If You Can’t Afford the Rent, It’s My Problem, Too
bloomberg.com
bloomberg.com
Rent controls could be another alleviating factor. As could indirect competition from subsidised/social housing.
I'm not really comfortable with how the article attempts to frame municipal social improvements as something which must implicitly also drive wealth inequality, despite the other potential remedies to this.
I really don't see how making more apartments expensive to live in helps anyone but landlords.
1. It incentivizes owners to convert rental stock to housing stock.
2. It disincentivizes developers from building new rental stock.
3. It concentrates demand and removes supply driving up the price of non-rent controlled apartments.*
* Every rent controlled place that is lived in my a person who can't afford market rent displaces an individual who can afford market rent who then competes for the remaining rental stock driving up the prices of the non-rent controlled apartments.
This is a good thing for creating new housing. New apartments will not be under rent control and can command higher rent, so developers are incentivized to build new apartments.
Rent control, in effect, converts tenants into pseudo-landowners with less fungible rights.
If locations are valuable, and by extension the rents, that is good. But to whom does the rent belong?
If rents are unaffordable, it is because wages are too low and the rent is not shared... which comes back to bargaining power and the overall health of the economy.
Taxing production, for instance, harms economic health.
But allowing speculators to hold the land for ransom creates stagnation, sprawl, and harms the bargaining power of labor... by worsening everyone's best available options for living and working.
Property owners paid all the development costs, directly and indirectly,as well as all the maintenance and bureaucratic work.
If you rent an appartment, you're not paying for a percentage of the lot. You're paying for the fraction of a whole system (structural, electrical, sanitary, etc) which exists only because those who invested their hard-earned cash puting everything together.
More importantly, that little lot is only worth something because other investors spent their hard-earned cash investing in that area, either in urban development projects or in commercial and/or industrial activities.
So quite obviously that sort of exploitation angle makes no sense as it is based on a very weak strawman (i.e., there is only value in occupying a specific region in space) that had no bearing in reality.
Let's put it this way: what would happen to San Francisco's housing costs if magically the entire tech industry raised their figuratice anchor and moved elsewhere?
The issue at hand will always be that there isn't enough housing for newcomers, if we mandated housing construction to grow in a parallel way with office construction and job growth we wouldn't have nearly the sorts of problems we have today.
My belief for that issue is that zoning powers need to be removed from towns and done at a state level as travel technology has made it too easy for towns to push off their negative externalities to other towns. Towns have no incentive to add new housing stock as that leads to more people needing to be serviced and new voters who might push to change the way of life that the current citizens enjoy. Businesses on the other hand, don't get to vote and usually pay much more in taxes than they cost in services. Every city appears to have towns that have realized this an effectively become polluters by letting new business come in but making it other towns problems to pay for. If the state controls zoning, and likely the burden of providing services, then that kind of fucking over of your neighbor won't occur at the level of cities other than ones on interstate borders like NYC and the two Kansas Cities.
Just as how parking requirements make it much easier to find parking in high density and otherwise crowded areas, housing requirements will do the same for housing. A lot of folks on the public housing side of the debate want to decomodify housing through public ownership, but it would be far more effective if we just mandated housing be a part of every commercial development project nation wide.
This would be good for so many reasons ranging from better land use to much more abundant housing.
Additionally, zoning codes should be a state or federal system, as this would make it much easier to build economies of scale around housing development. But the placement of those zones/codes should still remain in the hands of local muncipalities, as no municipality should be able to protect their right to certain types of euclidian zoning.
Require that new offices build an equal square footage of housing on top of themselves, and you've immediately build enough housing for at least the initial stage of population growth that comes with that new office.
Housing people on the same ground area than the offices would probably prove to be a huge technical challenge since it would effectively need probably 8 to 10 times the square footage, not to mention I'm not quite sure people really all want to have their colleagues as neighbours.
https://en.wikipedia.org/wiki/Home_mortgage_interest_deducti...
"Economists have demonstrated that high-cost high-income areas receive most of the tax benefit. For example, San Francisco, California receives $26,385 per home while El Paso, Texas receives $2,153 per home, a 1,225% difference.[28] The five highest income metros receive 87% of tax inflows, with over half going into California alone.[29]"
Henry George would say so: https://en.wikipedia.org/wiki/Georgism
You could defray those negative effects by building lots of public housing and/or heavily subsidizing new construction.
To the extent that you actually do that, you will naturally lower the market rent to the level that you wanted, making rent control pointless (except that it removes the signal that would warn you when you need to build more housing).
You kind of answered your first clause with your second. Demand can rise very rapidly, but supply can only grow slowly. If you want to keep housing prices stabile for people so they're not being thrown out of their homes or displaced, public housing doesn't address that because you don't get the signal that it's a problem until after the displacement has happened.
It kind of is because housing isn't the only component of housing value. Access to transit, safety, and public amenities like parks and schools are a huge component of what makes housing valuable. All of those things are public goods built by the government. Expecting private builders to build is just allowing public expenditure to line the pockets of a landowner who did nothing to add value to it.
Do you think that people would choose to ignore housing that isn't close to certain public services, if it existed? No, they would choose to live there because it'd still be closer to their workplace than neighboring cities and what not.
Don't forget that if the private sector isn't spending money to create value for the rest of us where we need it, then the alternative is spending people's money through government efforts. And as with any government effort, it is still less efficient because of its much bigger bureaucratic overhead.
Choosing a subclass of people to scapegoat doesn't solve a structural problem.
It's also useful to think about who is doing things to make things better or worse. Moving in makes things worse, moving away makes things better. Building more housing helps, removing housing makes things worse.
So far that seems to make sense, but here's the counterintuitive part: in any given year, choosing not to move away is as bad as moving in. You're taking up space someone else could use.
(But normally we don't beat ourselves up too much for taking up space.)
