‘Build More Housing’ Is No Match for Inequality
citylab.com
citylab.com
Which is perfectly fine! It still works, because houses do not have intrinsic price tags. They have intrinsic ordering of values, but their price is determined by what people are willing to pay.
Line up every person in the city in order of how much they're willing to spend on a home. Do the same with the homes available. Face the two lines across from each other. Everyone will buy a home nearby to what is across from them right now. Building a whole bunch more houses on the top end of the house scale doesn't leave those mansions empty, it just drives the mid-range homes further down the scale.
Supply shorter causes those further up the scale of "willing to spend on a home" to have only modest homes as options (what's across from them). At the same time, it pushes less and less desirable homes (often ones 2 hours commute from work) in front of those less able to afford homes.
If you want to argue that the divide between rich and poor is growing, and it's a problem, oh heck yeah I'm on board for that argument. But conflating the housing shortage problems with that allows the landlords to keep getting richer.
This doesn't take into account something mentioned in the article - that increased housing supply is going to attract MORE of the highly skilled workers that were driving up costs, and those people are going to be the ones filling up the houses, not poorer people.
This is a form of induced demand.
For every X number of expensive apartments, builders must sell Y% low income housing.
Even if you only care about the low income stuff, upzoning still helps, and gets you what you want.
What really you are saying is we don't want to build enough for all the unmet demand at the current price point. This is a perfectly fine thing. Roads are expensive, if we can get people to not drive someplace because the current roads are too crowded that might be a worthwhile thing. Unlimited road expansion quickly requires expensive bridges.
Building more houses actually starts to fix the road problem because dense enough houses makes public transportation practical.
Yes rich folks will move into San Francisco at first. However their old house isn't in middle of nowhere, it is a longer commute away from San Francisco, and that house is available.
Here is a report from UC Davis that shows otherwise: http://www.dot.ca.gov/research/researchreports/reports/2015/...
But big picture: more people got more of what they wanted, which to drive farther (without more congestion).
If they built an extra lane on every road between me and the pizza shop, I'd go the pizza shop more. I dont' go to the pizza shop as often as I'd like because I hate traffic, if there were less traffic, I'd be better off. But I won't drive any more than I'd like to, I think we could build more roads and build that capaity for more people.
There’s certainly a place for cars in city planning (lower density areas), but there’s also a point where planning focuses too much on cars to the detriment of everyone else.
Only for specific definitions of "efficient". You get higher throughput, and with that higher latency.
Not everyone needs a whole car, though. Motorcycles, for example, would be a more efficient use of roads, increasing throughput without sacrificing latency, and also decreasing the parking footprint necessary per capita (these are, in fact, the two primary reasons why I'm strongly considering getting an M-class endorsement and buying a motorcycle, or at the very least getting a motorized scooter that doesn't require said M-class endorsement; the tertiary reason of "motorcycles are fucking badass" certainly doesn't hurt the former option, either). Should be no surprise that in most dense cities you see outside the US, motorcycles and scooters compose a significant portion of road traffic.
If you have to drive a car to a transit hub, wait 10-15 minutes for a vehicle, transfer multiple times (with wait times for each), then walk more than ~5 blocks to your final destination it becomes a shitshow. Los Angeles is a perfect example of this.
LA being antithetical to transit is... really a stereotype. The entire city (and even much of the county) is built along the old streetcar lines and the red car network (the largest streetcar system in the world back in the 30s!), which existed until the 60s. It’s a city built for transit and a city where transit is being heavily invested in again — because only relying upon cars turned out to be a failed experiment.
As a fun tidbit of things to come:
By the 2028 Olympics, LA is hoping to have completed a metro line connecting the Valley to the Westside via the Sepulveda Pass within 12 minutes — a journey which takes the average driver during rush-hour 55-65 minutes to complete on an ever-expanding Highway. Once it’s finished, it’s projected to be the busiest single rail line in the US, surpassing any in New York City even.
It's potentially anywhere on Earth—people moving into San Francisco are not limited to people currently within commuting distance of San Francisco.
> and that house is available.
No, rich people can and do own multiple homes without renting any of them out, and are known to just buy another one if one meeting their interest becomes available. There is no fixed limit on the number of homes a person can retain exclusive use of.
How big of a problem is that really? Is there that many people owning an absurd amount of homes everywhere?
This keeps happening for any practical width of road, because in practice you can't really have a 30 lane wide highway. Automotive travel is inefficient enough that even at suburban density you can always congest any road network you build around it.
This does also apply to housing - even at the highest densities you can get, rivaling Hong Kong, there are too many people in the world for anyone city to ever build enough housing to legitimately run out - density itself creates economic multipliers that attract business, and if you were to have some of the highest density in America (which is largely the claim of NY) you would have effectively unlimited attractants for capital to fund immigrants to move into said city and populate it. In the scenario where you "overbuild" high density housing to the point where the next poorest local cannot afford it at its upkeep costs you would attract foreign immigration for the cheap housing with ample employment opportunity.
Note that that last scenario assumes all other variables are held constant - desirability, transit supply per-person, availability of public services like fire and police, etc. Missing other variables can make high density areas undesirable for capital and thus prevent the chain reaction.
Roads can go up (or down) quite a bit though. It is expensive (much more expensive than adding more lanes) which is why we rarely do it. Even when/where we have, we would have to go more than we have to get ahead.
My point is you can get ahead of induced demand. I know a farmer who planted right across a public road - technically illegal, but the neighbors didn't use that road anyway. When you get in a city is is harder - by enough that it isn't worth it - but you can. (Cities should of course have more public transit which gets ahead much quicker).
