What makes a home affordable? The government definition is that it costs less than 30% of your income to live there. If you pay more, as about a third of households in Somerville do, you’re considered “cost burdened.”
There are two ways to reach affordability: subsidies, and finding a bargain on the open market. When we talk about Affordable housing with a capital A, we’re talking about subsidies. But by far the most common kind of affordable housing is just a regular home at a reasonable price — in particular, something that’s affordable on a typical income in the area. That’s called “naturally occurring affordable housing,” or NOAH.
Unfortunately, with rising demand and rising prices in our entire region, NOAH is disappearing, especially for ownership opportunities. This chart from Somerville’s Housing Needs Assessment shows that the vast majority of homes for sale in Somerville are affordable only to people making at least 120% of the area median income:
Source: Somerville’s Housing Needs Assessment
There are still many low- and middle-income homeowners in Somerville, but most of them bought their homes a long time ago, before prices began to rise. The handful of remaining cheap homes to buy are either very small or available through subsidy programs like our Inclusionary Zoning system.
The rental market presents a different picture, with more affordable homes available.
Source: Somerville’s Housing Needs Assessment
But even in the rental market, there are far more wealthy households than expensive apartments. Those wealthier households can afford to pay more, and that allows landlords to increase prices.
So how do we save those NOAH homes? One way is to take them out of the market with initiatives like the city’s 100 Homes Program. The city directly funds non-profits to buy NOAH homes and convert them permanently to capital-A-Affordable housing. But that requires a lot of money from a very limited city budget.
Another way to preserve our stock of NOAH seems like a bit of a trick: letting someone else spend their own money to build expensive housing. It supports affordability in three ways.
First, new housing, even expensive new housing, pulls wealthier households and their money away from the rest of the market. This can slow or — with enough volume — even turn back rent growth. It even has the greatest effect on the cheapest apartments.
Wouldn’t building those new homes just encourage more wealthy households to move in from elsewhere? Not really: luxury homes are not the reason someone moves to a city. People tend to move for jobs and schools. Evidence from studies looking at Hawaii and other cities indicate that about 2/3rds of people who move into newly-constructed high-price buildings come from the surrounding metro area, often moving from lower-income neighborhoods. Drawing wealthy households to a new location can directly lower the cost of housing in the neighborhoods they leave, as we’ve seen in Austin and Denver.
The second “trick” of new construction is our Inclusionary Zoning program, which requires new dense construction to provide 20% of homes as permanently Affordable.
The last “trick” of new dense homes is that they generate tax revenue, which the city can spend on more services, including affordable housing. (It’s a common misconception that new residents cost the city more money in services than they pay in taxes, and it may be true in some suburbs, but that’s not the case for Somerville.)
Our naturally occurring affordable housing is in danger of disappearing, but if we preserve some directly and allow plenty of new construction, we can keep a lot more of our housing actually affordable for people at all income levels.