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Comment by graeme | Hacker News Reader

The article pretty clearly said it was talking about a pretty specific set of beliefs belonging to an urban type of NIMBY. I’m sure you’ve seen this on forums for example:

“ Allowing private developers to build market-rate housing results in the construction of “luxury” housing instead of “affordable” housing.”

“In addition to lining the pockets of developers, this “luxury” housing raises rents in an area, leading to gentrification and displacement.”

From the article. And the title of the article says canon, because these are taken as axiomatic.

If someone wants a particular wetland or beautiful historical building preserved, that’s one thing.

But there are people who truly believe that building housing raises rents! It’s crazy and widespread. The article is describing that.

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> But there are people who truly believe that building housing raises rents! It’s crazy and widespread. The article is describing that.

It depends on the development. A lot of the times you're not simply talking about the same neighborhood with more housing, but rather efforts to transform the neighborhood completely and increase the desirability. In areas that have seen a lot of development and gentrification, it's not uncommon to see demand increases exceed that of the increased supply and see the rents go up accordingly.

Although, put it in larger scale, you can't live in two houses simultaneously. Renovation would probably drive price up in a single neighborhood. Yet as long as housing supply is increased, we should expect to see a overall drop in rent.

The article covers this. Empirical studies suggest this effect does not occur.

More housing generally does entail a transformation, because you need denser housing to build more units. Cities don’t have mass vacant lots ready for units of the exact same type extant.

> 1) For example, Xiaodi Li has a 2016 paper that looks at what happens to rents when a new market-rate housing project is completed. She uses the random timing of project completion to make sure that she’s measuring causation instead of mere correlation. She finds:

>For every 10% increase in the housing stock, rents decrease 1% and sales prices also decrease within 500 feet. In addition, I show that new high-rises attract new restaurants, which is consistent with the hypothesis about amenity effects. However, I find that the supply effect is larger, causing net reductions in the rents and sales prices of nearby residential properties.

>That’s a very localized effect! If induced demand were a big deal, you’d expect the opening of a new “luxury” building to at least raise rents on its particular block! But yet, she finds the opposite.

There were more studies discussed in the article.

> The article covers this. Empirical studies suggest this effect does not occur.

That study doesn't deal with long-term neighborhood revitalizations. It's dealing with new developments in New York generally, though if you read the study it still mentions that the amenity effect does occur and could increase rents. It says that this is offset by increased supply, but that's looking at things in aggregate. The increased demand from a few new restaurants in a already developed area isn't going to come close to the transformation of a burned out crime ridden area into a prosperous one. Anytime spent in gentrifying neighborhoods (or time spent looking at how cities have been trying to develop these) will show you that, unsurprisingly, the impact is much higher there.

That’s fair, I gave an upvote to your earlier comment. Though at that point what’s the policy: suppress housing supply and keep areas burnt out and crime ridden to deter outsiders? Not so great for quality of life or the tax base

I’m not American so I forget how stark things are there. We have gentrification in Canada and it happens even without neighbourhood revitalization. People will move into an area and raise prices as long as it’s near a transport line. Generally every place is safe enough to do so or becomes safer over time.

I’m assuming this does happen somewhat in america even without redevelopment. Are there places that with no construction in popular urban areas where prices truly don’t rise?

Yes, but they're only places where people don't want to move into given a choice. Generally such places get worse for the residents over time, eventually becoming slums.

> Are there places that with no construction in popular urban areas where prices truly don’t rise?

As the other comment suggested, there are pretty run down areas that tend to not increase as much or even decrease (in extreme cases). Revitalized areas are going to tend to be more expensive than non-revitalized areas. You'll see a lot of this if you live in a city and follow redevelopment efforts and which neighborhoods change over time (IE, neighborhood A, B, and C are poor, C gets a big development push, C becomes more expensive than A and B).

Also worth noting that amenities don't simply increase or decrease, but they shift. Supermarkets from the same chain in the same city can have cheaper, lower quality food in poorer areas and more expensive, higher quality food in wealthier neighborhoods.

