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The Price You Pay: Austin’s Affordability X-Factor

December 17, 2013

Leadership Austin has organized a breakfast panel discussion for tomorrow morning at the Long Center entitled, “The Price You Pay: Austin’s Affordability X-Factor.” Francie Ferguson, Brian Kelsey and I will be on the panel, moderated by KXAN’s Robert Hadlock.

Brian (who has his own firm, Civic Analytics) has posted a blog entry organizing his thoughts for the panel tomorrow. It’s chock full of interesting statistics. I don’t want to steal his thunder, but I can’t help passing this one along:

In 2000, 14% of households in Austin (city) had incomes of at least $100,000. In 2012, it was up to 24%. In 2000, households with incomes of less than $15,000 outnumbered households with incomes of $100,000 or more. In 2012, $100,000+ households outnumbered < $15,000 households by almost two to one. This is a remarkable shift in the city’s demographics in a very short amount of time and can go a long way toward explaining why housing is so expensive, especially in centrally located neighborhoods.

I don’t think I’m mischaracterizing him when I say that Brian believes that affordability is mainly an economic development problem (with “economic development” meant in its broadest sense). Brian mainly advocates policies that increase human capital (let’s give our young people better schools/education) and income (let’s draw better paying jobs).  Or put more simply (perhaps too simply), he thinks the affordability problem is mainly about making people wealthier. He’s “skeptical that we can ‘build our way’ to greater affordability in Austin, especially without an equally ambitious strategy for human capital development–i.e. investing in people so they can afford to live and raise families here.”

There’s actually a bit of daylight between our views on this, of course. My own view is that unless you allow housing supply to respond elastically to demand, higher wages will be offset (more or less) by higher housing costs. Freezing the housing supply while raising wages will attract higher-skilled workers and push out lower-skilled workers, turning the city’s real estate market into a giant sorting machine. See, e.g., San Jose. You’ll get a housing market that is increasingly occupied by households making over $100,000 and devoid of households making less than $15,000.

Honestly, there’s almost no limit to how expensive you can make a really nice city with really wealthy people if you put your mind to it. We complain about high housing costs, but they’re nothing like San Jose’s.

If you want rising wages to be broadly shared by the people who already live here, you need to make sure the gains aren’t eaten up by rising housing prices. The only way to do that, for the vast majority of people who will never get a subsidized housing unit, is to allow housing supply to respond elastically to rising demand.

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