You are correct that cities building - at affordable rates - do attract people. However if the city allows building over the long term we know from existing examples it gets out of it. Chicago and Huston don't have housing price problems because you can build there.
Now we do need to be clear: it costs money to build. New houses are always higher end. How high depends, if only a few houses can be built, they will be mansions. Once demand for mansions is filled builders move down market to lower profit houses until it is no longer feasible to build anything (humans don't fit in a doll house).
The paper is no only slightly better supported by data than my arguments above and really isn't useful.
> houses do not have intrinsic price tags
New housing does, or at least it has a minimum price tag. A builder selling housing for less than it cost them to build will not be building much housing!
> Line up every person in the city in order of how much they're willing to spend on a home.
People can freely move downmarket, but can't freely move upmarket, so the demand is moving opposite the supply.
More houses doesn't fix that problem.
In many countries today, home ownership is pretty rare, and the majority of people rent.
It is wildly inefficient and would not exist if airbnb followed local laws. If this is allowed to continue, I could easily see airbnb units exceeding the number of hotel units we have in town, where the total number of rooms is nearing 10% of the towns population.
Sorry, want to live here? You have to buy; we don’t allow residential investing here.
> A report from the Department of Housing and Urban Development has found that just under 553,000 people are homeless, with approximately 65% staying in sheltered accommodation. Out of every 10,000 people in the United States, 17 experienced homelessness on a single night in 2018. [1]
It looks like this already happened.
[0]: https://www.attomdata.com/news/market-trends/single-family-r...
[1]: https://www.forbes.com/sites/niallmccarthy/2018/12/20/the-u-...
I hear some places levy an extra tax on empty residences. This is a pretty good conservative approach that puts downward pressure on rents and provides some revenue that can be used to explore other solutions to these problems.
A more extreme approach would be to seize all the abandoned housing in a "bad" area and invest heavily on improving it and the area. Fix broken infrastructure and fund emergency services. Offer the housing for free, or low cost with favorable loans. Use tax incentives to entice businesses to move in so the residents have places to work and buy things. Etc...
Is any of this remotely realistic? Perhaps not, but it can't hurt to think about it.
What if people buy multiple homes? Doesn't that mean people down the line get none? And then the people who buy multiple can rent seek or leave them empty. They just get more money to buy more houses. Doesn't always push the price of the mid range houses down.
1. Stick a lot of affordable housing in building, but math works since the developer can make money selling the high priced units.
2. Increase total housing supply through less restrictive zoning, meaning more developers are building units they plan to sell at list price.
Scenario one is only possible if some people are paying too much for housing, and the people that are squeezed the most are the middle class. Scenario two probably means that the poorest group is displaced.
New York has been attempting scenario one. I’m not sure if SF has tried to accomplish either route, leading to the worst case scenario.
In SF there's no reasonable way to stabilize (let alone bring down) home prices without less restrictive zoning.
Obviously the developers will fight this, and the rich tenants will never exercise or swim near poor people, but conceptually it's easy enough to solve.
I just hope that in 5 years Captain Sisko is able to time travel back to SF ensure the Bell Riots take place. That's the only way homelessness will end in the Bay Area.
This is the “city as a closed universe” fallacy. What you actually have to do is line up every potential purchase of a home (which may be more than one per buyer) in the city by any person in the world in that order.
Which is why you can't move the needle very much in a high demand region by increasing supply in any way that is practical over any reasonable period [0]; there's usually a lot of available demand that must be filled before you see a perceptible price drop.
[0] at least before considering the effect that population density outpacing service and infrastructure scaling can have on desirability, which isn't usually the effect people are looking to leverage to reduce price, though making the city into a hellhole does have that effect.
- All property ownership needs to be tied to a person as in no shielding behind LLCs for tax purposes at least (you might for privacy reasons).
- Owning a property in a city makes you a resident of that city (and country). Your worldwide income and assets are now taxable.
- A property that is unoccupied for more than N days in a year is considered abandoned and forfeit to the public. Pick an N that makes sense.
We have too many “investors” just buying property (that could be used to house people) and sitting on it empty like it’s some lump of gold. Or they leave it vacant only to vacation to for a weekend per year. End this speculation and waste and prices become more affordable.
Also, good luck squatting in a modern apartment building. You won't be able to get a keycard to even get inside the building.
So, would I be able to become a US resident simply by buying an apartment?
Every step of that has side effects that people may not like.
Nobody talks like this about traffic. More lanes, same slow traffic speed. Yep, that's newly satisfied demand. It's also widely considered undesirable and self-defeating.
It's not irrational to think that slowing down or distributing the growth elsewhere - geographically - would be preferred.
It’s only considered undesirable by urbanists. Building more lanes allows more people to travel without making commute times longer. That’s a win. (Here in DC, we are moving from six car trains to eight car trains. That doesn’t make the trips any faster, but allows meeting unmet demand. Nobody disputes that’s a win.) There may be a downside if you’re just encouraging people to move out of the city into suburbs, but in many cases living in the city isn’t an option for those people to begin with. In any case, no equivalent downside exists for housing—the new houses will generally be sold to people who weren’t living in your city and paying taxes there to begin with.
More lanes = same traffic
It's:
More lanes = MORE traffic
It's called induced demand.
1) Build more houses
2) Reduce the amount of lending banks do
3) Distant third, if the government has mucked up the tax/renting incentives so much that people are leaving houses empty that should be fixed.
