Abstract
Housing affordability is an important component of economic development. It affects several levers for regional growth, including business formation, through wealth building and influencing entrepreneurship. Housing affordability also affects location decisions—of both labor and employers. These proceedings document findings from research presented at a conference titled “The Impact of Housing Affordability on Economic Development and Regional Labor Markets” sponsored by the Federal Reserve Bank of Atlanta and the W.E. Upjohn Institute for Employment Research. The analysis presented at the conference suggests that higher-cost housing can trigger productive workers to leave markets and may limit the ability of workers, especially African American workers, to enter the labor market. At the same time, large economic development projects can displace workers. Research suggests that land use regulation is a driver of housing affordability; typically, higher levels of regulation lead to higher costs. Also, the efforts of economic developers affect local policies, like regulation and zoning, to attract firms. Discussion at the conference suggested housing issues be more integral to economic development policy and that new and expanded measures of housing affordability be used to track affordability.
Housing affordability is a key economic development strategy with the potential to impact the overall welfare of neighborhoods. The U.S. Housing Act of 1937 was the first national legislation to address blight and housing affordability. As part of the New Deal, the U.S. Housing Act created quality housing for low-income families and reduced the number of hazardous housing units within a community. State and local authorities had control over housing units and contributed to their funding. Though this legislation was a key first step into addressing the housing problem within the United States, it created other problems for communities—namely the concentration of poverty into federal housing projects. Over time, cities and states have added resources to support affordable housing programs because of their positive impact on a community. While healthy, safe housing supports long-term health outcomes, it can also support socioeconomic growth for a family.
There are three major types of housing affordability policies: place-based, people-based, and market-based (Woessner, 2020). Place-based policies tie programs to specific neighborhoods or zip codes. People-based programs generally focus on an influx of resources (cash) to families without the means to pay a market-priced rent. Market-based tactics control the supply of housing within a neighborhood with the hope that it will impact the market price without having to set rent controls. Each of these strategies has its benefits and its setbacks, but successfully implementing affordable housing in a community can improve public health outcomes and the regional economy.
Research has documented how affordable housing can improve an area's well-being when done correctly. Research from the Federal Reserve Bank of Boston has shown that the federal Low Income Tax Credit program reduces homelessness in a community (at the county level; Jackson & Kawano, 2015). As mentioned, a person's physical and mental health can also improve with stable and affordable housing (Kottke et al., 2018). A correlation between the education outcomes of low-income children and their housing situation has also been documented and supported (Brennan et al., 2014). Recently, practitioners and policy makers are paying more attention to the impact of affordable housing on labor markets, including the long-term impacts of affordability on access to careers and career mobility, how migration impacts a workforce, and the impact on business growth.
Housing affordability can go beyond improving health outcomes, reducing homelessness, and improving school outcomes. How can stable housing improve someone's access to the job market? How do local and federal regulations play a role? How does affordable housing impact students in the longterm, if we know that there is improvement in educational outcomes? At the market level, how do businesses make decisions about where they locate? What impact does that have on the community?
The 2020 conference, titled “The Impact of Housing Affordability on Economic Development and Regional Labor Markets,” brought together researchers to share data, present findings, and discuss experiences, to synthesize current lessons learned about how housing impacts a community’s economic development progress. The conference, sponsored by the Federal Reserve Bank of Atlanta and the W.E. Upjohn Institute for Employment Research, explored the impact of unaffordable housing on labor markets, including long-term impacts of affordability on careers, how migration impacts a workforce, and the impact on business growth. Those presentations were based on selected articles that are published in this issue of Economic Development Quarterly.
The conference included experts from various universities and research organizations who discussed work that supports increased labor market performance as it relates to affordable housing trends. The universities and research organizations represented at the conference included Cleveland State University, Michigan State University, the W.E. Upjohn Institute for Employment Research, the Federal Reserve Bank of Philadelphia, the Federal Reserve Bank of Atlanta, California State University-Sacramento, University of Pennsylvania, California State University-San Bernardino, University of North Texas, Florida International University, University of California-Berkeley, University of Pittsburgh, Scripps College, and Belmont University. The conference also featured speakers and moderators from the Brookings Institute, and panelists from the Miami Dade Beacon Council, Impresa, and the City of Minneapolis Department of Community Planning and Economic Development.
