Does Affordable Housing Cause Nearby Property Values to Decline
Introduction
A common concern among communities is that the development of affordable housing will negatively impact property values in their neighbourhood. This concern stems from a desire to protect investments in homes. However, housing advocates and prospective residents argue that affordable h ousing will not affect the home values of current residents and is necessary for access to jobs, schools, and other amenities. Research into the impact of affordable housing on property values has been conducted for decades. Fortunately, several researchers have surveyed the landscape, inventorying and taking a critical look at the body of work that has accumulated over the past several decades. This document summarizes the conclusions of several reviews and critiques of the growing body of research on this topic, as well as recent work in this area carried out by researchers at the Furman Centre of New York University.
Research Findings on Affordable Housing and Property Values
The vast majority of studies have found that affordable housing does not depress neighbouring property values, and may even raise them in some cases4. Overall, the research suggests that neighbours should have little to fear from the type of attractive and modestly sized developments that constitute the bulk of newly produced affordable housing today. However, some studies indicate that negative effects can occur in certain circumstances.
Multiple literature reviews have been conducted on this topic. Jeff Leary’s 1999 literature survey examined 31 studies and found that seven studies documented positive effects of affordable housing on surrounding property values, 19 found no effects, one found negative effects, and three were inconclusive. A catalogue compiled by The North Carolina Coalition in 2002 of 36 studies found that the vast majority found no impact on surrounding property values, several found positive effects, and only one found possible negative effects6. George Galster, a professor of urban affairs at Wayne State University, noted in his 2002 literature review an emerging consensus among researchers that subsidized housing of various types does not have negative effects and sometimes has positive effects on property values, particularly in higher-value neighbourhoods. However, Galster also noted that affordable housing can harm property values when highly concentrated, particularly when located in vulnerable neighbourhoods that have high poverty rates and low home values6. Mai Thi Nguyen of San Francisco State University reviewed 17 studies, and in her 2005 analysis, found that 11 studies found that affordable housing had either a neutral or positive effect on property values, five found mixed effects, and one documented negative effects.
Research Methodologies
Researchers use different methods to ascertain the effect of affordable housing on nearby property values. The ideal measure of the impact of affordable housing on surrounding home prices would compare the actual changes in property values to the changes that would have occurred in the absence of affordable development8. However, this cannot be measured directly.
- First Wave Studies: The first wave of studies, conducted in the early 1990s, used a “matching” methodology that compares the performance of two otherwise comparable neighbourhoods, one with affordable housing and one without. All of the studies using this methodology found either no difference in property values between the two areas or positive effects on nearby property values in the areas with affordable housing.
- Second Wave Studies: A second wave of studies from the mid-1990s evaluates the effects of nearby affordable housing development on property values using multivariate statistical analysis, which explains a home’s price as a function of both structural characteristics and neighbourhood characteristics9. Most of these studies also show that affordable housing has no effect or positive effects on nearby property values. These studies also reveal circumstances in which negative effects are possible9. These research methods are not without problems. For example, there are definitional problems: what constitutes a neighbourhood and how close is “nearby?”. Also, many studies may be measuring pre-existing trends in home prices rather than the effects of affordable housing.
Factors Influencing the Impact of Affordable Housing
- Type of Housing: Research suggests that the type of affordable housing matters less than the quality of the properties’ design, management, and maintenance. However, some studies indicate that developments financed through the Low Income Housing Tax Credit were more likely to increase surrounding home prices, while public housing was somewhat more likely to produce negative effects.
- Neighbourhood Type: Affordable h ousing is more likely to have a positive or neutral impact when located in strong neighbourhoods with high home values and low poverty rates. However, there is also evidence of positive effects on property values in vulnerable neighbourhoods related to the rehabilitation of abandoned or distressed properties as affordable housing.
- Size and Concentration: Larger, more concentrated affordable housing developments were more likely to have a negative impact on nearby property values than smaller developments. The effects are most acute in lower value neighbourhoods. However, in distressed areas, larger-scale affordable projects may be desirable when they result in an upgrading of the housing stock at a scale sufficient to change the neighbourhood trajectory.
- Design and Management: Attractively designed affordable housing that blends with the surrounding neighbourhood may have a positive effect on property values. Affordable housing that is well-managed and maintained is more likely to have a neutral or positive effect on surrounding properties.
Insights from MacArthur-Funded Research
Research funded by the John D. and Catherine T. MacArthur Foundation has provided valuable insights into the impact of affordable housing on property values. One study compared sales prices of New York City homes located near federally subsidized rental housing to sales prices of similar homes located in the same neighbourhood but farther from subsidized housing23. This study found that, on average, subsidized housing is associated with a small increase in neighbouring property values. Benefits are larger for average-sized or larger developments in more distressed neighbourhoods. Another study found that the rehabilitation of rental housing by both for-profit and non-profit organisations raises surrounding property values and the “spillover” benefits of non-profit housing last longer than those of for-profit housing.
Conclusion
Overall, the evidence suggests that there is little to no evidence of significant reductions in property values due to affordable housing. Most research shows a range from no impact to a positive impact. The key to successful integration of affordable housing into a community includes good design, management, and maintenance. Additionally, locating affordable housing is strong.
For further reading:
What Does Affordable Housing Do to Nearby Property …