Does Affordable Housing Detrimentally Affect Property Values? A Review of the Literature
Précis by Jeff McLaren
Affordable housing often has bad connotations, it is often argued that it reduces property values however this is not necessarily true.
This paper looks at 17 recent methodologically rigorous studies that seek to answer the question of affordable housing's effect on property values in order to determine how to mitigate any harmful effects.
The popular but far too simplistic belief that affordable housing lowers nearby property values is the driving force for NIMBY (not in my back yard) arguments. The study gives policy makers a comprehensive summary of all studies to date in order to determine under what conditions affordable housing affects property values. The hope is to eliminate NIMBY arguments.
There are usually five reasons against affordable housing: 1) worries about design and quality of construction; 2) changing of the neighbourhood's character; 3) negative externalities such as traffic congestion or environmental degradation; 4) the inflow of “undesirable” people as defined by race, income, or profession; and 5) anti-growth sentiments. Several of the studies claim that these five reasons are proxies for an underlying reason: the worry of a decline in personal wealth from a drop in property asset values.
Prior to 1995 almost all studies on the question claimed that property prices were not affected. However these studies suffered from methodological problems that have only recently been mitigated with better data and techniques in “studies that employ multiple regression techniques on hedonic price models using large housing price data sets to test the relationship....” The outcomes of the relationship between affordable housing and property values is dependent on many different factors.
The term “affordable housing” has many meanings. At least three were found in the literature: 1) the US Department of Housing and Urban Development definition: in which the householders pay no more than 30% of their earnings on housing; 2) below market housing: where rents are subsidized; and 3) low-income housing: which is housing reserved for low income people.
The first wave of studies, prior to 1995, were based on a test and control methodology. This methodology is flawed for five reasons: 1) two comparable neighbourhoods were often compared on criteria that did not consider major differences; 2) neighborhood boundaries were often arbitrary; 3) this method could not control for a variety complex factors that could influence property values; 4) most were small sample studies; and 5) these studies did not consider the effects of trends in housing prices.
Therefore there are at least four important questions that could not be asked: 1) in cases where property values drop is affordable housing the cause of the drop or is affordable housing simply put into such a neighborhood that are in decline; 2) how do changes in supply and demand for housing affect the relationship of affordable housing to property prices; 3) what are the property value trends in a neighborhood before the introduction of affordable housing and do they change after their introduction and 4) what specific characteristics of the affordable housing site might affect property values.
The second wave, post 1995, of studies have access to better data and can control for factors such as 1) demographics, 2) building quality. 3) neighborhood characteristics. 4) amenities, 5) distance from affordable housing units or sites, 6) housing sales cycle, and 7) type of affordable housing program.
The quick conclusion of these studies is that affordable housing can depress properties prices. However, there are ways to reduce and reverse these depressed property values: 1) with good quality design and management, 2) with similarities in size and style to the existing neighbourhood, and 3) without concentration or ghettoizing among other affordable housing.
In the worst case scenarios, when affordable housing has lowered property values, the new research claims that it is a minimal amount: “the same dollar impact on the house's value as removing half a square footage in their houses.”
With regards to the affordable housing unit or site, new the research claims that: 1) “the quality and design of the affordable housing structure is a stronger predictor of property values than proximity to it.” 2) there were many cases where proximity had an inverse relation to declining property values; meaning that there is some other factor involved in declines. 3) If well designed affordable housing is incorporated into dying neighbourhoods there are some cases in which this reversed the downward trend in house values. 4) In cases were affordable housing was run by neighbourhood-based organizations, neighbourhood property prices showed better improvement than units run by the public or private sectors. 5) The actions of management, whether it be public, private or community oriented, has a larger impact on housing prices than just the presence of affordable housing. 6) panic sales due to the introduction of affordable housing have a short term effect on property prices. 7) “rehabilitating housing can be an effective means to provide low-income households with a home while also improving the condition, both aesthetically and financially, of the host neighborhood.” 8) converting existing homes to affordable homes does not seem to affect property values provided they have good management and are not concentrated.
With regards to the characteristics of the host neighbourhood, the research claims that: 1) compatibility of the affordable housing and the neighbourhood has some impact on property values: if there are huge differences between the value of affordable housing and neighbourhood homes there is a pull in the direction of the relative value of affordable housing. 2) Appreciating neighbourhoods generally keep appreciating when affordable housing is introduced; vulnerable and/or depreciating neighbourhoods generally continued to depreciate even with the introduction of affordable housing. 3) In the USA, the positive benefits of living near affordable housing did not seem to be manifest in neighbourhoods that were predominantly African-American.
With regards to dispersion of affordable housing, the research claims that “...if the number of [affordable housing] households in any neighbourhood reached a certain threshold (six or more within 500 feet) there would be a downward shift in housing values.” However, “When larger-scale public housing (e.g. high-rise and large developments) was examined, there was surprisingly no statistically significant effect of size of public housing on property values.”
Added on: 2014-04-16 14:21:28
Précis by: Jeff McLaren
© 2008 - 1, Jeff McLaren