New Ideas Need Old Buildings. But Can They Afford Old Buildings?
One of legendary urban theorist Jane Jacobs’s most famous insights is the pithy observation, “New ideas need old buildings.” As Jacobs wrote in The Death and Life of Great American Cities:
Cities need old buildings so badly it is probably impossible for vigorous streets and districts to grow without them…. for really new ideas of any kind—no matter how ultimately profitable or otherwise successful some of them might prove to be—there is no leeway for such chancy trial, error and experimentation in the high-overhead economy of new construction. Old ideas can sometimes use new buildings. New ideas must use old buildings.
This is true not just in the sense of affordable commercial or studio space for artists, entrepreneurs and other creatives. It is also true that innovative people—like anyone just looking to get a start and build their own wealth from near nothing—need affordable places to live. New construction is an expensive undertaking, so the primary way that cities acquire a stock of low-cost homes for those who need them is through a process called filtering: as homes age, they tend to become less desirable and comparatively less expensive, and occupied by lower-income households. This process is essential to a thriving, dynamic city that affords opportunity to all its residents.
In many American cities, we’ve got a big old-buildings problem: namely, these buildings, and the old urban neighborhoods they comprise, are not affordable enough to serve the function Jacobs so valued anymore.
New research out of Freddie Mac examines the filtering process and how it differs from city to city, as well as ZIP code to ZIP code within cities. It turns out there’s enormous variation: in some metro areas, old homes tend to actually filter up, becoming occupied by wealthier households over time. In others, old homes tend to filter down. In nearly every metro, though, there is a lot of diversity across neighborhoods—places exist where filtering works in either direction.
The study deals with owner-occupied homes with mortgages funded by Freddie Mac itself. So it’s not directly designed to address Jacobs’s “old buildings” issue, but it does illuminate, I think, a basic truth about our cities that bears on it. There’s a ton of other interesting stuff in the study, much of it summarized in a series of tweets by Len Kiefer.
The basic truth I’m talking about is illustrated by these two images from the Freddie Mac study:
The one on the left is a stylized look at what happens to home values over time throughout the average U.S. metropolitan area. The researchers normalized every metro to a scale of –0.5 to 0.5 on the x and y axes with (0,0) at the city center: in other words, the central red dot represents downtown and core neighborhoods, and the edges of the box represent the outer suburban fringe, regardless of city size. (It's not a constant scale in miles.)
The graph on the right depicts the rate of filtering, which is how the incomes of home buyers change over time for the same homes (as opposed to the home prices themselves). It's the same general pattern, with a bit more noise representing variation in the suburbs.
There is variation from city to city, but when averaged together, the graph reveals a clear pattern that can be generalized to the following: cities filter up, while suburbs filter down (or not much in either direction).
The million-dollar question is why the divide between the two is so stark. It reflects a common pattern in a number of metros in which the urban core is becoming dramatically unaffordable—and not just in gentrification hot-spots like Washington, D.C., but also in places like Atlanta, where many suburban areas are experiencing downward filtering, but downtown and historic urban neighborhoods are filtering upward.
It’s not that we shouldn’t expect to see any upward filtering. A basic thing to understand about housing is that the building itself is a depreciating asset, in much the same way that your car is: as it ages, it's going to deteriorate and lose value, unless you steadily invest in renovations / improvements. (The study accounts for this reinvestment, but that discussion is too complicated to go into here.) The land is a very different story. When your home goes up in value over time—and it's a truism to American homebuyers that it's expected to, i.e. to be a good investment—it's generally because the land underneath your home has gone up in value.
Image by Charles Marohn.
This is a natural process as cities grow and age, as Strong Towns founder and president Charles Marohn discussed at length in 2017 series The Power of Growing Incrementally. As a city grows, its power as an engine of wealth production increases, and the advantages to being located in the center of it all increase. So historically, cities tend to grow incrementally up, incrementally out, and incrementally more intense.
Whether that land value appreciation has to universally lead to home value appreciation is a different question. How can land in the downtown core and surrounding neighborhoods get steadily more expensive over time, without pricing all lower-income people out of that area? The answer is increased density and height. Free-standing houses are gradually replaced by missing-middle housing, and then larger apartment buildings, as a city grows. This takes the high cost of land and divides it across a greater number of households. It's the reason it's possible for even very densely populated and high-rise cities, such as Tokyo, to have broadly affordable housing.
Image by Charles Marohn.
If this kind of periodic redevelopment is occurring, the additional supply is also likely to reduce the upward pressure on the values of the homes that are not redeveloped—a point made by the Freddie Mac study and supported by its observation that supply elasticity is correlated with filtering rate: metros that more readily build new homes see less upward filtering.
What interrupts this pattern in American cities is our tendency to put them under glass. In a radical experiment that spread across North America in the post-WWII era, we stopped taking for granted that neighborhoods should evolve and change; we started expecting them to be finished and permanent creations. Suburban subdivisions are literally built all at once to a finished state, but even in older urban neighborhoods, we have often instituted zoning restrictions that stop that process of incremental growth—homes to row houses to small apartment buildings to large apartment towers—in its tracks. It’s no longer allowed to occur. Single-family zoning even in or near the downtowns of major American cities is now commonplace.
What you're seeing in that central circle of red is, in part, a policy failure. It’s America's self-imposed shortage of cities driving up the price of a limited supply of walkable urban places. What you’re seeing in the green is a lack of any corresponding shortage of suburbs, because we make the suburban pattern easy to build—if anything, too easy, cannibalizing the value of existing homes and neighborhood by constantly building newer, bigger homes just down the road at the next freeway interchange.
We need to allow our cities to grow and evolve and intensify where there is demand again. Every neighborhood should be open to the next increment of development. Only then can we have a healthy mix of new and old buildings in our cities, and neighborhoods that remain open to a range of incomes and classes, even across years or generations.
Daniel Herriges has been a regular contributor to Strong Towns since 2015 and is a founding member of the Strong Towns movement. He is the co-author of Escaping the Housing Trap: The Strong Towns Response to the Housing Crisis, with Charles Marohn. Daniel now works as the Policy Director at the Parking Reform Network, an organization which seeks to accelerate the reform of harmful parking policies by educating the public about these policies and serving as a connecting hub for advocates and policy makers. Daniel’s work reflects a lifelong fascination with cities and how they work. When he’s not perusing maps (for work or pleasure), he can be found exploring out-of-the-way neighborhoods on foot or bicycle. Daniel has lived in Northern California and Southwest Florida, and he now resides back in his hometown of St. Paul, Minnesota, along with his wife and two children. Daniel has a Masters in Urban and Regional Planning from the University of Minnesota.