> Though at that point what’s the policy: suppress housing supply and keep areas burnt out and crime ridden to deter outsiders? Not so great for quality of life or the tax base

It depends on your goals. I'm generally in favor of development, but others have goals that are different from my own. There are long time residents that feel that the disruptions these changes bring outweigh the good. Even things that get overlooked like there being fewer local cheap eateries because of increasing commercial rent, or more police attention driving away crime (a good thing) but also street vendors, or the percentage of the people you know and are able to talk to greatly decreasing (not uncommon in ethnic enclaves).

I don't know why people are trying to twist their brains into a knot. No. That's not how it works. You don't just magically wish demand into existence.

You've already transformed the neighborhood by putting almost no barriers on commercial real estate. The demand you are so scared of is already there. That commercial real estate produces a massive surplus of jobs because there is not enough housing. That's where all the demand is coming from. If you really, really wanted to solve this problem on the demand side you would have prevented commercial real estate development. Nobody is proposing that. Local people are proposing that residential construction should be prevented and then they hate on the people they built offices for, because they had the audacity to work there.

> But there are people who truly believe that building housing raises rents!

Except that is not an accurate description of their position.

If a developer is given free reign as to what they can build, they will naturally build the most profitable thing they can on the land they have available. I doubt anyone would dispute that?

The idea here is that the most profitable thing tends to be more upmarket than the locals can typically afford. The area gets gentrified and rents go up.

I am nowhere near an economist, but that doesn't immediately seem wrong to me. There are plenty of real world examples where this has happened.

A socialist would say that if the market fails to provide solutions for core needs of people (health, housing, etc) it is up to the government to provide those. Some things are simply either unprofitable or not suited for a profit driven approach (e.g. private prisons where the companies running them are actively incentivised to see repeat offenders).

You can argue that having the government build low cost housing is not the correct solution, but I think the propostion that some housing raises rents is actually not that crazy.

Did you even read the article? The author addresses this concern.

The thing is affordable housing is like rearranging deck chairs on the Titanic.

If a city creates a million new jobs, they need a proportional amount of new housing to avoid a housing shortage.

But what happens is the NIMBYs clamp the amount of new housing to a fraction of what's needed. Obviously developers, if limited to building a fraction of what's needed, will go for the more profitable segment first. But that's not the underlying problem! The problem is that the total new units are too restricted. If we build a tiny, restricted amount of subsidized housing, there will still be hundreds of thousands of workers lacking housing, because the overall amount is too small.

What we need to do is first focus on the overall shortage and commit to building a huge amount of housing. Then it won't matter as much whether or not it's subsidized, because with an excess of housing, some will end up priced for every segment.

The end state of that logic is that 8 billion people are crammed into a single city. The rest of the world is a wasteland with no jobs.

An alternative is that jobs could go elsewhere, for example in Arkansas or Mississippi.

It's fine for a city to limit jobs to fit housing, if they don't want to build housing.

What's not fine is encouraging jobs while discouraging housing, which is common in California because Proposition 13 makes residents a net expense - cities have to get most of their revenue from businesses.

Pretty obvious how that leads to a never-ending housing shortage.

Proposition 13 doesn't mean that cities have to get most of their revenue from businesses. They could trim the budget. I think that was the intent of Proposition 13.

Obviously, a direct prohibition on city budget increases would have worked better.

With residents not feeling the sting of increased costs, they will of course vote for local politicians who spend money without hesitation.

If there’s demand for a hundred fancy houses and two hundred plain houses, but the government only permits twenty houses to be built, all twenty are going to be fancy. There’s profit to support building every variety of house, but we need to stop making it illegal.

> If there’s demand for a hundred fancy houses and two hundred plain houses, but the government only permits twenty houses to be built, all twenty are going to be fancy.

On top of that, it's not even obvious that this is true.

If you build a multi-story building with 30,000 square feet of housing, you can either make it ten 3000 square foot units or thirty 1000 square foot units. Which is more profitable? It depends on the local market but it's not inherently the smaller number of larger units.

Unfortunately in the face of property taxes both are the same or maybe it is worse.

30 small apartments that cost $200k (to build) or 15 big apartments that cost $400k both can end up paying the same amount of property tax. Replacing property tax with land value tax would push the profit calculation 100% in favor of lots of smaller units because you would only pay a fixed tax for the land. If the LVT is $360k/y the landlord would pay $1k tax per month in the small apartments. In the larger apartments he would pay $2k. The tax is a pure loss for the landlord so he wants to pay as little as possible by building more units.