They all sound good to me. However, if the complaint underlying "prices are too high" is that people don't have a place to live then that can't be fixed without growing the stock of available housing. Growth is required. We don't want people to have to chose where they live because there aren't enough houses being built, we want them to move based on economic opportunity or because they like the lifestyle.
Traffic is different from housing. In a moment of flippancy, I suggest that nobody wants to be sitting in traffic, but they are happy to be sitting in their own house.
4) move the jobs to less expensive cities. The discussion largely driven by a very small area in a few cities that have been extremely successful at job growth in tech, finance, and lobbying. There isn't a housing affordability crisis across most of the country.
5) move the people to less expensive cities. The discussion largely driven by a very small area in a few cities that have been extremely successful at job growth in tech, finance, and lobbying. There isn't a housing affordability crisis across most of the country.
> 3) Distant third, if the government has mucked up the tax/renting incentives so much that people are leaving houses empty that should be fixed.
From what I read, the amount of lending banks do is specifically because of government policy. Specifically, fixed-rate 30-year mortgages do not occur in the wild. You're more likely to see 10-year mortgages -- and that means borrowing a lot less.
How will this reduce the actual cost of housing? If banks lend less, interest rates will go up, which will lower the value of homes. However, the value of the home will go down in proportion to the higher interest rates. So the homes will be valued less, but they will cost exactly the same taking into account the higher interest rates.
The only one who wins here are the banks who get higher interest rates.
You seem to be going to the real cost of housing; there are very complicated feedback loops and if there is a good argument for what should happen in theory I don't know it.
My personal belief is that if you reduce bank lending then they will discover they can't raise the interest rate enough to make up the losses from people borrowing less money. You might reasonably disagree.
Note that in practical terms the way a bank loan works is that a buyer can elect to jump to the front of the queue of buyers by promising some of their future earnings to the bank. Since all buyers have this option, the equilibrium is likely a bank extracts some portion of the future income from all the buyers without changing the ultimate order of the queue (the buyer with the most money is likely the one who can promise the best return to the bank to stay in front). It doesn't really cost the banks anything to create a loan, they just account the money into existence. That factors in.
Given that frame, it seems likely to me that reduced bank lending activity will be to the net benefit of the buyers at maybe some cost to the sellers. Exactly how it shakes out depends on the details of how lending activity is reduced.
I agree with the first sentence, but not the second. Reducing a bank's ability to lend is similar to creating a price floor. It will certainly drive up interest rates, and this will effect each party differently.
Banks: Even though banks will make more money on each individual loan, banks will make less loans overall and it will be a net negative.
Home Owners: Obviously it will hurt home owners as the value of their home will decrease in proportion to the interest rate.
Home Buyers with Capital: The effect on home buyers is more complex. Some, that already have capital and do not heavily rely on mortgages will do better, as the value of the home decreases. The higher interest rates don't effect them as they don't need to take out loans.
Home Buyers w/o Capital: These folks would do worse. The buyers with capital will blunt the effect of higher interest rates. So even though home values would decrease, the decrease will be slightly less than it would otherwise be because those that don't require loans will be unaffected. Thus the total cost of purchasing a home with a large mortgage would increase.
Conclusion: Slowing lending will hurt home owners, banks, and those without much money. It may help people who are already cash rich. It will likely exacerbate inequality, not help it.
That's not in dispute.
> And that’s a good thing too
It's a good thing if the tax revenue plus positive externalities created by the additional residents outweighs the public service cost and negative externalities.
It is by no means given that this is the case.
> If you keep building, then at some point the unmet demand will be met
Assuming that the unmet demand doesn't expand faster than you build, sure. And since if you build fast enough you adversely impact living conditions and decrease demand, that's actually quite easy to guarantee. OTOH, no one in the existing population wants that, and no in government wants that on their resume.
Can you realistically meet unmet demand in a small city with high global demand other than by crushing demand by making the city unattractive to live in? It is not obvious that the answer is yes, and it's not really an attractive experiment to run.
That second demand can be huge, favours already hot markets (appreciation, liquidity, long-term durability of value), and can suck up unholy amounts of investment leading to very little actual housing supply created.
Ironically, the best way to promote more housing supply in such markets is likely to reduce prices, Both through increased supply (densification, new construction, relaxed zoning and codes favouring these), and through increased land value tax, which both eats up investment and store-of-wealth value, and encourages development in order to meet increased carrying costs.
Vested interests, from homeowners to real estate brokers to banks, will resist such measures as they directly reduce the value of their asset portfolios.
> And that’s a good thing too—you’re increasing the tax base of your city.
To say something is good because it gives more money is the capitalists fallacy. There are many examples where this capitalists fallacy leads to situations that benefit a few and damage the vast majority, and sometimes even preventing technological advancements via political regulation or market domination held in place by self-preserving wealth.
Let me give an example. The national or even supranational electrical grids are essential to industrial economies. It's continued functioning is very important, so it is considered a stable financial investment to buy a share of it. The electrical grid is used to transport electrical energy from the producers to the consumers, which often are very far from each other. Selling and buying electrical energy directly in this market is not possible for households. The energy amounts traded there are vast compared to what houses need. Modern decentralized energy production and storage, like solar panels and batteries in homes can provide storage and production capacities that are relevant to the quantities in the electric grid. However, if houses were allowed to band together and act together as a distributed or federated net of producers and storage units, the long distance transport of electrical energy via the grid would be less important for the economy, and thus its stability is less important, and so it's worth as an investment sinks. Depending on how much value the grid was assigned before, this devaluation might "destroy" a lot of wealth, and therefore be bad according to the capitalists fallacy. Yet, the society gains from this technological advancement. Even more problematic is that wealth is correlated with political power, so those that have invested in the grid can manipulate society to prevent this technological advancement.
