Photo by dan reed! on Flickr.
Economists say one of the best ways to provide more affordable housing is through filtering, a theory that as expensive new homes age and decline in value, they’ll become low-cost homes tomorrow. But this requires building enough housing to keep up with demand. Is that possible?
I analyzed trends in downtown Silver Spring, where over 600 new apartments and condominiums were built last year. Another 1,300 apartments are under construction as we speak. Almost all of them are high-end, luxury rentals.
While there are more affordable alternatives, the area as a whole has become more expensive in the past 10 years. Persistently low vacancy rates suggest there’s a lot of demand for housing as well, further pushing up rents. It appears that for filtering to take effect, the area may need even more housing than it already has.
I looked at 32 market-rate (as opposed to entirely subsidized) apartment complexes within a mile of the Silver Spring Metro station, which includes downtown Silver Spring, South Silver Spring and East Silver Spring. I found their advertised monthly rents and unit sizes on the landlords’ websites and sites like apartments.com, apartmentguide.com and rent.com, and used everything from Historic Silver Spring to aerial photos from the 1950’s to find out when each building was built.
Rents varied dramatically across the 32 complexes, and as predicted, age appeared to be a factor. Apartments at the Solaire on Ripley Street, which opened last year, rent for an average of $2.87 per square foot, more than twice the $1.36 rent per square foot at Hillbrook Towers on Thayer Avenue, built in 1961. Typical 2-bedroom units at both buildings rent for $3,023 and $1,250 a month, respectively.
It’s said your annual income should be 40 times the monthly rent for an apartment to be truly affordable. Thus, you’d have to make $120,000 a year to live at the Solaire, or $50,000 to live at Hillbrook Towers.
Next, I plotted each building’s age and its average rent per square foot and found a trendline. As it turned out, each year since a building was built takes off about 1.19 cents in monthly rent per square foot, or $11.90 for a 1,000-square-foot 2-bedroom apartment. That may not seem like much, but over time, it adds up to a $595 difference between a unit built this year and one built in the 1960’s.
According to the 2007-2011 American Community Survey, 25% of the apartments in and around downtown Silver Spring were built during the 1960’s, and another 33% before that. This period was the first big apartment boom in Silver Spring, with even more units constructed than during the 2000’s. Shouldn’t this mean that there are lots of cheap apartments like at Hillbrook Towers? Not quite.
Low vacancy rates in and around downtown suggests that the market is absorbing any new apartments that get built. According to the 2000 Census, just 2.5% of the then-8,200 apartments in the area were vacant. In 2009, that rate had doubled as several new buildings opened. By 2011, with 9,100 apartments in the area, the vacancy rate fell back to 3.35%. In Census Tract 7025, which contains several recently-built apartment buildings in downtown and South Silver Spring, just 1.67% of all apartments were vacant in 2011.
For filtering to work, there have to be enough new apartments to soak up the demand for new housing. Without it, landlords will upgrade their older buildings to draw those potential tenants.
That’s what happened at the Blairs, the massive 1960’s-era apartment complex across from the Silver Spring Metro station, whose owners recently completed a major LEED-certified renovation. While it’s made the complex more environmentally sustainable, it’s also resulted in higher rents. A renovated 2-bedroom apartment was recently advertised on their website with rent of $3,060 a month, comparable to new construction.
A combination of new, high-end buildings and old buildings that are essentially being made new means that rents overall continue to rise. In fact, rents in and around downtown Silver Spring have increased by 75% since 2000, 3 times faster than inflation.
In 2000, the median rent for all apartments in the area was $808 a month, which would be $1,042 today. In 2011, it was $1,410 a month, which suggests that apartments like the one at Hillbrook Towers are the exception, not the rule.
It’s true that downtown Silver Spring has grown a lot in recent years, so much so that some residents say they’ve had enough. But the area isn’t even growing as fast as did a half-century ago, and even after a global economic recession, the demand to live here remains strong.
Silver Spring prides itself on its diversity, but that’s threatened by rising rents. Filtering isn’t the only tool we have to protect affordable housing, but it’s one we should take advantage of. Especially given opposition that crops up to most new apartment buildings, we will see whether Silver Spring can build enough housing to gain the benefits of filtering, or if it will soon move out of reach for many people and families.