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Throughout all the various discussions of the past year about how best to cope with the SAW region’s shortage of affordable housing, most attention has gone to the “housing” half of that phrase. ADUs, modular construction techniques, pocket neighborhoods, land banks and land trusts, restrictions on short-term rentals—all these and other strategies that have been kicked around have focused, by and large, on how best to increase housing supply. Comparatively little attention has been given to the issue of affordability.
That may simply reflect the intractability of the problem. Housing can be made more affordable either by increasing wages or by lowering the cost of homes—but raising wages is a much bigger socio-economic challenge than even the most dedicated housing advocates can tackle. And efforts to lower the cost of housing sooner or later encounter an inherent paradox: housing in the U.S. is both a consumption and an investment good. Enhancing one almost invariably diminishes the other, which is why efforts to introduce cheaper (i.e. affordable) housing so often encounter fierce resistance from established homeowners, who see their property values under attack.
The result has been an increasingly pricey real estate market, defined by tight supply and constantly rising prices, both nationally and locally. Last year, for example, homebuyers on average were paying more than five times their annual incomes for a home, up sharply from 1965, when their purchase price was less than three times income. The average age of the first-time homebuyer was 35, up from 31 just 10 years earlier. Unable to affect labor market economics and equally ineffectual at promoting cheap housing, affordable housing advocates frequently are left agitating simply for more housing, in the forlorn hope that increased supply may by itself bring down prices. So far, it hasn’t worked out that way.
So what’s to be done?
One possible starting point is to look at how new construction is financed. For developers, site acquisition costs may represent just 10% of projected outlays, but that cost comes up-front, before any money comes in, and therefore often is financed through loans. Not only does that make the outlay more expensive when interest rates are high, but land acquisition loans are an overhang that grows with every construction delay, whether caused by permitting issues, bad weather, supply interruptions or labor shortages. Meanwhile, there are only a limited number of financing sources, including government, banks and possibly local lenders, and in our area government funding for housing is not only scarce but increasingly precarious.
But we’re not the first society to face this conundrum. Consider the Greek city of Athens, which just 200 years ago was a “ramshackle village” of perhaps 4,000 residents. It grew steadily over the next century, but an influx of Greek refugees from Turkey upon dissolution of the Ottoman Empire more than doubled the population in just a few months, to 500,000. That was followed by World War II, which devastated the city’s housing stock, after which migration from the countryside again doubled the population. By the late 1940s, Athens was home to more than a million people with insufficient housing and few job prospects, and what housing was available tended to lack basic plumbing or heating.
Against that dismal backdrop, the Greek population—not the government—developed an informal approach to housing called antiparochi, which roughly translates as “mutual exchange,” also sometimes described as “flats for land.” As explained by the BBC in 2019: “Here’s how it worked. A contractor would approach the owner of a house and offer him a deal. He would knock down his house, and build a block of flats in its place. In return, the homeowner would be given a certain number of flats (usually two or three), while the contractor would then make his money by selling the remaining flats to Greeks who were seeking accommodation.”
Such an arrangement, in which no money was exchanged (and, indeed, without the protection of a contract) was largely ignored by the government for more than 20 years, with only minor regulations, such as height limitations and a ban on building over archaeological sites. The result was a win-win-win on multiple levels. The government was able to focus its limited resources on developing infrastructure. The original homeowner realized the equity in his property by having not only a new home—with plumbing!—to live in, but with a second or even third home that he could rent or sell. The builder could start construction with minimal upfront outlays, funding his construction expenses with deposits from prospective buyers only too eager to lock in a home. And as home building took off, the resulting construction boom energized the Athenian economy.
As might be expected, such a free-for-all wasn’t entirely a one-sided success story. As the antiparochi phenomenon became more widespread, architect-free construction became so standardized that the Athenian landscape was transformed into a bleak monotony of drab concrete blocks that still shocks first-time visitors. Developers began cutting corners, not just by eliminating decorative elements but by using insufficient or substandard materials. Yet as the population kept surging, reaching almost two million in the late ’70s, the antiparochi approach kept pace, with housing bank loans comprising just 16% of gross capital formation. And today, the Greeks’ homeownership rate is roughly 65%—almost exactly that of the U.S.
The antiparochi approach eventually was undone by government imposition of an 18% value added tax, applied to the apartments the original homeowners received from the builders. The government also ended a policy that had taxed property transfers but not new construction, which had disincentivized the buying of existing buildings. Behind the changes was at least some civic guilt. “Most people thought that antiparochi was bad for the city and that it destroyed the architecture of the city, but that is not entirely true,” contends Elxis, a contemporary Greek real estate service. “The antiparochi system provided a roof for very low-income families in Greece, who lived in a country without a housing policy.”
Whether the antiparochi approach would work locally is, of course, debatable. The tax policy that led to its near demise in Greece already exists here: while the U.S. tax code allows a swap of one real estate investment property for another while deferring capital gains taxes under Section 1031, there is no such break for homeowners. Nor would the rough-and-tumble approach to building in Athens go down in a society of building codes and inspections. Our shortage of affordable housing doesn’t approach the deprivation faced by post-war Athenians, which pressured government officials into their hands-off attitude.
Yet for all those differences, the Athenian experiment demonstrates that a fresh way of looking at problems can yield unexpectedly creative solutions, and that innovation can be stifled by overly restrictive policies. There are lots of things Virginia’s local governments can’t control, in a state that maintains tight control over most municipal decision-making, but zoning restrictions remain largely within their wheelhouse. So do many tax policies, especially having to do with real estate and personal property. The challenge, therefore, is to look for ways to modify zoning and tax codes in such a way that property owners can unlock their equity productively.
Consider, for example, the large number of Staunton homes built half-a-century or more ago, many occupied by aging empty-nesters who would like to down-size—but who can’t afford to move to a smaller, more manageable home because their own aging property hasn’t sufficiently appreciated in value. How much of the city’s housing stock deteriorates each year as those house-rich but cash-poor couples—and widows and widowers—are unable to upgrade and maintain their property? How much real estate potential is being wasted for lack of anything like the Athenian model?
Looking askance 