Working in the heart of New York City, just blocks away from some of the most valuable real estate in world, is a constant reminder of the problems with Affordable Housing. Stijn Van Nieuwerburgh, the Earle W. Kazis and Benjamin Schore Professor of Real Estate at Columbia Business School, address the issue first hand in a recent study, asking whether affordable housing can become more efficiency in an increasingly urbanized world.

“Can we improve the efficiency of the affordable housing system?” Van Nieuwerburgh asks in his latest study, “Affordable Housing and City Welfare.” Van Nieuwerburgh co-authored the study alongside Jack Favilukis of the Sauder School of Business at the University of British Columbia and Pierre Mabille of the Stern School of Business at New York University, which pivots the conversation away from a strictly cost conversation to one of social insurance.

“A lot of the previous models that have thought about these questions, haven’t really modeled risk, risk aversion, and insurance against risk,” Van Nieuwerburgh says. “That is what’s new here; it’s a finance perspective on the world.”

“Van Nieuwerburgh notes that people first sought out rent controlled or rent stabilized units when it was appropriate for their economic situation; but then over time, their careers progressed and they began to earned more. The research demonstrates that these very same renters tend to stay in the same unit when they can afford a market-rate unit, effectively taking the place of someone who earns less.”

A proposition from Van Nieuwerburgh in the study is that of a mean’s test, requiring applicants for an affordable housing lottery to earn within 30 percent of the proposed median income. Which, if successful, would allow needier applicants to earn higher priority, rather than keep tenants in housing built for people in lower income levels.

“That means that really needy people are going to get these units,” according to Van Nieuwereburgh.

“We can add everybody up, and we can see whether society is better off or not under this new policy,” he says. “The reason we’re better much off with this more efficient housing system is because poor people now get access to affordable housing units that they didn’t before.”

A primary difficulty with current proposals and changing rent laws, Van Nieuwereburgh argues, is that developers will have less economic incentive to build affordable housing if the demand increases while the cost of land in cities like New York continues to climb. His model also entails avoiding tax increases on wealthier residents, arguing that it disincentivizes upper-class earners and may not be more beneficial than voucher programs. However, despite the fiscally conservative framework, the study also advocates for potential solutions like “upzoning,” which can create more density in areas with tighter development laws.

You can read more about the affordable housing study, which was inspired by Mathew Desmond’s book Evicted, here.

The post A Columbia Business School Professor’s Quest to Find Efficiency in Affordable Housing appeared first on MetroMBA.