How are communities making housing more affordable for middle-income families?

The Vitals

Paying the rent for a decent home is not
just a challenge for low-income families. As housing affordability increasingly
creates stress on middle-income families, local governments, philanthropies,
and even employers are debating new strategies to address the problem.

• Housing stress on middle-income families is most acute in expensive metropolitan areas where regulatory barriers have driven up costs and restricted new development.

• Cities clearly benefit financially from having more middle-class residents. It’s less clear if growth in middle-class residents brings broader social benefits.

• Local governments considering creating a housing subsidy targeted at middle-income families should consider the potential costs – both political and financial.

A Closer Look

In the past year, Facebook,
Google,
Microsoft,
and the Chan-Zuckerburg
Initiative have pledged contributions ranging from $500 million to
$1 billion to help build more middle-income housing in their respective
backyards (literally for Google, which is proposing to convert some of its
Mountain View campus to housing). The District of Columbia’s mayor, Muriel
Bowser, proposed a $20
million Workforce Housing Fund 
to help subsidize housing for typical middle-income occupations like “teachers,
police officers, janitors, [and] social workers.”

In this brief, we discuss the rationale for housing subsidies targeted to middle-income families, review past examples of policies referred to as “workforce housing,” and discuss some political and economic implications of these policies.

How are “workforce” and “middle-income” housing different from “affordable” housing?

The term “workforce housing” is most often
used to indicate a program targeted at households that earn too much to quality
for traditional affordable housing subsidies. The largest rental subsidy
program, housing
vouchers funded by the U.S. Department of Housing and Urban Development
(HUD), targets families making up to 50% of the median income for their
metropolitan area (AMI). Households earning up to 80% of AMI are eligible to
live in Low
Income Housing Tax Credit properties. Relative to these programs,
workforce housing is most commonly intended for households with incomes between
80% and 120% of AMI.

The term “workforce” housing is not only
imprecise, it is controversial:
many poor households who receive federal housing subsidies are
employed, so why are those subsidies not considered “workforce”
housing? As we discuss below, while “middle-income housing” would be more
precise language, it raises some politically awkward questions.

Some “workforce” housing programs—such as
those aimed at teachers and police officers—are tied both to household income
and to occupations or industries. There is a specific history of housing
assistance for certain public-sector employees, stemming in part from local
government requirements that those workers live within their employing
political jurisdiction.

What are the pros and cons to cities of attracting middle-income households?

Dedicating subsidies to middle-income households may seem odd today, when many cities fret over gentrification. But in the not too distant past, most central cities were substantially poorer than their surrounding suburban jurisdictions. Washington, D.C., offers a clear example, as we can see by comparing the income distribution of central city neighborhoods and the entire metropolitan area over time.

In 2000, about one in three neighborhoods
in the Washington, D.C., metro area had median incomes between $72,000 and
$108,000 (80% and 120% of AMI, respectively). Only 16% of neighborhoods in the
District of Columbia were middle income. By 2017, middle-income neighborhoods
(between $80,000 and $120,000) constituted 35% of the metropolitan area and 31%
of the District. Other major cities such as New York, Boston, San Francisco,
and Seattle experienced similar growth in middle-income households during this
period. But many mayors and city councilors have personal and professional
experiences dating back to times when cities cast about for strategies to
attract affluent residents in from the suburbs (or keep from losing the ones
already there).

Cities clearly benefit
financially from having more middle-class residents. Property taxes
make up the largest source of local government revenue for most cities. Cities
made up of a few very wealthy residents and many poor residents face difficult
choices: imposing high property tax rates may push their most affluent
constituents into lower-tax suburbs, but allowing the quality of public
services to deteriorate also threatens stability. When more middle-income
residents move into a jurisdiction, renting or purchasing homes, cities can
collect more property tax revenues from a broader cross section of households.
Middle-class residents also hit the sweet spot for consumer spending: they have
more disposable income than poor households to spend on groceries, restaurants,
movies, and dry cleaners—all items that are consumed locally. (Wealthy
households tend to spend a smaller share of
their income, so generate a smaller economic multiplier in their local area.)

It is more ambiguous whether the growth in
middle-income residents creates broader social benefits for cities. On the plus
side, middle-class residents can generate more pressure on local officials to
invest in transportation, parks, libraries, and shared community assets. If
middle-income families send their children to public schools, they bring to
those schools greater financial resources, as well as social and
human capital. But research shows mixed
results on whether and how higher-income families interact in
schools and social settings with lower-income neighbors. Moreover, an influx of
more affluent households can drive up housing
costs, leading to displacement of existing lower-income residents,
especially if local governments impose regulations
that limit new housing development.

How have past workforce/middle-income housing programs been designed?

