‘Build More Housing’ Is No Match for Inequality

https://www.citylab.com/equity/2019/05/housing-supply-home-prices-economic-inequality-cities/588997/

by gmck • 7 years ago

139 190 7 years ago

mabbo• 7 years ago

It mainly leads to building high-end housing in desirable locations

Which is perfectly fine! It still works, because houses do not have intrinsic price tags. They have intrinsic ordering of values, but their price is determined by what people are willing to pay.

Line up every person in the city in order of how much they're willing to spend on a home. Do the same with the homes available. Face the two lines across from each other. Everyone will buy a home nearby to what is across from them right now. Building a whole bunch more houses on the top end of the house scale doesn't leave those mansions empty, it just drives the mid-range homes further down the scale.

Supply shorter causes those further up the scale of "willing to spend on a home" to have only modest homes as options (what's across from them). At the same time, it pushes less and less desirable homes (often ones 2 hours commute from work) in front of those less able to afford homes.

If you want to argue that the divide between rich and poor is growing, and it's a problem, oh heck yeah I'm on board for that argument. But conflating the housing shortage problems with that allows the landlords to keep getting richer.

cortesoft3• 7 years ago

This has an assumption that the people are a fixed group - that if you add more housing, that will mean better housing for the people at the end of your 'line'.

This doesn't take into account something mentioned in the article - that increased housing supply is going to attract MORE of the highly skilled workers that were driving up costs, and those people are going to be the ones filling up the houses, not poorer people.

This is a form of induced demand.

https://en.wikipedia.org/wiki/Induced_demand

wbl• 7 years ago

And the highly skilled workers were where before this? Oakland suffers because SF doesn't build.

stale20022• 7 years ago

There are low income requirements in many cities though.

For every X number of expensive apartments, builders must sell Y% low income housing.

Even if you only care about the low income stuff, upzoning still helps, and gets you what you want.

bluGill3• 7 years ago

Induced demand is nonsense. It really means there is unmet demand at the price point. Once everyone who wants a house at a price point gets one. Same applies to roads: if you build them big enough eventually there are enough lanes.

What really you are saying is we don't want to build enough for all the unmet demand at the current price point. This is a perfectly fine thing. Roads are expensive, if we can get people to not drive someplace because the current roads are too crowded that might be a worthwhile thing. Unlimited road expansion quickly requires expensive bridges.

Building more houses actually starts to fix the road problem because dense enough houses makes public transportation practical.

Yes rich folks will move into San Francisco at first. However their old house isn't in middle of nowhere, it is a longer commute away from San Francisco, and that house is available.

mixmastamyk• 7 years ago

On the other hand, if you don’t build, rich workers will win and force folks out anyway. At least with more supply folks are forced out more slowly, if at all.

pcwalton3• 7 years ago

Induced demand applies to roads because people have a choice whether to drive or not. But they don't have a choice of whether they need a house or not. For housing it's not induced demand--it's just demand.

Domenic_S• 7 years ago

A couple problems:

houses do not have intrinsic price tags

New housing does, or at least it has a minimum price tag. A builder selling housing for less than it cost them to build will not be building much housing!

Line up every person in the city in order of how much they're willing to spend on a home.

People can freely move downmarket, but can't freely move upmarket, so the demand is moving opposite the supply.

tomp• 7 years ago

Houses are fairly cheap. It's land that's expensive. So the only thing the developer needs to do, is accurately predict sales price in order to not overpay for the land.

grecy2• 7 years ago

And what if the rich people are so much richer than the poor(er) people they just buy multiple houses until they own them all?

More houses doesn't fix that problem.

refurb• 7 years ago

Well considering that’s never happened in history (“buy multiple houses until they own them all”), I’m not too worried about that.

superpanic• 7 years ago

Why would they do that?

zone4114• 7 years ago

You can have an extra city tax in this case. It would mean that the city gets even more "free" money without having to provide services to that person when their house is vacant. This was seriously discussed in NYC - see pied-à-terre tax.

lmm• 7 years ago

The more houses you build, the more it costs to own them all. Eventually the housebuilding itself will transfer wealth from rich people to builders.

dalore• 7 years ago

Line up every person in the city in order of how much they're willing to spend on a home. Do the same with the homes available. Face the two lines across from each other. Everyone will buy a home nearby to what is across from them right now. Building a whole bunch more houses on the top end of the house scale doesn't leave those mansions empty, it just drives the mid-range homes further down the scale.