> If a developer is given free reign as to what they can build, they will naturally build the most profitable thing they can on the land they have available. I doubt anyone would dispute that?

There is no such thing as luxury housing[1], and developers in the US are given nothing like free reign, so this doesn't happen - they don't build special gold-plated apartments for rich people. The most profitable building for the landowner would typically have more units, because that means more people will buy/rent units from them.

And of course, the developer is not necessarily the landowner, and so they might be paid a flat rate anyway.

[1] What actually happens is developers call their buildings "luxury" because it sounds good, but they're lying.

I never said anything about luxury housing?

Housing doesn't have to be "luxury" to be unaffordable.

The most profitable thing to build on land is usually also the most affordable thing, because it has the most units.

Unaffordability happens when zoning makes them build single-family housing, or when the land is so expensive anything would be unaffordable while it's new.

Single family zoning is not just unaffordable for the people living there, it's also unaffordable for the government. It also causes car dependence and energy inefficiency. Overall it is a net loss for everyone involved.

I don't understand this? Sure there are cheap developers who use trendy finishes with cheap materials and markets as fancy.

But luxury exists. googled definition of luxury includes 'extravagant living.' To me that includes

Doorman, butler services, room service and daily housekeeping (e.g. condos at the Ritz), valet, huge amounts of in building amenities. Super high end custom finishings, fixtures, decor which doesn't serve a purpose in terms of extra comfort or use, just aesthetic/signaling.

And the epitome of the logo whore luxury condos celebrity architect firm placing giant $10mm Koons or Kaws lobby sculptures (which funny enough there's an ever more high brow snobby art joke that once you're in the lobby you're done lol).

Those $10 million condos are wealth traps. Nobody lives in them so nobody gets displaced if a billionaire parks his money in the real estate market of your city. If that billionaire had to buy 10 apartments to park his money the displacement would be very high. This type of "luxury housing" is guarding the rest of the city from foreign demand.

More generally, a tower doesn't cause displacement because it's built up in the sky. Displacement is caused by taking up land, which single-family houses do the most of because they fit the least people on the most land.

>If a developer is given free reign as to what they can build, they will naturally build the most profitable thing they can on the land they have available. I doubt anyone would dispute that?

Nobody disputes this, it's obvious. However, you're missing the benefits of this approach though. For a lot of industries you have very high upfront costs. You want to pay those off as soon as possible. Once they are paid for you can often drop your price substantially. The company has to pay for the training of the construction workers, lease machines and pay for the currently very expensive housing because that is where the construction workers live.

>The idea here is that the most profitable thing tends to be more upmarket than the locals can typically afford. The area gets gentrified and rents go up.

Well, this is where things go wrong. You are mixing up cause and effect. Demand (gentrification) leads supply (house construction). If you fail to construct new housing you get displacement. That demand is driven by people getting a well paying job and they have to live somewhere. If you don't build housing for them they will have to displace locals because that's the only place where they can live. From this perspective the new comers don't want to take your home. You can keep it. They just want a place for themselves.

>A socialist would say that if the market fails to provide solutions for core needs of people (health, housing, etc) it is up to the government to provide those. Some things are simply either unprofitable or not suited for a profit driven approach (e.g. private prisons where the companies running them are actively incentivised to see repeat offenders).

That's not a failure of the market but a failure of policy. The primary reason why public housing works is because it forces the government to acknowledge bad policies and replace them. The bigger failure of for profit housing is that it is slow. A housing shortage that took a decade to create also takes a decade to solve. The government has the benefit of being excellent in the short term but in the long term it is only "good enough", which is why you need both.

There are people who truly believe that widening roads causes more cars to drive on them and fails to relieve congestion. Imagine that!

Except, that phenomenon is well-supported by research. Perhaps the situation you describe isn't so impossible as you suppose?

The article uses that exact example and gives empirical evidence to show the phenomenon does not occur with housing.

Also, it occurs with roads in some cases. It isn't a universal law there either.

More than that, the places where it happens with roads tend to be the places with constraints on housing construction. (Because then people have to live farther away and clog up the roads.)

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