Startup cities and the housing crisis: the only way out is up
profectusmag.com
profectusmag.com
The fundamental failure of this logic of trying to go somewhere and built a new city to escape the policy failures of the old city, is that those conflicts are intrinsic problems of large scale human organization. If you bring people, you bring the politics.
It's just the same dream that any anarchist commune has suffered from. Works okay if you're in a Kibbutz in Israel, doesn't work when you have a million people.
These startup cities always describe their policy solutions in consumer terms. 'Come here and you get yimby-ism and social services and x, y and z'. Okay what if the good people of your city turn into nimbies though? Do they have a say? If not how's anyone going to stop them, police with batons? Police you curiously enough never see on any of the concept art of all the diverse, young people sitting in front of modernist coffee shops, which is weird because I have to assume the city has some.
I don't agree.
For example, healthcare in the US is screwed up partially because during WW2, the US government made corporations adhere to a salary cap to prevent war millionaires. Companies responded by trying to attract workers using free health insurance instead. So now we have a tradition of providing health insurance along with employment, and things are awkward for freelancers and entrepreneurs.
Housing is screwed up partially because of government policies to encourage homeownership. The problem is that as homeowners become a constituency, they're incentivized to maintain the prices of their homes (one of their most valuable assets), so they vote for policies that prevent the construction of new homes (reducing supply of housing helps their homes maintain their value).
The US itself was founded partially because of policy problems in Great Britain. And despite the flaws listed above, as a nation it's been incredibly successful.
I don't think policy development is fundamentally different from technological development. It just has a slower cycle of trial/error/theory creation. You might as well look at an early car, observe its unreliability, and say "The fundamental failure of the horseless carriage is that its unreliability is an intrinsic problem of thermodynamics"
It wasn't to prevent "war millionaires". Wage and price controls were imposed to prevent hyperinflation.
https://www.peoplekeep.com/blog/the-complete-history-of-empl...
A tiny percentage of corporate employees become millionaires in this day and age. The percentage that could have done so in 1942 dollars is a fraction of that fraction.
NIMBYs are likely not going to move a city built on the foundation of density and easy permitting. Just like people who hate hot climates don't move to Phoenix.
Build certain zoning policies into the city's charter that is hard to change. If NIMBYs move in, then - no, they don't get to change the charter with a simple majority.
So this question needs a serious answer. You can write something in the charter, but what's stopping enough people from changing the charter 30 years down the line? All NIMBY American cities started out as startups, the country's not that old. Little more than a century ago the West was associated with the frontier life.
So once people are in, ANY change is problematic. Increased density and construction is the common case these days because that's what we need, but the same would happen in reverse. If NYC's mayor said they were going to eminent domain the whole place to make it a low density suburb, even the people who get to keep their homes would lose their shit. You don't live in Manhattan because you want a big yard for your 6 dogs and 3 chickens.
When it comes to housing, any kind of change is hard. So if you start from scratch, there's not much problems.
I was admittedly heavily biased by where I lived before, because I am used to that area, which seems to be true of my friends, independent of where they actually work.
Maybe this is just the Bay area. For me at the time Palo Alto and Menlo Park were too expensive, so I was looking in Mountain View, Sunnyvale or Redwood City. Fortunately for me Mountain View has gotten a bit nicer in that time.
That seems like a really jaded view. To my mind there are millions of ways to organize human societies. The more experimentation the better. You're acting like nothing new can ever happen in this area, and I just don't buy that.
What annoys the rest of us is the hubris and overconfidence. The experimenters usually falsely label those of us who disagree with their "vision" as fools who can't see the future.
This argument proves too much.
If it were true, all big cities everywhere would have similar problems.
But they clearly don't, so a wide range of outcomes is possible.
For example, Catalan-Americans, Basque-Americans and Spanish-Americans do not have any mutual conflicts regarding self rule, unlike their kin who stayed in the Iberian Peninsula. Different country, different problems.
It is likely that you won't build an utopia, but at least you can build something new.