What if people buy multiple homes? Doesn't that mean people down the line get none? And then the people who buy multiple can rent seek or leave them empty. They just get more money to buy more houses. Doesn't always push the price of the mid range houses down.

whatshisface• 7 years ago

If the multi-home buyer "rent-seeks" more homes than they otherwise would, tenants will be less desperate for housing and rent will fall. If the multi-home buyer buys the same number of houses as before, some of them will be the newly built houses... and prices will fall. The only way you could lose is if you built new houses that nobody would buy.

xvedejas• 7 years ago

Despite rent-seeking being undesirable for purposes of equality, more people rent-seeking over more houses does mean more competition in the rental market, and you'd expect rental prices to go down as a result. If you want to eliminate rent-seeking and have low housing costs, the only solution is an appropriate land value tax plus sufficient construction. You can't have affordability with insufficient construction, supply is a prerequisite.

drak0n1c• 7 years ago

If an investor is planning to buy $1 million worth of housing, it is strictly better that he spends it on 2 small units in the midst of a luxury high-rise than spending it by snapping up 2 large traditional family homes. High density central housing reduces prices for the suburbs. That's why Tokyo housing is so cheap.

pmart1233• 7 years ago

This is definitely a good point. Let’s think of two scenarios.

1. Stick a lot of affordable housing in building, but math works since the developer can make money selling the high priced units.

2. Increase total housing supply through less restrictive zoning, meaning more developers are building units they plan to sell at list price.

Scenario one is only possible if some people are paying too much for housing, and the people that are squeezed the most are the middle class. Scenario two probably means that the poorest group is displaced.

New York has been attempting scenario one. I’m not sure if SF has tried to accomplish either route, leading to the worst case scenario.

kradroy2• 7 years ago

#1 can be tricky in SF. If you mix affordable and market rate housing in the same development, there are still "luxury" amenities in the building. The HOA fees are not capped by law and with special assessment fees could possibly exceed a BMR mortgage payment. I'm not familiar with the configuration of all-BMR developments, but I assume there are HOA fees for those as well. This situation can make affordable housing unaffordable.

In SF there's no reasonable way to stabilize (let alone bring down) home prices without less restrictive zoning.

dragonwriter5• 7 years ago

Line up every person in the city in order of how much they're willing to spend on a home.

This is the “city as a closed universe” fallacy. What you actually have to do is line up every potential purchase of a home (which may be more than one per buyer) in the city by any person in the world in that order.

Which is why you can't move the needle very much in a high demand region by increasing supply in any way that is practical over any reasonable period [0]; there's usually a lot of available demand that must be filled before you see a perceptible price drop.

[0] at least before considering the effect that population density outpacing service and infrastructure scaling can have on desirability, which isn't usually the effect people are looking to leverage to reduce price, though making the city into a hellhole does have that effect.

cletus• 7 years ago

Exactly this. The problem is that capital is essentially globally mobile at this point. I personally support making cities for the residents of that city first and foremost. An example of this would be:

- All property ownership needs to be tied to a person as in no shielding behind LLCs for tax purposes at least (you might for privacy reasons).

- Owning a property in a city makes you a resident of that city (and country). Your worldwide income and assets are now taxable.

rayiner3• 7 years ago

If you build more housing and prices don’t go down, that means your satisfying unmet demand. And that’s a good thing too—you’re increasing the tax base of your city. If you keep building, then at some point the unmet demand will be met and prices will go down. Every step of that is a win.

jseliger• 7 years ago

If only we had some example of a city that built as much as the market demands. https://jamesjgleeson.wordpress.com/2018/02/19/how-tokyo-bui...

JamesBarney2• 7 years ago

Gwern referred to this as "yeah the failure case is you unlock a billion dollars of economic output"

abalone4• 7 years ago

What you actually have to do is line up every potential purchase of a home (which may be more than one per buyer) in the city by any person in the world in that order.

This is an excellent point. People who point to “basic supply and demand economics” often leave out the concept of price elasticity, also a basic economics 101 concept. It can mean that under extreme demand, building supply won’t actually move the price much.

Unlike the first dotcom boom which was spread all down the peninsula, this one is highly centered on SF in terms of where talent wants to live. It’s the heart of an industry that is creating some of the most valuable companies in the world.

Lots of people making six figures who would move to SF if only it was more affordable for them. So many companies that would open SF campus if only if was affordable, for them. That’s a ton of demand, regionally, nationally, worldwide. All that needs to be satiated before prices come down to what working class folks can afford — if developers decide to keep building, that is.

zanny3• 7 years ago

The alternative to building housing is not building housing, which is not a solution to the housing problem either.

Yes, wealth inequality needs to be solved, and its implications harm society through myriad aspects of it.

