Upzoning will ease housing affordability problems
cityobservatory.org
cityobservatory.org
Manhattan/the Bay Area/LA/DC would need staggering rental decreases to reach anyone's definition of 'affordable', much less the government's definition of a middle class family. Like, 33-50%+. I struggle to find examples of this happening in market economies outside of a major natural disaster.
If the US was an authoritarian dictatorship and we bulldozed every single family home in the Bay Area, and replaced them with 100 story apartment buildings as far as the eye can see, of course rents would dramatically decrease. Seeing as that's not an option- the discussion is how much could rents be brought down by upzoning in a market economy where only so many homes are sold every year, developers can only build so much per year, development is very economic cycle and interest rate driven, etc. Like, upzoning only works once the existing single family home owner sells, and then a developer purchases. Did you know the average turnover in many neighborhoods is 1-2% annually? Thousands of units are not exactly going to flood the market overnight.
I'm for upzoning generally, but people assign it magical properties that don't exist IRL. The whole NIMBY/YIMBY/build more discussion is kinda reaching unrealistic fever pitches among the right crowd of people who, like, follow Noah Smith on Twitter or whatever
Sure they do. In an unconstrained market, prices will decline to the marginal cost of building one more unit. See Glaeser & Gyourko (2002): https://www.nber.org/papers/w8835.pdf
[slighted edited for clarity]
according to some quick and dirty searching, we build about 140,000 units per year in california and need another 110,000 to house the net increase in population. that means we need 250K units per year total. it now costs about $400K to build a unit of housing. so that means we need $100B of new housing per year in cali. incidentally, the gdp is about $3T and the annual state budget is about $200B.
at that rate of building (250K units/year), you'd expect housing prices to stabilize. if you want prices to go down, you'd have to build more than that (hard to incentivize unless costs are brought down or subsidies are brought up).
according to the census, even in metropolitan statistical areas, new residential construction is mostly (90+%) detached single family residences (SFRs). so if we upzone all SFRs (R-1 in LA) to two-family residences (R-2 in LA) and encouraged the building of 2-family structures, we'd expect housing prices to stabilize, at least in metro areas, where housing is at crisis levels.
i think this was the reasoning behind california cities (like pasadena) experimenting with allowing in-law/accessory units (based on the quick calcs above). i would actually go even further and upzone to R-3 (as proposed by scott weiner in SB50 [0]), which would then allow fourplexes on what would only have a single home. fourplexes are nice because the massing (from the street) is about the same as a single family home, but it potentially quadruples density. then you'd actually see decreases in housing costs.
i'd also encourage owner-occupied fourplexes to create more coherent neighborhoods, rather than corporate-controlled rentals that extract and deplete wealth from a neighborhood.
[0] https://www.latimes.com/politics/la-pol-ca-single-family-zon...
But how much brand new residential construction on vacant plots of land is going on in the most expensive cities? The slightly unrealistic YIMBY movement makes it sound like there's many plots of vacant land just waiting to be developed. But..... there's not. Upzoning mostly means buying existing SFRs and doing teardowns, not just building brand new on these imaginary vacant plots of land in San Fran or Manhattan. This is limited by number of SFR sellers, etc.
not having looked into it further, i'm guessing that most new (SFR) housing starts are at the margins of the metro area, not in/near the center.
That's not the way to measure success. The way to measure success is the number of new people living in the desirable area.
It's not "Rent is now $200 cheaper"; it's "3,000 people can now afford to live here that couldn't before (because, FYI, the rent is $X cheaper)".
What is shown by this is that, when you build more housing in desirable areas, people will always move in to fill it. The value of which being that more people can now experience such desirable areas. In fact, the price decreases aren't coming from the actual housing supply increase directly, but that prices fall when there is a bigger competitive pool of those seeking housing and those supplying it even with 1:1 increases on both sides.
So what's the solution?
The truth is there isn't one, in our current political environment we will neither see a command economy that seriously solves housing issues (or even something like what singapore does). We won't see national multifamily by right zoning/building codes that enable economies of scale for high density construction. We won't see every suburb in America allow density increases to the level that automotive travel becomes a serious hassle. Additionally, we won't see major financing efforts come about for new housing production at the scale of a trillion dollars a year (which is the level of investment needed from a debt financing perspective).
