More high-income housing doesn’t make housing less affordable
cityobservatory.org
cityobservatory.org
Not to mention the lack of luxury housing isn't going to convince Mr. Yuppie to move out of NYC. He's just going to jack up the price of a semi-dilapitated brownstone (or turn a faux-victorian into a hacker house in SF).
Because it'd be a lot cheaper to build and you could charge the same rent?
I'm not really sure what your point is here. If the cost of renting was completely location based and not quality based, developers would construct the cheapest housing possible in the most desirable locations - they wouldn't be building luxury housing.
You're correct that it is possible for developers to build much lower quality construction and command the same prices. However, this is only true in a scenario where all developers do the same thing. Generally, developers have some level of competition discouraging that - other developers, existing stock, etc.
(EDIT: Also, much of the cost of construction in areas such as SF is land. Cheap construction doesn't make land cheaper.)
The identical buildings are probably the worst offenders, and the converted old building is probably the best.
No, the point is it wouldn't be a lot cheaper. Granite countertops aren't more expensive in NYC than they are in Topeka. Compared to the price of the property making an apartment "luxury" is pretty cheap.
1. Speculators. There's been a huge uptick in people from other locales - even internationally - buying or building housing units as investments and literally leaving them empty, expecting them to appreciate in value. These units are effectively not part of the housing stock and don't help with the supply problem.
2. Vacation Homes. As wealth inequality has become more dramatic, the wealthy have more income to spend on vacation homes. In cities like Portland, Maine, Manhattan and San Francisco, many high-end condo buyers are buying these units as vacation destinations that they'll only occupy for a tiny part of the year. These too are not being truly added to the housing supply.
3. Airbnb/Short Term Rentals. I don't want to single out Airbnb here, but it's known to real estate agents and investors that you can make way more money with an Airbnb rental than a long-term rental. (Where I live it's about 5x difference in annual income.) Many new housing units are being eaten by people who use them to operate short-term rentals, which they have an enormous economic incentive to do. These units too are not being added to the long-term housing supply.
Where I live it's about 5x difference
in annual income.
After ww2, there was a housing shortage in most European countries because people were moving from rural areas to cities. I don't think the shortages were solved until governments stepped in and built price-controlled rental apartments on a massive scale.
The idea is that what did the trick was not the "price-controlled rental apartments" but the "built (...) on a massive scale"
But it does name a mechanism that seems reasonable for driving rents down as new high-end housing gets built; although the mechanism sounds suspiciously like "trickle down".
Edit: I am in no way associated with the authors or site or any of; it came across my feed and I found it interesting.
There may be wrinkles or complexities. Obviously, in an infill situation, if you tear down existing housing and then build new housing, it's less clear that overall affordability will increase. There may be a backlog of demand that means that as new stock comes onto the market, the affordability increases less than you would imagine.
But is it basically true? Sure. Even if you build new units only for millionaires, that takes the millionaires out of competition for other high end markets, which then makes people who were previously marginal for those units get them, and takes them out of competition for the next tier down, etc.
If land value (as opposed to property value) were taxed at a higher level (preferably at 100%), the following behaviors would stop making sense and the market would take care of them:
* Buying and holding a property as a gold-like investment. Like electronics, most buildings would likely depreciate in value and if they are poor quality, holding on to them and renting them out would make losses, not profits.
* Building apartments for people to treat like gold bars and leave empty. Instead, investors would build apartments for people like me and you who would live on them and there would be more real estate for them to do this with.
* If the above doesn't end up fixing the problem all by itself, the tax revenue provides ample money to build affordable housing and owners falling into arrears on their land taxes would provide the space to build it.
California's Prop 13 is essentially the main villain of this story since it did the exact opposite of the above.
http://marketurbanism.com/2016/06/27/do-the-rich-cause-high-...
NYC has 5,600 ultra high net worth individuals. If each of these people has 10 flats in NYC (rather than the 3 you hypothesized), that's only 56,000 flats taken off the market. NYC has 3.4 million housing units. http://www.nycrgb.org/downloads/research/pdf_reports/16HSR.p...
The rich are just a tiny drop in a very large bucket.
The more inequality we have, the fewer rich people there are and the smaller this problem becomes.
B) Billionaire properties regularly take up 10x as much room as regular apartments. Let's be generous and say that they each have only two 10x sized properties, that means 112,000 new properties on the market which actually would make a serious dent in prices and rents.
