Why affordable housing is scarce in progressive cities
curbed.com
curbed.com
"Tenant protection" -- especially rent control -- is a nontrivial cause of the shortage of new construction. High rents are a signal to developers that there is money to be made constructing new housing. If it's not possible to make the money, they won't do the construction, which is what rent control causes.
You get a population of existing residents with rent controlled apartments, who then have no incentive to fix the housing shortage or eliminate rent control, but insufficient construction going on and consequently even higher prices for people who didn't get a rent controlled apartment in 1975.
(Restrictive zoning is another, independent cause of the same problem, and the two compound each other.)
We’ve built a system where humans are expected to somehow accrue interest at the whim of the capitalist overlord. The soul of rent control is pretty important, so maybe rent control needs to evolve?
I’m hard pressed to defend it completely because it seems like dancing around the fundamental problem of capitalism not being in alignment with the best interests of society.
It's just math. The land costs a million dollars, the construction costs $500K, therefore the net present value of the future rents (less property taxes, insurance, etc.) has to be $1.5M, or the construction does not occur. Rent control puts the marginal construction project below the break-even point.
> We’ve built a system where humans are expected to somehow accrue interest at the whim of the capitalist overlord. The soul of rent control is pretty important, so maybe rent control needs to evolve?
The soul of rent control is bad math. If you want lower rents, adopt policies that encourage housing construction until rents are suitably low. At which point, who needs rent control?
While it may sound socially just it is also one of most un-progressive (conservative) things you can imagine. It literally conserves the population of a given district.
Neither is fair, but both are unfair in different ways. Your preference for market distribution, as opposed to lottery distribution (which is what rent control essentially is) is largely an ideological one.
And only one of them makes it possible for both you and the person with more money than you to have an apartment.
You can't be progressive and conservative at the same time! You can barely be progressive if you hold conservative view on one of the most important issues. You can only be centrist that way.
And yet that is the phrase we use, because people do feel a sense of ownership about their living space even when legally they have no ownership. A lot of these policies come down to how much we want to back that feeling up with legal rights.
Can't speak for him, but if you believe a free market has the same housing results are as a centrally planned market, well, damn.
Well, who said conservative is bad?
It's about the interests of this or that group (e.g. given population vs people coming from outside). Arguments can be made for either, but if a given population is not protected, then those coming from outside wont be protected (from people coming from outside later on) either.
People build cities to be protected and prosper long time in them, not to give opportunities to third parties to come and displace them from the places they've built and helped grow.
> People build cities to be protected and prosper long time in them, not to give opportunities to third parties to come and displace them from the places they've built and helped grow.
Well you're basically repeating Donald Trump's words when he explains why he wants to build a wall, and last time I have checked nobody calls him progressive.
Just do s/cities/countries/ and you're all set.
Because the margins in a different city are 19%, or some entirely different class of investment now has better risk-adjusted returns so the funding falls through.
Can they easily enough move between cities that they could leave a 17% city to chase 19% margins?
The problem is that there are fixed costs associated with building a unit of housing - city approval fees, construction costs, land - which are more or less independent of what kind of housing you're building and how 'luxury' it is. So there is a floor on the cost of housing in any given location. Then you have to factor in lenders and their requirements - how much interest they'll charge and what % of the project cost they'll lend you. Since lenders almost never will lend 100% of the project cost you need equity investors too, and they generally have expected project returns. Of course you can find non-profit entities at all these layers who will help you refuce costs it's hard to out together a project in a major city that is anything less than expensive these days.
you could have different margins and wildly different risk factors, and investment groups will go with the lower risk choice
The only time some type of rent control applies for new buildings is when they are specifically built as "affordable housing". This usually happens when a developer is required to build affordable housing to pay back for some favor he/she received from the city.
New buildings are what become older buildings. If that causes them to become less valuable, they become less valuable immediately because the future loss gets priced in, making them less valuable to construct.
And older buildings also become newer buildings. In most places with a housing shortage there is already a structure on any given piece of appropriately zoned land. To get more housing, you have to knock something down and replace it with something bigger, or subdivide an existing building with fewer, larger apartments into one with more, smaller ones etc. That can't happen if the building is full of existing rent controlled tenants who can't be removed (and have strong incentives to never leave).
