I think the Point Breeze Organizing Committee folks would agree with me that the cost of living in Philadelphia is too high for the Area Median Income. If we define a reasonable cost of living as “a week’s pay for a month’s rent” it’s clear many neighborhoods in Philadelphia are falling short of that goal. Right now the ratio is about 32%. That’s evidence of a housing shortage in many neighborhoods close to center city.
My opinion is that the target ratio of median rents to AMI should be about 25%, and the target ratio of combined housing + transportation costs should be about 40% of AMI. In some Philly neighborhoods, combined housing + transportation costs can get as high as 90% of AMI, so it’s clear that some pretty radical policy reforms are going to be necessary to keep the city affordable for people of limited means.
The PBOC folks are exactly right to be alarmed about increases in the cost of living. But I am disappointed that so far what we know about their agenda for affordable housing suffers from what progressive economist Dean Baker calls “Loser Liberalism” thinking.
For example, the one idea I’ve heard so far from PBOC is to turn Point Breeze into a big historic district, presumably to put a stranglehold on new development in the neighborhood. The actual evidence on historic districts though is that they hike rents and turn neighborhoods into exclusive havens for the 1%. That’s because historic districts create more housing scarcity, and scarcity is the number one enemy of broad-based prosperity.
A classic “loser liberalism” remedy is one that attacks the symptoms of a market failure, instead of going after the root cause. It accepts the way the market is currently structured, and limits its focus to regulating fairer outcomes for the losers of that market design. Some examples are America’s high prescription drug prices resulting from a patent monopoly; absurd doctor and lawyer wages resulting from protectionist trade and licensing policies; and a bloated financial sector resulting from the implicit guarantee of a taxpayer backstop in the event of bank failure.
The root cause of the problem in Point Breeze is that there isn’t enough housing for everyone who wants to live in the neighborhood. If there isn’t enough housing, people with higher incomes are going to outbid people with lower incomes for the housing, and you’ll get displacement.
Point Breeze is seeing more demand for housing now that developers like Ori Feibush have made the neighborhood more attractive by adding more nice amenities. There’s nothing wrong with that. Neighborhoods should get more nice public and private amenities. Amenities are great. But they also lead to higher land values, like we’re seeing in Point Breeze. Nothing wrong with that either. Anything that makes a neighborhood less crappy is going to increase land values.
The trouble comes when the number of people who want to live in the neighborhood starts growing faster than the number of houses getting built, because that’s when you start seeing rent increases. That’s the root cause of the problem. Regulating the rents people can charge isn’t going to fix that problem for the vast majority of people. And doubling down on housing scarcity with something like a historic district isn’t going to get at that root problem either. If the neighborhood gets nicer, the land values (rents) are just going to keep rising no matter what happens on the construction side.
So the question people need to answer is, does more demand for housing in the neighborhood have to mean housing scarcity? Or is it possible to build enough housing in Point Breeze for everyone who wants to live there?
My view is that we can definitely build enough housing for everyone who wants to live there, and keep prices affordable for everyone. Why should we accept the idea that “market-rate” housing means expensive housing, and affordable housing requires some kind of subsidy? If the median market-rate home is too expensive for the Area Median Income, that means there’s something wrong with the market. It means our affordable housing agenda needs to focus on bringing down the market rate to a level that’s affordable for the local wages.
Just nibbling around the edges, carving out a few subsidized units here and there is a loser liberal strategy. The more muscular affordability agenda involves slashing the price level of most new housing by taking direct aim at the the land costs, construction costs, and regulatory costs that are making construction of new multi-family housing and mixed use buildings too expensive. Affordability is only going to come from making housing more plentiful, not more scarce. Any plan that involves reducing the pace of housing construction in Point Breeze is not going to work.
One more point to make about this issue is the issue of segregation. People are always saying that less segregation by race and income is a worthy progressive goal, and I think they’re right. But think about what this means in practice. In practice, it means that relatively rich central neighborhoods of Philadelphia need to cut the NIMBY crap and allow more apartments and mixed-use buildings. And poor neighborhoods need to allow more market-rate construction to become mixed-income instead of just low-income. If we’re trying to promote integrated mixed-income neighborhoods, then we can’t intentionally keep the poor people out of the rich neighborhoods, and we can’t intentionally keep the rich people out of the poor neighborhoods. Mixed means mixed.