For as long as wealthy people and funds keep buying all the houses and rent them out, you are never going to solve the problem. Never, ever.
Do you want houses to keep going up more than inflation?
If no, then they can't be a "good investment".
The crazy thing here is people complain about their economy slumping. Imagine what would happen if we didn't have all this money going into houses... the money won't disappear. It will go somewhere in search of "good investment".
If you’re using leverage and the cost of that leverage is lower than the cost of inflation (The case with US mortgage rates) you will come out ahead even if the property only keeps pace with inflation. Even if the interest rate on your debt is the same as inflation, mortgage payments are calculated using simple interest while inflation is compounding. That’s not even getting into taxes which can shift the calculus further in your favor.
Unfortunately, this can all be very non intuitive but RE is one of the best investments out there. You can’t get margin called, the government is heavily subsidizing the loans and there are endless protections (Can’t lose your primary residence in a bankruptcy, mortgage forbearance, etc ) you’d have to be crazy to rent if you have the option not to.
Looking at my own country, I cannot really pinpoint any single corporation I would trust to grow a lot in the 20s. Peeerhaps Avast, maybe.
And looking at the recent Chinese governmental heavy-handed social engineering and crackdowns, I expect rich Chinese to start investing their money outside China even more furiously than until today.
This seems to be in conflict with the common market principles. EU countries cannot economically discriminate against EU citizens, with only a few exceptions aimed at reduction of welfare tourism.
Or does Denmark have an opt-out?
And what about real property owned by legal entities? Czechia used to have a ban on real property ownership by foreigners before EU accession, but foreign investors would just create a local LLC and buy/build whatever they wanted.
It seems that you're saying the restriction is tied to residency and not citizenship, which implies that non-citizens can purchase property as they don't rent it out (even if they don't actually live in it?).
This may not prevent the problems that come from some foreign property investment that is driven by seeking to protect wealth from government seizure rather than to produce passive income.
What about corporations? Can they, for example, purchase property in order to give employees rent-free housing?
Their kids turned out normal - as far as i can tell anyway.
You would call an endeavor like this not building “that much”?
You only have to do three things. Rezone, expedite permits, and encourage investment dollars to flow into development.
Sadly most cities that have this problem are failing on all three counts.
https://en.wikipedia.org/wiki/Haussmann%27s_renovation_of_Pa...
Toronto (Canada) used to have a lot of flat parking lots, but they're basically all gone now. Gas stations downtown are getting hard to find (not that you have to drive far to kind one out of the "core"):
* https://www.blogto.com/real-estate-toronto/2020/11/last-gas-...
Edit: it should be noted that Toronto didn't actually raise rates. Land just got more "inherently" valuable/expensive, and even with one of, if not the lowest property tax rates in the province, you get a large resulting product when you do the multiplication.
I guess what I'm saying is just eliminating zoning and land development restrictions isn't really a good solution a lot of time either imho (that's not necessarily what you were pointing to but I think it's a common idea).
Toronto used to have life where one could work and buy house and enjoy various things. Now for most young people you have to pay fortune for a rathole, become a slave and have nothing else left to live normal life. Welcome to a new American dream.
Considering the condo companies have no incentive to care about the long-term (once they sell-out, they easily extricate themselves from basically any repercussions of their stinginess), it's unsurprising.
Not to mention, the buildings are almost all ugly as hell.
So happy I don't have to live in Toronto.
https://en.wikipedia.org/wiki/Leaky_condo_crisis
In B.C. alone an estimated $4 billion in damage has occurred to over 900 buildings and 31,000 individual housing units built between the late 1980s and early 2000s, establishing it as the most extensive and most costly reconstruction of housing stock in Canadian history.
The problem in SF is just that housing construction is effectively illegal.
So it doesn't matter how valuable the house you can't build would have been.
Frankly, I think as long as you change the zoning the market should work itself out.
The issue is complicated, not just economically but morally and ethically too.
