Building market rate housing in Bethesda reduces displacement elsewhere
Market Rate housing triggers moving chains that quickly reach middle and low income neighborhoods
Lots of people want to live in Greater Bethesda which causes high demand and denser housing types such as townhomes, apartments and N-plexes are illegal on most of the parcels keeping supply of housing low and prices high. Opposition to building market rate housing comes in many forms but one repeated often is that market rate housing isn’t affordable so it isn’t worth building.
This argument is increasingly being proven incorrect. In a recent paper by Evan Mast of the Upjohn Institute, found that building market rate multifamily housing that caters to the top end of the market causes demand (and price) to loosen in low and middle income areas. This is because of the concept of moving chains. Moving chains are the process of movement when new market rate housing is built.
To explore this point we can break up all residents by their income quintile, the richest 20% are Q1, the next 20% is Q2, ..., the poorest 20% are Q5. When new market rate housing gets built, typically people in Q1 will occupy it. This is expensive and high quality new housing that many people correctly point out as unaffordable for people in Q2-Q5. But the existing housing that the people in Q1 move out of when they move into the new market rate housing is then occupied by Q2. So now instead of people in Q2 competing with Q1 for the same housing, they are only competing with Q2 which reduces the demand (and price) of Q2 housing. This process then repeats itself as people in Q2 move out of their existing housing and into the housing previously occupied by Q1, which frees up Q2’s existing housing for Q3 to then occupy. This moving chain quickly goes down the income ladder and in the short run Q4 and Q5 see demand (and price) loosen.
Another paper by multiple researchers at the VATT Institute for Economic Research in Finland found similar effects in the Helsinki Metropolitan Area. From the abstract
The supply of new market rate units triggers moving chains that quickly reach middle- and low-income neighborhoods and individuals. Thus, new market rate construction loosens the housing market in the middle- and low-income areas even in the short run. Market-rate supply is likely to improve affordability outside the sub-markets where new construction occurs and to benefit low-income people
This concept can be explored with an example of a wealthy family of 4. The family has 2 kids, a budget of $1.3 million dollars to purchase a minimum of 2500 square foot home and one parent works in Downtown Bethesda while the other works at the University of Maryland so living along the Purple Line corridor is must for ease of commuting.
In the case that 3 new construction market rate townhomes are built priced at $1.3 million on a parcel previously occupied by 1 detached single family home and within 1 mile of Downtown Bethesda, the family, along with 2 other families could move in without gentrifying or displacing anyone in other parts of the Washington D.C. Metro Region. The house they lived in before would be freed up for a marginally less rich family to occupy which would trigger a moving chain that would reach the lowest-income areas of the D.C. Metro Region quite fast.
But today in Greater Bethesda this type of housing is illegal on existing parcels due to a myriad of rules imposed by the County. Instead of fitting 3 wealthy families where only 1 can live right now, the family that can afford a $1.3 million dollar home will look east to Silver Spring. They will bid up the price of housing there because none was built in Greater Bethesda. They will win a bid forcing another family to look further east to Prince George’s County causing demand (and price) to increase fueling displacement and rising housing prices.
In the case that denser market rate housing types such as N-plexes, townhomes and apartments are legalized in Greater Bethesda, they act as a sponge soaking up demand from the top of the market. There is not just a housing shortage for people in Q5, but a housing shortage for people up and down the income ladder. More market rate housing improves the situation for people in the entire distribution of incomes. Currently Greater Bethesda does not permit anywhere near the multifamily dense construction that there is demand for, but if it didn’t allow the new market rate apartments and townhome developments that have been built, prices would have been even higher than they are now across the region. Developers will always target the top quintile that there is demand for, so in order to get the housing market to build new housing for lower quintiles, you have to let the top of the market build as much as possible to fulfill that demand. There is no better place to build it than Greater Bethesda which has a robust and underutilized public transit system, parks and amenities for new residents already in place.
Taking a walk around the neighborhoods of Greater Bethesda will yield a lot of “Black Lives Matter” and “No Human is Illegal” signs. To live up to these stated values residents and leaders of Greater Bethesda should support literally legalizing more humans via legalization of many housing types on all parcels to support more humans. Contributing new units to the housing market will do more to help the Black neighborhoods of the region thrive than any yard sign will.