That doesn't change the fact that building, especially for density, is a good thing. No, don't build 50 story apartment blocks adjacent 2 lane country roads with no transit, of course, duh? Modernizing American cities, all of them, will take trillions of capital to fix the collapsing infrastructure and dramatically increase the density, but doing so would confer force multipliers to productivity that are stymied by participatory isolation over distance. People could be much more successful in life if they had access to opportunities they cannot reach so long as the closest they can get to an urban business district is several hours away by bus.

erichocean• 7 years ago

by any person in the world

I think you've identified a big part of the problem (and for which the solution is obvious).

anigbrowl• 7 years ago

It works fine in economic simulations. It works out terribly on human timescales. I could post a couple thousand words describing the negative feedback loop this can create but you're not even thinking about transaction costs.

guelo2• 7 years ago

So you just ignore the study and make pronouncements that fit your pre-existing assumptions. It's almost like a religion with econ 101 types.

kevin_thibedeau• 7 years ago

Supply shorter causes those further up the scale of "willing to spend on a home" to have only modest homes as options

In some built out places, perfectly good homes are torn down just to make way for a replacement only the wealthy can afford. Depreciation doesn't level the playing field if the field keeps getting replaced.

notSupplied2• 7 years ago

Agreed.

What does high end even mean? A modern high rise with high end amenities like a roof top swimming pool and nice interior appliances and craftsmanship?

I visited a friend in Atlanta who lived in such a high rise at a fraction of the rent of what a similar unit would cost in SF. A vast majority of the price of housing is from the supply-demand of that particular piece of land. Sticking a pool and some quartz countertops in there doesn't suddently make it ONLY viable as a rich-man's home, incapable of satisfying any of the middle-class demand that is overflowing in the area.

stale20022• 7 years ago

This article kinda misses the point.

Even if your only goal is to produce more affordable/low income housing, and you do not believe that market rate housing helps, you still have to admit that upzoning helps with the problem.

This is because in major cities, like San Francisco, there are low income housing requirements for many new housing projects.

Or in other words, if a company builds an expensive apartment complex, they might be required to make 20% of those apartments as affordable housing stock.

Therefore, upzoning areas still definitely creates more affordable housing stock (because of that 20%), and should therefore be desirable for people who care about this issue.

I am sure that many developers would increase the percentage of affordable housing that they create, if they were offered height limit relaxations in return. Ie, they can build that 30 story apartment complex, that was disallowed previously, if they make ~30% affordable.

Housing upzoning efforts should be focused on these unilateral wins that help everyone.

NN88• 7 years ago

doesn't matter. zoning is the issue. if you don't have more density, you won't have ANY opportunity for housing access.

tomasien2• 7 years ago

It's not intuitively clear to me what the point of this article is. Is it challenging the premise that building more housing stops the growth (or reverses the growth) of housing in urban areas? It seems to be but then most of what is talked about is not that.

The evidence for "more housing = slower rising or shrinking housing costs" is so strong in places like Brooklyn and Seattle that it seems almost impossible to really to challenge it.

clairity• 7 years ago

i also found the article confounding for not stating its positive thesis clearly, rather than this passive "‘Build More Housing’ Is No Match for Inequality" phrasing.

"so what is the match?" is the natural next question to answer, but the author simply doesn't even acknowledge such a question could exist. cortesoft points to one answer[0]: induced demand. the article hints at underlying land value rising because of the concentration of wealth in city centers is one reason.

like probably many others, i think affordable housing requires a combination of many economic thrusts: upzoning, reducing unnecessary regulatory costs (e.g., reduce bureaucratic friction rather than loosen safety codes), improving mass transit (reduce construction costs here too), mixed-use as default, encouraging small local businesses, last-mile transportation innovations, strengthening labor, progressive tax reform, etc.

[0] https://news.ycombinator.com/item?id=19872674

rmah• 7 years ago

The article's thesis is that building more housing does not reduce wealth inequality. Which makes sense. However, that's not why people are demanding more housing in places like San Francisco. They want more housing so that housing prices and rents will stabilize or decline. This allows people at lower income levels to have better quality of life. They are, of course, still at lower income levels. The article calls this a failure. Others may call it a success.

tomasien2• 7 years ago

Thank you - that was incredibly hard to parse.

RcouF1uZ4gsC• 7 years ago

doing so won’t magically solve economic and spatial inequality, because both are deeply rooted in the very nature of the geographically clustered and concentrated knowledge economy.

This is one of the great paradoxes to me. The knowledge economy would seem to the one sector that could entirely function on remote work. Instead, workers are concentrated in a few cities (SF, Silicon Valley, NYC, Seattle) and drive up the housing costs and prices in general exacerbating inequality. The average non-tech worker in these cities has trouble with housing and daycare due to these tech workers driving up the costs.

