Comment by raldi | Hacker News Reader

Comment by raldi | Hacker News Reader

If you click the link and, leaving all the rest of the defaults alone, drop the required affordable housing percentage from 10% to 0%, you lose about 4,000 affordable units but gain 6,000 market-rate ones.

So, would this change increase or decrease displacement?

Well, another recent Berkeley study concluded that a new market-rate apartment has about half the displacement-fighting impact of a below-market-rate apartment: http://www.urbandisplacement.org/sites/default/files/images/...

Therefore, the benefit of the extra market-rate units fails to offset the damage from the loss of affordable units (6000/2 < 4000). It fails similarly, but to a lesser degree, if you drop it to 5%.

But if you crank it up to 15%, the gains from the extra affordable units are overwhelmed by the lost market-rate units (4000/2 > 784). So it looks like the default value of 10% is the sweet spot.

By the way, the math is even easier for the 25% threshold that Supervisors Jane Kim and Aaron Peskin are proposing (http://www.sfchronicle.com/opinion/openforum/article/Prop-C-...), because that would actually lead to less affordable housing being built. Less market-rate, too. A double displacement whammy.

The entire concept of low income housing is a scam to keep market rate prices high. Build enough market rate housing that the price falls to what low income people can afford and you don't need any low income housing.

If the government spent the money it spends subsidizing rents on subsidizing construction then the problem would be solved.

So you're saying you don't believe that an affordable unit has twice the displacement-fighting power of a market-rate unit?

If so, what's the basis for this belief? Have you read the study I linked to, which concludes otherwise? If so, what part of its reasoning do you contest?

The flaw is scale. If you build one market rate unit (or ten or a hundred) then you get displacement, because the price of the market rate units remain too high for low income people to afford. You need to build a million.

Actually, just building 111,000 (increasing the city's supply by 30%) would cut housing costs in half.

Source: http://experimental-geography.blogspot.com/2016/05/employmen...

As far as I can tell, the model shown here doesn't seem to take supply and demand into account when calculating the price of the resulting housing.

What do you mean? The model is nothing but rent=demand/supply with an attempt to figure out what weights go on these parameters. What would you do differently?

(Author of blog post here.)

Unrelated: Why is the wages coefficient negative and large in your regression?

I think you're reading it backwards. The coefficients are the exponents that follow the parameters. The large negative one is the housing supply, because prices go down as more housing exists.

Thanks

It may be that it's just not obvious what the individual rent values are in the model, and that they do go down when the supply goes up. The only numbers visibly shown in the model are the number of units, the tax revenue, and the number of "affordable units"; the model doesn't display the expected distribution of rents, or the actual threshold for "affordable". As a result, it's hard to see how the parameters actually affect individual rents.

For the primary target audience (city planners), this makes sense.

Oh, sorry, I thought you meant my (price) model, not the Berkeley (production) model!

Government price controls do not fundamentally change the cost only the price. If the government is so efficient and can, somehow, make housing cheaper than it would be in a free market why shouldn't they also take control of the food supply? Computers? Software? All industry?

The government created a market failure by passing restrictive zoning regulations leading to a severe under-supply of housing. Resolving the market failure requires either eliminating the restrictions or providing enough cash money to justify the builder's expense in contending with them.

Obviously the better solution is to do away with the restrictions, but politics is the devil's day job and all that.

"The government"?

Good thing there's no actual people involved.

Because thus far they have intervened with the opposite effect, to push housing prices upwards.

In London this is through the Green Belt, torturous planning laws, height and density restrictions, low interest rates, government-backed mortgages and lending schemes, etc.

Supply in the markets for food, computers, software, etc. is not nearly so controlled by government action (or inaction).

This is going off into the weeds, but the government can and does provide food assistance: food stamps. Still, though, people use those to purchase food at market prices, which makes sense.

As a Central European, I have always been bewildered by American food stamps.

But I guess it's because of different attitudes in these two parts of the world? American don't trust poor people with money?

Government policy determines the price of land. Land is a major component of the cost of housing, so it stands to reason that government intervention in housing policy can make housing less expensive.

For instance, imposing a very high land value tax would reduce the value of land, which would in turn reduce the cost of housing.

> For instance, imposing a very high land value tax would reduce the value of land, which would in turn reduce the cost of housing.

It would only potentially reduce the tax-exclusive cost of housing. It would not reduce the tax-inclusive cost. (In fact, the rational expectation would be that it would radically increase the tax-inclusive cost.)