C) I can't quite figure out from your link if they counted people who do not list NYC as their primary residence but still have a property there (say, via a Cayman Islands investment vehicle). I suspect not.
According to Le Wik, there are only 536 billionaires in the US. So if all of them have 10 10x sized properties, that's equivalent to taking 53,600 flats off the entire US housing market.
You can roughly triple that number if you assume every billionaire in Europe and Asia buys 10 10x sized flats in the US.
https://en.wikipedia.org/wiki/List_of_countries_by_the_numbe...
Why don't you crunch your own numbers and see if you can make them come out different?
Also holdings.
They were also just the people who declared their residency as being in NY. Not overseas investors who want a foothold. I don't know about NYC but in London, high end developments are usually ~80% bought by these types of investors. They take up a ridiculous amount of prime real estate with their almost-always-empty pied-de-terre's.
This is not even starting to count prices being driven up by high net worth investors buying rental properties in those same cities.
It also seems utterly unreasonable that only 3% of the world's UHNWI own housing in NY.
> The more inequality we have, the fewer rich people there are and the smaller this problem becomes.
I think this simplifies to the point of uselessness. On the basic level, yes - fewer rich people, fewer rich people living in housing. But, definitely not fewer rich people owning housing, and definitely definitely not fewer high-rent places, where we can define "high rent" as taking up most of your income. Then there's considerations for housing growth - as inequality and population rise, housing demand increases, but ability to pay for that housing does not, so why would you expect any additional to be built, given the increased cost of the land due to the increased demand for that land?
To be clear: I don't know if your prediction would pan out, because I can imagine how easily the situation gets crazy complicated.
If the rich concentrate, they can only harm a small number of locations. After all, there aren't very many of them.
Then there's considerations for housing growth - as inequality and population rise, housing demand increases, but ability to pay for that housing does not, so why would you expect any additional to be built, given the increased cost of the land due to the increased demand for that land?
Well, I'd expect additional housing to be built because developers are clamoring to do exactly that. They are just not legally permitted to do so in a few of the highly desirable locations (e.g. NYC, SF, Paris).
(167,700) / (3.4 million) is 1/20, not 20%?
So the reasonable follow up is then: If it's 5% of the housing, that's the housing liquidity supposed to be at? Seems like the best comparison point.
If they built a 50,000 unit skyscraper in Mountain View and priced the apartments at $1,000/month, how many people would move from other parts of the country to be in Mountain View? How many people have relocated out of the Bay Area due to housing costs that would move back if things became more affordable?
We should absolutely build more housing, especially around transit, but overselling the price impact isn't going to win many friends.
http://edition.cnn.com/2016/02/10/architecture/tokyo-mile-hi...
Fortunately for us, the relevant professionals are keenly aware of this real and important concern! It's been studied quite explicitly in San Francisco. One of the results was that in a fairly representative new residential tower, in excess of 80% of households moving in were doing so from San Francisco.
Induced demand is a real and important phenomenon we should all consider carefully in our urban planning. Yet, we should also consider that demand for housing in attractive regions like San Francisco is perhaps somewhere short of infinite.
Sure, if there comes a bunch of new stock into the market in SF, a lot of what happens may be that people who are currently content to live in Daly City may instead get housing in SF proper, and it will be Daly City that has substantial stock available at rates sub, say $2000/month or $1500/month.
So what? I mean, if Joe lives in San Jose now because that's the closest he can get to his job in SF and now he gets to move to Daly City, but isn't quite in SF itself, isn't this a net benefit? If SF doesn't really become affordable to people in the lowest two quintiles of income, but does become affordable to people in the middle quintile of income rather than staying in the upper two (or upper one, or upper fraction of one), maybe that's not ideal, but it's an improvement in the status quo, isn't it?
I wonder how unit size affects this. E.g. if you knock down a block housing 20 poor people to build a mansion for one rich person to occupy.
Indeed, if you knock down 20 units of housing to build 25 units of much more expensive housing, you probably don't increase affordability, at least in the short run. But those are fairly divorced from the reality of housing development.
Are you talking about building a new multilane highway where one didn't exist, or expanding the number of lanes on a highway that already exists? I thought you were referring to the latter, since that's the case that is closest to a increased housing in an established city==building lanes analogy, in as much as it is close at all as I previously described.