This article summarizes the presentations and discussions and highlights the insights from industry experts who presented at the conference.
Framing for the Conference
The conference was opened by a discussion and presentation led by Jenny Schuetz, a Brookings Fellow with the Metropolitan Policy Program. In her remarks, she laid the foundation for the conference and presented the principles of affordable housing and their connection to economic prosperity. Her research and comments framed the 2-day summit and focused on how problems with housing affordability should be defined and how policy can improve outcomes for residents and communities. This discussion on implications of limited affordable housing, homeownership correlation to income, and the disparities in outcomes for lower-income and minority populations set the tone for the summit, which dove into issues of the social costs of high housing prices; housing regulation, growth, and migration; policy implications and policy reform; and housing innovation and business growth.
There is an abundance of research that shows the connection of affordable housing to community well-being and provides the foundation for socioeconomic mobility—housing being the single largest investment for most households and home equity accounting for the single largest financial asset for most middle-income households. As Schuetz mentioned in her discussion, affordability challenges affect lower-income and minority populations disproportionately, with the poorest 20% of U.S. households spending more than half of their gross income on housing. Beyond the financial considerations, Schuetz highlighted regional challenges: In the West and Southwest, planners struggle with overcrowding in dwellings; the Midwest and Northeast are experiencing older, poor quality housing that needs replacement. In addition to these regional challenges, many major metros are experiencing overly long commutes to job centers because of the availability and location of affordable housing.
When considering the disparate impact of race on homeownership, Schuetz's research showed that even in the second income quintile White Americans are more likely to own homes than their Black counterparts in the next higher income quintile (see Figure 1). In fact, Black and Latino Americans are less likely to own homes at any income quartile.
Homeownership by race and income quintile.
Many policy implications and recommendations were discussed during the opening session, which generated healthy debate for the rest of the summit. The broader economic implications—which are furthered explored in many of the research papers—consider the effects of affordable housing on broader communities and how where housing is built affects the ability for labor markets to function properly. In this regard, much of the current affordable housing stock, nationally, trends to be developed far from job centers or industrial and commercial corridors. In these cases, and especially in high-cost areas, employers will often have difficulty recruiting, hiring, and retaining talent because of this spatial mismatch of affordability versus labor market opportunity.
Summary of Session Findings and Policy Implications
During the summit, researchers and practitioners shared their findings and experience through keynote speakers, presentations, panels, and discussions. Some of the speakers shared their suggestions on regional policies to combat housing unaffordability and regional labor market shortages, while others talked about the multigenerational impacts of housing uncertainty. Many of the presenters focused on how housing has impacted the business cycle—on both the labor market impact and the business growth cycle.
Social Costs of High Housing Prices
The opening session focused on issues related to the social costs of high housing prices. These papers considered the effects of urban sprawl, central city blight and abandonment, gentrification and development, the correlation between residential housing status and socioeconomic mobility, and the spatial mismatch of housing with access to effective workforce development services.
Two presentations focused on residential development within a city center or gentrifying neighborhoods. Much of the focus was on strategies that might increase supply or taper the cost of living in the city or in a redeveloped neighborhood. The first paper, written and presented by Joanna Ganning, analyzed different variables that impact inner-city blight. Her research was driven by a curiosity about urban sprawl, particularly in the Cleveland metropolitan area. Ganning said one of the largest contributors to suburbanization is reduced traffic congestion; this finding is consistent with urban economic theory because it supports a low transaction cost (the amount of time in a car) for workers who live outside the city. Overbuilding was also a factor in increased vacancies within the city, both in metros that were growing or shrinking. However, Ganning said this trend was not specific to oversupply within the city center, but regionally, meaning an oversupply in suburban housing incentivizes city dwellers to move further out. One way to reduce vacancies, she said, is for a city to invest in new central city housing.
