Whose Affordability Crisis?
Looking through the prism’s lens
By Joseph Caterine, Fri., Feb. 2, 2018
The definition of "affordable housing" depends on who's looking at the problem.
If you're an urban planner, affordable housing is a key ingredient of a healthy, vibrant city. Planners want to arrange a housing stock that serves a diversity of people. That's mathematical: housing payments costing less than 30% of the city's median family income (in Austin, that's $81,400 for a family of two or more). Doing so, they say, is what creates diversity in housing, and fosters Austin's ideal as an inclusive, progressive city.
Developers will work with this type of affordable housing, but to them the term also implies a market-determined price point by which older, cheaper housing can be flipped for their own profit. A single-family home in an underserved part of East Austin can be bought, demolished, and turned into condominiums. The developer is after that more than they're after the city's ideal of affordable housing.
Yet for most people, affordable housing is more than monetary. It's a home one can depend on, that is stable and secure, and affordable both today and in the future. That type of affordability has become harder and harder to find.
There's a general belief that new people moving to Austin is what's made the city prohibitively expensive. That's because the city remains more contextually affordable than other American cities. 2016 census data shows that Austin's median gross rent (as a percentage of a household's annual income) is still 29.7%, below the national median of 30.6%, and even below the governmental definition of affordable housing.
The reason Austin doesn't feel affordable, says City Demographer Ryan Robinson, is due to the steep rise in housing costs since 1990, when the city was half as large. The median family income for the Austin-Round Rock Metropolitan Area has only doubled since then, from $39,400 to $81,400, while the median price of a single-family home has quadrupled, from $73,000 to $305,300.
"Almost every income level feels that," said Robinson. "And yet without question we continue to be relatively affordable compared to our competitor cities, to the coastal markets where we continue to get a ton of our employment."
Certainly the rush of new residents has changed the city's makeup. In 2000, 46% of Austin households made less than $50,000 annually, and only 8% made more than $150,000. By 2016, the number of households making under $50,000 dropped by 20%, while the size of the wealthier group tripled. Austin's housing stock amplifies the sticker shock of this shift. Single-family homes under $150,000 made up 32.6% of those sold in 2011. By 2017, that number had dropped to 3.2%. Homes selling for over $400,000 jumped from 12.5% to 27.1%. The same type of rush to luxury housing was seen in the rental market.
Partially due to this increase in supply, homeownership rates have slightly dropped, and occupancy rates of luxury-level rentals has fallen by 8%. But the trend in rising housing costs is not as much a case of inadequate supply as it is an imbalance in the kind of housing being created. The market that produces new housing does not treat all demand equally. It prioritizes the renters and homebuyers who carry spending power.
About Affordability
The city has long grappled with the countervailing tendencies of the economy, and right now, through CodeNEXT and other means, is pursuing the goal set by the Strategic Housing Blueprint: 60,000 new housing units affordable for those earning less than 80% MFI within the next 10 years. CodeNEXT and the Blueprint have each innovated several new techniques to address affordability, but have not veered from the same affordable housing strategy the city has followed for years. This approach does not challenge the trend of expensive housing; it embraces it.
The rapid rise in housing costs is a drag to the average consumer, but to the city planner, it's what keeps the engine running. "If the housing in the central city wasn't becoming more and more expensive year after year, then I would actually be worried," said Robinson. "It is a direct testimony to how successful and vibrant we have been over the past 10 to 15 years."
He's right. It would be a legitimate crisis for the city's economy if the real estate boom of the past few decades ground to a halt. But maintaining that pace of development – and working with the developers who will make it happen – necessarily requires that city planners also risk displacing longtime residents.
The local government wants a degree of affordable housing, but not enough to stagnate growth. So you end up with neighborhoods like West Campus and East Riverside, where city plans spurred development and increased density, but also excluded poorer residents from the area. Representatives from these neighborhoods participated in the design of neighborhood plans geared toward providing for the underserved, something that did not end up actually happening. In both cases, the market's need to provide for the most profitable demand drove local development. In an effort to sustain growth, the city's interests aligned more with those of the market than those of the neighborhood's residents. If the city was siding with the wants of developers over the needs of the community during the University Neighborhood Overlay (UNO) planning process, it was hard to detect in the scramble to address affordability.
Developer Ed Wendler Jr., who built the WatersMark community in Barton Creek, said this climate of urgency has clouded affordability discussions in Austin, undermines cooperation, and opens the doors for exploitation. "In a crisis, you gotta act. You gotta act," he said. "It's like negotiating a real estate contract: A lot of times, people will stick on a condition that if you don't sign the contract by Friday, then they will withdraw their offer. What they're trying to force you to do is to enter into something you haven't really thought out. So, the affordability crisis: It's a sales tool."
