Trickle Up: A Watery Metaphor for Housing Price Change That Defies Gravity

Building cranes tower over New York City luxury condo towers under construction
USA, New York photo by Diethelm Scheidereit is licensed under CC BY-ND 2.0
We see New York City luxury housing climbing skyward at the top. How soon can we expect affordable housing trickling out at the bottom?

‘Trickle-down’ is the process that is touted to solve affordable housing crisis. It is the favourite viewpoint of the American housing industry and supported by the YIMBY (Yes in My [really Your] Back Yard) activist movement.

The trickle-down ideology favours high end, even luxury, housing construction. Other activists disagree strongly about its effectiveness. Recent activist quarrels express the YIMBY and housing industry’s ‘trickle down’ position. Try CITYLAB: Fix California’s Housing Crisis, Activists Say. But Which One?

The trickle-down mantra translates as ‘business as usual, only more of it.’ The housing industry has unabashedly focused its attention over the last few years on luxury housing, often with taxpayer support.1 Using conventional construction methods and an existing, trained labour force, luxury housing is certainly profitable, unlike housing targeted to lower income buyers that is squeezed by rising land, material and labour costs.

According to supporters, the trickle-down theory can become a crisis-busting giant, but only if. If governments at all levels can be convinced to relax housing restrictions, particularly zoning laws, the housing industry could build more luxury housing at high rise tower height in any and every neighbourhood. Nobody disputes that eliminating zoning restrictions could allow this part of the theory to happen, though neighbourhoods have good reason to fear it.

The issue is, what happens after higher density is allowed?

Trickle down theory depends on ‘laws’ of supply and demand, which suggest that an excess of even luxury housing2 will maintain the interest of high-end buyers. They will continue to buy up the shiny new housing at market rates, reducing the demand for older housing and causing its prices to drop.

That older housing will be attractive to upwardly mobile middle class buyers. As these buyers trade up and vacate their housing, the still-less attractive housing they previously occupied will drop in price and sooner or later become affordable for the folks at the bottom of the barrel.

Accelerating this process, suppose the market actually becomes flooded by luxury housing? Well, bonus! The ‘laws’ of supply and demand will supposedly cause this trickle-down effect to work even more quickly.

And indeed, evidence shows that overbuilding luxury housing will begin to depress prices at the very top. It’s been happening in New York City. So can we begin to see evidence in that city of trickle-down salvation for the affordable housing crisis?

Not much.

New York housing pundits are quick to talk about market ‘adjustments’. No one is heralding the dawn a new era of affordability from the top of the market all the way to the bottom.3

Nonetheless, there is now some price relief at the highest end of the market. Millionaires can find bargains. And since New York middle class housing now costs millions, there is some relief for middle class debt-strapped ‘millionaires’ as well.

But is there evidence of ‘trickle down’ from the $5,000,000 condos to the $1,000/mo rental apartments? Certainly, nobody in the real estate industry wants to see it happen, including ‘trickle down’ housing industry advocates in the building industry who are sitting on unsold housing.

If trickle-down is happening, its pace is currently glacial, and would appear to offer little or no hope that, as an underlying market force it will take less than years or even decades to find its way to the lowest income levels, if it happens at all.

Why might trickle down hardly happen at all? There is more than one reason, but a significant problem could be shoddy modern construction. Cutting corners to maximize profits results in homes where luxury is only wallboard deep. Disparagingly called ‘McMansions, poorly built so-called luxury homes are destined not so much to trickling down as, after a short lifespan, being bulldozed down. Who wants to buy them at any price then order to upkeep their decaying structure?4

All in all, it may be time to shift enthusiasm from a deeply flawed, quite possibly mythical ‘trickle down’ theory in favour of the opposite.

Trickle-up.

Trickle-up is based on flooding the market with inexpensive, immediately affordable housing. Its greatest virtue: it directly addresses the heart of housing crises everywhere: shelter for the most vulnerable. ‘Trickle-up’ theory explains how the benefits of this kind of housing can benefit those with higher incomes.

Does ‘trickle-up’ sound gravity-defying? Based on the knowledge of which way your tap drips are you prepared to accept trickle down, but not trickle up?

Time to think outside the faucet. Give ‘trickle up’ a try with these articles from SHELTERFORCE: Trickle Up Housing: Filtering Does Go Both Ways and Why Voters Haven’t Been Buying The Case For Building

Footnotes

  1. This article in The New Yorker describes tax relief offered for new luxury home construction in New York City: The Plight of the Urban Planner
  2. Try this article from NEW YORK CURBED: NYC’s Luxury Condo Glut Leads To Thousands Of Unsold Apartments: Report
  3. Try this article in Forbes: Why New York City’s Real Estate Market Isn’t In ‘Free Fall’
  4. Try: Three Takes On California’s Housing Crisis: Part 3