I can give more examples, like externalizing costs on environment and society, articifial lock-ins without right to repair, and more.
Capitalism is a tried and true heuristical approach to achieve economic and technological advancements, but directly working with the unquestioned assumption "more money" => "good" is worse than myopic, especially when it comes to basic needs such as food, drinking water, housing, and basic medicine.
The point that the government then gets their cut of the value created is often specifically noted because it's typically the government officials who you have to convince to enact the policy you support.
However, there are streets in London of very highly priced completed uninhabited houses, which serve as speculation objects and money parking vehicles. There are many examples in Germany were newly constructed housing lead to a increase in rents of already existing housing. Where is the value for the very real people who must leave the city because they can't afford the rising rents, even though they have their work there and their children go to school there?
Housing is one of the examples where a rise in monetary value for the same product has immediate negative sides, and a house in one place and an otherwise identical house in another place are not the same product. I see a sometimes more or less pronounced conflict between the right of having housing and the right of owning property.
I'm not arguing against building more houses, if that is the doubt. I just don't think that housing should just be unregulated so the market can have its go at it as if that were the god-given solution to every problem.
Inhibiting this is another benefit of building even more housing. Speculation only occurs when people expect housing costs to increase or at least stay the same. If you build enough to actually start to lower prices then the speculators will try to get out before they lose their money and thereby put even more housing on the market.
> There are many examples in Germany were newly constructed housing lead to a increase in rents of already existing housing.
This can happen when the shortage is so bad that it's actually harming quality of life in the city, e.g. by making local traffic worse because people who want to be living in the city have to commute in instead.
As you start to relieve the shortage you start to address those problems, which improves quality of life in the city (good), but that makes housing there more valuable and makes people willing to pay more of a premium for it, which increases demand.
That isn't actually a problem -- the demand isn't infinite and improving quality of life is a gain -- it just means you still aren't building enough housing to satisfy the pent up demand.
> Where is the value for the very real people who must leave the city because they can't afford the rising rents, even though they have their work there and their children go to school there?
This is one of the situations where you're almost out of water but the middle ground is a desert. If you don't build more housing, the status quo is untenable. If you only build a little bit it can even get worse. To actually fix it you need to build a lot. Not an infinite amount, not an impossible amount, but quite a large amount. And the status quo if you do nothing is that you die a slow death.
> I just don't think that housing should just be unregulated so the market can have its go at it as if that were the god-given solution to every problem.
Government: <causes problem by imposing unnecessary rules>
Government: We should address this problem by imposing some additional rules.
...
There are things markets are bad at. Matching supply with demand is not one of those things.
The market matches supply with demand by definition, one can say. But at what price?
Of course, some people go the fundamentalist capitalists path, and say 'fuck those that can't afford to live where they are now, they don't deserve to live there and should leave'. I disagree with that radicalism.
Housing is different from other products.
Housing is essential, so everybody has to satisfy their demand. This may justify regulation.
Housing is not arbitrarily replaceable, so people may be forced to compromise important parts of their lifes when moving. This may justify regulation.
These issues are not created by government regulation. They are there. If regulation is used to internalize these aspects into the market, then it would be myopic to view that as the pesky authorities meddling with the market.
It is possible to build more housing under regulation taking into account these aspects and other aspects.
At the market clearing price. That is why rules that constrain supply are so problematic -- they raise that price.
> Of course, some people go the fundamentalist capitalists path, and say 'fuck those that can't afford to live where they are now, they don't deserve to live there and should leave'. I disagree with that radicalism.
If you own property somewhere, the amount it costs you was set in the past. Whether the price goes up or down doesn't matter to you until you do leave.
Price increases can push out renters, but the whole point is to ultimately get costs to go down. That doesn't push out anybody, except maybe speculators.
> Housing is essential, so everybody has to satisfy their demand. This may justify regulation.
The "regulation" that allows more people to satisfy their demand would by definition be regulations that induce more housing to be constructed. So this would be things like not imposing tax on buildings (LVT instead of property tax), tax incentives for new construction etc. But notice how easily this is reframed as really just removing existing legislative disincentives from new construction.
By contrast, the rules we have now do things like expressly prohibit taller buildings or impose minimum parking requirements and other costs that do nothing but make housing more expensive for the people who could otherwise do without those things and would not willingly choose to pay their cost if not doing so was available as an option.
You can't just say "we need rules" without specifying what they are. Bad rules are explicitly worse than no rules -- and bad rules are what we have. So we can start by getting rid of those. Only if the problem then continues to exist do we need to worry about replacing them with something else.
But notice also how hard it is to find and enact good rules. When rents are high you get numerous loud people who don't understand math or economics proposing counterproductive nonsense like rent control and designated affordable housing, and then those get enacted precisely because they don't reduce overall rents, allowing the politicians to lie to the proles about helping them while increasing the rents collected by the landlords.
Doing wrong is worse than doing nothing.
Maybe if you focus on the wealthy it is, but it’s more complicated when you consider the less fortunate.
Here’s an analysis of Seattle that concludes "by overbuilding housing for the wealthy, Seattle has achieved some short-term improvement in affordability for the middle class, at the expense of substantial displacement and continued upward pressure on the most vulnerable."[1]
[1] https://knock-la.com/seattle-a-cautionary-tale-for-supply-si...
At best you can say that the reduction in middle-class rents didn't immediately cause a reduction in lower-class rents. Why is that an argument against? Is it inherently bad to improve middle-class living conditions?
