Commentary by Christopher Westley
Reviewing the Federal Reserve of Atlanta’s Center for Housing & Policy website and its focus on affordable housing problems reveals a mystery that seems to plague any growing metro area in the U.S.—not just Southwest Florida.
The problem—at least, stating the problem— is simple: Can low-income and entry-level workers afford to live in markets characterized by rising housing prices, especially when those prices signal homebuilders to favor the production of dwellings aimed at higher-income buyers over lower-income buyers?
That’s the crux of the problem in Southwest Florida, where the median wage is about $45,000 and median home prices (as of February 2020) in Lee and Collier counties were $274,000 and $454,000, respectively. Workers on the high side of the wage median can often find housing as part of two-income households. But workers on the low side—half of all workers—are having trouble.
WHAT TO DO?
There are no easy answers for Southwest Florida. Think of all of the Midwestern baby boomers with the desire and equity cash to move here. Then there are the tremendous comparative advantages in retirement and tourism in our region, both of which create an outsized demand for lower-wage service jobs. Given these realities, the demand for housing affordable for high-quality, entry-level and service workers is always likely to exceed the supply.
To its credit, the Federal Reserve Bank in Atlanta devotes many resources to studying the affordable housing dilemma, including the examination of policies that have been introduced in other metro areas (for example, public-private initiatives in places such as Boston, Nashville and Denver). That’s all fine and good, but to someone like me who is naturally critical of public policy, I found it curious that the Federal Reserve would be interested in workforce housing at all. Isn’t its domain monetary policy? It’s an anomaly, and one wonders whether the Fed’s interest in workforce housing lies in ensuring the terms of discussion don’t dwell on its own role in exacerbating the problem. Consider the effects of the unprecedented zero-interest-rate policies it pursued after the 2008 recession. The policies have had two negative effects that counter the goal of affordable housing in general, including workforce housing. First, these lower-than-market interest rates discouraged the real saving necessary for a vibrant housing market serving all segments of the housing market. Second, they forced holders of capital to seek out alternative areas of return given that traditional financial instruments pay out so little. To the extent that real estate serves this purpose, higher-priced projects pay higher returns than those serving low-income markets.
Hence, buildable land that, left to market interest rates, would have caused builders to be indifferent between serving a low-income versus high-income market now favors the latter. Meanwhile, neighborhoods that satisfied the demand for workforce housing in the 1970s and 1980s are priced out of reach to these workers today. Such are the long-run effects of monetary inflation, especially in its crazed, post-2008 versions.
It is something to think about now in a fear-driven, COVID-19- era economy, in which the Fed has again forced short-term rates to zero by flooding the economy with money, ex nihilo. Rescuing the political class from the consequences of its interventions to market forces isn’t cheap, especially when those doing the rescuing have no skin in the game and are not likely to suffer the consequences of negative long-term effects of those actions today.
If recent monetary history teaches us anything, it’s that these consequences will exacerbate Southwest Florida’s affordable housing problems in the future. That few will recognize the Fed’s role in this outcome will remain a mystery.