Migration Chains and Trickle-Down Housing

Call it trickle-down housing. When developers build luxury housing for the wealthy because more expensive housing provides bigger profit margins, do the poor go homeless? No. When an affluent household moves into a luxurious new penthouse apartment, it creates a vacancy in its previous residence…. which a less well-to-do family moves into, creating yet another new vacancy. The idea, if not the label, has been around at least since the time of 1960s-era urbanist Edward Banfield, author of the sociology classic “Unheavenly City.”

The trickle-down description of housing markets always made sense to me because I saw up close how it operated. When my father was serving in the U.S. Navy in the early 1960s, he was stationed in Newport, R.I., the summering place of the Vanderbilts and other captains of finance and industry in the late-19th century. We lived next door to a former mansion that had been chopped up into multiple rental apartments. Some rich family had built the manse in the 1800s. After decades passed, it was no longer suitable enough or fashionable enough for rich people. The building was re-purposed as rental housing.

The reason people are going homeless is that not enough new housing, luxury or otherwise, is being built — not because luxury housing is too expensive for most people to afford.

Leftist pundits and commentators criticize the market’s proclivity for building higher-end housing, especially when luxury units arise in gentrifying neighborhoods where rents are rising and poor people are being displaced. But new research shows how trickle-down housing — also referred to in the academic literature as migration chains, or filtering — works to the benefit of not only the rich but the poor.

Building 100 new luxury units induces 65 people to move out of below-median income neighborhoods and 34 people out of bottom-quintile income neighborhoods, reducing demand and loosening the housing market in such areas,” writes Evan Mast with the W.E. Upjohn Institute for Employment Research in a new paper, “The Effect of New Luxury Housing on Regional Housing Affordability.” “These results suggest that increasing housing supply improves housing affordability in the short run.”

Trickle-down practices occur in many sectors of the economy. Wealthy people buy new cars, sell them a few years later, and less-wealthy people buy the depreciated vehicles for much lower prices. Likewise, wealthy people buy expensive clothes, get tired of them (or get too fat for them), and give them to thrift shops. Less-wealth people buy them for a fraction of their original price. (My family was a frequent customer of used cars and second-hand clothes.)

Mast describes what he calls a “migration chain” that links luxury housing to cheaper segments of the market. “Some households who would have otherwise occupied cheaper units move into new units, reducing demand and lowering prices for the units they leave vacant. The process iterates when a second round of households move into the units the first round left vacant, and so on, eventually reducing prices in affordable areas.”

That’s the theory. Does it work that way in reality? A number of things might interrupt the migration chain, Mast suggests. Affluent families might spawn new households (a college grad moves out on her own). A unit might be used as a second home. Or oligopolistic landlords might not reduce prices enough to fully fill the vacancies. To see what happens in the real world, he identified 802 large new luxury multifamily buildings in 12 central cities and tracked their current residents to their previous housing units. He then tracked tenants of those housing units back to their previous housing units.

The results … suggest that new luxury housing construction is an important source of affordable housing, even in the short run. This highlights the importance of market-based strategies to improve housing affordability and suggests that diverse areas of a metropolitan area may benefit from policymakers expending the political capital required to get new housing through the often onerous approval process. Moreover, it suggests that policy that ease the approval process or reduce construction costs in other ways are likely to improve affordability.

Inclusionary zoning policies, which compel developers to provide subsidized housing for lower-income tenants, can be counter-productive, Mast says. “A back-of-the-envelope calculation suggests that if each required income-restricted unit crowds out more than 1.53 new market-rate units, the lost equivalent units in below-median income areas would outnumber the gain in income-restricted units.”

Mast doesn’t rule out housing vouchers, public housing or other subsidies for lower-income households. But these, he says, are better viewed as in-kind income support programs than housing affordability programs.