Within the broader market, the cost of financing and construction are just too high right now for housing prices to fall on the production side of the equation. It is not possible to build 1000 sqft apartments in existing dense parts of the US that cost $100k on the production side (what it would cost to build a similar sized average single family home) in any of these major cities, and that's before land acquisition costs.
The truth is, that the most viable way for creating affordable housing in this country right now would be to build an entirely new city made up of moderately sized row homes that would have the ability to sprawl as such for 60 miles in any direction from its center.
But yeah, everything else you said is spot on. I previously worked in commercial real estate, and I find the Matt Yglesias-types' understanding of how property development works to be bordering on magical. I mean, again, I fundamentally agree with the YIMBY movement, and that many zoning laws are glorified rent seeking. But the affordability issue is fast leaving rational discussion and entering belief system territory. Manhattan & the Bay Area & LA are expensive because the demand to live there is 10,000x or 20,000x what it is to live in, say, Milwaukee. This is the root of the problem- you cannot possibly build enough to sate demand in a non-command economy
Like, Japan famously hasn't grown in years and years and is arguably suffering from deflation. Does that affect their housing prices as much as anything else? Does anyone here have a PhD to help explain these complex multi-causal factors? Probably not
To develop a comparable economy of scale, the US would need to significantly relax zoning rules and develop national by right standards.
Density of San Francisco: 18,838/mi^2.
Density of Barcelona: 41,000/mi^2.
> encourage smart young people to move to Denver and Charlotte and Miami and Raleigh and Indianapolis and Phoenix and Burlington and Madison and
This is a failed strategy, and a bit of reflection shows why it is. Think from the perspective of Google. If Google thinks the best engineers are in the Bay Area†, Google needs to be in the Bay Area. Otherwise, the best Bay Area engineers, who have a choice in where they work by virtue of the fact that they're the best engineers, will go work for competitors. Now realize that this dynamic is true for Apple, Facebook, and even Amazon and Microsoft, and you see why the situation is the way it is. Given this, the realistic options are (1) drive everyone but the rich out of the Bay Area; (2) build more housing. So far, rich municipalities like San Francisco are choosing option (1) under the guise of "progressivism".
Besides, even if it were possible to force Google to move, it isn't fair for rich people in the Bay Area to gentrify Modesto just because they don't want to build housing.
†I'm not arguing that engineers in the Bay Area are actually better than engineers elsewhere. The point is that the big tech companies think that the best concentration of engineering talent is here, and economically, that's what matters.
You know how you get those smaller cities to be places where tech companies can grow successfully, you start now, by building infrastructure that retains the college graduates from the area, and in 10-20 years, the region has highly competent professionals in the given field.
We have an affordability crisis in Michigan because average rents are now up into the $1600/month range in many areas. Once you adjust for income, a $1600/month rent in Michigan is an effectively identical expense to a $3200/month rent in SF/NYC.
When NYC / SF / other top-tier cities chew you up it's no big deal -- cash out and move to the Midwest. But what can someone do when a Midwest or other bottom-tier cities chews them up? They're stuck, there's nowhere cheaper to move that still has any jobs.
Hold on. That study is about an increase in the housing stock of a single neighborhood in a city, only for the top decile of expensive neighborhoods, and the resulting effect on rents within that same neighborhood. Its counterfactual is somehow taking the entire private expenditure used to build that housing and putting into public works projects in the bottom 9 deciles of neighborhoods in order to attract demand there instead.
we owe it to future generations to try our best and get as much housing supply as we possibly can. The whole problem isn't going away in 1 year, it took 4+ decades to create this problem and it will take multiple decades to fix it completely too.
Look at Houston. It's the 4th largest city in the US and growing much more quickly than any other city in CA. Their housing prices are 100$/sq ft!! How did they accomplish that? No zoning laws. Developers built as much housing as people needed and everyone prospers: it's win/win, more jobs, more housing, more prosperity. There's no reason this can't be done in an area with "nice weather"
https://apps.texastribune.org/harvey-reservoirs/
Building homes in reservoirs.
i would suggest looking outside the US. The zoning/land-use regime where single-family zoning dominates is not universal -- see http://devonzuegel.com/post/north-american-vs-japanese-zonin.... In fact, Japan kind of is a shining example of upzoning bringing down (and keeping down) rents to levels unthinkable in US cities.
No where in the Bay Area "is built out" so there's no need to bulldoze single family homes. There's lot of parking lots, abandoned or under-utilized malls (e.g. Valco) and land zoned for other uses like office or manufacturing that can be used for new construction.
