Tiny Tuesday: The Problem with Income-Restricted Housing

It’s a basic principle of economics: if you increase supply, you decrease price. Accordingly, the Boston Redevelopment Authority is pushing to increase the number of housing units in the city, in particular units deed-restricted as affordable.

The purpose of the BRA is to provide urban planning for the city of Boston, including development reviews of new housing projects. This past month, the board approved over 1400 new units of housing in nine developments, including over 500 classified as rate-adjusted. The announcement follows up the June approval of another 1100 new units to be built.

But I’m afraid a lot of these units will end up going to folks who don’t really need the help. A recent article in the New York Times Real Estate section got a lot of bad press for excusing this sort of behavior. In “The Hunt,” a graduate student receives a loan from her parents for a down payment, then uses her own low income to qualify for an income-restricted Housing Development Fund Corporation co-op. The problem with income restriction is that it’s really easy for affluent deal-hunters to hide their ability to pay.

Income-restricted properties could introduce more checks to thwart individuals who try to game the system – for starters, looking at family income, as college financial aid does, and using a lottery system instead of highest-offer. But bureaucracy is expensive, and adding restrictions could mean less total aid available. I wonder if a better solution lies in the economic principle I opened with. Encourage urban-infill development, flood the market with properties, and all real estate prices must drop as demand runs dry. Alas, nothing in the world is ever that simple.

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