Point Reyes isn't very dense for example. Should I be petitioning the government at Point Reyes Station to raise taxes so high that people have to give up their current homes so I can have a cheap condo to buy? I mean that's basically what we're asking to be done in San Francisco, it's just not covered in baggage.
Another alternative is that if prices become too high then companies won't be able to attract workers to the area, or they'll be paying so much it's like well, fine then.
Idk. I have a hard time with this because I don't view skyscrapers (or any building over around 3 or 4 stories) as good development, but I also don't like actual suburbs either. It's two ends of an extreme spectrum and both are bad/good for their own reasons.
I also don't think you can really satisfy the demand for living in San Francisco either. The more you build the higher the prices will go. It's counter-intuitive but when developers go off and pay exuberant prices for these single-family homes, they'll have to make up for that somehow. So they'll build higher-priced units which will create higher rents. But the previous units aren't going to drop in price. If you're a landlord or property manager that's not good for business and it messes with your investment forecasting models. But unlike a typical supply/demand relationship that you may think of, what ends up happening is that this current price point is just filled by other workers who previously wouldn't have lived in San Francisco and they come in at that rent price.
So what happens then is that the higher-rent people want higher wages to maintain their previous COL. More people move in, more developers build, etc. etc.
And you can see this in Manhattan right?
I think often people assume that the demand is stable. But it's not. It is just increasing and further supply does nothing to change that. People are willing to pay any price to live there, they just change how much they're making.
I'm sure there are examples, but I can't recall a major city like San Francisco where rent prices have gone down over time as a result of building new developments. Maybe someone has a link or anecdote. I mean, prices in Manhattan haven't gone down have they? Maybe Chicago if people have actually been leaving the city.
Idk.
Tl:dr
New units increase prices.
If an owner/developer has their properties as backing collateral, and they recognize revenue on the books at significantly less than the projections/models of the property value that's been collateralized, then a whole weird cascade of things can kick in. Like statutory insolvency, etc. So, in certain circumstances and certain markets there's a very, VERY strong local incentive not to adjust prices down in the short term.
It seems to me that there is a breakdown in price elasticity.
-edit-
Sorry to see cowards downvoting you without even commenting. Idk what you said that was so worthy of that. Sucks it's hard to even have a speculative conversation without "this doesn't fit my worldview click".
The payment and expertise is the easy part, if the law allows it. The hard part emotionally is allowing the city to change.
But any growing city has destroyed much of what came before. Manhattan has been a city for hundreds of years, current buildings were not what was there before.
Interestingly, mission bay ucsf campus made a bunch of big buildings, so would seem consistent to add corresponding housing. Though expensive/dangerous..
I'm what you could call bullish on bitcoin, but I'm not sure how it applies here? It has less friction than dealing with bank transfers between countries, but the article specifically deals with the US, not international housing issues.
If anything, paying employees in crypto adds more layers of accounting, administration overhead, and legal work. Distributing payroll money isn't a bottleneck for city growth, so I don't know why this author tried to wedge it into this article.
Assume a company, now they want to pay people in BTC. how get BTC to pay employee - and what methods are used to accomplish. ELI5
I'd wager that you're wrong. At least in transfers between most European countries.[1]
I’m wondering if the author was referring to this use of cryptocurrencies. It’s sad, but a lot of these cryptocurrency projects have implemented much more transparent and frictionless forms of voting than what we have in representative democracies today. You don’t have to search out and then show up to some hours-long meeting about a new construction project: there’s just a public vote, with attached forums for the discussion aspect. Pull up the front governance page and you can see every proposal currently up for vote, and every historical proposal. It’s all there, easily accessible.