Writing in the Strong Towns blog, Daniel Herriges explores the implications of Mast’s research. He draws two main conclusions:

1. Policies that are intended to do good can end up doing net harm. The specific example of this which Mast does invoke, in the realm of housing policy, is Inclusionary Zoning. … The problem with Inclusionary Zoning is that, by imposing additional costs on the developers of new housing (requiring them to build units that must be rented or sold at a loss), it may decrease the amount of such new development that occurs. If it does, according to Mast’s findings, it is directly eliminating some of those migration chains that would have caused homes in low-income neighborhoods to be freed up for new occupants. …

2. Practice via negativa instead. The via negativa is an approach recommended by Nassim Taleb for working with complex systems: work via subtraction, not addition. Instead of adding distortions to the incentives that people face, take away existing interventions that are distorting things.

In the case of housing markets, this means letting feedback mechanisms work. Where you have a productive place that people want to be, it should be possible for that place to naturally “thicken up” over time—not in large leaps that risk killing the golden goose that made it a successful place, but in small increments. This means letting people build more homes—yes, even if some are “luxury” homes. It means letting them build a diversity of home styles and sizes, so that the emergent wisdom of the crowd can shape the evolution of a place.

Mast’s migration chains suggest that this approach may even do more to produce broad housing affordability than explicitly mandating capital-A Affordable housing, and micromanaging where it is built. The housing market is a complex system, and its overall outcomes—who finds a home at a price they can afford in a place they want to be—are going to largely be shaped by an ecology of causes and effects that defies micromanagement or simplistic understandings of cause and effect.

Such concepts are totally alien to the public housing-industrial complex. Housing policy in Virginia is geared to subsidizing new construction for lower-income Virginians at absurdly uneconomic costs, typically at $200,000 per dwelling unit or more. Current policy is not sustainable. We need to think differently about affordable housing. Trickle-down housing is a viable alternative. Perhaps we should spend more time thinking about how to make it work.

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7 responses to “Migration Chains and Trickle-Down Housing”

  1. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    This is an excellent article. Every word of it. For example: “Trickle-down housing is a viable alternative.” Absolutely it is. You can see it at work everyday where enlightened communities have loosened their zoning laws to accommodate changing demographics and new market realities, in places like Cambridge Maryland, for one of many successful examples. This loosening of zoning law straight jackets does not destroy communities, it does the reverse, its saves and revitalizes those communities for the benefit of ever more people.

  2. LarrytheG Avatar

    If “trickle down” housing “works” then why do we continue to have “affordability” issues in most all urbanized areas?

    Are we talking about the current gap which co-exists already with “trickle down” or some new or different idea to “expand” the existing trickle down beyond where it is right now?

    Call me a skeptic. When I actually see one or two places that have tried new policies and it works then I will reassess but right now – we have across-the-board, pretty much everywhere, the same basic problem even though a lot of these places have tried different approaches – so far no particular one has emerged as “the” answer – least of all the premise that the “market” will provide the demanded price points. Just not happening.

    And again – at the end of the day – why not put out an RFP – to see the responses – just like we do for schools and highways?

    1. Some urban areas are less unaffordable than others. Compare housing policies and housing prices in Texas or Georgia with those of California or Maryland.

  3. TooManyTaxes Avatar

    Greater Greater Washington, hardly a conservative or even moderate forum, often debates this issue. I’ve seen good arguments on both sides.

  4. LarrytheG Avatar

    We have no shortage of low-income subsidized garden-style apartments in Fredericksburg.

    But what we need here in BR – desperately in my view – is some fact-based data as to how affordable housing currently works – before and separate from the commentary – which is not necessarily based on actual facts sometimes.

    For instance – this is directly from an FAQ:

    ” What are housing choice vouchers?

    The housing choice voucher program is the federal government’s major program for assisting very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary housing in the private market. Since housing assistance is provided on behalf of the family or individual, participants are able to find their own housing, including single-family homes, townhouses and apartments.

