It’s been a long time coming, but our village board is finally getting serious about tackling housing affordability.
The best way to tackle affordability is with zoning changes because current rules limit housing options and density. The goal is to allow more “missing middle” housing, buildings that fall in the middle, between single-family homes and high-rises.
But almost all new housing in Oak Park comes with a marketing label: Luxury. How can building expensive “luxury” units make housing more affordable?
Through a process called “filtering.”
Filtering works in two ways. First newer construction ages out of the luxury category. Amenities and finishes become dated, and eventually that luxury building becomes a mid-market building. You can see this in Oak Park. Browse the online listings of the Albion, Whiteco and 100 Forest Place high-rises. The older the building, even by just a decade, the lower the rent per square foot.
The second mechanism is subtler. Without new high-end supply, affluent renters crowd into older buildings and drive up rents. They also spur renovations and up-conversions of what had been affordable stock. When those renters move into new buildings, older units are preserved and room opens for others to step up the housing ladder.
You might say, “Nice theory, Josh,” but it’s more than just a theory. Studies across the country show that new construction at any level lowers existing rents. Oak Park isn’t special. (1)(2)(3)
Progressive Oak Parkers may shy from letting market mechanisms and profit motives influence something as critical as housing, but most of Oak Park’s existing affordable housing was created by private developers seeking a profit.
In fact, profits don’t play a dominant role in construction costs. Government-funded housing often costs more to build because of complex funding and legislative mandates. A RAND study found that in California and Texas, subsidized housing costs about 1.5x as much per square foot. (4)
Closer to home, recent subsidized housing projects are extremely expensive, with one coming in around $884,000 per apartment. (5)
Even if we cut that cost in half, and spent all municipal property-tax revenue (~$40 million) we’d build only about 100 units a year. In reality, it would be a political miracle to fund this consistently at $1 million per year, resulting in 2–3 units of new supply.
This doesn’t mean we shouldn’t build subsidized housing. We should, and I support those projects. But we need to be realistic about what this can accomplish.
To address our affordability crisis, we need new market-rate housing. Market-rate construction costs the taxpayers nothing, relieves pressure on existing affordable housing stocks, and provides new supply that eventually ages itself into affordability.
Sources:
1) https://ideas.repec.org/a/tpr/restat/v105y2023i2p359-375.html
2) https://www.sciencedirect.com/science/article/abs/pii/S0094119021000656
3) https://www.aeaweb.org/articles?id=10.1257%2Faer.104.2.687
4) https://www.rand.org/content/dam/rand/pubs/research_reports/RRA3700/RRA3743-1/RAND_RRA3743-2.pdf
Josh is a passionate urbanist and entrepreneur who’s lived in Chicagoland for thirty years and has called Oak Park home for over a decade.