UNO Stacko
The University Neighborhood Overlay plan was created in 2004 because of affordability issues in West Campus. UT wasn't supplying enough housing for its students, and the area did not either. Many students had to live along the East Riverside Corridor (among other places) and take bus trips to and from campus. UNO was originally viewed as a solution to these problems: Students would get a housing option closer to campus; neighborhoods would stem their infill; and the city would free up the affordable housing on Riverside for people with jobs in the urban core.
UNO's density bonus program was the first of its kind, an incentive for developers to either include income-restricted units on-site, or to pay a fee-in-lieu (a set dollar amount per square foot of development; see sidebar, below) into an affordable housing trust fund in exchange for additional entitlements. The nine successive DBPs each have their own specific criteria, but UNO's set the bar by offering extra height for multifamily developers who'd make 10% of the units affordable to households making less than 80% MFI, or pay $1 per square foot into the fund. The money from that fund has been spent on affordable housing projects and economic analysis studies.
According to the Neighborhood Housing and Community Development office, the UNO program had outperformed its nine successors, having produced 608 units below 80% MFI. UNO is also the only program to have built an actual affordable housing project with fee-in-lieu funds: the Super Co-op at 1905 Nueces. Yet some who had a hand in UNO's development believe it only achieved a fraction of its intended affordable housing. Austin Neighborhood Council President Mary Ingle called NHCD numbers "pathetic," considering they took 12 years to reach. "We didn't really understand the formulas then," she said. "We were kind of caught up in this euphoria of creating it."
Today, West Campus is the densest neighborhood in the city, largely because of DBP incentives. From 2000 to 2010 the population of the area grew by 36%, blazing past the city's average growth rate of 20%. But the development has not curbed the rising cost of living. Austin Investor Interests says the average rent per square foot in the UT housing area (which includes but is not limited to UNO) has escalated from $1.32 in 2004 to $2.31 in 2017. That rate of increase has lifted UNO's average to almost double the 2017 Austin-Round Rock Metropolitan Area average of $1.44.
These trends cannot be attributed solely to UNO, but they do expose a contradiction at the heart of its DBP: UNO facilitates affordable housing units through the construction of many more expensive units, which raises the median rent. UNO's income-restricted units may be affordable, but they increase the divide between richer and poorer housing.
Neighborhoods and Corridors
Meanwhile, the affordable housing along East Riverside that UNO's planners hoped to liberate ended up losing out in similar fashion. The team behind 2006's East Riverside/Oltorf Combined Neighborhood Plan also believed that intensifying density could usher in much-needed new affordable housing. The plan offered extra entitlements similar to UNO's DBP, but developers could also choose a community benefit, like a certain amount of open space, instead of on-site affordable housing. Riverside resident Toni House said developers never chose the on-site affordable unit option, and instead hundreds of properties were upzoned en masse, permitting intense redevelopment, while the city got little in return (at least in terms of affordable housing). With a whole corridor available for more intense uses, developers urbanized the area. Affordable complexes like the former Shoreline Apartments were torn down and replaced with luxury apartments.
The city took a second stab there in 2013 via the East Riverside/Oltorf Corridor Plan, which included its own DBP: four bonus square feet for each square foot of affordable housing, or a fee-in-lieu in which $0.50 paid into an affordable housing trust fund buys a bonus square foot. The area was in need of affordable housing by then after the neighborhood plan, but today, according to the NHCD, the corridor's density bonus program has produced zero affordable units, and no fee-in-lieu payments. The amount of affordable housing created through UNO may be less than some had hoped, but on East Riverside it's been nonexistent.
"It doesn't take a rocket scientist to figure out that when you increase by-right entitlements for free, there is no incentive for a developer to agree to provide meaningful on-site affordable housing," House wrote. Like West Campus, the East Riverside/Oltorf area has become one of the densest in the city.
CodeNEXT's third and final draft is expected for release next week, but in its second, the zoning rewrite proposes to standardize the city's 10 DBPs into a single program that will follow the best practices established by UNO and others, and attach the density bonus to more zoning categories, rather than specific neighborhoods. But the DBP's track record is not promising – at least for the majority of Austin residents. The Affordable Housing Density Bonus Program would most likely stimulate the production of many more housing units, but the bulk of those units would be most affordable to the higher-income households that continue to move here, and not to Austinites who make less.