I honestly fail to see the left-wing case for taking the side of wealthy, unproductive landlords against middle-class workers engaged in productive occupations.
It clearly describes displacement and gentrification as harmful to what you refer to as “lower-class” people.
Finally you end on an unsupported political talking point that paints a false dichotomy. Progressives are concerned about the most vulnerable people, including “workers engaged in productive occupations” who are displaced by wealthier gentrifiers of working class neighborhoods.
Soviet Union had the same problem: in a vast country being 99% shitland, there were very few livable spots where everyone wanted to live. They solved it by basically implementing an internal immigration barrier: only way to live in such a place was either for the Party to send you there, or to get married to a local. In the end it is either that, or simple pricing out of those who can't afford, unless you can make more places in your country livable.
i.e. like you said, if it isn't pricing keeping people out of the most desirable areas, it's some other mechanism, such as queues, migration barriers, etc. And analogously, waiting lists are used for operations in the public health system.
[0] http://www.bbc.com/capital/story/20160517-this-is-one-city-w...
In a Soviet Union it wasn't even that bad because all of the country was Communist: whole economy being centrally planned, it made quite some sense for the Party to be able to decide who gets to live where, because without right cadres where you need them, how will you execute the Five Year Plan. Would be much worse to do the same in the system which is otherwise market-oriented. An SV startup has money but unable to hire workers locally because there are simply no slots for them to live here, are reserved.
If only we had some example of a city that built as much as the market demands. https://jamesjgleeson.wordpress.com/2018/02/19/how-tokyo-bui...
(And the US shutting down immigration to control the SF housing market, aside from being a radical national solution to an isolated local issue, would also undercut the economic engine driving progress in SF--and lots of other places in the country. While that also would contribute to lower housing prices, we've done "tank the economy to drop housing prices" back around 2008, and I don't think it was all that popular; the cure is worse than the disease.)
I wish the people pointing to Asian cities as a role model for SF bothered to do research on the differences between the situation facing SF and those facing the Asian cities at issue.
Also, I'd recommend talking to people in Tokyo about the cost of living/working there (you'll find most people commute in over an hour by train) and about rising homelessness. This is with a population growth rate over the last 30 years of less than 0.5% and is EXPECTED TO RELENTLESSLY DECLINE AFTER 2020 to 2100 by 6million people.
http://worldpopulationreview.com/world-cities/tokyo-populati...
If you want some other data points on massive building increases, I offer you Beijing, Shanghai, and Shenzhen, where prices have doubled many times while the available housing has also more than doubled over less than 30 years at a more than 2.5% population growth rate.
From 1990 to 2010 (latest year in data), the population grew 9.6%.
In the same time period, SF's population grew 11.3%: http://worldpopulationreview.com/us-counties/ca/san-francisc...
Not a big difference if you ask me. Yet SF prices have skyrocketed.
Tokyo may require citizenship to buy, but that doesn't mean foreigners can't rent. Rent prices in central Tokyo often start at around $1500/month, which is a lot less than that of SF bay area suburbs.
Source: I am a homeowner in Tokyo.
I live in a median market, where the price per square foot is about $150 for a detached house in an urban area with tight supply.
The difference why places like California and NYC are so out of control has less to do with supply than demand. As fiscal policy and philosophy demand consolidation and concentration, more and more people in the same circumstances go to the same place.
Since the mid 70s, smart jobs go to the top 10 cities, dumb jobs go the the South or offshore, and everything else is mined for value.
It doesn’t have to be that way. When IBM was at its prime, their big engineering centers were in places like Upstate NY, Minneapolis, Tampa, RTP, Toronto, etc. GE did similar things.
Modern tech companies would rather pay 3-7x more for folks in the Bay Area or NYC. That’s all about control and where the money is.
I imagine the answer runs around government intervention and wealth concentration.
The consolidation / concentration issue applies more to normal businesses. Regional banking, for example is dead, and that has all sorts of negative impacts on places that aren’t the biggest cities. Not only are the workers gone, but there’s no commercial banking available anymore.
This is an excellent point. People who point to “basic supply and demand economics” often leave out the concept of price elasticity, also a basic economics 101 concept. It can mean that under extreme demand, building supply won’t actually move the price much.
Unlike the first dotcom boom which was spread all down the peninsula, this one is highly centered on SF in terms of where talent wants to live. It’s the heart of an industry that is creating some of the most valuable companies in the world.
Lots of people making six figures who would move to SF if only it was more affordable for them. So many companies that would open SF campus if only if was affordable, for them. That’s a ton of demand, regionally, nationally, worldwide. All that needs to be satiated before prices come down to what working class folks can afford — if developers decide to keep building, that is.
Yes, wealth inequality needs to be solved, and its implications harm society through myriad aspects of it.
That doesn't change the fact that building, especially for density, is a good thing. No, don't build 50 story apartment blocks adjacent 2 lane country roads with no transit, of course, duh? Modernizing American cities, all of them, will take trillions of capital to fix the collapsing infrastructure and dramatically increase the density, but doing so would confer force multipliers to productivity that are stymied by participatory isolation over distance. People could be much more successful in life if they had access to opportunities they cannot reach so long as the closest they can get to an urban business district is several hours away by bus.
[1] https://www.citylab.com/equity/2018/04/nimbys-yimbys-and-phi...
I think you've identified a big part of the problem (and for which the solution is obvious).
In some built out places, perfectly good homes are torn down just to make way for a replacement only the wealthy can afford. Depreciation doesn't level the playing field if the field keeps getting replaced.