But no place does that. They actively encourage new growth, just not new housing, which has the effect of systematically displacing lower income people, and eventually the middle class too. Long term it ends up hurting the original people it was supposed to benefit - ie. all the Californians crying about how their kids can’t stay in state when it’s the discriminatory policies they supported that created that situation.
It's not just people moving into an area, it's moving within an area.
Rent control creates an market where existing renters are inhibited from moving even into the building next to their current residence. It prevents free movement in/out and within the market.
This also makes it so landlords want to evict/churn renters as much as possible, so they are incentivized to become slum lords. Landords invest as little as possible into the property because as soon as a renter moves in, that renter is never going to leave and the landlord sees diminishing returns over time.
It's not super unreasonable for a city to try to protect its current residents but when an entire country of cities are all protecting their own residents that country is much worse off.
Just to be clear, "move to an area" includes "move out of their parents' house and live on their own".
> because it serves existing constituents above new ones
Because the "new ones" are the kids of the "existing ones", in many cases, if not most. As in, they are also existing constituents.
Because walling off cities has awful consequences for national GDP
https://www.nytimes.com/2017/09/06/opinion/housing-regulatio...
But it's also a bit hypocritical to encourage and incentivize building tons of new office space, and then be surprised when the people who are to fill that office space would like to live within a reasonable commute distance of that office, and then deny them that opportunity, because "it will change the character of the neighborhood", or, "it will reduce my home value".
Whilst unlimited population growth is impossible, stagnant communities and regions tend to slide into decline. Those regions most amenable to and rewarding of new activity tend to grow.
California occupied this position, globally, for much of the period from ~1930 - 2000, and particularly from ~1950-1975 or so. It does so far less now, with housing costs being a major factor.
Also consider existing renters who need to move, or people who become renting-age.
I will need to move out of the city if I lose my place. I'm paying $1000 below market value.
They're going to move there anyway. Making it more difficult and expensive won't stop them, as the example of SF shows. Accomodating them, then, is about mitigating the negative effects of immigration on residents and welcoming your new neighbors.
With rent control, whoever lives there pays lower rent. Without rent control, whoever lives there pays higher rent.
There is no net change in the number of people living there either way.
So why (other to benefit landlords) would we want whoever lives in a given apartment to pay higher rent?
"it will tend to weaken coalitions in favor of reducing housing prices for new home buyers/renters and will tend throw currently homeless people under the bus"
Landlords are not going to voluntarily lower rent prices if they can get away with charging more (else rent control would not even be necessary), and homeless people are not going to be able to afford the higher prices that non-rent controlled apartments cost.
Precisely the opposite is true. Uncontroversially the immediate effect of abolishing rent control will be to create more homeless.
Rent control does not apply to new construction in many cities such as SF, so it does not affect the incentive to build. The mechanism by which abolishing rent control might lower prices somewhat for wealthier people moving into the city is by clearing out the less fortunate who have built lives here, adding their units to the market. Those that have nowhere else to go will become homeless.
If you believe that then it might be worth pondering why New York's highest rate of homebuilding occurred when it had its strictest rent controls though.
In reality all rent control really does is redistribute some the spoils of rising land values from certain owners to certain renters.
This makes some property owners extremely angry but as far as renters and potential renters are concerned it's potentially good or potentially neutral.
If you really want to incentivize home building you need to disincentivize land hoarding. That means repealing prop 13 or implementing LVT.
Have you ever considered how much more housing might have been built if it weren’t for rent control?
No, rent control also redistributes the burden of rising rental costs from people who have rent control to people who don't, and tends to make that burden larger than it would be otherwise.
> If you really want to incentivize home building you need to disincentivize land hoarding. That means repealing prop 13 or implementing LVT.
On this, we agree. And we can't just simply throw rent control in the trash overnight and expect everything to work out. It needs to happen in concert with other initiatives that increase the housing stock, and be phased out over time, with targeted help to more vulnerable people.
But I don't expect any of this to happen, at least not until things get to people-are-rioting-in-the-streets levels.
I don't see the problem. "Wanna move to the area" is a choice. "I am forced out of my house because of higher rent" is not.
1. Local political culture limits natural housing supply growth.
2. Increasing percentages of people can't afford rent due to housing supply not meeting demand.
3. Rent control is enacted for political wins.
4. Property values fall due to decreased utility in ownership.
5. New housing creation falls due to new lack of incentive.
6. End-stage dysfunction; negative feedback loop established.
6A. Lack of inflation-tracking minimum wage exacerbates.
The analysis of rent control is among the best-understood issues in all of economics, and -- among economists, anyway -- one of the least controversial. In 1992 a poll of the American Economic Association found 93 percent of its members agreeing that ''a ceiling on rents reduces the quality and quantity of housing.'' Almost every freshman-level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand. Sky-high rents on uncontrolled apartments, because desperate renters have nowhere to go -- and the absence of new apartment construction, despite those high rents, because landlords fear that controls will be extended? Predictable.
...
None of this says that ending rent control is an easy decision. Still, surely it is worth knowing that the pathologies of San Francisco's housing market are right out of the textbook, that they are exactly what supply-and-demand analysis predicts.
But people literally don't want to know. A few months ago, when a San Francisco official proposed a study of the city's housing crisis, there was a firestorm of opposition from tenant-advocacy groups. They argued that even to study the situation was a step on the road to ending rent control -- and they may well have been right, because studying the issue might lead to a recognition of the obvious.
https://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent...
These privileged "progressives" need to be put in their place politically.
So rent control tends to show up in areas where rents are growing significantly faster than inflation already, meaning the rent control is at best a band-aid over the existing problem. And then the problem gets worse and economists blame rent controls.
This leads to people being stuck forever wherever they managed to land on their first try. Got a new job offer across town that pays better? Ready to upgrade from your straight outta school studio apt? Too bad. Moving out of your established rent control would cost you so much you’d be moving for an effective loss. Just stay immobile and keep that unit off market for decades.