Middle-income and workforce housing programs
have taken a variety of forms across different time periods and geographies.
While not a comprehensive inventory, below we describe a few of the more notable
programs.

New York City

As one of the nation’s most expensive
housing markets, New York City was an early entrant into workforce housing. Two
of its first examples, the Mitchell-Lama program and Stuyvesant Town, still
exist today, although both have undergone changes since their initial design.

In the 1940s, the New York and the Metropolitan Life
Insurance company created an early public-private partnership to create Stuyvesant
Town, a massive
residential development, containing more than 11,000 apartments on 80 acres of
land. The city used eminent domain to assemble land for the project and grant
MetLife over $1 million in property tax exemptions annually for 25 years.
MetLife built the complex to house moderate-income families, including veterans
returning from World War II. From its inception, the project drew criticism for
excluding Black residents and for the top-down, undemocratic process of the
development.

New York State established the Mitchell-Lama
program in 1955 with the Limited
Profit Housing Companies Law. The program offers a combination of low-interest
mortgage loans, property
tax abatements, and land to encourage developers
to build housing with rents that are affordable to moderate- and
middle-income households (roughly the middle third of the city’s income distribution). More than 100,000 Mitchell-Lama apartments exist
across New York City.

Housing for teachers, employer-provided housing

Although
not widespread, some school districts and affiliated non-profits have developed
workforce housing specifically
reserved for teachers. This partly reflects legacies from the 1970s
and 1980s, when local governments
often required public employees, including teachers and emergency
responders, to live in the jurisdiction where they worked. Some cities,
including Chicago,
still have residency requirements. Cities and towns with expensive housing
often have difficulty
attracting and retaining high quality teachers, and may have less
flexibility in increasing salaries. Because school quality is capitalized into local
housing prices, there is a certain financial logic to local governments using
public resources to subsidize teachers housing, especially in mostly
residential suburbs. But arguments can be made that other, similarly paid
occupations also provide social value to their communities. And some expensive
communities (including San Francisco Bay Area suburbs) are actively
hostile to building rental housing even if it would be reserved for
teachers or other public servants.

Historically,
many employers have provided housing to their workers: examples include the
“model town” of Pullman,
Illinois, dormitories for textile workers in New England factory
towns, and farmers who hire seasonal agricultural workers. Often these
instances have given employers undue power over their workers, with the potential
for exploitation or abuse. Oddly, one remaining example of
employer-provided housing can be found among elite universities in expensive
housing markets: Columbia,
New York University,
and Stanford
provide below-market apartments for selected faculty and staff.

While most
of HUD’s subsidies target low- to moderate-income families, regardless of
occupation, the agency’s “Good
Neighbor Next Door” offers discounted home prices to teachers, police,
firefighters, and emergency medical technicians in designated “revitalization
areas.” The goal is to encourage households with stable employment to become
homeowners in lower-income neighborhoods. And some local governments, including
the District
of Columbia, offer first-time homebuyer assistance that to
households with incomes that roughly correspond to local government salaries.

In well-functioning housing markets, middle-income families shouldn’t need subsidies

Local governments considering creating a
housing subsidy targeted at middle-income families should consider the
potential costs—both political and financial. Proposals to set aside scarce
public resources for middle-income households are likely to face considerable opposition
from traditional affordable housing
advocates (and some voters), given that only one
in five low-income households receives federal housing assistance.
Besides the direct subsidy cost, any program imposes some administrative costs on
the government agency in charge of implementation. Staff time must be allotted
to process applications, reviewing eligibility by income and employment,
similar to administering housing vouchers. There could be labor market
implications of tying housing benefits to specific employers or occupation. To
the extent that changing jobs might mean losing one’s housing, such programs
could create disincentives for labor market mobility. Subsidies that are targeted
at public-sector employees may also raise concerns: why should public employees
receive subsidies that are not available to private or nonprofit employees earning
the same income, and facing the same housing affordability challenges?

Housing stress on
middle-income families is most acute
in expensive metropolitan areas where regulatory barriers have driven up costs and restricted new development.
These regulatory barriers reflect the policy choices that local governments have
made; by changing the rules for housing development, local governments can
bring down housing prices overall, benefitting all households. Two changes in
particular would ease the burden on middle-income households. First, localities
can reduce barriers to building a diverse housing stock in every neighborhood. Minneapolis
and Oregon
have recently taken steps to allow small apartment buildings by right in all
neighborhoods; other states and cities are considering following suit. Second,
local governments can simplify
and streamline the housing development process, especially for
multifamily buildings. Making the process shorter, simpler, more
transparent, and less uncertain would allow more households to afford their
rent without creating new subsidy programs.