If a new city were born which achieved any similar degree of transparency/low friction in their direct governance, I would seriously consider moving to it. There are lots of “if”s there, but LOADS of our problems in cities amount to misaligned incentives, such that they would disappear if only we got the right incentives in place (e.g. NIMBY policies benefit existing high-networth homeowners at the cost of more vulnerable/younger renters. There are ways to balance things such that NIMBYism at least isn’t an economically profitable position to take). Experimentation is the way to discover better incentives, and strong governance is the way to enact/enforce those. Today every city in the country almost universally uses a paper-based representative government. There’s such little experimentation in the physical world at that level that you’d either have to believe that a) we’ve already found & enacted the most effective form of governance or b) there are undiscovered systems which could better meet the needs of modern-day citizens. My money’s on b. And though b doesn’t need cryptocurrency, today’s cryptocurrencies are capable/flexible enough that they could be slotted in for such a purpose far easier than anything else, so why not use them.
The bigger problem is that zoning law is created at the state level and then applied by each municipality, but housing prices are related to the housing stock of a metropolitan region of many municipalities.
For every expensive city that is (relatively) developer friendly (say Cambridge MA or Boston MA, which both grew population by over 10% in the past decade) there is a ring of NIMBY inner suburbans like Newton MA, Arlington MA, Weston MA, who viciously oppose even a single apartment building[0].
Which makes sense when you think about it. Imagine you live in Boston, and things are changing and being built up. You don't like it. People tell you "If you don't like it, leave". You're like "Ok" and move to Arlington. Fast-forward and the same thing happens again. You're gonna push back, because the whole reason you were there was to avoid it.
Sometimes I feel like having longer term planning would help. It wouldn't help with the problem today, but if I knew that in 10 years there would be skyscrapers across the street, I could decide if I'm ok with it or not and leave if the latter. Sure, my property value would probably go down somewhat, but I wouldn't wake up on a Monday to the project starting.
There is long term planning, it's just at the municipal level which doesn't solve the problem; Boston and Cambridge have long term plans to build tons of office buildings and attracts lots of high paying jobs. The inner suburbs have long term plans to essentially change nothing but maybe revitalize one little corner of town. The end result is where we are today, that housing prices across the board doubled in the past decade.
That's not a "plan". That's a strategy at best.
That's less of a planning issue and more of a natural result of game theory. Updating the zoning map is much more difficult (supermajority vote) than issuing zoning variances, and the process of zoning variance appeals offers the city a chance to wring favorable concessions from developers.
(of course, as it happens these concessions and the appeals process come at cost to the developer, which over the long term translates to less construction and higher per-unit prices. I'd like to see the state find a way to change the way this works, but I'm not holding my breath!)
All of this to say that planning exists, but it might not be available to the public easily or at all.
It obviously isn't ideal, but how problematic is it to have a ring or belt that constrains the dense core from sprawling? Other cities have them, for a variety of motivations (eg. cities in Oregon such as Portland all have an urban growth boundary to protect surrounding farms and forests). As long as there is somewhere nearby that can increase density it should work out.
What's more likely is that housing prices in your area have gone up so much that even apartments are now more expensive than what you originally paid. If there had been sufficient supply built in the market then prices wouldn't be so high.
China has solved this problem by telling NIMBYs to fuck off and just confiscating their property to be redeveloped. I don't see why upzoning can somehow be considered bad.
A few big names are working to create a totally new city in the US, which they hope will eventually growth to a population of 5 million. Here’s their teaser site https://cityoftelosa.com/
I think they’ve got half of this right: the city should own most of the land for the purpose of coordination. But I didn’t see anything indicating that citizens have any stake in the city’s land. Did they mean it literally? Like a requirement of citizenship is to purchase a share in the underlying land? Probably not.
Anyway, I like that they’re exploring that half, at least. But the amount they couch on the details isn’t encouraging to me. Especially in the governance section, they didn’t say anything about citizens actually having any voting power — only “input” into city council discussions, which usually means you’re free to say things but you’ll just be ignored. If this whole thing revolves around some benevolent dictatorship then that’s nothing I want to be a part of.
It's that simple.
Your second problem is democracy.
Randomly just Google'd and found this link suggesting the opposite:
https://www.turnerandsonhomes.com/blog/cost-to-build-is-a-2-...
As for your second point, that's true. Though, if voting were mandatory I doubt it'd be difficult to pass.