One of the best way tech companies could address inequality would be to foster a culture of remote work. This would ease up on the housing crisis. Well paid tech workers could go to other parts of the country/world where they would be a benefit to the local economy and culture instead of a harm because they would be spread out.

cortesoft3• 7 years ago

There are a few problems with this.

One, lots of people want to work in physical proximity to their coworkers. I know I am one of those people; I could work remote, but I enjoy the social aspect of working in an office.

Second, part of the appeal of living in one of these expensive cities is that the amenities are also nice. When you cluster a lot of wealthy people together, the public services get better, there are more entertainment options, etc. Being a wealthy person in a cheaper part of the country might sound nice and have its perks, but you are going to find fewer places to spend the money you have.

Third, people like to live with people in their same class. We really hate talking about class in the US, but it is there nonetheless. It is not easy to be a well off tech worker when the people in your social circle are blue collar workers struggling to make ends meet.

rifung• 7 years ago

Third, people like to live with people in their same class. We really hate talking about class in the US, but it is there nonetheless. It is not easy to be a well off tech worker when the people in your social circle are blue collar workers struggling to make ends meet.

I don't know if I agree with that. I am a low level engineer but still consider myself fairly privileged. It makes me really happy when I'm able to help my friends buy something they couldn't otherwise afford. Yes it pains me to see they are struggling but I am happy knowing I can help them if they ever need it and it gives me a reason to keep working.

I also have friends who are significantly more well off than I am. In my opinion, they don't understand the value of money well.

Personally I think it's dangerous to put yourself in a position where you can just forget that there are other people who are genuinely struggling as it can distort your perception of money.

PHGamer• 7 years ago

naw thats not the problem. the problem is most tech companies hate remote. its always been that way.

Apocryphon• 7 years ago

When you cluster a lot of wealthy people together, the public services get better

That doesn't seem to be happening in the Bay Area or in Seattle at all.

selimthegrim• 7 years ago

Because I’m sure no one buys a house in Pawtucket or Providence and commutes to Boston.

souprock• 7 years ago

I find it odd that so few seem to choose the perks of being a wealthy person in a cheaper part of the country. Depending on your idea of wealthy...

You could get a tennis court, a dock with a boat, horses, and a shooting range.

You could get a polo field, yacht, a helipad, and a helicopter.

You could get a Formula One track, a large yacht (with pool, helipad, submarine), a private airport for large jets, and a nice large jet.

Whatever the wealth level, you get more of the above in the cheaper parts of the country.

fwip3• 7 years ago

Everyone in the area benefits if some companies allow workers to go remote.

It's less clear that the companies that allow remote workers immediately benefit. It's one of those situations where you hope all your neighbors do it, so you don't have to.

mywittyname• 7 years ago

You can have a city with a large number of wealthy people and affordable housing, but it requires enough housing for everyone.

The big issue with affordable housing is that you can't build it now. Affordable living quarters are those which were built a long time ago and have depreciated in real terms over time. It's not really possible to build a decent house today for $30,000, but 40 years ago you could. That same house could go for $80k, $300k, or $600k today, depending upon how much new construction kept up with population growth over that time.

This fact is why areas of California are screwed. There's no quick fix for this problem, the treatment for a housing crisis is decades of construction that exceeds the pace of population growth. Given that treatment and enough time, there will be plenty of available housing stock at 2x median wages.

deathanatos• 7 years ago

Housing developments are regularly proposed that have a certain percentage of units that are "affordable housing" in that their price is artificially held low. (And there are restrictions on purchasing such units, so that a well-off person can't simply sweep them off the market.)

But even such developments are also being rejected by SF, even ones that would increase the number of affordable housing units available overall. For example, a project in SoMa was unanimously rejected because it overshadowed — on the day with the most shadow — 18% of a nearby park[1].

It is clear to anyone who is watching that SF is not concerned about the affordability of its city, or the livelihood of those who are not well-off enough to afford homes whose median price has been as high as $1.6M.

(And while I disagree that you can't build affordable housing now, I do agree with your treatment.)

[1] https://sf.curbed.com/2019/4/10/18304717/shadow-housing-sf-p...

throwawaysea• 7 years ago

Why not aim for more of a distributed economy and/or distributed housing instead of trying to crowd in on small patches of highly-desirable/expensive locations?

davidw• 7 years ago

It turns out denser housing is better for the environment too, so we should upzone even if the premise of this article were true (to me it seems kind of suspect to deny that supply and demand don't really work for housing):

https://www.thenation.com/article/zoning-housing-homeless-se...