Many policy makers are concerned with gentrification when considering redeveloping or investing in new central city housing. However, the work presented by Brian Asquith did not support that new housing units necessarily pushed out older tenants. In fact, Asquith, and his coauthors Evan Mast and Davin Reed, did not find support for the induced demand hypothesis. The induced demand hypothesis states that new, market-rent housing (generally nice apartments) attract high-income residents, which in turn attracts new (high priced) amenities. This pattern is ongoing, which eventually leads to higher local rents (regardless of age or property class) and an exodus of low-income renters. The authors studied trends from 11 different cities and found that the increased supply, even at market rates, dominated any induced demand effect. The outcome was relatively lower local rents (between 5% and 7%). Asquith also noted that most market-rent apartments are built in neighborhoods that are already experiencing gentrification. However, he said that these neighborhoods, on average, saw an increase in net in-migration from low-income neighborhoods.
The other two presentations during this session explored how a person's residential situation can impact their socioeconomic mobility, even as early as childhood. Anna Maria Santiago and coauthors George Galster, Kristin Aarland, and Viggo Nordvik considered the consequence of a child's housing situation on their education. They wanted to determine if owning a home made a child more likely to complete high school and to continue onto a postsecondary degree. Their results considered the make-up of the family and student, including race, income, and location. While the authors did find a positive connection between homeownership and education outcomes, Santiago concluded that the impacts were small relative to family and student fixed effects.
Ann Carpenter and co-author Raphael Bostic examined how transit accessibility, or lack thereof, can impact the effectiveness of workforce development sites. The authors used transit and workforce data from the Atlanta metropolitan region that included 10 counties with different public transit systems. The three counties with the major transit system had the largest share of workforce development sites accessible from a transit stop. Roughly 81% of workforce development sites were within one quarter mile of a transit station and 95% were within 1 mile of a transit stop. Other county-run transit systems showed roughly half of their stops within one quarter mile and 60% within 1 mile.
Carpenter said the placement of workforce development sites overall showed a fairly high rate of at least 77% within 1 mile of a transit stop, demonstrating a spatial mismatch of public transit availability to workers. When looking at the working-age population of the metro region, 22% lived within one quarter mile of a transit stop and only 54% lived within 1 mile. This indicates that the barrier to workforce development and career advancement is not a flaw of where offices are located, said Carpenter, but rather where workers are located in relation to public transit. There is a strong connection between where a person lives and how effectively, if at all, they engage with workforce services to enhance their career trajectories.
Housing Regulations, Growth, and Migration
The second session focused on how land use regulation impacts personal incomes and labor market outcomes, including worker migration and employment growth. The research also focused on how the effect of land use regulations is not homogenous across communities. Other perspectives concentrated not only on local control of policy but on the strength of Not In My Backyard (NIMBY) mass thinking. Reducing the number of cost-burdened households was a major focus of much of the discussion—both in looking at very specific regional context on affordability but also as this related to regulations in place for land use and future developments.
Land use regulation is, for the most part, controlled by local authorities. The primary task of land use regulators is to determine the zoning allowed for each parcel of land. While zoning and regulations can often have a beneficial impact on a community (e.g., reducing environmental consequences), they can also be quite expensive. When creating regulations for residential land, the impact is often an increase in home prices or values. John Landis (co-authored with Vincent Reina) discussed the cost burden of regulation on homeowners and renters. The authors found that homeowners and renters both pay for high regulation, although homeowners have a larger share of the burden. Landis and Reina studied if the impact was higher among quickly growing job markets (“hot” markets) and found that the impact was not unique to any specific job market.