If the landlord suddenly demands double the rent and you don't have rent control, and everywhere else in town demands double the rent, you are homeless. If you have rent control, your landlord cannot double your rent, but it still goes up at a fixed % a year, and you aren't gonna go homeless.
Housing prices have rose faster than wages can keep up, either you offer some limits at how much you can gouge from a tenant or you accept the consequences of low income workers forced to live far from their low wage job (increased vehicle usage due to being far from convenient transit, more congestion on the roads, more pollution in the city), as there's just not enough jobs in these far flung areas.
The great irony is that all of these debates and issues and perilous environmental and economic situations could all be avoided if we simply built dense supply to match demand. This is the U.S., we do nothing better than create heaps of supply to exceed demand. Distal suburbs hastily constructed in wildfire lands aren't the answer; you have to build housing where you've built the jobs. That means building UP so people don't have to travel for hours and hours sideways to find something they can live in with their wages.
No. Just because a landlord is saddled with low rent units does not mean they can charge more for vacant units. They can only charge what the market will allow. They can't magically find renters willing to pay 50% above market just because they have some units being rented for 50% below market.
Untaxed land -> higher property values -> NIMBYs start getting agitated about proposed housing developments taking chunks out of their home equity by increasing supply
It's the classic problem of tyranny of the majority, which is best solved through hyper-locality (i.e. HOAs).
via - ignoring NIMBYs or at least reducing their influence, rezoning for density, deregulating to allow smaller/denser/cheaper constructions...
Make towns growth into cities. A lot of heartland available. A lot of people wants to own their house. Good Mortgages. Good construction credits. Industries can have tax benefits to be there.
They might be a reasonable very short-term emergency measure for a few, but long-term, this exacerbates the problem.
Minimal zoning, minimal taxes, minimal codes. Just boil it down to the raw essentials and give a legal guarantee that every building permit application will be processed in 6 weeks and furthermore legally guarantee that for new buildings all of these new rules are immutable or 10 to 20 years.
Rent control also has the positive effect that if renters put in effort to improve the economic value of their community and neighborhood, that they wouldn't be displaced in the process. I'd also point out that rent control doesn't always have to happen as a result of low supply, nor does rent control necessarily reduce housing construction should zoning be relaxed in the process (in the era with the highest levels of rent control in Manhattan, was also the era of the highest amount of construction).
If that is the case, wouldn't we all just choose Aspen (or La Jolla or Zurich, depending on tastes) ?
It's not obvious to me how recognizing an inherent right to live in any place would be operable ...
We as a society should incentivize people improving their neighborhoods, as right now we're doing the exact opposite in areas with large numbers of renters.
Landlordism and rent seeking is an inherently immoral thing that we allow to exist in our society, and we need land value taxes alongside reasonable rent controls (like the ones Oregon just passed) to stop these behaviors.
Before reading that Wikipedia page I never batted an eye at golf courses in city centers, dilapidated shacks with huge yards bordering Google's HQ, or empty lots worth millions sitting undeveloped in the middle of a housing shortage.
So there are other dynamics at play, some cultural like being expected to be physically present when your work could be done either at home or from a local desk-space or something to that effect. I'm sure there are other possible answers to this, but quite a straightforward one to me seems that paying your employees for their commuting time would probably be right in terms of incentivising employers to allow more remote work or even set up satellite locations (possibly as a part of a desk sharing arrangement) in areas typically considered commuter belts.
It gets to the point where some landlords do truly despicable things to drive out tenants who they cannot otherwise legally ask to leave. It also leads to things like tenants refusing necessary repairs because they fear the landlord will use that as a pretense to raise the rent or evict.
Basically, trust just breaks down on both sides.
Plenty of people commute from an inner suburb on one side of the city to a job on the far side of the center. If they could move to the corresponding inner suburb on the other side, and pay the same rent, that would be a substantial saving for them, at no cost to anyone else.
> I'm sure there are other possible answers to this, but quite a straightforward one to me seems that paying your employees for their commuting time would probably be right in terms of incentivising employers to allow more remote work or even set up satellite locations (possibly as a part of a desk sharing arrangement) in areas typically considered commuter belts.
That's not workable; employees can just pick a long commute and pocket the money. And what about those who aren't traditionally employed, or the small companies who'd be bankrupted by this?
Employers don't put their offices in the center of the city out of malice. They do it because it's better for productivity, and/or a better work environment that lets them attract more talented employees. That's real value that you destroy when you make it expensive for two people to swap houses and live nearer where they work; even if you force the bill onto the employer it's still a loss to society.
Why do you assume they would want to? I don't want to move every time I switch to a job in a different part of town.
That's... extremely common in areas with functional, non-distorted housing markets. There's some financial friction involved in buying and selling a home, plus the obvious emotional attachment, but I nonetheless still regularly hear of people moving across town for a shorter commute or a more desirable neighborhood. It's not a huge deal unless home sales are heavily taxed or the local property tax regime favors long-term owners (the homeowner's equivalent of rent control).
In fact his best option was to let the block decay and become uninhabitable so he could pull it down, put up something better, and rent out at market rates to new tenants. A few years back I drove down the street and guess what: the buildings on that street had clearly been built since I graduated.
We already have a property tax, and the only difference between a land value tax and property tax is that it favors one type of landlord (the ones who develop their land) over another.
Gee, I don't know. Maybe I don't want to live a city that reeks of urine and has garbage all over the place...even if the effect of that is that more people want to come live here as well.
I suspect it has to do with the sign of the derivative of demand, where the trend is to look for better areas (overall reduction in pee, higher rent) or to look for cheaper rents (more pee).
Sometimes you have to step away from your models and remember they're just models.