It would not change the tax-inclusive cost of housing. Land taxes can not be passed on.

You are right, that the tax-inclusive cost of housing won't change with a land tax on its own, at least not as a first order effect.

If however, you eg use the land tax proceeds to lower taxes on labour and capital, building higher (ie using more capital for housing) will become more economically feasible. (No economic revenue will be lost. Lower taxes in a jurisdiction directly lead to higher land prices---which the land tax will capture.)

There's also some other second order effects, like less NIMBYism. (https://www.dartmouth.edu/~wfischel/Papers/00-04.PDF) This will make development easier.

> Build enough market rate housing that the price falls to what low income people can afford and you don't need any low income housing. There are other kind of problems like buy-to-leave (http://www.designingbuildings.co.uk/wiki/Buy_to_leave). In that scenario the amount of housing to build to get to a point that it is affordable is a lot higher than it should be.

> subsidizing construction If you mean state owned properties. I agree on that. Having low rent housing competing in the market bring prices down. But the number should be significant enough. Otherwise it just becomes a lottery where a few win but has not broader impact in the market.

> There are other kind of problems like buy-to-leave (http://www.designingbuildings.co.uk/wiki/Buy_to_leave). In that scenario the amount of housing to build to get to a point that it is affordable is a lot higher than it should be.

Not if you publicly announce your intentions ahead of time. Then people have no incentive to do that because the expectation will be for housing prices to decline and the investment to lose value.

> If you mean state owned properties.

I mean giving subsidies to builders who create new market rate housing. Although another major problem is zoning regulations that prevent new housing from being constructed regardless of financing.

Subsidies would be mostly unnecessary. Merely allowing the housing to get built would be a gigantic improvement.

The solution to buy-to-leave is surely extremely high taxation on properties left empty (and I'm talking "10% of market value" levels of taxation, enough to obliterate any possible returns on investment).

That would be either unreasonably punitive or easy to avoid. Properties needing renovation or structural work can't reasonably be penalised for not being occupied, so owners would simply arrange for unoccupied buildings to be permanently having work done on them. I'm sure there are plenty of builders that would help them out for moderate fees. I'm sure there are other ways round something like this too.

Or you can just keep the taxes on unoccupied properties and people will make sure they get fixed up quickly. You'd be surprised how quickly and efficiently work gets done when penalties for lateness are high enough.

That's fairly easily dealt with. Require it be occupied for more than 6 months of the year, otherwise 1% (or 0.5%, whatever) of market value per month unoccupied. 80% of construction costs can be subtracted from any unoccupied housing fees applied. Any fudging on the construction fees paid/received is tax fraud on one or both parties.

I really like this idea, except that "market value" is vague, and would require a bit of work to determine accurately. Maybe the best you could do would be to have a by-block square footage to value chart to be used for these purposes (and you would want a definitive source anyways, to prevent gaming the market value side).

This could also help quite a bit with the property owned in New York as a way to launder money[1].

1: http://www.npr.org/sections/money/2016/05/27/479717380/episo...

It seems like a cute solution. But it's a bit unnecessary, and complicated.

Ie you probably would want to tax under-occupation as well. (Otherwise you just declare a bunch of apartments as a single unit, and have a single dude check in every once in awhile. They did that in Britain, because of different legal treatment of trespassing between empty and `occupied' buildings.) But how do you define under-occupation? Where do you draw the line?

Just use a land tax. It's simpler and harder to evade.

> That would be either unreasonably punitive [...]

If it was levied on the value of the land alone, there's no such thing as unreasonably punitive: land values would just drop until the tax is priced in.

If you look purely at economic efficiency, and leave out any morals about _who_ should be taxed, the only thing keeping taxes from going up all the way to taking everything is economic inefficiency. Ie if you heavily tax a particular widget, people will produce fewer widgets.

Land is fixed. You can't produce it, thus no tax can interfere with its supply. (Unless it's a tax system that incentives you to keep your land off the market, like negative gearing in Australia (https://en.wikipedia.org/wiki/Negative_gearing).)

However, if the tax was levied on the value of land plus building on it, a high tax would discourage building houses---whose supply is emphatically not fixed.

Land value tax is the solution. Stop taxing labour, tax land.

Also, stop taxing capital, while you are at it.

> If the government spent the money it spends subsidizing rents on subsidizing construction then the problem would be solved.

