In mid-February, the Charlotte Observer ran a long piece about “The little-known trend that’s hurting housing affordability in Charlotte.” And while it’s interesting, there’s nothing about the piece that’s actually unique to Charlotte, Mecklenburg County, or North Carolina. What is the little-known trend? The “value add” deal.
So what, exactly, is a value add deal? It’s when a company buys up an apartment community, makes upgrades like new appliances, granite countertops, improved gym facilities, new flooring, etc., and they raise rents accordingly. After all, those upgrades cost money. Companies are investing in the apartments. And the end product is, indeed, a more comfortable, convenient, and possibly safer place to live. Adding value is exactly what these companies do.
And it’s a good thing. Who doesn’t want to improve the overall quality of the housing stock? But, of course, the flip side is that a cheaper apartment is no longer available. And that, say some affordable housing advocates, is a real problem because it purportedly leaves large numbers of low- and fixed-income residents with few options for housing.
But here’s my question. Shouldn’t all of those in need of low-cost housing actually constitute a large block of demand? It sounds to me like there’s money to be made in building new low-end apartments or in maintaining and operating existing ones. After all, there’s strong demand for low-cost grocery stores like Aldi, low-cost used cars, low-cost restaurants like Taco Bell, low-cost hairdressers like Great Clips, and low-cost retail like Dollar General.
Sure, a lot of people turn their noses up at those stores I’ve just listed. And you can get better quality if you spend more. No one’s arguing that Taco Bell is as good as Ruth’s Chris. But people need food, transportation, haircuts, and laundry detergent. So those low-cost retailers are in high demand.
What is different about housing? Well, I’d suggest that it really boils down to regulations. It’s not that no one wants to provide low-cost housing. Rather, I suspect the problem is layers upon layers of regulations that builders have to comply with to construct a new apartment building. The North Carolina Building Code online runs to 270 pages. Then there are municipal codes. Charlotte’s code is long and covers many things in great detail, including a long section on trees (which made me laugh out loud). And then there’s zoning and on and on.
All of which means that a developer can’t just buy a plot of land and build inexpensive apartments. In fact, it’s those low-cost apartments that are often the most difficult to build. Sometimes it’s neighbors who object to a building because they fear it will harm their property values. Sometimes it’s regulations about the minimum number of parking spaces that drives up costs. Maybe it’s even rules about the number of trees and their distance from the road that increases the overall cost of an apartment community.
The Charlotte Observer piece talks about some proposed solutions, like this one:
At a City Council retreat this month, Mayor Vi Lyles suggested Charlotte should consider using public money from the Housing Trust Fund to help nonprofit groups buy and renovate older apartment buildings while keeping the rents affordable.
I think that’s the wrong approach.
A more interesting solution, and one that gets at the heart of the problem, was put forward recently in California by a progressive Democratic state senator, Scott Wiener, who represents San Francisco. Rarely do progressive Democrats from San Francisco come up with ideas that I think make sense, but he has. His bill, California SB 827, would prohibit local governments from putting restrictions on what can be built on large swathes of land across California. His bill doesn’t make any rules about what can and can’t be built in a particular area. It just says that, if you’re close to transit lines (which cover large sections of California’s largest cities), then the local government can’t impose strict height restrictions on buildings, require that they meet expensive design guidelines, or force developers to build lower density housing.
Effectively, this bill would reduce restrictions on what can be built. Given the great demand for housing, reducing regulations would likely increase the housing supply. And, as anyone who’s taken introductory economics can tell you, increased supply drives down prices. Voila! More affordable housing!
Sure, the issue is complicated. And a bill like that proposed in California won’t fix the entire affordable housing issue overnight. But rather than looking at taxes or bonds so they can throw more taxpayer money at the problem, perhaps Charlotte officials should consider how they could lift restrictions and regulations that make it more difficult and expensive to build the types of housing that people, particularly those with low or fixed incomes, need.