You're forgetting the transfer of material possessions and wealth, safety, and employment. It's great that you've found a way to work remote, but that's the not the reality for the majority of people. I also wonder whether 5 million people living in less than a thousand square kilometers is more or less wasteful than 5 million spread out over a billion square kilometers. You'd have to spend a lot more to transfer all the goods everywhere, as well as moving people around.
On the other hand, at the density of Manila, you could fit the entire population of the planet into Ohio.
> Take the example of San Francisco; with nicer streets, even more people might want to move there. That would push up rents by an amount roughly equal to the value created — putting the gains from the higher quality of life into the pockets of landowners. ... The political economy problem now should be obvious: Why exactly would non-landowners press for improvements in their cities? The value of those improvements will be captured mainly by other parties.
This is equivalent to saying, why would anyone want a Starbucks to open in their neighborhood when the value of the Starbucks is captured mainly by Starbucks shareholders? (Assume, for the sake of example, you like Starbucks, otherwise replace with whatever you like.)
The answer, obviously, is that enough people find it to be a beneficial trade for both parties: people want to spend more money for better coffee. That's the invisible hand of the market that improves the sum of things.
Similarly, gentrification is about people wanting to pay higher rent to live in a nicer neighborhood. Yes the landlords get more money... but the tenant gets the nicer neighborhood! (Or closer access to more jobs, or whatever.) That's the whole point. That's free trade.
The author tries to claim that "residents just won’t care enough about the quality of life in their city." That couldn't be more wrong. On top of it, the author literally contradicts themself with the earlier line "with nicer streets, even more people might want to move there". You can't have it both ways, sheesh...
You're misreading the argument. Yes, the renters want to pay more, but the problem is not that they want something nicer, it's that this system takes that natural desire for something better and combines it with NIMBY policies to skew it in a way that results in the centralization of financial capital in fewer people. This cripples the economy overall. The renters ARE getting capital in the form of nicer streets, better coffee, and a shorter commute, but you can't buy goods and services with nice streets, better coffee, and shorter commutes. You buy goods and services with money, but all the money is in the hands of the landlords. The economy does better with a wider distribution of resources because a wider distribution results in more spending on real goods and spending on real goods generates new wealth.
One person with a great deal of financial capital will buy real goods too, but only up to a point. After that, they will invest in markets, which create and destroy money seemingly at random. That's not a good place for most of our economic resources to be. It's better to have as much money being spent on real, useful products as possible in order to maximize economic stability long term.
It prevents San Fran from growing even faster than it already is, but it's not going backwards or anything. NIMBY is a separate problem.
> but you can't buy goods and services with nice streets, better coffee, and shorter commutes
That's turning it backwards. That's like saying you can't buy clothes with food or vice-versa. The streets, coffee and commutes already are the goods and services which people, on the whole, desire (even if some individuals don't).
Complaining that money is in the hands of landlords is no different from complaining it's in the hands of Starbucks shareholders. Money doesn't disappear... when landlords receive higher rent, that money is either being re-invested or spent on "real, useful products" in the end.
https://www.nytimes.com/2017/09/06/opinion/housing-regulatio...
If you call that "crippling" then keeping Central Park in Manhattan also cripples the economy, by preventing the economic growth that would result in replacing it with hundreds of blocks of offices and apartments.
Democratic communities are allowed to choose to slow down economic growth in order to preserve a more liveable physical environment.
Do you think preserving Central Park cripples the economy overall?
This is simply untrue. Wealthy people do not eventually hit zero on their balance sheets, they typically keep the wealth, invest it by gambling in the market, and pass it on to their children who also do not spend it all. Spending is the key to economic growth and wealthy people absolutely do not spend as much as poorer people on real goods. The economy is always better off with wider distribution of wealth.
By investing it. And even the small proportion being kept as cash in the bank is invested by the bank.
> invest it by gambling in the market
If they're investing well, then they're directing that capital to productive uses, helping to produce goods that people buy. If they're investing badly by "gambling" then they will quickly lose their money to good investors who will direct it to productive uses, producing goods that people buy.
> and pass it on to their children
Regardless of your views on an inheritence tax (I personally favor it), what is not spent will continue to be invested, and the same arguments above apply.
This is all just Econ 101.
Not the same people though. The quote from the article holds true for tenants who cant afford higher rents. Gentrification is generally a processes of displacement. There the old saying, that graffiti tags keep the rent low holds true.
Workers whose skills are no longer needed get let go and have to retrain to more productive skills. People who live in a neighborhood that gets too nice for them to afford wind up moving to a neighborhood they can afford.
If you argue that neighborhoods shouldn't improve because rents will go up, you're basically arguing against economic progress in general.
It's the same as saying a longer-lasting higher-quality product shouldn't be released because it will cost more than the lower-quality one.
They want things to get better but to capture all the surplus from the betterness. So they want to continue to live where they did, have the streets be cleaner, have the stores be nicer but not have anything go up in price.
The economy isn't generally zero sum but some things definitely are close to zero sum.
> The answer, obviously, is that enough people find it to be a beneficial trade for both parties: people want to spend more money for better coffee. That's the invisible hand of the market that improves the sum of things.
But that's precisely the fact that Starbucks doesn't capture all or even most of the value they create. Trade is a wealth creation mechanism for both sides; Starbucks makes more money than it costs them to make coffee, but people get coffee that's worth more to them than they paid for it. If that wasn't the case - if Starbucks was charging such high prices that the coffee was only barely worth it to customers (perhaps because they were in a monopoly position) - then people wouldn't care whether a Starbucks opened near them or not.
> Similarly, gentrification is about people wanting to pay higher rent to live in a nicer neighborhood. Yes the landlords get more money... but the tenant gets the nicer neighborhood! (Or closer access to more jobs, or whatever.) That's the whole point. That's free trade.
But it isn't free trade, because there's no meaningful competition. No-one can build new buildings, so the landlords form a de facto cartel.