Furthermore, in California the Ellis act allows landlords to mass evict rent controlled tenants in order to demolish a building for new construction, so your second point is not valid either.
That would still apparently prevent the building from being subdivided into smaller units or otherwise reconfigured/improved for higher density.
And your point seems to be not that rent control isn't a problem but rather that some places are already phasing it out -- which is good, but presents no aid to the people who continue to propose expanding it or retaining it in the areas it isn't already on its way out.
How do you replace old buildings with new buildings in this process?
Sure, tenant protection is, but “especially rent control” is wrong: that's just a tenant protection that conservatives/libertarians tend to think is vulnerable to argument. Minimum habitability standards do more to create a lack of affordable housing, but winkingt the argument that that isn't a necessary cost is perceived to be harder, even by the folks who'd really prefer the complete absence of regulation.
It depends how you're measuring. If you mean by "amount of net cost / lost income to property owners" then sure, it's not especially anything because it's exactly anything to the degree that it does that.
But if you measure in terms of value for money, rent control sucks. Requiring landlords to have functioning clean water costs them money, but it also makes them money -- tenants are willing to pay more for an apartment that isn't falling apart. Some things may cost more than they benefit the landlord in making the apartment more valuable, but at least they may come closer to break-even, and the cost in incentive is only the difference between the two. Rent control is pure dead weight loss.
Of course, this is also the argument for why most of the other regulations aren't needed, because anything above break-even would get done anyway -- you don't need a law requiring someone to improve their building in a way that results in a net profit. The apartments that become unmaintained slums are the rent controlled ones, because the rent is sufficiently below market that the tenants would suffer the flaws rather than moving out.
Also, if I owned some property, I am not sure I would want to invest in building new one and have to decrease rent rather than enjoy the fact that the rent is high.
All in all, I suspect that rent control might be quite insignificant factor in housing scarcity. More important is probably lack of actual housing construction financed by government.
https://www.econlib.org/library/Enc/RentControl.html
> Economists are virtually unanimous in concluding that rent controls are destructive. In a 1990 poll of 464 economists published in the May 1992 issue of the American Economic Review, 93 percent of U.S. respondents agreed, either completely or with provisos, that “a ceiling on rents reduces the quantity and quality of housing available.”
Your gut instinct, like most on this issue, is incorrect. When removing rent control, it is going to take time for things to finally settle to the real prices as well as actual development to get started, but its certainly good for the long run to do away with it.
Rent control is not need-based. People across the wealth spectrum enjoy the personal benefits of rent control (in SF there is no shortage of housholds bringing home several hundred thousand dollars a year who pay way below market rents on their rent-controlled apartments).
The problem with getting rid of it is that the benefits of more housing supply relative to demand would probably take decades to come to fruition. But the pain of suddenly losing rent control (for the percentage of people who actually do need it) is felt immediately. Who cares if your city will have lots of cheap housing in a decade if you can't pay rent next month?
"People across the wealth spectrum" do NOT enjoy rent control. It gets gamed and abused. The bulk of SF is rent controlled, resulting in more and more people cramming into places that don't get maintained and they're not able to move out of when situations like their job changes. This is a disaster, nobody can move to be closer to work. Only a tiny amount of market rate housing is available for new residents which is disproportionately high because the rest of the market is severely under-priced.
You will never stop everyone from getting priced out. That is just the nature of things, but you can save a lot more people that pain than we do now due to foolish policies like rent control and awful zoning.
Property values are not the same as rents or general housing costs. As soon as you make construction more profitable, it makes the land worth more -- property values go up. But then the construction happens and housing costs, i.e. price per unit, go down as a result of more units.
Before you had two housing units on $500K in land going for $1000/month. After the land is worth $2M but it has 20 housing units going for $750 -- and the landlord is making more revenue, because 20x$750 is more than 2x$1000, enough to offset the higher property cost.
> Also, if I owned some property, I am not sure I would want to invest in building new one and have to decrease rent rather than enjoy the fact that the rent is high.
