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Can High Market Value Dwellings Subsidize Affordable Neighborhoods in the Long T

Older neighborhood in a Maryland jurisdiction, where property values do not cover cost of services..
Older neighborhood in a Maryland jurisdiction, where property values do not cover cost of services..
Public domain.

Part One: Cost of Services

The cost of public services is a basic financial calculation that all local, county, state, and federal governments should take into account when considering any affordable housing policy, regulation, or development proposal. As each dwelling unit will have some public service cost associated with it (schools, police/fire/emergency services, roads, parks, utilities, etc.), taxes or user fees are imposed to recover the costs. These may be in the form of property taxes or utility fees, or may not be readily attributed to a particular unit, but these costs must be paid. Where these costs are paid by property taxes, lower value homes and units usually do not provide enough generated tax income per unit to cover the operating costs associated with each unit.

Conversely, dwellings with greater market/property values generate greater tax revenues. It can become the policy (official and unofficial) of a local government to support the construction of dwellings with greater market value in order to make up the negative balance in the costs of services for existing moderate to low cost dwellings. Open market forces generally do not support the development of new moderate to low cost housing or the redevelopment of existing housing in that market, as the profit motive without social conscious can be the primary motivation (see previous article on “goodwill”).

This public policy and market-driven financial model combination results in limited affordable housing availability, and will also result in the long-term failure of this method of addressing the cost of services discrepancy. The development of high cost per unit projects, or the support of upscale tear-downs or rehabilitation of existing housing stock in order to subsidize the costs of affordable neighborhoods may seem to make fiscal sense.

History has shown that this method may not be viable in the long run. Future parts of this article will look three market-driven historic trends that indicate that dependency on high-value properties to subsidize the cost of services for affordable neighborhoods is un-sustainable and not a viable stand-alone methodology in the long-term. The final part will look at long-term solutions that can be found by embracing the challenges of the Sustainability Puzzle.