That doesn't make any sense. Landlords are competing with each other for the best tenants (hence buildings being improved, amenities added, etc. as necessary), and tenants are choosing between landlords for the best buildings, between neighborhoods for the best quality of life, and between cities for the best value.
It's all competition. Just because there's a fixed supply of real estate doesn't mean there's no competition within it! One has nothing to do with the other.
If all buildings in a city were owned by the same single landlord, then it would be a different story. But that's obviously not the case.
Between-landlord competition will keep building prices at a level that's equal to the value they create, but it does nothing to ensure that the surplus gets fairly distributed. If you imagine a town of millers and bakers, as long as people can freely switch jobs then both will be equally profitable careers, because they'll have an equal share of the surplus. But if you only allow certain people to be millers then the price of flour will rise to the point where a baker can only just get by, while the millers will grow rich because they capture all of the surplus. There's no incentive for a landlord to sell at any less than the full value that their buildings are worth - and eventually the full value of all economic activity from people living in their buildings.
Remember, owners are investors. Landlords gain when economic growth happens, the same way they lose when the economy shrinks. They put up capital and pay interest to invest in buildings they think will gain in value. And as prices go up, landlords pay higher property taxes too (and unlike capital gains, they can't wait until they sell).
But landlords aren't generally capturing the "full value of all economic activity" from people living in their buildings! That doesn't make any sense -- as people's salaries go up, they want nicer buildings/neighborhoods, but they also want nicer vacations, nicer food, nicer schooling for their kids, and so on. Landlords capture some of the economic growth of a region, but only to the extent that's what tenants prefer to spend their income on. The same way Starbucks captures growth, but only to the extent people want to spend their money on nicer coffee -- no more, no less.
The NIMBY/zoning conversation is a real one... and it's up to a community to decide democratically if they prefer less housing that is more expensive, or more construction for more affordable rents. But I don't see how there's anything more or less "fair" about one side or the other. It's a question of what the community wants. Manhattan would have cheaper housing if it replaced Central Park with blocks of high-rise buildings. That isn't a question about fairness, though.
This means that we misallocate resources.
For instance, consider a man who buys a lot of land next to city hall. He does nothing with it for years as the city grows up around him. His lot is now worth a lot of money and he pays very little for it yearly. One way of looking at this is in terms of how much it costs to provide him services: nothing, so his property tax is net positive. Another way is that there is a net loss to society because his property is not put to use in an economically efficient way.
Economically efficient does not necessarily mean developed, by the way. Golden Gate Park may be an economically efficient allocation of resources, though it is not used for built up space.
Now look at a place with lower playing jobs, like Cleveland, and the absolute opulence you can buy for 1m in Shaker Heights. Century old mansions are in play here. How much would this monster be in SV:
https://www.zillow.com/homedetails/2796-Eaton-Rd-Shaker-Heig...
Oh and note that its across the street from the train line that takes you straight to downtown, or the airport with a transfer. It's also less than a block from two huge parks and in one of the best school districts in the city. All of these huge quality of life perks going for it, and its still $88 a square foot because Cleveland does not have SV salaries.
Someone can quite rationally not want a Startbucks to replace Jamba Juice if they really like the latter but won't ever drink anything at the former. It's not sufficient justification to block the Starbucks, but it's not a bizarre or inconsistent or misinformed preference.
Similarly, if I don't care that much about the streets being nicer, but it comes with much more payments for my living space, then I can quite rationally not like the changes, even as I continue to grin and bear and pay the rent.
That's not a good enough reason to e.g. block people from moving in or imposing rent controls, but it's not a somehow fallacious model that you've become worse off and someone else has become better off.
Food and water are consumables.
Not durable, not wealth stores.
There's a great deal that hinges off real estate, especially in finance.
https://web.archive.org/web/20190115035057/https://plus.goog...
(And no, I'm not saying that high housing prices are good, but explaining the dynamic which drives them.)
But individual advantage is a false measure.
Since food and water are not constrained in this way (i.e. can be transported), local price increases are usually due to inefficient distribution (supply chain issues/spoilage) or global supply shortages. This assumes that people consume a relatively consistent amount of food/water.
The thing that keeps things from flowing properly are artificial regulations. For example, artificially low housing (like gov subsidized) in expensive areas make it so low income people can work in high income places for low wages. They can't afford to eat at the restaurants (or buy other higher income things local to the area), but they can afford to work at them. The regulation is artificially boosting supply to match demand so wages do not trend upwards.
The reality is that this doesn't happen when it gets really bad. A few real-world examples:
Nebraska had (as of December 2016) 11 counties without a lawyer[0].
In California, when immigrant labor started getting deported, celery farmers kept increasing wages to attract new labor, and even after more than doubling their wages, couldn't get enough people to pick all the celery.[1]
[0] https://www.npr.org/2016/12/26/506971630/nebraska-and-other-... [1] https://www.npr.org/2018/05/03/607996811/worker-shortage-hur...
A court-appointed attorney is a constitutional right (6th amendment). The government guarantees you will have the option of legal representation if accused of a crime, and you can take it all the way to the Supreme Court if you don't get that.
>In California, when immigrant labor started getting deported, celery farmers kept increasing wages to attract new labor, and even after more than doubling their wages, couldn't get enough people to pick all the celery.
Then wages weren't high enough. It really is that simple. And if the farmer can't get anyone to buy the celery priced high enough to support the costs of labor, then he shifts away from labor intensive crops, or outsources the crops, which is exactly what the article says he did. This is a healthy functioning market, responding to supply and demand pressures. And $$$ awaits the man or woman who invents a cheaper way to harvest celery at lower labor costs.
It's not black and white like that but in general this is how markets are supposed to work (in theory).
Am I missing something, or wouldn’t higher tax revenues from growing property values easily offset this issue in such a scenario?