CuriouslyC3• 7 years ago

Density isn't a lock for environmental friendliness. High density structures require environmentally unfriendly building materials relative to lower density structures, and a local environment has a limited ability to deal with pollutants and waste, requiring significant additional infrastructure to accommodate. Furthermore, higher density means more transportation infrastructure to bring resources to the people who live in an area, whereas a lot of these resources could be locally sourced if the density was lower.

I think modern large multi-story wooden structures surrounded by food forests and urban farms is probably optimal in terms of environmental impact, while also being extremely livable.

mjevans• 7 years ago

If I had to pick ONE hammer/nail to use to fix this problem, it would be more housing, orders of magnitude more housing.

Actual competition, in this case, actual choices for housing, having enough units on the market that slack is normal and expected, would definitely solve the inequality issue: and there's NO WAY the market's going to go back to that state naturally. Distorted market forces created a seller's (rent-seekers actually) market, and it's going to take drastic measures, or economic death, to correct it.

Edit: Though while we're at it, go ahead and encourage good community development and programs that make it easier for first time home buyers and stable jobs and all the other things that lead to better communities and more empowered people in general.

0x262d4• 7 years ago

it turns out that if you care about everyone having a place to live that they can afford given the jobs available to them, the free market sucks.

the solution is to build more (socially owned, permanently affordable, high quality) housing. emphasis on the part where it isn't a slum that is doomed to fail and is horrible to live in.

mamon• 7 years ago

And where is that mythical place that actually has free market for housing? Most countries/states have building codes and other regulations that mess up simple supply/demand dynamic.

fwip3• 7 years ago

The "free market" is not a binary value. Surely you agree that there's a difference between building codes and state-owned housing?

0x262d4• 7 years ago

sorry for forgetting to qualify "free market" as "so-called 'free' market".

there isn't a shortage of housing, there is a shortage of affordable housing, which for-profit developers don't care about building.

gwright3• 7 years ago

What free market are you talking about? Do you think the housing market in these cities is unencumbered by government regulation? The shortage isn't created by lack of interest by developers, the law is preventing them from creating more housing units.

0x262d4• 7 years ago

sorry for forgetting to qualify "free market" as "so-called 'free' market".

there isn't a shortage of housing, there is a shortage of affordable housing, which for-profit developers don't care about building.

nicpottier• 7 years ago

Isn't this ignoring that a lot of upzoning comes with the requirement that a percentage of new units are made to be affordable? (at least that's the case in recent Seattle projects I've seen)

Sure, if the market is completely free then it will build the highest value items (shwanky condos), but that's (thankfully) not the world we live in.

burlesona• 7 years ago

This paragraph summarizes the entire article:

They agree that housing is part of the problem: “Housing market failures can imperil local economic growth and generate problems such as segregation, long commute times, deteriorating quality of life, homelessness, and barriers to social mobility for certain populations,” they write. But housing policy, and zoning restrictions in particular, are certainly not the be-all and end-all of urban problems. Upzoning expensive cities is no match for the deep divides within—and especially between—cities, and is wholly insufficient to remedy them.

I haven't heard anyone argue that just "upzoning San Francisco" is going to fix all urban problems, much less "[set] up Los Angeles and San Francisco as the new golden land for people in less prosperous regions," as the article says.

However to say that "It mainly leads to building high-end housing in desirable locations," is practically a tautology. Upper / high-end housing in desirable locations is virtually all that developers have ever built. [1]

The article is completely missing the domino effect, and why "mostly building high-end housing in desirable locations" is still helpful. Where there is high-income job-creation (like SF or NYC) there WILL be wealthy people moving in. You can either (a) build nice new houses for them, or (b) let them buy up the existing stock of housing and displace everyone who is lower than them on the economic ladder. That's the part that's basic supply and demand.

Thus the domino effect - with fixed supply the wealthy displace the less wealthy.

Where I think the article is really missing the point is in its failure to see how restricting housing in the hottest job markets just makes the domino effect even broader. If it were feasible for San Francisco to soak up all the tech jobs it probably would. Instead, many "mid market" companies are being displaced to secondary hubs like Seattle and Austin, where -- shocker -- they have similar restrictive policies and are experiencing exactly the same housing crisis and displacement problem just with scaled down dollar amounts involved.

American cities - and many others around the world - are dealing with fundamental problems of scaling. In the industrial era we were a bit better at scaling up: we built simple grids that could be extended indefinitely, and when the technology came around we built trams and subways to help move people about the region. The building codes of the era allowed neighborhoods to change over time so long as the health and safety standards were met.

And then we fell in love with our cars, adopted the suburban car-oriented pattern and passed laws that mostly forbid the development of anything else. That pattern is specifically designed not to change over time - so we shouldn't be suprised when it buckles under the load of steady population growth.

