This filtering effect can happen overnight. In the case of the Clay Apartments, a nonprofit was able to snap up a luxury building before leases were signed. At about $240,000 a unit, that housing didn’t come cheap. But with new affordable housing in Seattle costing roughly $300,000 a unit to build, in many cases it’s cheaper for affordable-housing agencies to simply buy up and convert existing market-rate units into income-restricted housing. Down the coast, in San Francisco—where each new unit of affordable housing runs about $750,000—letting luxury development rip while buying up and restricting some of it to low-income residents might be the only scalable way to produce affordable housing.
Even without the fancy financial footwork of a project such as the Clay Apartments, we don’t have to wait a century for luxury housing to add to the affordable supply. In a 2019 study, the economist Evan Mast found that even pricey development in wealthy neighborhoods sparks a chain reaction that extends all the way to the bottom of the housing market, as richer residents vacate older units for newer ones. The data suggest that for every 100 market-rate units built, as many as 48 moderate-income households can move into nicer housing. If this more subtle form of filtering is as robust as these findings indicate, luxury housing may quietly be generating a lot of affordable housing as soon as the first residents move in.
None of this is to say that high housing prices aren’t a problem—far from it. But any given luxury development is a symptom of—and in a small way, part of the cure for—a broader set of issues. As the urbanist writer Daniel Herriges suggests, what makes new housing expensive is not so much the amenities that brokers like to gush about, but the lack of supply in certain locations. In a context of extreme scarcity, the price of anything that gets built in a fashionable neighborhood such as New York’s SoHo or L.A.’s Venice will be exorbitant. The solution is not to stop developments with granite countertops, but to build many more like them, particularly in affluent areas.
Better yet, local policy makers could simply stop driving up the price on new housing with ill-considered zoning codes. Minimum parking requirements, for instance, which condition the construction of new housing on the provision of off-street parking spaces, can easily add $50,000 to the cost of each new condo, regardless of whether the prospective residents want or need parking. Rules of this nature abound in zoning codes, including mandates requiring large homes and prohibitions on the construction of inherently affordable duplexes and fourplexes.
Houston, a city that has attracted nearly 500,000 new residents over the past 20 years, reveals what easing land-use rules might actually look like: Back in 1998, facing early warning signs of an impending housing crunch, city planners dropped the minimum lot size needed to build a home from 5,000 to 1,400 square feet, such that developers could turn any given ranch-style home into three townhouses. As a result, more than 25,000 new townhouses were built in neighborhoods with easy access to transit and jobs, helping keep Houston one of the most affordable cities in America. Many of the new townhomes are quite nice. Some even flaunt granite countertops and stainless-steel appliances. But the best-kept secret about luxury is that, if you keep building it, eventually there’s enough for everyone.
*This article previously misidentified the Clay Apartments as 10 Clay, a building located in the Belltown neighborhood of Seattle