If the tax values indeed follow the actual property values. And if the country/city has a sufficiently high property tax percentage. Some places have only tiny property taxes.
Council tax for my band C property in south gloucester was around £1700, with the highest (band H) in the area being around £3800.
All numbers yearly.
Like someone else already noticed - when you buy a house for say £20m, you will pay about £3 million in stamp duty, which is insane already. Owners of expensive housing already pay a tonne in that tax for the privilege of owning it.
You may say that housing prices is not a problem, and cities should just lean into it an keep improving public service, but if they are trying to reduce housing prices thst might be counter productive.
> Why exactly would non-landowners press for improvements in their cities? The value of those improvements will be captured mainly by other parties.
Always wondered why some folks want the city to be as shitty as possible. First compelling reason I've read.
Many vocal folks online in the neighborhood, though don't know their numbers are significant or not. (Measure S in Los Angeles was soundly defeated.) In another neighborhood (East LA) new businesses were vandalized allegedly by anti-gentrification groups.
Here's an analogy: Imagine if Apple drove all PC competitors out of the market, fair and square, by making a lovely product that is expensive, to the point and PC makers couldn't sustainably sell low-cost lower-quality PCs. Imagine you can't afford an Apple Mac, but you cold have afford a low-cost lower-quality PC. You'd suffer becuase the world is passing you by and leaving you out. Would you be wrong for opposing Apple's business in any way you can? If you are exlucded from the social contract, you have no obligation to uphold it.
You haven't read the facebook comments in our neighborhood group, where even the upgrade of a crumbling parking lot or flop house covered in graffiti to a modest apartment building meets howls of protest and "disgust."
Good example of this: residents in the Tenderloin (successfully) fought planting of trees because of gentrification. I can't find the original source but this [1] mentions the opposition.
Overall I found this article pretty shallow. For one it ignored recent history where American cities were in decay up until the 1990s.
A core problem here is that homeowners gnerally consider rising prices to be good. Thing is, it's only good if you cash out. Take Vancouver where a rundown Victorian might cost you $4m+. You might have bought that for $175,000 in the 90s but that $4m won't help you move to another part of Vancouver (unless you move much further out or move to something much smaller) because everything else is just as expensive.
You definitely can't trade up to a nicer area or a bigger house either. Where that gap might've been $50,000, it's now more likely $500k+.
Another problem not mentioned is Dutch Disease [2]. I'm firmly of the belief that Australia is pretty much at this point. What people don't realize is that when property prices go up so much this also affects commercial prices and those higher prices are inputs into everything you buy. You still need workers. They need more money. Again, that makes everything you buy more expensive. It seems to converge on a point where there's very little economic activity.
One reason I like NYC is that even though prices are generally high there are options for lower-income people. Sure they might not be Manhattan below 96th street (well, probably 125th at this point) but you can still leave much cheaper in the outer boroughs. You'll note that the article said "Manhattan" not "New York". That's not an accident.
Compare this to the Bay Area where all the nurses, firefighters, teachers, all the tech company ancillary workers (bus drivers, cafeteria staff, security and so on) are living 2+ hours away because that's all they can afford. Honestly, the Bay Area is just one giant middle finger to the poor.
As for solutions, it's not rent control. It's not outlawing investment properties either. People seem to forget that to rent a place to live someone else needs to own it.
I actually think the Swiss have done the best of developed countries here. The Swiss tax property speculation punitively (it may have changed but at one point it was 100% capital gains tax if you owned for less than 2 years) and made it somewhat more difficult to simply park money there in property.
That's a big problem in NYC, SF, LA, London, Sydney and the other major developed cities: capital is now global so it goes and parks in the form of real estate in major cities. That does absolutely nothing for the city.
Things I would be in favour of:
- Higher property taxes for nonresidents
- Higher property taxes for owners of unoccupied properties
- Restrictions on foreign ownership of property
- Owning property in NYC makes you a resident of NYC so all your income is taxable by NYS and NYC
- Higher capital gains on non-principal residences with a teiered structure like the Swiss where the rate goes down the longer you hold it.
- Withholding state and federal taxes on all rent earned that you can only claim back against other US expenses.
[1] https://www.sfexaminer.com/news/residents-seek-greener-tende...
Hudson Yards gets undeservedly shit on, but it's adding thousands of new units of housing and a lot of retail and office space to the city, all on what is essentially reclaimed land. Build a lot more of that level of density and you'll be making serious dents in the real estate market.
Minor nitpick, but these workers have 6 figure salaries in SF. In fact, firefighters often make 200k+.
... and are on-track for a very nice pension ...
So what do you do when the 5% tax rate in the 20 cities in which you own property all claim 100+% of youur income?
Who owns property in 20 cities by the way? If you're an individual I don't think I care if you would hypothetically lose property in NYC if you didn't pay taxes there. However the obvious consequence of this would be the wealthy creating a company to buy and own the properties they live in so you'd have to be very careful about closing loopholes in this hypothetical regulation.
This is a solved problem.
This seems extreme and the reduction in investment that comes with it will have knock-on effects.
New York should be for New Yorkers. The city dies if it just turns into a place to park money for the ultra-rich who don't live here. Having nonresident landlords mean the only thing they care about is cashing rent checks. They don't have to live with the consequences of their actions on the city.
I'd be all for a system where the vast majority of landlords in NYC themselves live in NYC.
I say, take the politics out, and let market decide what to do.
I would _speculate_ that:
1. renters are more transient, so are less invested in the community
2. most people don’t make the connection between restrictive zoning policies and rent prices
3. It’s politically unpalatable to be shown as “against homeowners”, especially given how much ownership is prized
This is the theory behind the US support for home ownership.
I think we already know what the market would decide to do.
Joni Mitchell sang about it some time ago...