I'm pretty sure building more alone won't solve the affordability problem, but it will stop prices from rising. As it stands as a software engineer I can't afford rent in the average San Francisco apartment (I live in Oakland, so I'm OK for now).
But that's why many housing advocates support the three Ps: Production, Protection and Preservation. These three ideas combine to build more homes, protect exist tenants from abuses and to preserve existing affordable housing stock such as SROs.
Zoning is not a magic pill for ending the crisis, but we can't even begin to do things like build government subsidized housing when communities spend 20 years battling one apartment building to house 28 families [0].
0: https://twitter.com/LibbySchaaf/status/1128517407486517248?r...
Welcome to modern science reporting and interest groups. :(
Building new housing for locals is good, but in some cities what is occurring is new housing is being explicitly marketed to foreign investors seeking yield. This doesn't benefit locals and doesn't ease affordability problems.
But at the end of the day there are simple dynamics you can't get away from.
The thing with induced demand is, everyone admits that it's possible to out build induced demand - it's just impractical to do so, so it rarely happens. The housing equivalent of induced demand (people who live in suburbs moving to the city) is a very real phenomenon, but it's inherently self-regulating. If people avoid living in the city because of cost, they'll stop moving in when the price stops coming down.
Luckily for housing, while the main reason we don't have infinite transportation infrastructure is cost, the main reason we don't have infinite housing is regulation which is inexpensive (in theory) to remove.
More housing may not result in an equivalent drop in price. But it will increase the number of people with access to economic opportunity.
Suffice to say I’m in favor of increasing throughout. For both transportation and housing.
Like yeah, maybe. But if a place is so awesome, then shouldn't we try to let more people live there? Shouldn't we trying to continue to do things that make this city awesome?
Likewise for housing, induced demand isn't that bad. Most people will only ever have one house. In the case of a highway expansion, people can easily take multiple auto trips that they'd otherwise avoid given congestion. Unless the price of housing craters, I doubt most people will start consuming multiple homes.
Induced demand in the context of market-rate housing is highly speculative and if it exists at all likely to be very limited. It's sort of non-sensical, like saying that demand for the original iPhone (or any new product) is "induced demand", either because it was new or because people wanted to be like other people. That's not the kind of phenomenon the concept of induced demand is trying to describe.
It applies to everything, from housing to hamburgers.
I have a hamburger restaurant where I sell hamburgers for $5. Some people buy hamburgers, and some people will not buy hamburgers. Some of the people who will not buy hamburgers would buy a hamburger if the price was lower. If I drop the price, I will induce demand.
However, they also want the amenities that are only available in mid sized cities. The ability to have a single family home a 20 minute drive from downtown with a yard with available parking, undeveloped nature and farm land that isn't over an hour away, parks that aren't always packed, and many other things that are incredibly hard to add back into the city once it starts to be developed in any serious way.
The YIMBY solution is to let the market decide, which will always demand increased transformation of cities with good economies, when we'd build a better world for everyone should we put in more effort to transform smaller cities into the places with jobs, good wages, with high quality institutions and amenities. Tons of tech workers move to the west coast not because they've always wanted to, but because they know that they're restricting their career opportunities should they not move.
It's like saying, "I'm going to lose weight, by eating only pizza 24/7". Sure, you technically could do it from a calories in/calories out perspective, but it's going to do a hell of a lot of damage to your body along the way.
It might be less damaging to your body to lose weight by eating healthy first (building affordable housing, building public housing). But the urbanists are generally against this, they want to only eat pizza (only build high-end / 'market rate') while pretending that counts as an effective weight loss program, because "weight lost is exclusively just calories in vs calories out" -- "housing is exclusively just supply vs demand".
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Does their approach work? Technically, if you build a metric-insane amount of high end housing, you eventually slightly decrease a tiny percent off the yearly rental growth at the highest-end of the market (Seattle is the textbook example of this).
Is this a healthy approach for the city at large? I'd argue no -- it does massive damage to the poor/middle-class, and to the climate in general, all of which is all completely ignored while Urbanists focus exclusively on bringing luxury housing down tiny percentages for a tiny few people who qualify for them.
If you "migrate" the people with poor-to-middle-class incomes, your city becomes an empty husk. What is even the point of cities, if we assume most people could never "compete" well enough to live there?