    The participant is free to choose any housing that meets the requirements of the program and is not limited to units located in subsidized housing projects.

    Housing choice vouchers are administered locally by public housing agencies (PHAs). The PHAs receive federal funds from the U.S. Department of Housing and Urban Development (HUD) to administer the voucher program.

    A family that is issued a housing voucher is responsible for finding a suitable housing unit of the family’s choice where the owner agrees to rent under the program. This unit may include the family’s present residence. Rental units must meet minimum standards of health and safety, as determined by the PHA.

    A housing subsidy is paid to the landlord directly by the PHA on behalf of the participating family. The family then pays the difference between the actual rent charged by the landlord and the amount subsidized by the program. Under certain circumstances, if authorized by the PHA, a family may use its voucher to purchase a modest home.”

    the assistance is means-tested: ” The formula to calculate the amount paid to your landlord by the assistance looks like this. So, if your monthly income is $1,850, you would pay $555 toward the rent ($1,850 X 30%). If the total rent for the apartment is $850, the assistance will pay $295 to the landlord on your behalf.”

    So … this allows someone to find a place to live where there are “good” schools for their kids – not be forced to live where the schools are not good AND the amount of assistance is capped according to their income so that the level of help is keyed to need.

    The bad news is that this program is not adequately funded and there are waiting lists – and sometimes the waiting lists are so long – they are closed – they’re not even allowing folks to sign up anymore.

    Bacon has done a pretty good job at letting folks in particular areas do guest editorials. This might be an opportunity to get someone who works in this field to do a little “schooling” so that the commentary and comments are focused on facts… and not preconceived biases and such.

  5. djrippert Avatar

    After we came out of the church, we stood talking for some time together of Bishop Berkeley’s ingenious sophistry to prove the nonexistence of matter, and that every thing in the universe is merely ideal. I observed, that though we are satisfied his doctrine is not true, it is impossible to refute it. I never shall forget the alacrity with which Johnson answered, striking his foot with mighty force against a large stone, till he rebounded from it — “I refute it thus.”
    Boswell: Life

    Some of this human settlement pattern theory reminds me of Bishop Berkeley’s attempt to deny that anything really exists. He can’t prove himself right but you can’t prove him wrong. Until, of course, you kick a rock and feel it in your foot.

    The first problem with the migration chain trickle down theory is that the high end housing has to be built as fast as the overall population is increasing if the trickle down is to hold lower end housing pricing stable. In places like New York City this isn’t happening and the inevitable “housing crisis” has been in full bloom for over a decade. Imagine a town with 100 people living in 20 residences. Over a year 10 people move in. 4 are wealthy. The developers build two new high end residences. The four wealthy newcomers occupy the new high end residences. Now 106 people are competing for the 20 residences that existed before the in-migration. Prices go up. The other problem is that rich people want big homes. In New York City this has resulted in the curious rise of “pencil towers” which occupy not only their own air rights but air rights purchased from neighboring buildings as well. Some of the condos in the pencil towers sell for as much as $10,000 per sq ft! Meanwhile, the ability to raze and rebuild taller buildings on adjacent lots is compromised.


    As for the theory that constructing high value housing starts a migration chain that results in trickle down affordable housing …. I walk over to a pencil tower with a copy of The New York Times’ latest article on the NYC housing crisis and kick the pencil tower. “I refute it thus”.

    1. Interesting argument, Don. But I don’t think you’ve refuted anything.

      Mast is not saying that the solution to affordable housing is building lots and lots of luxury housing. He is saying only that building luxury housing sets into motion a trickle-down effect that creates some affordable housing. If the supply of new luxury housing is small, then the impact on affordable housing will be small. If the growth in demand for housing in New York City exceeds the growth in supply (of whatever kind), prices will rise.

      Mast’s research addresses the Leftist argument that building luxury housing somehow reduces (or does nothing for) the supply of affordable housing, hence, is somehow bad.

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