In my eyes this is a highjacking of the productive capitalism by the rentier parts of it and it is demoralizing, unproductive (by definition) and destructive. An apartment does not produce value. It is a mere necessity. The people living there may produce value if they are allowed to. But sinking all their energy and finance in just securing a roof over their head leaves less and less for any productive risk taking.
Disclaimer: Living the renting/housing drama in Ireland.
where I live, mortgage payments are significantly less than typical rent for comparable structures, but I am quite happy to pay my landlord the difference for taking the cognitive load of caring for a house of my shoulders. anything goes wrong with the house and I just shoot him an email and his guy fixes it by the end of the week. when we came to see the house for the first time, he was there with his guy scrubbing the floors on his hands and knees.
what I'm saying is, maybe an apartment doesn't produce value, but it doesn't maintain itself either.
If we improve one city's community and rents go up due to increased demand, that necessarily means rents went down somewhere else in the US. So, net-net, landowners didn't necessarily get richer.
Furthermore, when the non-upgraded city eventually decides to invest in improving their neighborhood, people will move back, and the system as a whole will equilibrate.
VCs are largely already wealthy, and SF is a pleasant city to live in if you're already wealthy. As such, they have little incentive to move, and so founders will continue to flock there to start their companies.
I completely agree that shopping around for cities should be easier, so that city governments like SF are forced to get their head out of their ass and make their city competitive.
However, until SF becomes unpleasant to live in for rich people, not much is going to change.
And apparently, little incentive to improve their city and environment. What the wealthy need to realize is that human nature is hard wired to notice relative wealth inequality. Crime and social unrest are directly related to perceptions of relative wealth inequality. Past a certain point, life expectancy is directly correlated with relative wealth inequality, not absolute wealth. [b]
http://www.sfindicatorproject.org/indicators/view/146
https://www.mercurynews.com/2018/02/15/income-inequality-in-...
([b] Ichiro Kawachi, 2000. Income Inequality and Health. In Social Epidemiology. Eds. Lisa Berkman and Ichiro Kawachi. New York: Oxford University Press. Pp. 76-94.)
Sure enough, other cities are up and coming, but it takes time.
Is it though? I feel SF is a rathole that is occupied by a lot of people who overpay for rent because their salary allows them to.
If you're really wealthy, you're not going to be living in the city at all.
???
Huh?
Are you talking about the same San Francisco as everyone else here?
They do. Amazon's HQ2 search was the most public of these, but other companies are expanding as well.
Apple, without much fanfare, announced a gigantic second campus in Austin, as well as locations in several other cities: https://www.apple.com/newsroom/2018/12/apple-to-build-new-ca...
Last month, Google announced the lease of a 35-story tower in downtown Austin for up to 5,000 employees: https://www.statesman.com/news/20190131/source-google-to-occ...
Facebook announced the lease of a 17-story tower in north Austin last September: https://www.statesman.com/business/20180906/sources-facebook...
These are just Austin (since I live in Austin, I'm familiar with these stories) and just 3 big tech companies. Other tech companies are also expanding in other cities.
The cost of living has gotten so out of control in the SF Bay Area that these companies can no longer hire and retain good engineers. Also, it took more than 20 years to change this opinion, but companies are finally starting to embrace remote work and remote workers.
There's now a popular trend starting too, where founders live in the Bay Area long enough to get a demo off the ground and raise capital, then leave for greener (cheaper) pastures: https://www.axios.com/entrepreneurs-leaving-bay-area-for-nex...
Unless California can un-gridlock its housing, I expect this trend will only continue.
Notice, none of them are moving any important people to places like St Louis, or Omaha, or Little Rock, or wherever. Those places are much less expensive than Austin or NoVA, but the tech companies don't really have to be there.
Silicon valley is leaking, starting with places that have huge amounts of cash and have already hired everyone they can in the Bay.
They'll start by offering a few people to transfer with same pay to a way lower cost of living city with a different/better for them lifestyle. Enough will bite and those people will then spin up the new hires.
+1
The challenge is that remote offices are difficult to work with. Logistical difficulties like time zones and remote conferencing aside, often you get an all-you-see-is-all-there-is effect from senior management who tend to bias towards the area they are in vs. remote offices which encourages the most ambitious people to relocate back to the mother ship. This then trickles down the corporate ladder - the remote offices will have less exciting or visible projects, so employees there have lower chances at promotion, which provides an incentive for them to move too. It's not a question of companies opening remote offices, it's how they can reduce the effect of gravity that pulls employees back.
Gravity aside, the problems described in the article also exist in these other cities too. I'm living in Boulder right now and the NIMBYism is strong here too - I definitely would not be able to afford a house in the city itself.
It actually is easier to reform cities than it is to relocate everybody that is made worse off by their poor decisions. And since San Francisco's poor decisions are negatively affecting every city within a 100mi radius, it would make sense for the state intervention to be the tool that brings the change.
NIMBY and high rent isn’t just an SF problem, as this article notes. It’s just easier to focus on SF because its problems are well-documented.
My neighborhood association just sent us this today:
I don't know what to do in SF other than trying another round of electing supervisors at large. The way the "supervisorial courtesy" works in the city turns neighborhoods into inviolable fiefdoms. I can influence my supervisor, but my district isn't going to be able to solve the various urban decay problems on its own.
You say that without giving an alternative explanation. If it's not the tech jobs (and the jobs built around them) that raised demand so much, what else is it?
> In the 80s the blame was finance.
Again, why do you assume that finance was just the scapegoat, not the actual reason?
To me, NIMBY-hating seems to benefit the land developer far more than the renter.
At a broad level, housing prices rise because the rate of office space growth/job growth exceeds the rate of housing supply growth. All of the cities you have listed have created far more jobs than housing units in the past 25 years, and office supply growth is probably most of the construction you perceive. Tokyo is the best example of a city that has balanced job growth with residential supply, and it is one of the most affordable mega cities.
