“Affordable housing proximity may be viewed as an amenity in some areas, but a disamenity in others.”
Building affordable housing in low-poverty neighborhoods can greatly improve the lives of poor households who get to live there without compromising developers’ bottom lines. But in which neighborhoods does affordable housing produce the greatest good, economically speaking?
A recent working paper published in the National Bureau of Economic Research takes a stab at that question. In it, the Stanford University economists Rebecca Diamond and Timothy McQuade evaluate the spillover costs and benefits of housing projects funded through the Low Income Housing Tax Credit in 129 U.S. counties across 15 states, highlighted in the map below:
Here are the paper’s main findings:
Impact on property value varies by neighborhood type
In neighborhoods with a median income below $26,000, property values within 0.1 miles of Low-Income Housing Tax Credit (LIHTC) housing increased by 6.5 percent 10 years after it was built. In neighborhoods with a median income above $54,000, they decreased by 2.5 percent—but only where at least half the residents were white. Here’s how the authors explain that discrepancy in the paper:
Affordable housing proximity may be viewed as an amenity in some areas, but a disamenity in others.
Preference over demographics might explain that difference
How new affordable housing is perceived has to do, in part, with how the groups it attracts to the neighborhood are perceived. From the paper:
If local residents have preferences over the demographics of their neighbors, the in-migration of LIHTC residents may further attract different types of residents, and these new in-migrants could make the neighborhood more or less desirable.
That’s why researchers compared the demographics of homebuyers before and after construction. Perhaps surprisingly, they found that in the years after, the poor neighborhoods saw an influx of slightly wealthier homebuyers (with 3-4 percent higher incomes). In richer neighborhoods, the new homebuyers were slightly poorer (with 1.5 percent lower incomes).
The racial composition of some of these neighborhoods also changed. Namely, the share of black homebuyers in high-minority neighborhoods, both poor and not-so-poor, decreased. The authors suggest that this might be because other racial and ethnic groups moved in, and concludes that building affordable housing in high-minority areas, therefore, “may lead to lower racial segregation.” (It’s worth emphasizing the “may” in that sentence. A decrease in the share of African Americans doesn’t necessarily lessen segregation. In a Hispanic-black neighborhood, for example, if the fall in the share of black residents is accompanied by a rise in the share of Hispanic residents, the neighborhood may even become more segregated.)
The one other neighborhood characteristic economists tracked was crime. In poor neighborhoods, crime rates dropped after development of affordable housing; in richer ones, they didn’t really change.
Who wants to live near affordable housing?
If higher-income households chose to live in poor neighborhoods, they were actually willing to pay a larger percentage of their housing cost to live near the newly built affordable buildings—in both high- and low-minority areas. (Minority homebuyers, in particular, were willing to dish out more to live in high-minority areas compared to whites.)
“In that community, when you build affordable housing … that amenity is valued by everyone,” Diamond tells CityLab. “Higher-income people are willing to pay more dollars for amenities likely because they have a larger income to spend.”
In richer areas, too, minorities didn’t mind living near affordable housing. The richer homebuyers, on the other hand, were happy to pay more to avoid these sites. "In high-income neighborhoods, everyone dislikes living near affordable-housing developments, but the rich disproportionately do,” Diamond explains.
Is it more cost-effective to build in low-income areas?
In the last part of their paper, the researchers estimate the net economic benefits for the renters, homeowners, and landlords in the various neighborhood types they examined. For poor, mostly white neighborhoods, that dollar value is $116 million; for poor, high-minority neighborhoods that tend to be denser, this number goes up to $211 million. “There’s this big, positive, place-based effect of [affordable housing on] revitalizing these poor areas.” Diamond says. “These benefits really are accruing to the residents in those neighborhoods.”
On the flip side, high-income neighborhoods saw a loss of $12 million as a result of falling home prices. But it’s important to evaluate that number in the context of the significant economic and health benefits for low-income tenants living in these areas, the authors point out. Pointing to economic-mobility research by economist Raj Chetty, the authors estimate that building affordable housing in posher neighborhoods would award its typically low-income tenants around $26.7 million, which “more than offsets the losses to local residents in these high income areas ($12.1 million).”
But even with this additional calculation, if it comes down to an either-or choice between building in high-income or low-income neighborhoods, the net positive economic impact of new affordable housing projects in the latter is far greater, per the authors’ cost-benefit analysis.
"Even though each individual household [in a poor neighborhood] is actually going to get a smaller per-person benefit than the lucky few who live in a high-income neighborhood in affordable housing, it might even be—you could argue—possibly more equitable,” Diamond says. “As opposed to giving a few low-income people lucky access to this big positive amenity, you might find it desirable to give many low-income people a little bit of benefit.”