During the latter 1970s, the city of Irvine, California, imposed a requirement that new developments include a limited percentage of “affordable” housing units. The first development subject to this requirement included 900–1,000-square-foot townhouses that were to be sold for around $50,000. This was significantly less than market rate for such housing. I had put “affrordable” in quotes because at this time, houses selling for that price were hardly low- or even moderate-income housing.
The units were to be sold to people having an income less than a specified maximum but high enough to qualify for financing. The maximum was high enough that some assistant professors at the University of California-Irvine were eligible. Given the high and escalating housing prices in Orange County, demand was extremely high. Buyers were to be selected using a lottery.
I was teaching a course on land use policy. Students were required to complete a final paper on a topic of their choosing. One student came in, told me she had read about the affordable housing requirement and the lottery and asked whether that would be a suitable topic for the paper. Of course it was.
A week or so later, the student came in again. After starting to research the policy, she discovered that she and her husband were eligible for the housing, and they had entered the lottery. After the lottery had taken place, she came to see me once more, very excited. She and her husband had won and would be purchasing one of the units, which were to be completed soon.
The student kept in touch after the term ended. She came to see me shortly after moving into their new house with an update. The affordable housing program placed no restrictions on resale. The day they moved in and ever since, she and her neighbors had real estate agents knocking on their doors, offering to sell or even buy the houses for at least $20,000 more than they had paid. Most were not accepting the offer, because if that had, they could do no better in the market-rate housing market in Orange County.
This first iteration of the “affordable” housing policy did result in the addition of a limited number of smaller, less expensive (around $70,000 at market prices) houses in Irvine. It also allowed a small number of households with incomes that could qualify to purchase a $50,000 house to buy these townhouses. I’ve always found it interesting to contemplate how similar a policy would have been that required the developer to build these smaller houses, sell them at market rates, presumably around $70,000, and then hold a lottery in which the winners would each get a check from the developer for $20,000. Especially if they were given priority in purchasing the houses, if they chose to do so.