Former Editor-in-Chief Ryan Avent writes a weekly column about neighborhood and development issues.
It’s nearly two years now since the great Housing Boom of the Aughts© peaked. While prices have leveled off or declined in many places, the affordability of homes in metropolitan areas as an issue has not gone away. In central cities in particular, where the issue of gentrification is most sensitive, prices have shown the most resilience. Certainly, matters haven’t changed enough to prompt the local press to put down its “changing neighborhood” story template. None but the coarsest of us wish to see whole neighborhoods displaced at a stroke, but different approaches to the problem of housing affordability come with different costs. What’s a metro area to do?
Turn to the economists, of course (or at least this one). Supply and demand is practically a throwaway explanation for price changes, employed with varying levels of actual understanding by journalists with their business writer cap on. Still, the concept has considerable explanatory power. For home prices, one of the principle determining factors is consumer demand. At the level of the metro area, demand is driven by economic vitality more than anything else, but things like environmental amenities (“sunshine”) and cultural options are important as well. At a neighborhood level, demand is affected by things like location, the crime rate, location, school quality, housing quality, location, and retail and entertainment options. Observers of housing markets tend to get this side of things pretty well.
But just as important to prices is supply. Recent economics research has shown, unsurprisingly, a connection between the number of new building permits issued in a location and housing prices. That connection is generally reflected in the Washington area. Where Arlington and Alexandria, long the stingiest jurisdictions for new construction, also have high average home prices, exurban counties like Prince William and Loudoun have had a build anything anywhere approach and were, until recently, rewarded with rapid population growth and relatively low home prices. That all has begun to change. Over the past few years, those jurisdictions have responded to fears of too-rapid growth by cutting new construction significantly. As a result, population growth has slowed and prices have begun to converge toward those closer in.
Supply in Alexandria (or Prince William County or the District) contributes to supply in the Metro area as a whole, so restrictions on growth — from government action or resident opposition — help to reduce home affordability for the entire Washington area. It’s an interesting problem that residents often fight new development to protect the character of their neighborhoods, but by limiting development they push up home prices and push out long-time residents, changing the character of their neighborhoods just the same.
Picture taken by dougvansant.