Rent doesn't materially decrease as a result of one person building one building, it's a result of many new buildings across the city. So your choice isn't between the existing two units at $1000 and twenty new ones at $750 (though even that itself is still profitable), because if you do nothing the existing units will still fall to $750 each as a result of what other people do once they're allowed to do it.
> More important is probably lack of actual housing construction financed by government.
Actual construction subsidies might help when you have a massive shortage and you want it correct it quickly, but in general it isn't necessary -- when rents are high and construction is permitted, it happens.
Cant speak for prague, but if you remove rent-controls, rent is going to go up, simlpy because suppressed rent values will go up.
If volume remained the same, you would expect to see a decrease in some properties and a high increase in the de-regulated ones.
Bear in mind that there is also elasticity: if more properties go on the market and prices go down, you could see a higher volume of people coming in. That's a much better metric of success than price.
You may not be in that population but you have to solve for them as well. Removing rent control is only going to price them out.
There is a suitable way to phase this out. First, never create another new rent controlled apartment -- they only exist as preexisting, can't be transferred to anyone but a spouse, and can't be transferred more than once. Second, allow the landlord the option to provide a comparable replacement apartment in a different building at the same rent, so that buildings with existing rent controlled apartments can be replaced with higher density ones.
Then in general adopt long-term policies to keep market-rate housing prices under control, so that they don't rise faster than inflation and future generations have no need for a ridiculous price control because the market price becomes and remains affordable.
A recipient of rent control has had enormous subsidies and economic appreciation, and even then it is not enough, you need to give them more.
There are multiple ways to bust this open. The first one is allowing rent controllees to sublet. If you want to maintain their status, at least let them profit by housing more people, making themselves richer and lowering rents for the whole market.
(This isn't just renting; there are similar issues with home owners and property tax increases.)
The greater question is if it's okay for someone to undergo the trauma of being moved because they can no longer afford the geographic location that they didn't choose to be born and raised into.
Most college students graduate and move somewhere else.
One way of preventing trauma would be to make sure people don't have to move. Another way would be to make moving something to look forward to, rather than a trauma.
(And if you don't like that scenario either, maybe you can come up with a better one?)
This assumes your own lived experience is prescriptively good for everyone else. There's more than one way to the same goal.
Let's put the situation another way. At a certain socioeconomic strata, which describes most of HN's readership, networking is loosely coupled to one's geographic nexus. Walk the gradient beyond that strata with decreasing incomes, and networking increasingly and greatly emphasizes a locus.
Blithely dismissing these different networking modalities devastates the value built up by the networks but not registered in the official econometrics. The neighbors that trade shade tree mechanic automotive fixes for a quarter-fridge-large pile of tamales. The elderly couple who get groceries delivered in trade for watching out for suspicious activity while a young family is away at pre-K and work. The general contracting single dad who builds a porch in exchange for math and SAT tutoring for his daughter. The BBQ block parties done on the cheap instead of at a restaurant or a rented meeting space, where more of these trades are discovered and initiated, often not as quid pro quo trades but just neighbor helping neighbor when an opportunity to help arises.
These arrangements take decades to establish into thriving networks because human trust is either hugely expensive to enforce, or hugely time-consuming to ascertain. These communities are capital starved (especially so if you want to enforce trust via attorneys), so they trade time and evolved cooperative relationships for capital. No amount of "gig economy" unicorn'ism will pencil out to less capital outlay by these residents than a richly diverse network with deeply-established trust protocols.
Break up these networks and you impoverish those forced to move away in a very real economic sense, even though it isn't measured. It just comes out in stories of misery that are then blamed upon poor people too lazy to "look forward to" their change.
That's asking a programmer, after a death march shipping at all cost ditching any notion of version control/QA/TDD/etc., 99% of the budget spent, and a bug is found in the field, "What can be done to help us never make this kind of mistake again?"
By the time people are forced out of long-time homes and moved away, the majority of damage is already done in most cases. If they are relatively young and resilient, then they might recover. But you're never going to erase the precarity they experience in the meantime, and at the ragged edges, that precarity is all it takes for many to plunge them over the abyss into homeless desperation.
Going further up the methodology stack so to speak, there are any number of remedies available and discussed to death. Acta non verba though, so I'm doing what I can within my own personal scope.
