"Luxury apartments and condos are a good thing, my friend"

As you may have guessed by the title of this post, I recognize that this is a touchy subject whose message can come across as insensitive, bourgeoisie, or worse. Snarky Mitt Romney reference aside, concerns about neighborhoods being overrun with high-income apartment towers and condos are sometimes justified. Gentrification is a real thing, and its negative effects tend to be focused on the most vulnerable citizens, those that are least prepared to cope with rapid changes to their community.

Despite this, luxury apartments and condos deserve to be defended. They don't need to be promoted (the market provides enough incentives for them on its own), but neither should they be reflexively attacked simply because many people can't afford them.

Here's why:

First, people with high incomes have a lot of options when it comes to where they choose to live. If they want to live in the suburbs and commute to work in a car they can afford to do so without being significantly burdened by transportation costs. And depending on the boundaries of your respective city, county, or region, living in the suburbs may mean not contributing significantly to the tax base of the major city in the area (usually the only place where land values would justify building apartments or condos more than a few stories tall). Look to Los Angeles County if you need an example.

If higher-quality housing--housing that fulfills the desires of wealthier families and individuals--isn't provided in sufficient quantity in the city, the choice has already been made for potential residents. Those tax dollars are going somewhere else, usually spent on less efficient infrastructure and government services, and for no good reason. If these people want to bring their dollars to our (often higher-tax) cities, who are we to say no? Affluence need not be synonymous with 3,000 sq ft homes, three-car garages, and half-acre lots.

Second, higher-income people are less likely to use transit. But, if they live in denser areas, particularly in the central business district where homes and businesses are very proximate to one another, this is less true. Transit and walking are both far more convenient where luxury apartments tend to be located, so this is an opportunity to get those least likely to use alternative transportation out of their cars and onto the streets and sidewalks. It might also be nice to have more moneyed interests on the side of alternative transportation, not against it.

According to the below chart from the APTA, households earning over $100,000 a year make up about eleven percent of transit ridership in cities with populations over a million people, but less than two percent of ridership in cities below that population threshold:

 From the American Public Transportation Association [ PDF ].

From the American Public Transportation Association [PDF].

Also from the chart, the ratio of rail use relative to bus use increases drastically as income rises, and rail transit is far more likely to be located in dense city cores where luxury towers are also usually found. Those making less than $15k a year use the bus about 2.5 times more frequently than they use rail; at $100-150k income the reverse is true, and at greater than $150k income bus ridership is almost non-existent.

Rail has a well-documented psychological appeal compared to buses at all income levels, so while building rail just to appease rich people would be wasteful, bringing them into the fold while improving the transit experience for everyone else as well has a lot of appeal.

For a graphical representation of the impact of income on transit use, Sightline has the following chart (focused on the Pacific Northwest):

 From " The Demographics of Transit " at Sightline.org.

From "The Demographics of Transit" at Sightline.org.

This chart also reflects the impact of population discussed above: the Seattle metro has a higher population and density than Portland, and it is more robust against the decline of transit use as income increases.

Another issue, not directly related to transit or housing but important nonetheless, is that when rich people live in economically diverse areas (rather than, for example, the high-income single-family-home enclaves dotted throughout the 'burbs), they appear to become better people. According to a study by the Chronicle of Philanthropy, living in economically diverse areas has a huge impact on the amount of money affluent families donate to charity.

In zip codes where wealthy filers (>$200k income) are surrounded by other rich people they dedicate a very small percent of their income to philanthropy, less than 4% in each of the most homogeneous zips. Regions where wealthy filers are members of communities with diverse incomes donate far more to charity, upwards of 30% of their discretionary income in the most giving neighborhoods. Presumably, personal and daily contact with those less fortunate has a humanizing effect, while living with a bunch of other richies leaves you more concerned with keeping up with the Joneses.

