Housing costs and rents in walkable neighborhoods are rising due to market demand

Some people call them amenities. Emily Talen calls them “the good stuff.”

Baked into most walkable urban neighborhoods, they are the just-aroundthe- corner perks that make housing in walkable urban neighborhoods so popular, yet increasingly expensive and in short supply.

“The places with the good stuff — shops and parks and schools and everything else — those are the high demand places and we’re not producing them fast enough and we’re not making sure a diverse set of people are occupying those kinds of places,” said Talen, professor of urbanism at the University of Chicago.

That’s a big takeaway from a study Talen and colleague Julia Koschinsky led for the Department of Housing and Urban Development (HUD). The study targeted the supply of HUD-supported housing within walkable locations in six cities — Chicago, Boston, Phoenix, Atlanta, Seattle and Miami.

“We looked at different kinds of affordable housing — vouchers, public housing, mixed-income housing that combines market rate with subsidized housing — and we found that across the board there was a lack of affordable locations in walkable neighborhoods,” Talen said.

But the problem doesn’t just hurt people who are getting government assistance. “Regular folks ... are getting priced out and being forced to move away from walkable places,” she said.

There's a lack of affordable locations in walkable neighborhoods.

That’s what happens when demand overwhelms supply. “It’s the millennials, it’s the aging baby boomers, it’s the elderly. There’s a lot of different demographics all converging on this demand for walkability,” Talen said. The annual Great Neighborhoods competition sponsored by the American Planning Association (APA) recognizes communities for their design, character, sustainability and other desirable qualities. While the winning entries typically embody the kind of classic walkable urbanism that was the norm before World War II, many of them miss the mark when it comes to both affordability and diversity.

In an analysis of winning entries between 2007- 2014, Talen found a $108,000 difference between the median price of homes in Great Neighborhoods versus the census tracts immediately next to them. When she explored demographic trends over time, Talen found that the ratio of white residents increased between 1970 and 2010 while the ratio of black and Hispanic residents fell compared with cities as a whole.

There’s a word for that sort of thing: gentrification. Central city neighborhoods that languished during the exodus of the middle class to the suburbs — a.k.a. white flight — are back in demand in many metros because of their walkable mix of homes, stores, restaurants, public transit and jobs. The greater the demand, the higher the prices and the less affordable those neighborhoods become to their current residents, who often belong to disadvantaged minority populations.

“Gentrification in America,” a report published by Governing magazine, found that gentrification, while still the exception overall, is accelerating. Census tract data from the nation’s 50 most populous cities showed that nearly 20 percent of tracts with lower incomes and home values have experienced gentrification since 2000 compared to only nine percent in the 1990s.

The report looked specifically at census tracts — which roughly correspond to neighborhoods — where the median household income and home value ranked in the bottom 40th percentile of the metro area at the start of 2000.

A neighborhood was considered to have gentrified since 2000 if two things became true over time based on the latest census data: the percentage increase in the median home value (adjusted for inflation) rose to the top third in the metro area and the percentage increase in the number of college graduates age 25 and older also was in the top third.

The greater the demand, the higher the prices and the less affordable walkable neighborhoods become to current residents.

The rate of gentrification rose in 39 of the 50 cities. More neighborhoods gentrified in New York — 128 — than any other city. The greatest rate of gentrification was in Portland, Ore., where 36 of the 62 neighborhoods (58 percent) with low median incomes and home values gentrified. Next came Washington, D.C. (51.9 percent), Minneapolis (50.6 percent), Seattle (50 percent), Atlanta (46.2 percent) and Virginia Beach (46.2 percent).

Although racial makeup didn’t factor into determining whether a neighborhood gentrified, the share of non-Hispanic white residents in neighborhoods that gentrified increased 4.3 percent. Neighborhoods with lower incomes and home values that didn’t gentrify lost small amounts of overall population while experiencing gains in their minority populations. In addition, average poverty rates increased almost 7 percent in neighborhoods that didn’t gentrify while falling slightly in those that did.

No one faces a more stacked deck than middle-income families seeking to buy a suitable home in the hottest urban centers. A Governing magazine report covering the nation’s 25 largest cities — “As Affordable Housing Shrinks, Where Can Families Live?” — revealed a yawning affordability chasm for family-size housing in the 10 most expensive cities.