Local control of regulation is often motivated by protecting or increasing home values since the regulators and investors (i.e., homeowners) are the same groups. This can be a motivation for NIMBYism. NIMBYism can prevent new development that provides denser, more affordable housing approaches, which increase accessibility that consequently leads to a higher probability of gaining wealth and improving economic mobility. As a result, local control of land regulation can unintentionally lead to suboptimal community outcomes. Robert Wassmer found that the impact was not confined to inefficient housing markets, but also led to a diminishing metropolitan gross domestic product rate, a declining full-time median income, and increasing inequality. In short, Wassmer showed that, while the land use regulations may have achieved higher housing prices in a specific neighborhood, they did not bring value to the entire community, which could have an impact on the ability of the businesses to find or afford good candidates.
The core question of Daniel MacDonald's research centered on the role housing prices play in interstate migration. He found that home prices do have a significant impact on migration. Generally, high housing prices act as a deterrent for people to move to a city, rather than a motivation to leave. Previous research has shown that land use regulation is one contributing factor to increasing home prices, meaning land use regulation decreases a metropolitan area's ability to recruit a new labor force. MacDonald's research underscored the peripheral effects of high-cost metros on the business community's ability to identify, recruit, and retain talent, presenting a longer-term risk to economic stability and growth rates within these areas.
Finally, research presented by Xi Yang showed the disparate impact of housing regulations on African American communities. She found that African American communities are less flexible regarding housing market choices than the broader community; therefore, any negative impacts of housing regulations would be felt more in these communities. Yang's research found that highly regulated cities saw a smaller increase, or even a decline, in the share of African American workers than in cities with fewer regulations. She emphasized that the result is not simply a less diverse city, but job market exclusion for African Americans.
Housing, Innovation, and Business Growth
The final session discussed how housing policies impact a community's business cycle. Particularly, the presenters shared their findings on the rate of business openings and closings and analyzed how housing prices impact this portion of the business cycle in the short and long terms. Another perspective looked at how business growth impacted housing prices. All the research suggested there was a correlation between these characteristics.
Uche Oluku and Shaoming Chen's paper used county-level data to examine how unaffordable housing can impact the rate of business closures. The authors used the share of cost-burdened households, rather than the actual cost of a home, as the basis for what constituted unaffordable percentages within counties. In their paper, they considered cost burdened to be homeowners or renters spending greater than 30% of their income on housing. They found that, in the short run, there were no significant impacts on business closures, but over time the impacts were more meaningful. It may take up to 3 years before an increase in cost-burdened households leads to a decline in a local business. Surprisingly, the authors found that the impact was greater on large corporations compared to small businesses. In the United States, corporations accounted for roughly half of the job growth in recent years. Nicholas Kacher and Luke Petach had similar findings for cost-burdened households. While Oluku and Cheng looked at business closures, Kacher and Petach showed that higher home prices lead to less businesses opening in a community. This compound effect of fewer openings and more closures could lead to significant consequences for the local job market.
Oluku and Cheng also called attention to the assumption that high rates of cost-burdened households are often associated with poverty, which may have a similar impact on business closures. However, they found that many cost-burdened households are not considered to be living in poverty. In fact, of households that are moderately cost burdened (spending 30% to 35% of their gross income on housing), 75% do not live below the poverty line.
Kacher and Petach examined how price changes would impact the birthrate of new businesses and how those relationships changed based on the ratios of ownership and renting. The two scenarios brought different results. In areas with high homeownership rates, moderate growth in housing prices boosted the birthrate of business establishments in a community. However, in communities where renting was more common, an increase in prices had the opposite effect, slowing the rate of business growth, particularly in low-income communities.
Using a reverse perspective, Karen Chapple and Jae Sik Jeon wanted to know if tech hubs were a cause for rising home prices. In other words, does the business cycle impact home prices, rather than the reverse direction studied by other presenters? Using the Bay area in San Francisco as their case study, they found that there were moderate increases in home price trends the closer they were to technology hubs. However, the authors noted that the reaction in home price trends may not be unique to technology firms but could be a sign of a growing business district overall.
