacement in many cases." [Emphasis added.]

Building New Housing Indirectly Adds to the Supply of Housing at the Lower End of the Market. 

New market-rate housing typically is targeted at higher-income households. This seems to suggest that construction of new market-rate housing does not add to the supply of lower-end housing. Building new market-rate housing, however, indirectly increases the supply of housing available to low-income households in multiple ways.

  • As the new housing ages, it becomes more affordable.
  • When new construction is abundant, middle-income households looking to upgrade the quality of their housing often move from older, more affordable housing to new housing. As these middle-income households move out of older housing it becomes available for lower-income households
When communities restrict new housing, the inverse occurs.
  • Faced with heightened competition for scarce housing, middle-income households may live longer in aging housing. Instead of upgrading by moving to a new home, owners of aging homes may choose to remodel their existing homes.
  • Similarly, landlords of aging rental housing may elect to update their properties so that they can continue to market them to middle-income households.

The report goes on describe why increasing market-rate construction helps rather than hurts the housing needs of low-income Californians.

The report is a follow-up to the LAO's March 2015 report California’s High Housing Costs: Causes and Consequences, which "outlined the evidence for California’s housing shortage and discussed its major ramifications."

Hat tip to KQED California Report

Full Story:
Published on Tuesday, February 9, 2016 in California Legislative Analyst's Office
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