Again, this isn't to say that we should go out of our way to accommodate wealthier residents in our cities, but the beauty is that we don't need to. Developers want to build that housing. We just have to let it happen. As the above chart makes clear, we also don't want to go overboard and turn our central neighborhoods into vertical gated communities. There is a balance to be struck, but it's clear that as long as we have people like Councilwoman Letitia James of Brooklyn complaining that we shouldn't get rid of excess parking because "[t]hey would turn it into luxury housing," we've still got a long way to go. We're seeing the same problem in Seattle this very week, where city councilmembers decided to stick it to rich people by turning down increased height limits in the South Lake Union neighborhood, and the $10-12 million for affordable housing that came along with the deal. Take that, fat cats.

Striking that balance also becomes more difficult when height limits, parking minimums, floor-area-ratios, and other regulations put a hard cap on the total amount of building capacity in an area, often far below the actual demand for living there. When these limitations are in place, it really does become harder to provide sufficient housing at all income levels. Matt Yglesias at Slate describes the problem aptly:

Think about other major classes of widely owned durable goods like cars and refrigerators. Obviously luxury cars and Sub-Zero fridges are a real thing. But the bulk of new car and new fridge production is targeted at a mass middle-class customer base simply because there are more customers there. But if you made the refrigerator industry abide by tight production quotas, all that mass market fridge building would vanish and everyone would make super-expensive high-end fridges. Middle class people would face a crisis of fridge affordability and need to subsist on used luxury fridges, very small fridges, or make substantial financial sacrifices in order to get a decent-sized properly functioning fridge. The Japanese auto industry did in fact face import quotas to the United States in the 1980s, which was the impetus for Honda and Toyota to develop the Acura and Lexus luxury sub-brands.

He goes on to discuss the problem of gentrification and its more positive corollary, filtering:

If a ton of new luxury apartments get constructed in a city, then at least some of their residents will be abandoning homes in other structures elsewhere in the area. Those homes are now free to be occupied by some less-rich people. And over time newer even more luxurious buildings will come on the market and yesterday's new luxury construction will age and filter down the socioeconomic ladder. When you see the gentrification trend outpacing the filtering trend, with higher-income families replacing lower-income families and lower-income families moving to worse-and-worse locations, that's a consequence of excessive restriction on new construction. In a healthy regulatory climate you should see more filtering than gentrification, lower-income families moving into houses that have been abandoned by the rich as rich people move into fancier and fancier new buildings. Of course in the worst case scenario you get filtering without construction—"white flight" and the like—as affluent families simply leave the area and your tax base collapses.

Filtering also helps resolve the issue of mere benefit versus dependence. Sure, we're all better off when wealthier people are persuaded to use public transportation (benefit), but lower-income people are often dependent on it. If we have to choose who should be able to live near transit, lower- and middle-income workers have a stronger claim. When we're debating between 65 and 85 foot height limits in a technological era where quarter-mile towers are possible, however, we shouldn't have to choose. Cities need to be zoned such that the supply of housing at all income levels can actually approach demand and everyone has the opportunity to live near frequent transit if they want to.

Building more luxury towers in the city isn't going to be the difference between a successful city and a failing one, but it can make a positive impact. Built alongside housing for the rest of us, high-income, high-density housing can improve the financial health of cities, utilize public resources more efficiently, increase transit ridership and political support, and encourage connections between people that benefit everyone. For those set on coming to the city regardless of supply, it also provides a place to go instead of bidding existing residents out of their homes and apartments.

The overall message is that all types of housing should be promoted, regardless of target demographic, as long as there is demand for it. As part of a complete growth plan for cities, luxury housing should be welcomed, not scorned.

*Addendum (04/04/13): Two good articles that somewhat address these issues just happened to be published today, here and here. One big takeaway, and something I didn't address sufficiently in my own post, is that failing to build this housing does nothing to reduce the demand for it. If the appeal of an area increases you can either accommodate it with additional density, replacing three-story buildings with eight-story ones for example, or you can wait for wealthy people to just come in and replace lower-income renters and renovate existing units, driving up rents even further because supply isn't actually increasing.

The only way you can deal with increased demand is to either meet it with supply or make the area a less pleasant place to live such that demand decreases. Doing nothing just leads to a sort of "gentrification sprawl" where instead of new residents being located on the relatively small footprints of apartment and condo towers (or just taller buildings), they instead spread out more widely into a greater number of buildings with lower densities.