Or just give poor people money?

And lose a third of it to the government bureaucracy? And probably construct a new generation of welfare-trap, making people afraid to earn more money for fear of losing their benefit?

That giving the money to poor people was a suggestion relative to `give it to construction companies as a subsidy'---which is really, really stupid.

Depending on your political leanings, you might be happier with just lower taxes.

(And yes, the welfare-trap is probably real. Make sure to watch out for effective marginal tax rates of poor people especially.)

The dangerous problem is that it isn't the government who subsidizes rents, it's everyone else. If the subsidy were visible (the government writing a check to landlords) people would raise hell. Instead it's a hidden subsidy. The housing costs and rents of everyone goes up (including low-income income people) except for the lucky few who win the subsidized housing lottery.

The intent of low income housing is laudable, but the execution causes more problems than it solves.

Same for cars, and their parking.

The government forces everyone to write cheques to car owners. (Even the car owners themselves, of course. It's a tragedy of the commons; like eg communal charging for electricity in a whole city.)

http://www.uctc.net/research/papers/351.pdf

It's not tragedy of the commons, it's path dependence. If you don't have excellent mass transit then you need parking, so you build parking. Then if you have parking everybody drives and nobody is willing to invest in mass transit, so you continue to need parking.

I agree.

Now, we mostly see the demand for parking at zero [#] marginal cost to the parker, not the demand for parking at its true cost---because the costs are shared by society.

The short term demand for parking is relatively inelastic---so right after introducing pervasive charging for curbside parking and dropping minimum parking requirements for new developments, we will see roughly the same number of cars parked. (That's where your dependency comes in.)

In the longer term, demand for parking is more elastic. (One can see a similar relationship between oil price and demand for gas guzzling cars: inelastic / path dependent in the short run. More elastic with enough time.)

This holds even without public transport at all. Public transport is just one of the things that can serve as an (imperfect) substitute for private car rides. There are other ones, like car sharing, choosing job/home combinations that are closer to each other, telecommuting, home delivery of groceries, buying groceries in bulk, etc.

(To take one example right now, people already prefer to work closer to home, and make trade-offs all the time when considering a home or a job. The point of indifference between eg home price/salary and commute length will shift. Full disclosure: I hate commuting myself and have decided to fork out the money to live very close to the office.)

All the people in the market are probably much cleverer than me in coming up with substitutes. The price mechanism can guide them.

Some of these substitutes can and are provided by the private market. Public transport is generally not. Though eg Britain has privatised train companies.

Add in as another complication that without careful regulation, lots of public transport options are natural monopolies. One attempt to blunt this effect is by careful separation: eg run the rail network as a heavily regulated, public utility and make private companies bid for the right to run trains on it and for slots at the stations etc. And be very careful to specify that apart from meeting some minimum standards, the height of the bid alone determines the winner of the auction---politicians like beauty contests, because it gives them power to meddle.

See https://en.wikipedia.org/wiki/Privatisation_of_British_Rail for some lessons. Germany faces similar problems in eg their electrical power market.

Since I'm already on a tangent: the American freight train market and its history are another interesting piece to learn from. (It's doing pretty well, mostly because they don't have many passenger trains clogging up the network like in Europe, and the new regulatory environment of the Staggers Rail Act (https://en.wikipedia.org/wiki/Staggers_Rail_Act) seems to have worked out reasonably well. (They called it `deregulation', but that almost never happens---it's just a different form of regulation.)

[#] Zero in terms of dollars plus the effort and hassle of congestion and cruising for parking.

> All the people in the market are probably much cleverer than me in coming up with substitutes. The price mechanism can guide them.

I'm not sure you're going to like the market price of parking. If a parking space is 25% of the size of a $3000/month apartment then the market price of a parking space should be something like $1/hour, which isn't that high. And which puts it right in the hard spot where people subsidizing the price down to zero may actually make sense.

If all you care about is maximizing the revenue from parking spaces then you can set a price like that, but having a price at all discourages people from using parking spaces that you've already paid to construct whether you use them or not. And if you don't use them then the local shops lose customer traffic. So the local shop owner does the math and says hey, if there was free parking here I would get an extra $20,000 profit from more customer traffic, so I should go lobby the city to have free parking even if it means my taxes will be $10,000 higher.