I'd also point out that Manhattan would still be a very expensive place to live even with lower real estate prices, as a huge number of the buildings have very high maintenance costs.
"Tons" of development would instead be 100 thousand housing units.
The places that you mentioned are not building a hundred thousand housing units.
[0] http://furmancenter.org/thestoop/entry/report-growth-in-nycs...
Does building alone help solve rents? No, but that's kind of the point of the article. NIMBYism just makes it much worse than having less NIMBYism.
Things change.
I’m so tired of hearing this. It’s not accurate. It’s a simplistic political slogan that the YIMBY crowd keeps repeating and it’s time to correct it.
The SF Chronicle just ran a story on how multiple approved residential construction projects have stalled along the Van Ness corridor, right next to a new hospital. The key reason? Multiple interviews with developers paint a clear picture: Skyrocketing construction costs.[1]
[1] https://www.sfchronicle.com/bayarea/article/Turns-out-SF-s-b...
I commented [0]: "Good [...] A city of renters is a soulless city; less people are long-term invested and no one really buys into the community they live in. ¨
And this article seems to agree with me on this point. One sentence in particular captures my thought:
"The political economy problem now should be obvious: Why exactly would non-landowners press for improvements in their cities? The value of those improvements will be captured mainly by other parties."
This article has given me more and better arguments to formulate my stance on this topic. Good post!
If you don't restrict land uses, allowing everybody to live in the city without being sucked dry by landowners' economic rents, then both renters and resident-owners will be pushing for public service improvements, while the institutional or non-resident owners will be the ones apathetic towards improvements. Renters don't make the city worse, concentrated economic benefits going solely to landowners does that.
Because even renters want to live in a nice place?
I think we need to increase people's economic security by increasing home equity, and stabilize the labor market to make it easier to get and keep a job regardless of where they live. This will require other changes, such as methods to encourage businesses to spread to neighboring cities, improvements in transportation, and probably legislative reforms to de-incentivize landowners' ability to destabilize markets.
Prices and rents are left to "the market", but construction is not at all. Strong rent control should be introduced everywhere and ownership for investment reasons should be massively discouraged (e.g. by strong taxation). On the other hand protection of existing landlords should be reduced to encourage new building. Rent seeking is damaging the economy and the society and only privileged landlords benefit from current conditions.
Unfortunately most economists seem to be biased or are probably benefitting themselves, thus there is no concentrated effort to push for better policies.
Having lived in a few places I see rent control and legislation like Prop 13 as major contributors.
When people cite the average rent in SF, that's based on what's currently on the market. What is not counted is the (much greater) inventory that is currently occupied, with rent-controlled tenants paying far less than market rate.
When someone cites "the unaffordability" of rent in order to justify rent control, what you also don't see is the high cost of MOVING that comes with rent control. My SF neighbor had been in her unit since the 90's, paying less than half my rent, and she can't afford to move if she wanted to! If she were to move she'd have to leave the Bay Area. She's trapped. Rent control doesn't improve housing choice in that sense.
(I don't know enough to actually have an answer to this.)
1) move away from rising costs, in literally any direction (pick just about any other place in the world), settle into a home you can afford and move again later if you want/need.
2) Live in a rent controlled apartment, become trapped for the rest of your life in a neighborhood where you can no longer afford groceries, healthcare or a haircut because of the rising cost of living.
The difference is that all rent prices are subject to a maximum increase of roughly 1% per year, even if tenants change, the lease is locked to within 1% of the previous tenant's lease.
It works great :) Older rental stock remains cheap, and new properties are reasonably priced too.
Easy to solve the problem when their isn’t one.
Huh? No, it's the other way around. SF rents are the cause of lack of infrastructure improvements, according to the article.
I'm not sure I agree, but I think there's an argument to be had that she'd have more freedom to leave a job if she were living somewhere that she were also free to relocate, and that at scale, this economic distortion leads to high friction.
I don't think it's supposed to. It's just a price control meant to keep large swaths of income brackets from being priced out of the city entirely.
Even further, it allows a lot of people to completely ignore the high prices, so people benefit from these things, keep voting to block new construction and ignore the housing supply problems and make the jobs/housing imbalance worse, and prices just go up even faster.
Graduated wealth taxes solve this even more cleanly.
Economists create the economy about as much as geologists create rocks. Marx and Pigou were economists, JP Morgan wasn't. I think you mean politicians and municipal governments. Economists aren't exactly a powerful legislative lobby, if they were our society would be radically different. Renteirism, monopoly, and regressive taxation are pretty widely viewed as being bad for society in the econ community.
The thing is, land is not scarce. There is an incredible amount of land in the US. When rent is high in a city that is the market telling you that you need to develop new cities. There's no reason why people have to be piled on each other like rats in San Francisco and NYC.
Yes there is. It's where all the economic and social momentum is, not to mention the infrastructure - what steps does someone take to encourage people to flock to a new city that has no infrastructure, no businesses, and no population? What branch of government or enterprising individual builds out the infrastructure for such a project?
City land is useful not only because people congregate, but also particularly because taxes provide services. When the taxes are levied not on the land, it makes the land more valuable (as it receives benefits it doesnt pay for) and thus creates rents.
There's a seemingly endless legion of morons moving to these mega-cities that can't afford to live there. I don't know what their ambitions are, but it's obviously unsustainable.
Fortunately, I think CA and NY are going to tax themselves out of existence in the next generation or so. Everything is cyclical, and I believe these cities are anomalies reaching end of life.
A simple cost/benefit analysis shows that living in SF or NYC is a losing proposition for most.
Once you're clearing SF costs by $50k+ per year, it could start to make sense, right?
I would only move to the bay for $150k+ and that's the desperate low end. Probably more like $170k is the minimum to have it make sense vs the alternatives available in 2019.