Luxury Lottos and the Big City Housing Crisis

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In the major cities across the nation, from New York to Chicago to Seattle, a persistent housing crisis is causing developers and city officials to think outside the box and re-evaluate how to provide their residents with homes. For places like Manhattan or San Francisco that have a high cost of living along with high property values, the issue isn’t entirely a lack of available housing. The problem is that the majority of the units that are available or under construction simply aren’t affordable to the majority of the city’s occupants.

This raises the important question of how to get renters in homes when the ones that are offered aren’t within their price range. One of the solutions put forward is a novel one that’s grabbing headlines everywhere. It’s a solution that has little to do with tax incentives or government assistance, and everything to do with with luck.

Affordable housing lotteries are now common in several expensive cities throughout the country. In Manhattan, for example, an applicant could win a unit in a luxury apartment on the Upper West Side for as little as $550 per month.

While the idea of living in a high end complex with on-site amenities such as gyms or rooftop pools is very much a dream come true for the average renter, the idea of raffling off luxury accommodations as a means of providing affordable living is a problematic concept for some.

“It’s a nice gesture but it does virtually nothing to solve the housing crisis,” says Barry Bluestone, founding director of Northeastern’s Dukakis Center for Urban and Regional Policy in Boston.

In New York City, a single luxury apartment building received over 89,000 lottery applications for only 55 units. That same building gained national notoriety when it was revealed that low income residents were forced to access their living spaces through a separate entrance which became known as the “poor door.” NYC Mayor Bill de Blasio is attempting to ban entrances such as these through new regulation.

The problem of providing affordable homes is one that’s long plagued our major cities, and it’s tied directly to property value. For Boston, which is experiencing its greatest boom in luxury construction since the 1800s, an average of 1,957 have been built since 2010 which is three times greater than the annual rate of the previous 50 years. Unfortunately, rent has also gone up in the city 13% over the past 3 years and is now has the 3rd highest median price behind San Francisco and Washington D.C.

It’s an issue the housing market is unlikely to fix itself. Developers have little incentive and see little option for providing anything other than luxury units in buildings constructed on land with high property values. They feel luxury homes are the only path toward profitability.

In addition to housing lotteries, cities are working hard to pass new regulations to encourage low income development. Earlier today, Seattle mayor Ed Murray unveiled a comprehensive package of proposals with the goal of constructing 20,000 affordable units over the next decade.

By utilizing a process known as up-zoning, in what Murray refers to as “the grand bargain”, developers will be permitted to build taller buildings in 16% of the city, which allows for more units and will increase their profits. In exchange, 5 to 7 percent of the units constructed must be affordable to households with incomes at or below 60% of the area average. Unlike government sponsored housing projects, his plan has the bonus of being driven by private contractors rather than using taxpayer dollars.

“We’re going to get affordable housing built in every neighborhood and private developers are going to do it,” says Mayor Murray.

About 500 U.S. cities have adopted similar inclusionary zoning policies. Many question the feasibility of setting up low income housing in pricey neighborhoods, where future residents will likely struggle to afford to live even with adjusted rental rates. Others see it as a bold desegregation of an increasingly classest urban society, and a necessary step to tackle an ever worsening housing crisis. Either way, for people trying to get by in our nation’s top hot spots, pursuing reasonable rent is still like chasing a unicorn. And success remains every bit as contingent on luck.