[1] https://www.strongtowns.org/journal/2018/7/25/why-are-develo...

tschellenbach• 7 years ago

"It’s supply and demand at work, they argue".. hmmm yep, that's how it works. These problems are not going to get addressed if people keep on coming up with other theories that don't really address the problem.

Build more to increase supply and spread out demand by facilitating good transport.

Good news is that all those high paying jobs should provide plenty of budget for the government to address this problem...

znpy• 7 years ago

I’d heavily tax un-rented properties. If property is not being actually used for housing it should be expensive to keep it. Administration should disincentive hoarding of houses.

dkhenry• 7 years ago

I don't understand how papers like this get published. The title of the paper seems almost designed to lead you to the wrong conclusion. The paper is about income inequality, and it appears to be a meta-study proposing that building more houses won't help a given area reduce inequality. However the main thing people are discussing is pricing, and affordability, as you can note from the citylab subtitle (won’t solve the urban affordability crisis)

Building more houses will absolutly help the urban affordability crisis, as the paper claims if you were to build more housing in San Fransicsco obviously it would be occupied by high paid tech workers, that doesn't mean it didn't make the situation better for everyone as all those people who are not living in the upzoned houses didn't go bid up the existing housing stock.

Right now California is estimated to have a four million housing unit shortage, doing a study about a few hundred units built and then claiming it didn't help anything is beyond dishonest.

Also the paper ends not with a solution, but with saying we should not try to build near transit. It really reads to me like the authors decided they didn't like the propsed legislation for upzoning so they picked a bunch of data that supported their views and cobbled together a paper.

driverdan2• 7 years ago

The paper isn't published, it's put on a free Wordpress blog[1] run by two people[2]. As far as I can tell there's no peer review or editing.

1: https://peeg.wordpress.com/2019/05/05/19-14-housing-urban-gr...

2: https://peeg.wordpress.com/about-2/

raquo• 7 years ago

Yeah, cities don't get cheaper as they grow in size and density. They become more desirable due to better availability of jobs and services, and therefore more expensive.

Of course a myopic analysis of building a single tower is not going to capture long term effects of building a hundred of such towers over many years. Especially if your incentives say you should build.

If governments want cities to be affordable they need to

- make cities less desirable compared to currently semi urban areas by spreading out the location of government services and jobs, providing incentives for private companies to do the same

- allow for building reasonable amounts of housing, but only the kinds and locations that match policy objectives

- cut off all "investment" demand for housing by eliminating the expectation of risk free profit. Ban foreign money, add much higher property taxes on anything but primary residences and purpose built rentals, etc.

If you set up a proper incentive structure for everyone, things will settle in a much much better equilibrium than today. Desirable places will still be expensive, but general affordability would improve a lot due to layers of profit seeking parasites exiting the market.

rayiner3• 7 years ago

The paper attacks a straw man:

The barrier that must be lifted in order to make this happen is, according to this view, insufficient housing construction in prosperous areas due to local restrictive zoning in those regions. The places where policy is needed are therefore not the lagging and falling-behind regions, but the prosperous areas, which are perceived as afflicted by the disease of NIMBYism (Not-In-My-Back-Yard). Undoing NIMBY-ism would allow people from other regions, whom are deemed to be excluded by high housing prices and low availability in prosperous places, to move to prosperity (thus, a place-based policy leads to a people-based outcome).

Of course, knobs that affect the supply and price of housing will not cause companies to hire workers without in-demand skills at higher wages. That is completely orthogonal to whether turning those knobs will decrease the price of housing.

Furthermore, "building more housing" is like planting trees. The right time to do it was 40 years ago. If you look at cities with relatively reasonably priced housing, like Chicago, you'll see that the bulk of the moderately-priced housing stock is older. Fancy new condos at sky-high prices are getting built, but you can still get a good deal on a unit in an older building. The problem in cities like San Francisco is that those units weren't built back in the 1970s and 1980s.

paulddraper2• 7 years ago

The best time to plant tree is 40 years ago. The worst time is 40 years from now.

Let's not do the worst one.

pcwalton3• 7 years ago

Totally agree. In fact, you see this in some parts of California too. I used to live in Palms, Los Angeles, which was one of the few neighborhoods on the Westside that escaped the 1970s/1980s downzonings. As a result, it better kept pace with housing demand (relative to the rest of the region anyway), and it's now the most affordable neighborhood on the Westside and one of the most diverse neighborhoods in L.A.