Your ancestors could handle a trip across the country (or an ocean) where half the people died along the way, but people can't handle moving out of some shitty midwestern town entirely supported by the coal plant that's scheduled to shut down to pursue a job because the local Church and T-ball league they're involved with is there?
I'm increasingly not sure the boom in population has been worth it for humanity if these are the kinds of people we're dragging along.
Defense spending, arms races, nuclear stockpiles, tobacco companies paying out settlements from past harm by inflicting future harm, races to the bottom, etc.
All of these are, when you take a step back, insane.
The article/book makes a huge leap in assuming progressive cities are somehow worse at housing. The reality is people actually want to live there.
The most densely populated cities in the US, and in general all cities, lean left politically. Finding new housing is important but we're really losing perspective on how successful these policies have been historically.
Its a silly as writing an article about NASCAR crashes. They must be terrible drivers.
1995 would have given an intelligent species enough time to build a money-losing, poor-people housing skyscraper or two. Yes building vertically in crowded places is a challenge and expensive but those are just excuses.
Since 1995 they could have figured out a way to get the job done, so now we have to examine what the problems are.
Let alone the political optics of putting a lot of poor people into a very limited space.
I think people have been looking into these issues for far longer than 1995.
The best planning in cities today is building transit oriented development at a scale to match your city's housing need. Do it in the right places with a reasonable design and it works great
Welcome to planet Earth. We humans are intelligent as individuals, but not as a species. At species level, we're just gradient descenders with delusions of grandeur.
Since 1995 they could have figured out a way to get the job done
If only someone tried. I mean, for how long have people agreed on what "the job" is? Too long, if at all?
You can find stories similar to such all over the place. San Francisco recently had a 117 unit fall apart after all the conditions and accommodations of all "aggrieved" parties got their share and drove the costs beyond profitability.
of course you get the typical political bs from the politicians and activist who always claim "if developers are willing to work with us they can get approved quickly" but that is the rub, the approval usually requires far too much outlay on the builder which in combination of set asides for "affordable" units then forces the rest of the units up a tier or two eliminating the market the developer was aiming for.
this isn't about affordable anything, its about political power and money. many of these "activist" groups which claim to represent the people and use that as a basis to go to court to block builders are in fact merely extensions of various political election campaigns.
It's for the same reason right to farm laws exist, no community wants to give up its right of self direction to outsiders. Even if in many ways it's not to benifit of its neighbors.
Eventually it seems the market will level out. If people can't afford to live there then industries will leave. At that point people living there will have to decide if that's okay or they should change policy to be more accompanying.
While creative destruction is a necessary part of free market theory it is beyond scary when it comes to peoples communities. That fear and the reality that some of the losers of the market correction are people that one may know personally are why that true free market is never seen in housing.
1) Because the incentives for enacting the bad policies are widespread, so the bad policies are widespread, so the problem is widespread.
2) It isn't. See cities like Houston and Tokyo which have lower housing costs than San Francisco or NYC.
Are we sure this is not simply the product of a global shift towards populations migrating to urban centers? And maybe we might want to look at what is causing this rapid migration? For example economic growth has almost always gone hand in hand with rapid urban migration.
"We know of no coun- tries that either achieved high incomes or rapid growth without substantial urbanization, often quite rapid." [3]
So it appears that your solution to reducing housing prices, caused by economic growth, is to increase construction, which causes economic growth, which causes urbanization, which then leads us back to rising housing prices.
What am I missing here?
[1] http://japanpropertycentral.com/2018/02/rent-in-tokyo-reache...
[2] http://cokinoslaw.com/flood-hurricane-harveys-180-billion-im...
[3] https://siteresources.worldbank.org/EXTPREMNET/Resources/489...
Those prices are still substantially lower than they are in NYC or San Francisco. Notice also that despite the volatility the current price is ~3% higher than it was when record keeping began a decade ago. This is significantly below the rate of inflation. And the bottom of that graph isn't at zero -- it's also exaggerating the level of volatility.
> Houston's economy is still recovering from a natural disaster
That would be relevant if they were problematically high prior to the hurricane.