What does high end even mean? A modern high rise with high end amenities like a roof top swimming pool and nice interior appliances and craftsmanship?
I visited a friend in Atlanta who lived in such a high rise at a fraction of the rent of what a similar unit would cost in SF. A vast majority of the price of housing is from the supply-demand of that particular piece of land. Sticking a pool and some quartz countertops in there doesn't suddently make it ONLY viable as a rich-man's home, incapable of satisfying any of the middle-class demand that is overflowing in the area.
Building more houses will absolutly help the urban affordability crisis, as the paper claims if you were to build more housing in San Fransicsco obviously it would be occupied by high paid tech workers, that doesn't mean it didn't make the situation better for everyone as all those people who are not living in the upzoned houses didn't go bid up the existing housing stock.
Right now California is estimated to have a four million housing unit shortage, doing a study about a few hundred units built and then claiming it didn't help anything is beyond dishonest.
Also the paper ends not with a solution, but with saying we should not try to build near transit. It really reads to me like the authors decided they didn't like the propsed legislation for upzoning so they picked a bunch of data that supported their views and cobbled together a paper.
1: https://peeg.wordpress.com/2019/05/05/19-14-housing-urban-gr...
> The barrier that must be lifted in order to make this happen is, according to this view, insufficient housing construction in prosperous areas due to local restrictive zoning in those regions. The places where policy is needed are therefore not the lagging and falling-behind regions, but the prosperous areas, which are perceived as afflicted by the disease of NIMBYism (Not-In-My-Back-Yard). Undoing NIMBY-ism would allow people from other regions, whom are deemed to be excluded by high housing prices and low availability in prosperous places, to move to prosperity (thus, a place-based policy leads to a people-based outcome).
Of course, knobs that affect the supply and price of housing will not cause companies to hire workers without in-demand skills at higher wages. That is completely orthogonal to whether turning those knobs will decrease the price of housing.
Furthermore, "building more housing" is like planting trees. The right time to do it was 40 years ago. If you look at cities with relatively reasonably priced housing, like Chicago, you'll see that the bulk of the moderately-priced housing stock is older. Fancy new condos at sky-high prices are getting built, but you can still get a good deal on a unit in an older building. The problem in cities like San Francisco is that those units weren't built back in the 1970s and 1980s.
Let's not do the worst one.
The evidence for "more housing = slower rising or shrinking housing costs" is so strong in places like Brooklyn and Seattle that it seems almost impossible to really to challenge it.
"so what is the match?" is the natural next question to answer, but the author simply doesn't even acknowledge such a question could exist. cortesoft points to one answer[0]: induced demand. the article hints at underlying land value rising because of the concentration of wealth in city centers is one reason.
like probably many others, i think affordable housing requires a combination of many economic thrusts: upzoning, reducing unnecessary regulatory costs (e.g., reduce bureaucratic friction rather than loosen safety codes), improving mass transit (reduce construction costs here too), mixed-use as default, encouraging small local businesses, last-mile transportation innovations, strengthening labor, progressive tax reform, etc.
The big issue with affordable housing is that you can't build it now. Affordable living quarters are those which were built a long time ago and have depreciated in real terms over time. It's not really possible to build a decent house today for $30,000, but 40 years ago you could. That same house could go for $80k, $300k, or $600k today, depending upon how much new construction kept up with population growth over that time.
This fact is why areas of California are screwed. There's no quick fix for this problem, the treatment for a housing crisis is decades of construction that exceeds the pace of population growth. Given that treatment and enough time, there will be plenty of available housing stock at 2x median wages.
But even such developments are also being rejected by SF, even ones that would increase the number of affordable housing units available overall. For example, a project in SoMa was unanimously rejected because it overshadowed — on the day with the most shadow — 18% of a nearby park[1].
It is clear to anyone who is watching that SF is not concerned about the affordability of its city, or the livelihood of those who are not well-off enough to afford homes whose median price has been as high as $1.6M.
(And while I disagree that you can't build affordable housing now, I do agree with your treatment.)
[1]: https://sf.curbed.com/2019/4/10/18304717/shadow-housing-sf-p...
Actual competition, in this case, actual choices for housing, having enough units on the market that slack is normal and expected, would definitely solve the inequality issue: and there's NO WAY the market's going to go back to that state naturally. Distorted market forces created a seller's (rent-seekers actually) market, and it's going to take drastic measures, or economic death, to correct it.
Edit: Though while we're at it, go ahead and encourage good community development and programs that make it easier for first time home buyers and stable jobs and all the other things that lead to better communities and more empowered people in general.
First off it seems to me like every city would love to have this sort of problem. "We can't possibly build enough housing to satisfy all the demand from highly paid/skilled knowledge workers who want to move to our city." To a city government sounds a lot like "I can't build enough garage space to park all my lamborghinis!"
Secondly, what happens when we run this theory in reverse? If we bulldoze a quarter of the housing does that mean that home prices go down? I guess at some point that might actually be true. It might constrict business/growth enough that the remaining houses would be less expensive. Call it the Detroit plan for affordable housing. Make all the high paying jobs leave and housing prices become more affordable. Which I guess 'works' to supply affordable housing.
The effect on housing was that fewer people were competing for homes and so prices stabilized (and people who had used stock options to buy were sometimes forced to sell instead of buy the home). This lead to a large drop in prices in homes that were far away (Livermore, Modesto, Sacramento, Etc) making the isolines for cost vs closeness to the bay much shallower. People in companies that were not dead found that they could buy a house in one of the 'close' counties (Santa Clara, Alameda, and San Mateo) and did so.