WillPostForFood2• 7 years ago

Isn't Chicago more a case of declining population than building? Chicago shrunk ~25% from its peak population in the 1950s. It is lot less of a challenge to have affordable housing with declining population. Add in the massive white flight, and I'm not sure what the Chicago lesson is.

2trill2spill• 7 years ago

Most but not all American cities have less people now then in the 1950s. But household sizes are much smaller and the amount of Housing units in most cities is actually higher then the 50s as a result of smaller household sizes. However many of these cities still have a housing affordability problem even though they have less people now.

cybersnowflake• 7 years ago

"Build more Housing" is not the answer. Okay fine, add "Not everybody in the world needs to or should live in San Francisco or Manhattan" to the list of rules

adrianmonk• 7 years ago

“The idea that upzoning will cause housing affordability to trickle down \[ ... \] is just a lot to promise”

Increasing housing supply is not the same thing as trickle down. It confuses the issue to call it this.

Trickle down refers to the idea of giving out money (in the form of tax breaks) to stimulate the economy. It essentially says that cash handouts to businesses and investors will indirectly make it into poorer people's hands.

Removing limits on housing is fundamentally different than this because there is no handout involved. Instead of rich people receiving money, rich people (also called investors) put up money to finance the costs of increasing the supply.

Also, nobody is saying that increasing supply will eliminate inequality. That part is kind of a straw man. Real estate is still "location, location, location", and living in a desirable area (near jobs, etc.) will continue to cost more. What increasing supply does is change one multiplier on costs. In my mind, the relevant question to ask is: if affordability is a big problem, why wouldn't you want to turning one of the knobs you can turn to change a multiplier and make it better?

fwip3• 7 years ago

You're reading too deep into the analogy. It's just similar to trickle-down economics in that the idea is "if you let more rich people get houses, that will help poor people get houses too."

jupp0r• 7 years ago

the collapse of the urban wage premium for less-educated workers means that the extra housing would mostly attract additional skilled workers

Doesn't this contradict their conclusion? What are those workers attracted by if not more affordable housing?

throwing838383• 7 years ago

Look at all the cities that don't have Zoning, like Houston, TX. They don't have the kind of housing problems that over regulated CA does. Despite a population of over 2million (3 times more than SF) and growing much faster too, those places are much much more cost effect (100$ per sq foot vs over 1200$ per sq foot in SF). People need to learn how supply and demand work.

Sure, if you start building in SF, it's going to take time to fix. But not adding more supply is like saying, "Well, we've turning coal plants into solar panels but C02 levels are still rising". Just like every solar panel, Every bit more supply will help.

And even more important, is the underlying cost to build. If that's not low enough, the problem will never be fixed entirely. The underlying cost, is usually to high in Blue cities due to regulation, zoning and the loss of the middle class which raises labor costs.

unixbeard1337• 7 years ago

Houston doesn't have zoning, but does have fairly stringent land-use regulations on single-family homes (min. lot size, setbacks, etc.) See: https://marketurbanism.com/2016/09/19/how-houston-regulates-...

Houston is also surrounded by sparsely-populated countryside, rather than on three sides by water like SF, giving it more room to grow cheaply.

driverdan2• 7 years ago

Houston isn't very dense, it's largely sprawl.

johngalt• 7 years ago

The article presents a 'gentrification' view of development. Building new housing simply allows landowners and developers to build another luxury condo tower, and for additional rich and high skilled workers to move in. The network effects of which only drive up land values and costs even further. Concluding that upzoning and building only allows landlords to switch out low revenue tenants for high revenue tenants.

First off it seems to me like every city would love to have this sort of problem. "We can't possibly build enough housing to satisfy all the demand from highly paid/skilled knowledge workers who want to move to our city." To a city government sounds a lot like "I can't build enough garage space to park all my lamborghinis!"

Secondly, what happens when we run this theory in reverse? If we bulldoze a quarter of the housing does that mean that home prices go down? I guess at some point that might actually be true. It might constrict business/growth enough that the remaining houses would be less expensive. Call it the Detroit plan for affordable housing. Make all the high paying jobs leave and housing prices become more affordable. Which I guess 'works' to supply affordable housing.

ChuckMcM• 7 years ago

Does anyone have the paper? The dot com bust was a pretty strong counter narrative to this paper and I'd like to understand their reasoning. For those not fortunate enough to live it, when the bubble burst on the dot.coms a lot of people moved out of the Bay Area, the economic downturn was harsh, but it was mechanical rather than systemic. In that a number of firms that had been injecting capital into the market simply vanished. As a result the number of available jobs shrank, and people who were renting simply moved away (at one point there was a 6 to 8 week waiting period to get a U-haul truck to rent and people were being paid to fly to different cities and drive the trucks back to the bay area)

The effect on housing was that fewer people were competing for homes and so prices stabilized (and people who had used stock options to buy were sometimes forced to sell instead of buy the home). This lead to a large drop in prices in homes that were far away (Livermore, Modesto, Sacramento, Etc) making the isolines for cost vs closeness to the bay much shallower. People in companies that were not dead found that they could buy a house in one of the 'close' counties (Santa Clara, Alameda, and San Mateo) and did so.

