The introduction of low-income housing into neighborhoods has little effect on housing prices in cities across the U.S., a study by Redfin has found.
The study dispels a long-held belief that nearby homes lose value once low-income housing is built in an area.
“The data suggests that it can be a win-win to put low income housing in expensive neighborhoods, benefiting both current homeowners and low income-residents,” said Redfin senior economist Sheharyar Bokhari. “Because these projects are being built by private developers, they often have an incentive to identify places that have good prospects for growth. On the flip side, they’re also less likely to plan projects in areas that are less desirable.”
Redfin analyzed more than 220,000 home sales in neighborhoods with low-income housing developments in 26 metro areas from 2007 to 2019. Prices before and after the construction of low-income developments were taken into account. In 18 of the areas studied, no significant difference was detected in home prices after the development was built when weighed against the sales prices of similar homes in the same neighborhoods, but farther away.
In four of the metro area studied – Boston, MA; Charlotte, NC: Philadelphia, PA; and Washington, D.C. – prices went up for homes located near newly constructed low-income housing. In the other four outlier markets – Chicago, IL; Las Vegas, NV; Phoenix, AZ; and Warren, MI – nearby homes sold for less after the construction of low-income housing.
Economically integrated neighborhoods that have a mix of people from all income brackets are rare because the development of low-income housing often faces strong opposition from neighbors who worry that such projects will lower their home values, according to Bokhari. As a result, socio-economic segregation becomes more widespread and social, racial and housing inequality is exacerbated.
“For children in low-income families, living in a neighborhood with less poverty can have a big impact on mental and physical health as well as long-term earnings throughout their life,” Bokhari said.
The study found that new, low income housing developments tended to result in rising home prices in neighborhoods with more expensive homes. In Washington, D.C., for example, homes near the future sites of low-income housing developments sold for a median price of $499,000, or 6.3% less than homes located farther away. After the low-income housing was built, homes near the site sold for 0.9% more than those located farther from the development.
Homebuyers may see economically integrated neighborhoods as self-contained communities where people who work in the area also can afford to live there. This creates a self-contained community.
In those cities where home prices fell after the construction of low-income housing, the new homes may have been built in areas where gentrification was taking place and home prices were rising quickly. In Phoenix, for example, homes near the future site of a development sold for 3.9% less than those farther away. After the construction was completed, nearby homes sold for 11% less. Had high-end housing been built in its place, home prices might have continued to rise.
The opposite happened in Philadelphia. There, the median price of homes was near low-income developments was below the national median price at $174,900. Homes located near the future site of the low-income development sold for 7.3% less than those located farther away. After the low-income housing was built, nearby homes sold for 3.9% more than homes that were farther away.