Finally, considering the effect economic and business development have on neighborhood and housing conditions, Sabina Deitrick and Christopher Briem examined a local case study—Pittsburgh's East Liberty neighborhood's impact from Google's expansion into the area. Their research focused on the urban renewal period for this neighborhood, anchored by efforts of the East Liberty Development, Inc. (a neighborhood community development corporation), from 1999 to the present day in which the neighborhood, once a blue-collar, working-class, majority–minority community is now identified by some as Pittsburgh's booming tech hub. Their research posits significant economic development wins such as Google's expansion may have a positive effect on community development. In the case of East Liberty, the unintended consequences included an out-migration of lower-income residents, whereas population in-migration were overwhelmingly younger White and male workers. The finding contradicted Brian Asquith's work presented earlier, suggesting an area for further exploration. Even with significant federal and state investment to rebuild and expand affordable housing, the demographic and income shifts have increased the current market rate of housing; the authors expect to see a continuation of these trends when new 2020 census data become available.
Summary and Recommendations
Research presented and resulting discussion raised questions about how we consider existing policy, and its consequences on housing affordability, availability of housing, and housing's connection to employment and the labor market. The authors and panelists shared new approaches to policy through their presentations and conversations. Each session indicated a need for regional planning and coordination and emphasized the role state and federal governments could play to improve outcomes related to housing.
To combat overdevelopment, which can lead to blight and vacancies in the city center, the authors indicated tight monetary policy could discourage speculation in real estate that could help avoid housing bubbles similar to the 2008 crisis and also improve city outcomes. Urban planners have also suggested creating urban growth boundaries that would contain how far suburbs could expand. However, when neighborhoods are already experiencing blight, new development can draw tenants back to an area and alleviate increasing rental rates. When considering education, the authors reiterated that, while homeownership may only have a marginal effect on education outcomes, low-income housing conditions do not create positive increases either. Mixed-income housing has shown promise for improving outcomes. All authors suggested regional strategies for housing development, school districts, and public transportation.
In the second session, many of the policy recommendations centered around using state and local funds to guide local land use regulations. Offering incentives for the overall economic health of a metro could help deter some of the NIMBYism and improve labor market outcomes. To help with out-migration from expensive cities, the authors considered encouraging local college graduates to stay through the use of incentives such as debt repayment, housing subsidies, or cash. Housing subsidies could be used as a market strategy to increase the supply of housing in the area. Finally, policies need to extend past low-income families because affordability is creating employment access for families based on race, not income.
In the final session, policy recommendations focused on holistic approaches, compared to policies that have been historically focused on low to extremely low-income housing. Oluku suggested that “communities must consider making housing more affordable as an integral aspect of any comprehensive regional economic development plan.” Supports for middle-income earners were the focus of new development here. These are families who are working and make between 80% and 140% of the area's median income. They are not considered in poverty but have increasingly struggled to find affordable housing, particularly housing that is close to their employment locations.
A group of practitioners in South Florida joined the conference for a panel and shared some of their top insights that aligned with much of the research presented. The panelists agreed that housing affordability needs to move beyond the 30% test; as much of the research showed, a large portion of households spent more than 30% of their gross income on housing. However, that number is generally restricted to mortgage or rental payments only. The panelists believe affordability should also consider other factors, including property taxes, insurance, and utility bills. There was agreement that housing policy needs to consider its long-term impacts, not only in creating demand for new housing but also in how designed communities impact the environment. There were examples citing the rising cost of insurance for homeowners in Florida because of hurricanes or in California due to wildfires.
Like other policy recommendations throughout the conference, the panelists thought federal funding could improve outcomes from land use regulation. However, the panelists also suggested that states and municipalities consider alternative funding options to improve affordability or even homelessness. Using Florida as an example, the panelists cited two funds: the Sadowski Fund, which is a small tax paid through the transfer of properties, and a Homelessness Trust, which is funded through a tax on soft drinks. Creativity and consistency were two of the themes each presenter emphasized.
Footnotes
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The authors received no financial support for the research, authorship, and/or publication of this article.