Anyway, it is impossible to control all the variables in economics generally but I would like to see how the authors came to their conclusions.

RenRav• 7 years ago

The cost of living in a lot of cities is horrible, even if you can afford housing.

I think the commute from beyond the city, where housing is more affordable and zoning more permissive, could be improved and promoted as a compromise.

sologoub• 7 years ago

This seems to be the central argument:

“While building more affordable housing in core agglomerations would accommodate more people,” the authors note, “the collapse of the urban wage premium for less-educated workers means that the extra housing would mostly attract additional skilled workers.”

In other words,they seem to argue that building more only attracts more high-paid works.

Ok... so let’s build even MORE, until a new equilibrium is reached at a lower price. There is a finite number of the higher paid jobs and a finite number of people who can perform them without additional training. That number is not small, so if want to change the market for housing, amount of new supply must also not be small.

Seattle has been making a dent, but unfortunately not a very big one: https://www.seattletimes.com/business/real-estate/amid-build...

Imagine what would happen if they built even more?

However, if we did build enough, a significant number of people would be impacted in a different way - it’s impossible to build just the right number, so we are much more likely to significantly reduce the value of homes if we built enough (in actuality too much) to not price people out. Anyone that bought around the time of the boom would likely see prices fall.

skybrian• 7 years ago

The alternative is to avoid creating high-paying jobs in already crowded areas.

That sounds counterintuitive, but put it this way: there are many other places that would love to have more of these jobs. Rather than competing with them, cooperate in proving incentives for companies to move or expand elsewhere.

tasubotadas• 7 years ago

"They would, however, increase gentrification within prosperous regions and would not appreciably decrease income inequality"

From the paper. That makes me question if an actually competent person wrote this. Income inequality is not a problem. Lack of housing and housing prices are.

siculars• 7 years ago

For every residential building built mandate 20% units allocated for low income housing.

You end up with incentivized developers and low income families distributed throughout the region and not centralized in projects.

Problem solved.

jeffdavis• 7 years ago

There are two related issues: one is density overall, and the other is the housing to jobs ratio.

Adding a tall office building adds to density but skews the housing to jobs ratio. Probably increases inequality, worsens transit problems, and increases housing prices.

Adding a tall apartment building in SF or Palo Alto would rebalance the ratio of jobs to housing, alleviate transit problems, and make housing more affordable.

I guess the article is arguing that imcreasing density in the abstact increases inequality, which may be true. But the argument is not to just "build"; it's "build housing to rebalance the ratio" which actually would solve a lot of problems.

Density had positives and negatives. If you want to keep a given density ina given city, then fine. But crazy skew where you puts jobs far from housing is just bad policy.

It might be more precise to say "either build housing or raze office space" but it seems a little ridiculous to tear down vibrant office buildings, so the answer is to build housing.

speedplane3• 7 years ago

A better way of improving housing equality is by adding a new renter tax. Every time a property is rented out, the landlord would need to pay a one-time tax. Landlords will be incentivized to keep tenants in their homes longer, as increasing the rent and forcing someone out will look less attractive if they have to pay a tax for a new renter.

odiroot• 7 years ago

What a silly article. In many places affordability is not the issue. The real issue is availability. You just cannot work around shortage of apartments. It just physically can never work -- unless maybe you forcefully restrict the population of a city (hukou style).

irjustin• 7 years ago

For what it's worth, I agree with the headline as stated. Without controls, the scenario of NYC or Hong Kong appear.

One answer to this particular problem for Singapore has been public housing. Public housing is completely different concept in SG as 70% of all housing is "public".

There are no direct price controls but only PR or Citizens are allowed to own these places which places a natural cap on housing. New developments are handed out via lottery with preference going to first time owners.

This naturally limits who can buy into new developments allowing younger families to inflow into said locations thus keeping prices low.

US Cities would be hard pressed to find a scheme that works (article hardly proposes a solution), but I agree simply supplying more would not work.

Redoubts• 7 years ago

Without controls, the scenario of NYC or Hong Kong appear.

SF is now more expensive than Manhattan, so I'm not sure what you're arguing here.

timwaagh• 7 years ago

its supposed to be a solution for homelessness.

‘Build More Housing’ Is No Match for Inequality

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