"Austin has the tendency of talking the talk and not walking the walk," said Jim Duncan, vice chair of the city's Zoning and Platting Commission. "The beneficiaries of all these programs are not the people who really need help."
Developmental Theory
These programs are by no means the extent of the city's efforts to produce affordable housing. Both CodeNEXT's draft language and the Strategic Housing Blueprint suggest that making zoning districts flexible to more housing types, like "missing middle" products – accessory dwelling units, fourplexes, townhomes, and bungalow courts – will give Austinites more housing options to choose from. If someone wants to live in the urban core but not in an apartment, renting a granny flat becomes an affordable alternative.
But Wendler is skeptical of this sort of supply-side thinking. If CodeNEXT seeks to diversify housing as a way to make the urban core more compact and connected, that's fine, but it won't stop sprawl, "the market's solution to affordability." Investing in projects closer to Downtown will not stop developers from also building large single-family homes in the city's peripheries. They will have their cake and eat it too.
Developers believe that zoning and city planning are not as determinant to the composition of future housing stock as the city would like to believe. Fregonese Associates, a consulting group working on CodeNEXT, has forecast that if the rewrite were adopted with the language in draft two, within 10 years the city's housing capacity will surpass the Blueprint's housing goal of 135,000 units by 35,000 units. That's 170,000 possible new housing units by 2027. But regardless of how much housing capacity the city allows, it will be up to the market to build the units.
"All the contractors are going to Houston to rebuild the city after the hurricane," said Wendler. "Doesn't have shit to do with what kind of zoning they have."
The Blueprint recognizes that new units are only part of the solution, and also outlines how the city can preserve existing affordable housing stock. Lin Team, a Realtor who played a role in UNO's planning, has long advocated for historic districts, calling them one of the city's main preservation tools. "If you have a local historic district, you in a sense freeze development," she said. "And of course that's why there is so much opposition to them. The district would protect the people who live there. It would protect their investment and the quality of life in their neighborhood. But it would not grow the tax base in the way the city would like to."
There are many other tools detailed within the Blueprint's section on creating housing "for all Austinites in all parts" of Austin: a review of the S.M.A.R.T. Housing program, supporting legislation to pass a multifamily property tax exemption program, and writing regulations for infill developments. But none of these initiatives will make affordable housing available to Austin's poorer classes. Modifying restrictions cannot change the fact that the market will always respond to a demand for expensive units faster than a demand for cheap ones.
That's a particularly sensitive topic to city government. Last June, Planning Commissioner Patricia Seeger asked CodeNEXT consultants Alex Joyce and John Miki straight up whether profit motive was guiding the rewrite. The consultants didn't respond, and instead changed the subject. Consultant John Fregonese rejected that same line of questioning at another meeting in September, but also noted that the private sector is what will ultimately produce and occupy most of the new housing. "We have to understand their motivation," he said. "They have to make a profit."
And so affordability in Austin will proceed at the mercy of the market. Robinson expects the region to continue to be affordable as compared to peer cities, though he acknowledges that even by those standards it's not as affordable as it once was. Austin's job growth today runs between 2-2.5%, less than half of what it was 18 months ago. This downturn is not due to any municipal constraints: The Austin-Round Rock region produced 25,000 housing units last year, and it could have produced more. Rather, it signals that the biggest boom may be over, a consequence of forces beyond Austin's zoning map. "We grow, decline, and evolve as a region," Robinson said. "People are really making the mistake of treating the city and the city's housing market as somehow isolated from the regional market."
Austin cannot plan its way out of its place within the region, any more than it can plan an affordable future in an economy where large-scale coordination is impossible. The housing market is rooted in competition, and is necessarily disorganized. Developers cannot anticipate who will purchase or rent a housing unit they've built, but they'll have a good guess as to how much money that unit will make them after it's occupied.
The construction of a single housing unit is highly deliberate: architects, builders, manufacturers, engineers, laborers, ... – they all take part in an orderly and expedient process. The contradiction at the center of the affordability crisis in Austin is that the production of a housing unit can be so harmonious, while the production of housing for all is anything but.
Get With the (Density Bonus) Program
Density bonus programs are incentives for developers to help address affordability in exchange for extra building entitlements. The city has 10 types of these programs, six with fee-in-lieu options (a payment into an affordable housing fund as an alternative to providing on-site affordable units) and four without. Each program has its own definition of affordability for owned and rented units – i.e., units must be affordable for households at a certain percentage of MFI – and its own formula for determining what entitlements a developer gains in exchange for providing that affordability. The CodeNEXT rewrite is expected to standardize the 10 programs into one, and expand it to more areas of the city.
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