Anchorage housing: nowhere to go but up ... literally.

• Author: Fields, Terry
• Position: SPECIAL SECTION: Building Alaska

Anchorage is a small city with some big-city challenges, few of which are discussed as often as the cost of housing. The reality is if low-density housing is not "affordable" today, it likely never will be. Housing affordability is defined and tracked by reviewing monthly housing costs in relation to monthly income. Affordability is thus positively influenced by either the reduction of housing costs/prices or the increase of income. The challenge with improving this ratio is that neither factor can be manipulated in a vacuum, and their interconnectedness will in most situations cancel each other out. The core of this circular reference is that land is a theoretically fixed resource, and despite reductions in construction costs or incentives to fuel consumers' financial capacity, price (land value) will always rise with demand if supply remains fixed. This pattern is seen in Anchorage where unemployment has fallen, incomes have risen, and financing costs are at historical lows. These conditions certainly influence the income side of affordability (demand), but without the ability to add supply, competition over limited real estate continues to raise prices--nearly 14 percent since 2011--offsetting any gains in affordability. This is not to say that real estate prices cannot fall; however, reductions in real estate values are almost always concurrent with recessions and reductions in population, employment, income, and/or access to inexpensive financing. While housing costs may fall, all of these conditions counteract average net affordability by concurrently reducing the average monthly income. Those able to retain their employment and incomes may find themselves in a cheaper housing market, but they will also find themselves in a depressed economy (example: 1985-1988).

Land and Price

Many point to high construction costs (26 percent to 37 percent premium nationally) as the catalyst for high housing costs in Anchorage, but the discrepancy of lower housing prices in Wasilla and Palmer, where the majority of new construction has been occurring, is clear evidence that materials and labor are not the primary culprit. Again, it is land and the cumulative demand for its finite, unique attributes that differentiate the price. Land receives its value from its current highest-and-best use and confidence (speculation) that the value will maintain or rise in the future. This confidence comes from the characteristics of its inherent location--a robust...