In cities like Boston and Seattle, just 17 percent of all home listings on average had three bedrooms and were affordable to families earning the area median income based on spending no more than 30 percent of income on housing and utilities. The outlook did brighten in other cities covered by the report, where an average of 63 percent of listings met the size and affordability criteria. In Detroit and Ft. Worth, 80 percent or more of homes fit the bill, however it should be noted that Detroit and Ft. Worth are much larger in land area than Boston and Seattle and have more room for a variety of housing.

No one faces a more stacked deck than middle-income families seeking to buy a suitable home in the hottest urban centers.

But what about families who aren’t quite making the median income? The report found that a family earning than half of the homes in most of the 25 cities, even if they were willing to settle for two-bedrooms. In nine of the cities, they could afford just one in five homes.

Finding affordable rental housing is just as hard. More than half of renters in the nation’s 25 largest cities spend more than 30 percent of household income on rent, according to the latest census estimates. Plus just 5.2 percent of the rental stock consists of units with three bedrooms or more.

Urban planning expert Christopher Leinberger, coauthor of “Foot Traffic Ahead: 2016,” doesn’t deny that rents are often “too damn high” in walkable urban neighborhoods, but argues that looking at housing costs alone is myopic.

A key finding in “Foot Traffic Ahead” was that higher housing costs in walkable urban places (WalkUPs) within the nation’s 30 largest metro areas are offset by lower transportation costs and greater access to higher paying jobs — mainly due to the greater density and better transit service found in WalkUPs.

Demand drives up the cost of land and therefore the cost of housing in walkable urban neighborhoods.

The finding is based on a social equity index that takes into account housing and transportation costs (as a 75 percent of the area median income could afford less percentage of household income for households earning 80 percent of area median income) plus the number of nearby jobs.

Eight of the 10 metros that rank highest for walkable urbanism also rank in the top 10 for social equity while seven of the 10 metros that rank lowest for walkable urbanism rank in the bottom 10 for social equity.

“It doesn’t avoid the challenge that we have of producing affordable housing, but if you earned 80 percent of area medium income, you’d much rather be in a walkable community like Seattle or Washington, D.C., than be in Tampa or Phoenix,” Leinberger said.

As demand drives up the cost of land and therefore the cost of housing in walkable urban neighborhoods, the answer is obvious — increase supply by amending codes and regulations to allow more housing to be built in such places, Leinberger said. “If we shift 2 percent of our metropolitan lands from low density to high density, gentrification becomes a thing of the past,” he said.

That’s one place to start, but there’s another hurdle: the nation’s housing finance system. A recent report from the Regional Plan Association (RPA), “The Unintended Consequences of Housing Finance,” described how federal loan programs fail to adequately support the kind of small-scale, mixed-use, infill development that is partand- parcel to walkable urbanism.

Federal Housing Administration, Freddie Mac and Fannie Mae underwriting rules typically cap commercial floor space or income at 15 to 25 percent of a multi-family building, but those caps are too low to work for a small infill project. To stay within the required cap on commercial versus multi-family, a developer would have to build a larger project that would be out-of-scale — and possibly prohibited — in many neighborhoods.

The RPA report also laid bare the lack of a secondary market for conventional mixed-use loans — a problem fueled by federal guidelines that label loans nonconforming. Without a secondary market, banks must hold the loans on their balance sheets, which discourages them from making the loans in the first place.

There need to be different policies working together to ensure that more people can afford to live in walkable neighborhoods.

“We need to acknowledge that we don’t want [walkable urban places] to become just another pocket of wealthy areas,” said Sarah Serpas, co-author of the Report. “There need to be different policies working together to ensure that more people can afford to live in those neighborhoods.”

Mariela Alfonzo is the founder of State of Place, which provides cities, developers, and other clients with software analytics — covering more than 290 walkability and economic data points — that help them understand, compare and communicate the return on investment for any given walkable urban strategy or project.

“Even though there’s a rise in demand for walkability, there are still a number of barriers (to increasing the supply),” Alfonzo said. “There are NIMBYs, there are traffic engineers who want to maximize the flow of cars ... there are developers who are not on board and lenders who don’t fully understand the pro forma that goes with more urban, mixed-use, compact development.”

State of Place can help overcome those barriers and drive affordability through increased supply by quantifying the benefits of walkability and comparing different strategies and projects, Alfonzo said. For example, the biggest bang for the buck might come from upping the walkability of an existing neighborhood by adding pedestrian amenities — wider sidewalks, reduced traffic speeds, public spaces — rather than building an expensive new mixed-use development.

Alfonzo said State of Place helps answer the question: “Are there more cost effective ways that aren’t necessarily just creating new residential units that very few people can afford?”

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