Anyway, it is impossible to control all the variables in economics generally but I would like to see how the authors came to their conclusions.
Build more to increase supply and spread out demand by facilitating good transport.
Good news is that all those high paying jobs should provide plenty of budget for the government to address this problem...
Increasing housing supply is not the same thing as trickle down. It confuses the issue to call it this.
Trickle down refers to the idea of giving out money (in the form of tax breaks) to stimulate the economy. It essentially says that cash handouts to businesses and investors will indirectly make it into poorer people's hands.
Removing limits on housing is fundamentally different than this because there is no handout involved. Instead of rich people receiving money, rich people (also called investors) put up money to finance the costs of increasing the supply.
Also, nobody is saying that increasing supply will eliminate inequality. That part is kind of a straw man. Real estate is still "location, location, location", and living in a desirable area (near jobs, etc.) will continue to cost more. What increasing supply does is change one multiplier on costs. In my mind, the relevant question to ask is: if affordability is a big problem, why wouldn't you want to turning one of the knobs you can turn to change a multiplier and make it better?
Of course a myopic analysis of building a single tower is not going to capture long term effects of building a hundred of such towers over many years. Especially if your incentives say you should build.
If governments want cities to be affordable they need to
- make cities less desirable compared to currently semi urban areas by spreading out the location of government services and jobs, providing incentives for private companies to do the same
- allow for building reasonable amounts of housing, but only the kinds and locations that match policy objectives
- cut off all "investment" demand for housing by eliminating the expectation of risk free profit. Ban foreign money, add much higher property taxes on anything but primary residences and purpose built rentals, etc.
If you set up a proper incentive structure for everyone, things will settle in a much much better equilibrium than today. Desirable places will still be expensive, but general affordability would improve a lot due to layers of profit seeking parasites exiting the market.
https://www.thenation.com/article/zoning-housing-homeless-se...
I think modern large multi-story wooden structures surrounded by food forests and urban farms is probably optimal in terms of environmental impact, while also being extremely livable.
> “While building more affordable housing in core agglomerations would accommodate more people,” the authors note, “the collapse of the urban wage premium for less-educated workers means that the extra housing would mostly attract additional skilled workers.”
In other words,they seem to argue that building more only attracts more high-paid works.
Ok... so let’s build even MORE, until a new equilibrium is reached at a lower price. There is a finite number of the higher paid jobs and a finite number of people who can perform them without additional training. That number is not small, so if want to change the market for housing, amount of new supply must also not be small.
Seattle has been making a dent, but unfortunately not a very big one: https://www.seattletimes.com/business/real-estate/amid-build...
Imagine what would happen if they built even more?
However, if we did build enough, a significant number of people would be impacted in a different way - it’s impossible to build just the right number, so we are much more likely to significantly reduce the value of homes if we built enough (in actuality too much) to not price people out. Anyone that bought around the time of the boom would likely see prices fall.
That sounds counterintuitive, but put it this way: there are many other places that would love to have more of these jobs. Rather than competing with them, cooperate in proving incentives for companies to move or expand elsewhere.
Sure, if the market is completely free then it will build the highest value items (shwanky condos), but that's (thankfully) not the world we live in.
This is one of the great paradoxes to me. The knowledge economy would seem to the one sector that could entirely function on remote work. Instead, workers are concentrated in a few cities (SF, Silicon Valley, NYC, Seattle) and drive up the housing costs and prices in general exacerbating inequality. The average non-tech worker in these cities has trouble with housing and daycare due to these tech workers driving up the costs.
One of the best way tech companies could address inequality would be to foster a culture of remote work. This would ease up on the housing crisis. Well paid tech workers could go to other parts of the country/world where they would be a benefit to the local economy and culture instead of a harm because they would be spread out.
One, lots of people want to work in physical proximity to their coworkers. I know I am one of those people; I could work remote, but I enjoy the social aspect of working in an office.
Second, part of the appeal of living in one of these expensive cities is that the amenities are also nice. When you cluster a lot of wealthy people together, the public services get better, there are more entertainment options, etc. Being a wealthy person in a cheaper part of the country might sound nice and have its perks, but you are going to find fewer places to spend the money you have.
Third, people like to live with people in their same class. We really hate talking about class in the US, but it is there nonetheless. It is not easy to be a well off tech worker when the people in your social circle are blue collar workers struggling to make ends meet.
I don't know if I agree with that. I am a low level engineer but still consider myself fairly privileged. It makes me really happy when I'm able to help my friends buy something they couldn't otherwise afford. Yes it pains me to see they are struggling but I am happy knowing I can help them if they ever need it and it gives me a reason to keep working.
I also have friends who are significantly more well off than I am. In my opinion, they don't understand the value of money well.
Personally I think it's dangerous to put yourself in a position where you can just forget that there are other people who are genuinely struggling as it can distort your perception of money.
That doesn't seem to be happening in the Bay Area or in Seattle at all.
You could get a tennis court, a dock with a boat, horses, and a shooting range.
You could get a polo field, yacht, a helipad, and a helicopter.
You could get a Formula One track, a large yacht (with pool, helipad, submarine), a private airport for large jets, and a nice large jet.
Whatever the wealth level, you get more of the above in the cheaper parts of the country.
It's less clear that the companies that allow remote workers immediately benefit. It's one of those situations where you hope all your neighbors do it, so you don't have to.
the solution is to build more (socially owned, permanently affordable, high quality) housing. emphasis on the part where it isn't a slum that is doomed to fail and is horrible to live in.
there isn't a shortage of housing, there is a shortage of affordable housing, which for-profit developers don't care about building.
there isn't a shortage of housing, there is a shortage of affordable housing, which for-profit developers don't care about building.
