Part 1: Do new apartment buildings cause displacement?
In much of Cambridge, including my neighborhood, the city's rules for new construction ("zoning") require that houses have strict height limits, and new construction is restricted to only single family homes and (if you're lucky!) duplexes. The City Council is discussing changing zoning to allow construction of multi-family mid-sized buildings—4 to 6 stories, with some caveats—across all of Cambridge.
I'm very excited about this, and I think you should be too! As I've written previously and will no doubt write more in the future, building more housing is extremely valuable in addition to any potential for lowering housing costs for renters.
Not everyone is happy with this change, though. Many opponents claim new construction will increase the number of renters getting priced out and being forced to move out of Cambridge, which we'll call "displacement" as a short-hand. And in a literal sense, yes, anyone living in a building that's being torn down is going to have to move. But from a big picture perspective, large-scale construction is a lot better than the alternatives.
In more detail:
- One commonly cited reason for displacement—shifting neighborhood demographics—is at this point irrelevant to Cambridge.
- Displacement is happening already, despite construction of mid-sized buildings being illegal in much of Cambridge.
- Building mid-sized (or even better, taller) buildings is the only displacement mechanism that has financial incentives to minimize displacement, and at the same time also mitigates the problem.
Since this is a lot to cover, I'm going to cover half today, and the second half in another email tomorrow.
The changing-neighborhood-demographics argument is irrelevant to Cambridge
"Gentrification" means different things to different people, but let's consider one common dynamic that falls under that umbrella. Consider a neighborhood that is very unpopular. The people who live there have a lower income, there's a limit to how high landlords can raise rents, and a corresponding lack of maintenance and renovations.
Then, some trigger improves the perception of the neighborhood, and the potential market of tenants increases. The still cheaper-than-elsewhere rents attract more people, buildings get renovated, and over time a feedback loop kicks in: wealthier tenants means rising rents and renovations means ever-wealthier tenants. The low-income people who used to live there are forced to move elsewhere.
In many cases, construction of new housing is blamed for starting the feedback loop of rising prices. Whether or not this is always true (I suspect new construction is often a symptom, not a cause), in Cambridge's case it's clear new construction can't trigger this feedback loop.
In particular, Cambridge has no inherently unpopular neighborhoods where rents are low. If you renovate a crappy apartment anywhere in the city, you'll be able to raise the rent significantly. If you sell a crappy apartment anywhere in the city, you'll still get a large pile of money. Building new housing won't trigger a feedback loop of rising rents; we already have rising rents, and have for decades.
For our purposes, this means that displacement from new construction probably only impacts the people living in the house that will be torn down to enable the new construction.
Displacement without new construction
Even if Cambridge completely outlawed teardowns of existing buildings, we would still see ongoing and significant displacement.
1. The slow grind of rising rents
Given rents going up for decades, at a pace much higher than most people's incomes, there will be displacement with no property changing hands. The slow grind of rent rising ever year keeps adding up, with more and more people forced to move elsewhere.
2. A new landlord accelerates the rise in rent
There are a few landlords in Cambridge who ask for significantly less-than-market rate. And there are also landlords who don't raise rent as much they probably could, because they value having reliable long-term tenants.
But here's the thing: they can do this only because it's financially viable for them to do so. They likely bought the building years ago, when prices where lower, which means they have a smaller mortgage. In fact, if they bought long enough ago, they don't have a mortgage at all.
But what happens when a building gets sold to a new landlord? The new landlord will likely use a mortgage to buy the building, and a much larger mortgage than the previous owner's, because real estate prices have gone up so much. So they will likely have to raise rents, not necessarily because they're any greedier than the previous landlord, but because they have much higher bills to pay.
3. Renovations
Some of the housing stock in Cambridge is cheaper because it's in bad shape. If an apartment or whole building is renovated, the landlord can either charge significantly more rent, or do a condo conversion and sell the apartments off.
For all of these reasons, even with zero new construction we will continue to see significant displacement. After all, that's the status quo already in much of Cambridge. (Rent control if done well can help somewhat, but even in the best case that still leaves condo conversions.)
I'll be back tomorrow with part 2!
Regards,
—Itamar
A bit more
Song of the day: No Exploration, by Cut Capers (2016).