But would you prefer San Antonio? Phoenix? Jacksonville?
> What am I missing here?
Saturation. If the NYC metro area (8683 sq mi) had the population density of Mumbai (73,837/sq mi), it would have population 641 million. The US population is 325 million. Therefore that population density is impossible in the NYC metro area (without a massive, implausible degree of international immigration exceeding what's permitted under existing law). Moreover, it can absorb even fewer additional people at the same time as the same occurs in San Francisco, Chicago, Dallas, Boston, Los Angeles, etc.
There exists a point where there is enough housing for everyone who wants to live in that city, at which point building more does not attract new residents, it only lowers prices for existing residents (as more landlords compete to not be the one with an empty unit).
I think this article points to a much more important issue. And that is existing real estate owners acting to keep the value of their holdings as high as possible, i.e., to keep prices as high as possible. A lot of the wealth in America is locked up in real estate and this is especially the case in large cities. The landowner lobby (although they do not call themselves that) is quite powerful.
Actually the fact that rent control comes up so often as an issue is just another piece of evidence that the landowner lobby is so powerful that they are able to completely control the conversation. When faced with what is basically an accusation that they are gouging the population they turn it around and declare that the few weak laws that slightly reduce their ability to gouge are really the problem.
And while rent control is a point of contention, the real way the landowner lobby keeps prices high is by restricting new construction. This is a much more important factor than rent control.
A very important issue here is that homeowners and landlords are much more active in most political processes. If one person decides that he will dedicate his life on ownership of land and will make that the main source of his income, he will easily see that it is important to devote time and energy in a lot of the rather tedious local political processes. If a second person decides to dedicate his life to some type of profession or art instead, then local politics tend to become a bore and a time waster. But then the second person is not at the table when important decisions are made and his interests are negatively impacted.
So the general answer is to be more active in politics. But how to be more active in politics?
Here is an issue that the article did not really touch upon. The most important requirement for more construction and higher density living is the availability of infrastructure. Nobody will approve high density buildings without the infrastructure, nobody wants to create Mumbai style tenement cities.
And the most important and most expensive part of infrastructure is transportation. Look at any successful large city in the world -- they are usually defined by their subway system. After all the subway is the only sane way to move large number of people around in a very dense environment.
In fact the main battle against development of LA has been fought for the last 20-30 years over the LA subway. There have been some very successful attempts to slow down and block the development of the subway launched mostly by neighborhood groups. As a result the subway came in much later than originally planned and the most important and most desired line (the purple line) is still only a tiny fraction of what it should be.
So if you want to help create more housing it is always best to vote in favor of new transportation projects, especially high density high efficiency projects, like the subway.
Because progressives don't like the poor, they just hate the rich.
We can argue about how to do ‘inclusive housing’ but the idea that it immediately precludes high home prices doesn’t hold up to basic inspection.
This is a classic political maneuver. Build two units out of a thousand with regulated prices, then declare victory because you can point to one person paying an affordable price, even though it's being sold below market at restricted volumes and isn't available to everyone.
If the same units were available at that price but in unrestricted quantity to every member of the public, the high prices of competing housing would fall.
No. Houston is centrist, which for a city is right-leaning.
Interestingly, it is policies like prop 13 in California that restrict the revenue needed to invest in the infrastructure to support higher population densities.
[0]: https://en.m.wikipedia.org/wiki/List_of_United_States_cities...
Gotta support our struggling petroleum industry!
https://marginalrevolution.com/marginalrevolution/2016/08/th...
https://marginalrevolution.com/marginalrevolution/2016/08/la...
> Here is a startling fact: in 2014 there were 142,417 housing starts in the city of Tokyo (population 13.3m, no empty land), more than the 83,657 housing permits issued in the state of California (population 38.7m), or the 137,010 houses started in the entire country of England (population 54.3m).
> Tokyo’s steady construction is linked to a still more startling fact. In contrast to the enormous house price booms that have distorted western cities — setting young against old, redistributing wealth to the already wealthy, and denying others the chance to move to where the good jobs are — the cost of property in Japan’s capital has hardly budged.
> This is not the result of a falling population. Japan has experienced the same “return to the city” wave as other nations.