The high prices are caused by the artificial restrictions on satisfying the demand, not by developers not wanting to build.
Another way to think about this is that if a developer is going to go through all the effort to get permission to build (years of delay, paperwork, PR, etc.) then those costs have to be recouped by developing something at a higher price point. Those restrictions have made it impossible to build something at a lower price point.
Adding a tall office building adds to density but skews the housing to jobs ratio. Probably increases inequality, worsens transit problems, and increases housing prices.
Adding a tall apartment building in SF or Palo Alto would rebalance the ratio of jobs to housing, alleviate transit problems, and make housing more affordable.
I guess the article is arguing that imcreasing density in the abstact increases inequality, which may be true. But the argument is not to just "build"; it's "build housing to rebalance the ratio" which actually would solve a lot of problems.
Density had positives and negatives. If you want to keep a given density ina given city, then fine. But crazy skew where you puts jobs far from housing is just bad policy.
It might be more precise to say "either build housing or raze office space" but it seems a little ridiculous to tear down vibrant office buildings, so the answer is to build housing.
Sure, if you start building in SF, it's going to take time to fix. But not adding more supply is like saying, "Well, we've turning coal plants into solar panels but C02 levels are still rising". Just like every solar panel, Every bit more supply will help.
And even more important, is the underlying cost to build. If that's not low enough, the problem will never be fixed entirely. The underlying cost, is usually to high in Blue cities due to regulation, zoning and the loss of the middle class which raises labor costs.
Houston is also surrounded by sparsely-populated countryside, rather than on three sides by water like SF, giving it more room to grow cheaply.
From the paper. That makes me question if an actually competent person wrote this. Income inequality is not a problem. Lack of housing and housing prices are.
One answer to this particular problem for Singapore has been public housing. Public housing is completely different concept in SG as 70% of all housing is "public".
There are no direct price controls but only PR or Citizens are allowed to own these places which places a natural cap on housing. New developments are handed out via lottery with preference going to first time owners.
This naturally limits who can buy into new developments allowing younger families to inflow into said locations thus keeping prices low.
US Cities would be hard pressed to find a scheme that works (article hardly proposes a solution), but I agree simply supplying more would not work.
SF is now more expensive than Manhattan, so I'm not sure what you're arguing here.
Doesn't this contradict their conclusion? What are those workers attracted by if not more affordable housing?
You end up with incentivized developers and low income families distributed throughout the region and not centralized in projects.
Problem solved.
> They agree that housing is part of the problem: “Housing market failures can imperil local economic growth and generate problems such as segregation, long commute times, deteriorating quality of life, homelessness, and barriers to social mobility for certain populations,” they write. But housing policy, and zoning restrictions in particular, are certainly not the be-all and end-all of urban problems. Upzoning expensive cities is no match for the deep divides within—and especially between—cities, and is wholly insufficient to remedy them.
I haven't heard anyone argue that just "upzoning San Francisco" is going to fix all urban problems, much less "[set] up Los Angeles and San Francisco as the new golden land for people in less prosperous regions," as the article says.
However to say that "It mainly leads to building high-end housing in desirable locations," is practically a tautology. Upper / high-end housing in desirable locations is virtually all that developers have ever built. [1]
The article is completely missing the domino effect, and why "mostly building high-end housing in desirable locations" is still helpful. Where there is high-income job-creation (like SF or NYC) there WILL be wealthy people moving in. You can either (a) build nice new houses for them, or (b) let them buy up the existing stock of housing and displace everyone who is lower than them on the economic ladder. That's the part that's basic supply and demand.
Thus the domino effect - with fixed supply the wealthy displace the less wealthy.
Where I think the article is really missing the point is in its failure to see how restricting housing in the hottest job markets just makes the domino effect even broader. If it were feasible for San Francisco to soak up all the tech jobs it probably would. Instead, many "mid market" companies are being displaced to secondary hubs like Seattle and Austin, where -- shocker -- they have similar restrictive policies and are experiencing exactly the same housing crisis and displacement problem just with scaled down dollar amounts involved.
American cities - and many others around the world - are dealing with fundamental problems of scaling. In the industrial era we were a bit better at scaling up: we built simple grids that could be extended indefinitely, and when the technology came around we built trams and subways to help move people about the region. The building codes of the era allowed neighborhoods to change over time so long as the health and safety standards were met.
And then we fell in love with our cars, adopted the suburban car-oriented pattern and passed laws that mostly forbid the development of anything else. That pattern is specifically designed not to change over time - so we shouldn't be suprised when it buckles under the load of steady population growth.
[1]: https://www.strongtowns.org/journal/2018/7/25/why-are-develo...
I think the commute from beyond the city, where housing is more affordable and zoning more permissive, could be improved and promoted as a compromise.
Even if your only goal is to produce more affordable/low income housing, and you do not believe that market rate housing helps, you still have to admit that upzoning helps with the problem.
This is because in major cities, like San Francisco, there are low income housing requirements for many new housing projects.
Or in other words, if a company builds an expensive apartment complex, they might be required to make 20% of those apartments as affordable housing stock.
Therefore, upzoning areas still definitely creates more affordable housing stock (because of that 20%), and should therefore be desirable for people who care about this issue.
I am sure that many developers would increase the percentage of affordable housing that they create, if they were offered height limit relaxations in return. Ie, they can build that 30 story apartment complex, that was disallowed previously, if they make ~30% affordable.
Housing upzoning efforts should be focused on these unilateral wins that help everyone.