Then their customers realize that if parking was paid for through taxes rather than at the meter the local businesses would be paying part of it instead of the customers paying all of it, so they would be paying less, and paying at the meter is more stressful than paying via taxes anyway.

Then the government realizes that to get the money from taxes they only have to put a slightly higher tax rate on the tax forms but to get it from parking they need meters and credit card processing computers and customer service and parking wardens and dispute resolution systems and the whole works.

So the vote comes up and 90% of everybody votes for free parking because the lack of free parking would collectively cost them more in money and grief than it costs to provide free parking.

The way out of this is to make the alternative to cars (or parking) more attractive, without making cars less attractive. Because people are going to fight you and win if you try to make cars less attractive without immediately replacing them with something which is at least as good.

Already existing parking (especially curbside parking) should be priced to reach approximately 85% occupancy. Less, and you are leaving too many spaces empty, higher and people have to cruise for a while before they find a spot.

That pricing will not discourage too many people directly---because you price it exactly at a point where not too many people are discouraged. (That point might have to be adjusted over time.)

Like a congestion charge, you shift from people bidding with their willingness to sit in traffic and endure queues, to people bidding with their chequebook. (Interestingly, your mix of parkers would shift towards more people who value their time more than their money. Affluent customers are good customers!)

Congestion charges worked out well for Singapore and London.

Politically, it's a good idea to hand out the fees from parking at the same level as the people who can decide about it. So if local opposition could derail the scheme, you have to hand out the proceeds very locally. Otherwise you get the political dynamics you describe.

Charging for parking is relatively easy and does not require high-tech. For example Singapore uses a scheme (amongst others) where you buy a bunch of perforated cards. When you want to park, you take a card and push out the appropriate chads to indicate the date and time of day and display the card in your car's window. Each card is valid for an half-hour slot. You can punch out multiple cards with consecutive slots. Each card can only be used once (obviously).

(If you want a crud variable pricing, you can require people to display multiple simultaneous cards for peak hours.)

I have also seen a system where you send a premium SMS with your licence plate number to pay.

> That pricing will not discourage too many people directly---because you price it exactly at a point where not too many people are discouraged.

Except that you're admitting to discouraging 15% of the customers. If there isn't enough parking for everyone then the shops much prefer people to be cruising around so that as soon as a space opens up there is someone to take it, rather than not showing up in the first place because they can't afford parking.

> (Interestingly, your mix of parkers would shift towards more people who value their time more than their money. Affluent customers are good customers!)

You can't actually make more money strictly by losing profitable customers, even if the customers you lose are below average customers.

> Like a congestion charge

It is like a congestion charge, which have exactly the same problems.

> Congestion charges worked out well for Singapore and London.

They keep poor people off the roads so rich people can use them, anyway.

> Charging for parking is relatively easy and does not require high-tech.

People don't use the high-tech stuff because it's harder. Either way you need something vs. the alternative where you don't need anything.

> Politically, it's a good idea to hand out the fees from parking at the same level as the people who can decide about it. So if local opposition could derail the scheme, you have to hand out the proceeds very locally. Otherwise you get the political dynamics you describe.

The problem is there are no "proceeds" -- the money is going to come from the local residents whether it's parking fees or taxes. The only way you can save anything is to have fewer parking spaces, which nobody is going to allow until after there is already a better alternative in place.

"If the government spent the money it spends subsidizing rents on subsidizing construction then the problem would be solved."

What makes you think they don't?

In fact, wasn't that the problem in 2008?

2008 was because of incredibly dangerous mortgages being handed out due to a mix of deregulation and the government still guaranteeing corporate profits (bailouts or otherwise) so the mortgage lenders involved didn't need to actually accept the risks. It was at the point where a bank would write you a mortgage on practically anything for any amount because they were effectively free money with no risk to the lender.

That environment did artificially inflate the growth of urban sprawl McMansions above any working class persons paygrade, but it was nowhere close to direct intentional housing subsidy beyond trying to achieve some pipe dream of families on 30k combined income affording a 5k square foot house.

This is true as far as it goes, but it doesn't consider opportunity cost. Instead of building special units that would benefit 4,000 people, a tiny fraction of the Bay Area, cities could charge an equivalent general fee that benefits everyone. The money could pay for mass transit, parks, services for the poor, programs for children, and so on.

That Berkeley study only considers units subsidized by taxpayers when it talks about subsidized housing. Inclusionary zoning is not studied, and like all disincentives to build more homes, I think it makes displacement worse.

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