But I don't see much indication of that actually happening in high cost of living cities like SF, NYC, DC. If anything, new "high end" apartment buildings have very small units compared to older stock.
It's also not always true over a small area of an entire housing market. If you bulldozed the poor areas of DC and rebuilt with dense luxury properties, the average rent in the city would go up, but the prices in the suburbs would fall.
My experiences match this article very well. I live in the cheapest building in my neighborhood, probably 300-400 dollars below "market." But my unit was build in the 1960's as a luxury unit. It's huge, has large walk in closets, and has a "butler door." People who lived there originally were expected to have help. And now it is the shittiest building in the area.
And my coworker is talking the other route. He lives in what was literally a crackhouse 10 years ago. Gentrification is much increased when you refused to build new high income property. Those higher income people just bid up low income property.
I'd be shocked if the author was wrong.
If there was a nice new apartment available, you might rent it. But if there wasn't, you would have to settle for an older apartment, which puts you into direct competition with poorer people over housing stock.
This is what is happening in San Francisco now -- high-income people are bidding up the prices of older apartments, many of which are pretty crappy, because the supply of new apartments is pretty small. This is how the city ended up with 70-year-old crappy apartments renting for more than $3000 per month.
If San Francisco built lots of new luxury apartments, the rich newcomers would live in them, and leave the older apartments available for the people who can't afford to pay more.
For instance, this article has someone stating they believe the Bay Area isn't permitting nearly enough housing:
http://www.sfchronicle.com/business/networth/article/Bay-Are...
So the wealthy move into the new housing and are replaced in the old housing by the slightly less wealthy rather than anyone reasonably described as poorer.
This doesn't make sense. They are poorer than the wealthy.
There is still no justification why increasing supply leads to increased costs.
The word used was "poorer". The one with lower income is "poorer"
Virtually anybody who lives in the United States cannot be described as "poorer" by your definition, as we're almost all richer than 95% of the world's population.
It's a great word choice - you're just arguing your personal preferences and vauge implications right now. People are poorer than other people, other than Bill Gates. Since we're talking about housing prices in inflated markets right now, there's a huge difference between an engineer making 160k a year vs a director making 400k a year. The engineer is "poorer".
> it's a poor word choice.
Don't you mean it's a less wealthy word choice, since it's in the top decile of words that are appropriate to use in that situation?
I don't think the author's car comparison is apt here. Cars are not stationary assets. I can have a Denali in suburbia and and Denali in midtown and it's still a Denali. However, a flat above retail in suburbia is probably not at all the same as a flat above retail in midtown.
I agree that the over arching law of supply and demand is still at play. But if I go look anywhere in my city center at prime locations with nice housing built 30 years ago, I don't see that being anywhere near affordable for lower or even middle income families.
In places that have high demand and constrained supply, the impact will not be particularly meaningful.
There's also the problem where housing policy in the US tends to create upward pressure on prices rather than doing something sensible (like trying to be hands off or lower prices).
OTOH, there is plenty of idle housing inventory (~8%) which could house all of the homeless and the very poor right now.
1. Cool neighborhoods 2. Convenient neighborhoods 3. Cheap neighborhoods
You can find stupid cheap housing in Queens/Brooklyn/Bronx/Jersey and still be able to take the subway to Manhattan. Why is NYC like this and not SF? Because as the city grows they re-zone neighborhoods (e.g. Downtown Brooklyn and LIC) and expand subway/bus-service further out.
I don't see where you're getting this from, if you're creating new housing units. When rich people move into housing units that previously didn't exist, who's getting displaced exactly? We're not talking about remodeling existing units, we're talking about new supply.
There are a few cultural reasons for this. The result is that new construction is inevitably high end, with some units set aside for low income, or public housing.
Middle income people aren't seen as deserving to live downtown.
I don't think we have to assume that. Might just be that rich people need poor people in close physical proximity (as nannies, cleaners, dog-walkers, gardeners etc) but don't have any corresponding need for middle-income people.
Where are you seeing this?
There are multiple overlapping institutions that enforce this.
If you build, you also have an effect on the area around it. People that do not already live in skyscrapers do not want to live next to skyscrapers.
Gentrification is a real effect.
Apart from that you are probably even reducing supply: High income housing usually means way too big apartments. It is also often actually an unused investment object and not used for housing.
Case in point: Manhattan has a lower inhabitants/km² than Eixample: https://en.wikipedia.org/wiki/Eixample