The downside of the upscale condo boom

Luxury condo booms in major cities from Miami to Los Angeles point to the renewed vitality of downtowns. Yet they also are causing headaches for officials charged with managing growth.

Concerns include construction-related traffic snarls, battles with anti-development activists and mounting pressure on municipal infrastructure. At the top of the list, officials say, is the loss of affordable housing that occurs when low-income apartments and rundown hotels give way to high-priced condos.

“You shoot yourself in the foot if you run everybody out that needs affordable housing,” says Miami Commissioner Johnny Winton. “In the city of Miami, we’re looking at every tool we can find to work on the affordable housing issue.”

The urban condo boom comes at a time when affordable rental stocks are shrinking fast, according to “The State of the Nation’s Housing 2005,” a report by Harvard University’s Joint Center for Housing Studies. “Additions are occurring only at the upper end of the rent spectrum while heavy losses continue at the lower end,” the report states. Since 2000, condo prices have shot up 57.9 percent, outstripping price increases for conventional single-family homes by nearly three to one. Such trends compound homelessness in cities like Los Angeles, where a loft boom has contributed to the demolition of single-room occupancy hotels (SROs) that serve as the last vestiges of affordable housing for low-income families, seniors, disabled people and veterans, says Anita Nelson, executive director and CEO of SRO Housing, a non-profit that operates 1,700 units of affordable housing in downtown Los Angeles and Skid Row. “There was a recent homeless count in Los Angeles County and the number was around 91,000 people,” she says. “The lofts are taking off, and a lot of people feel the poor are being pushed out.”

The city lost 982 SRO units from 2002 to 2003 alone, according to the housing department. To stem further losses, the City Council recently passed a one-year moratorium on SRO conversion and demolition. The goal is to give officials time to create a plan for the preservation and development of affordable housing, says Councilwoman Jan Perry. Similar ordinances are in place in San Francisco and San Diego.

In addition, rising urban housing prices are forcing both low- and middle-income Americans to seek cheaper housing at great distances from their in-town jobs, the Harvard report notes. The result for cities, Winton says, can be worsening gridlock and chronic turnover at in-town businesses.

The commissioner, who describes Miami’s condo boom as “unprecedented,” says officials must offset economic forces that encourage developers to target wealthy buyers and landlords to raise rents. Miami-Dade County, for example, taxes rental property based on its market value. “If I own a 30-unit apartment building across the street from a site that a developer just bought for four times its prior assessed value, all of a sudden my taxes double,” Winton says. “I have to raise rent dramatically.”

A proposed state law would reduce such pressures by taxing the income, rather than assessed property value, of affordable housing. Miami officials also are considering options such as “inclusionary zoning,” which requires projects to include housing for low- or moderate-income residents.

Taken too far, however, such measures will scare off developers, says Rafael Kapustin, a downtown Miami landowner who focuses on what he calls “housing for working people.” Amid the top-dollar real estate of downtown Miami, Kapustin recently completed a 200-loft building with units that started at an unheard-of $99,000. It was possible because the city agreed to allocate part of a nearby, underused municipal parking lot for loft residents. Otherwise, Kapustin and his partners would have faced the extreme expense of building the lofts on top of a parking deck. The city now gets a parking fee and property taxes generated by the lofts.

The key to preserving lower-cost housing, Kapustin says, is for officials to be flexible about regulations and provide positive incentives. The stakes, he says, are high. “If you do not have housing for the working class, eventually it backfires.”
— Joel Groover is an Atlanta-based freelance writer.