If we're not stopping the heaviest of heavy industry from setting up shop right nextdoor then it's pretty obvious that zoning is nothing more than regressive rent seeking from property investors.
https://profectusmag.com/wp-content/uploads/2021/08/tabrrok5...
I think one very, very crucial but taken for granted aspect of this cycle is "Natural population growth occurs."
It's stated as though this is inherent, and should be considered immutable. I disagree, and think that population growing beyond its capacity is not a symptom of capacity so much as growth.
When I gain weight, I don't blame my jeans for not fitting.
Solving one problem by “building up” might create an endless variety of new quality of life issues.
Take it from a current city-dweller, living in a dense concrete jungle can be a miserable, soul-crushing existence that’s a particularly horrendous place for raising children.
This is an extremely bold statement. So far it has been difficult to make change, but consensus that there is a serious problem is relatively new and there have been some improvements.
Recently in San Francisco a developer proposed a smaller building than possible in order to appease neighborhood concerns. When neighbors came out in opposition the developer changed to plans for a maximally large building and by new rules had no need of neighborhood approval. Even more dramatic changes to zoning have been proposed and come close to passing. Berkeley is now allowing four units where single family homes now stand. So there is significant progress and a change in the political balance.
> If these regulations are so costly, why were they passed in the first place? The answer lies not in the aggregate cost-benefit calculation of land use regulations, but rather in the analysis of who pays the costs and who garners the benefits.
This is absolutely wrong and critical to understanding the situation. Building codes and ordinances and environmental hearings were all put in place with the intention of functioning as reasonable restrictions to preserve quality of life. The idea was this would be similar to rules about clean air and water. The problems we see now developed slowly over time and have many contributing factors including social and organizational inertia and of course classism and racism and such like. What we need to do is understand how to preserve some basic level of quality of life without unreasonably impacting ability to build, especially in areas that are already dense or have unusual demand.
We are increasingly in a time where young people who are underserved by housing markets are getting political influence while older property owning boomers are seeing their influence steadily reduced.
> There are three stages to the Startup City.
There are no such stages or Startup Cities. Cities are social and commercial constructions which are not wild bets on fast growth that can readily fail and be replaced. Cities have an absolute obligation to move forward carefully while they balance land use concerns, forms of taxation, and costs of labor and so on.
> poorly managed cities like San Francisco or Jakarta ... > Próspera, a private city in Honduras ...
Now that is all just sloppy. It takes only a small effort to confirm that these cities are in very different locations and contexts and have different strengths, weaknesses, resources, priorities, and so on.
This is because the state passed legislation forcing them to, not because they wanted to do so.
> Quality of life
Surely rampant drug addiction and homelessness fueled by high rent prices is a much worse quality of life than _having more traffic_.
We shouldn't be doing anything to allow more people in California with climate change reducing the water supply even more.
Instead, perhaps, discourage people from moving to dense areas that can't or don't want to grow.
There's a lot of disagreement in CA about whether or not it should be growing. On the one hand, voters have made it abundantly clear they don't want any more growth of any kind. so what you're saying makes sense. On the other hand, there's still a ton of people that want to come here and work for the tech industry.
I say, let the areas that want to grow, grow. Give them some help in the beginning to get the ball rolling.
For those not familiar with regional US politics and racism:
https://www.aclu.org/news/civil-liberties/block-the-vote-vot...
https://nymag.com/intelligencer/2021/08/texas-republicans-pa...
Until then, i'll stay on the coasts, thank you. And you dont get to decided if I should or shouldn't live somewhere.
Perhaps if you cared about the facts, you wouldn't make such blatantly false claims.
"[Black] College graduates and middle-class migrants make up a major portion of the new migration. For instance, from 1965–2000, the states of Florida, Georgia, and Texas attracted the most black college graduates. The only state outside the former Confederacy that attracted a sizeable migration of black college graduates was Maryland, most of the population growth being in the counties surrounding Washington, D.C. In that same period, California was a net loser of black migration for the first time in three decades."[0]