In many cities where supply is constrained by various factors – geography, NIMBYism, etc. – the price of housing tends to be expensive. One way that cities have tried to solve for this is by increasing the potential supply of housing through zoning changes. Naturally, this has been met with some resistance in the neighborhoods slated for upzones, as has been documented on this blog many times over. Alternative approaches to increasing affordability, like rent control, often have unintended consequences.
What if we took a different approach to housing affordability? Let’s consider the median multiple: a metric of housing affordability that compares the median house to the median income in a given area. For example, a metro area with a median income of $50k/year and a median house price of $150k/year would have a multiple of 3, which is the historical average in the US (Seattle hit 5.2 in 2008, making it one of the least affordable cities in the country).
What if a municipality were required to issue as many housing and zoning permits as needed until the median multiple hit some number, let’s say 4.0? Why 4.0? Well, 3.0 would be nice, but since the income data trails the housing price data somewhat, the municipality would risk overshooting the target and crashing the housing market. The precise number isn’t important. What’s important is that there would be a target to aim for, similar to the way the Federal Reserve buys and sells short term interest rates to hit an inflation target.
How would that look in practice? King County median income was $67,806 in 2009. Multiply that by 4 and you get $271,224. King County’s median housing price, meanwhile, was $382,160 in September of 2009. So there would be quite a ways to go to hit the target. Build, baby, build!
What’s nice about this approach is that it doesn’t presuppose any particular development pattern. The city could choose to build up OR out. Now, I’m pretty sure that between the Growth Management Act and the geography of the region, building up would be the path of least resistance. In reality, the city still would run into resistance and likely have trouble meeting such an aggressive target. But the momentum would change. Instead of asking “should we build?” the question becomes, “where should we build?” That’s a question the urbanists have a better answer for.
I’ll caveat this by saying that “affordability” is very complicated and one statistic or ratio will never capture all the nuances. Transportation costs and interest rates, for example, are ignored by the median multiple. But I’m coming around to the idea that crude metrics, even if they don’t meet all our wonkish ideals, have a certain political appeal.