housing – Market Urbanism http://marketurbanism.com Liberalizing cities | From the bottom up Fri, 07 Dec 2018 20:56:25 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.8 https://i2.wp.com/marketurbanism.com/wp-content/uploads/2017/05/cropped-Market-Urbanism-icon.png?fit=32%2C32 housing – Market Urbanism http://marketurbanism.com 32 32 3505127 “Order Without Design”, a new guide to urban planning http://marketurbanism.com/2018/12/05/order-without-design-a-new-guide-to-urban-planning/ http://marketurbanism.com/2018/12/05/order-without-design-a-new-guide-to-urban-planning/#respond Wed, 05 Dec 2018 10:33:27 +0000 http://marketurbanism.com/?p=10542 This book is an attack on current city planning and rebuilding. This is how Jane Jacobs opened her 1961 classic “The Death and Life of Great American Cities”. It wouldn’t be an inappropriate opener for Alain Bertaud’s upcoming “Order Without Design”. While Jacobs was an observer of how cities work and a contributor to new […]

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This book is an attack on current city planning and rebuilding. This is how Jane Jacobs opened her 1961 classic “The Death and Life of Great American Cities”. It wouldn’t be an inappropriate opener for Alain Bertaud’s upcoming “Order Without Design”.

While Jacobs was an observer of how cities work and a contributor to new concepts in urban economics, Bertaud goes a step further. His book brings economic logic and quantitative analysis to guide urban planning decision-making, colored by a hands-on, 55-year career as a global urban planner. His conclusion? The urban planning practice is oblivious to the economic effects of their decisions, and eventually creates unintended consequences to urban development. His goal with this book is to bring economics as an important tool to the urban planning profession, and to bring economists closer to the practical challenge of working with cities.

Maybe you have not heard about Alain Bertaud before: at the time I am writing this article, he has only a few articles published online, no Wikipedia page or Twitter account, and some lectures on YouTube – and nothing close to a TED talk. The reason is that instead of working on becoming a public figure, Bertaud was actually doing work on the ground, helping cities in all continents tackle their urban development problems. His tremendous experience makes this book that delves into urban economics surprisingly exhilarating. As an example, Bertaud shows a 1970 photo from when he was tracing new streets in Yemen using a Land Rover and the help of two local assistants who look 12 years old at most, a depiction of a real-life Indiana Jones of urban planning.

In this book, mainstream urban planning “buzzwords” such as Transit-Oriented Development, Inclusionary Zoning, Smart Growth and Urban Growth Boundaries are challenged with economic analysis, grounded on empirical observations on how cities work in real life, despite what planners aim to create. Frequently mentioning about the unavoidable effects of supply and demand, Bertaud reminds us that command economies such as the USSR or China have failed many years ago and embraced markets for the allocation of resources, but for some reason that has been ignored by the urban planning field. “Planning future land use while ignoring the predictable land value based on location makes no more sense than trying to ignore gravity when designing an airplane” is one of his many claims in this direction.

According to Bertaud, markets are efficient in the production and allocation of private buildings such as housing and commercial real estate. From regulating minimum building standards to “masterplans” for urban growth, the attempt to “design” a city is not only futile but also have the worst consequences for the poor. Scrap masterplans that are only revised every 10 years with old databases: urban planners should become city managers that track urban KPIs on a daily basis, such as prices and quantities of housing, population density and speed of different modes of transportation. The role of planners should then “be limited to fixing streets rights-of-way and designing transport systems that serve the shape and densities created by markets.”

As authors such as Sanford Ikeda and Nolan Gray have pointed out, “Death and Life” and the work of Jane Jacobs was mostly a description of the emergent order of cities, and maybe a prelude to Bertaud’s new book. Unfortunately, current urban planners have interpreted “Death and Life” as a design manual: for example, Jacobs said that she viewed mixed income buildings as contributors to urban life, so we ended up with regulations mandating or incentivizing mixed income buildings. Thanks to her work, many planners today stopped designing strict zoning between commercial and residential or advocating for rent control, but adopted “lighter” but still pervasive regulations on “mixed use” or “inclusionary zoning”. “Order Without Design” makes the point of the emergent order of cities clearer and more defensible, and I hope that in the next fifty years it is able to be as relevant as “Death and Life” was from its release until today.

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New and Noteworthy: Randy Shaw’s Generation Priced Out http://marketurbanism.com/2018/11/20/new-and-noteworthy-randy-shaws-generation-priced-out/ http://marketurbanism.com/2018/11/20/new-and-noteworthy-randy-shaws-generation-priced-out/#respond Tue, 20 Nov 2018 19:05:52 +0000 http://marketurbanism.com/?p=10500 In Generation Priced Out, housing activist Randy Shaw writes a book about the rent crisis for non-experts.  Shaw’s point of view is that of a left-wing YIMBY: that is, he favors allowing lots of new market-rate housing, but also favors a variety of less market-oriented policies to prevent displacement of low-income renters (such as rent […]

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In Generation Priced Out, housing activist Randy Shaw writes a book about the rent crisis for non-experts.  Shaw’s point of view is that of a left-wing YIMBY: that is, he favors allowing lots of new market-rate housing, but also favors a variety of less market-oriented policies to prevent displacement of low-income renters (such as rent control, and more generally policies that make it difficult to evict tenants).

What I liked most about this breezy, easy-to-read book is that it rebuts a wide variety of anti-housing arguments. For example, NIMBYs sometimes argue that new housing displaces affordable older housing. But Shaw shows that NIMBY homeowners oppose apartment buildings even when this is not the case; apartments built on parking lots and vacant lots are often controversial. For example, in Venice, California, NIMBYs opposed “building 136 supportive housing units for low-income people on an unsightly city-owned parking lot.”

NIMBYs may argue that new housing will always be for the rich. But Shaw cites numerous examples of NIMBYs opposing public housing for the poor as well as market-rate housing for the middle and upper classes.

NIMBYs also claim that they seek to protect their communities should be protected against skyscrapers or other unusually large buildings. But Shaw shows that NIMBYs have fought even the smallest apartment buildings. For example, in Berkeley, NIMBYs persuaded the city to reject a developer’s plan to add only three houses to a lot.

On the other hand, market urbanists may disagree with Shaw’s advocacy of a wide variety of policies that he refers to as “tenant protections” such as rent control, inclusionary zoning, increased code enforcement, and generally making it difficult to evict tenants.   All of these policies make it more difficult and/or expensive to be a landlord, thus creating costs that may either be passed on to tenants or discourage entry into the housing market.

In addition, I wish Shaw had included a little more data.  He does cite a useful statistic here and there,* but I wish he had included some sort of table comparing high-cost cities’ levels of housing construction to those of cheaper cities.

*My favorite: the San Francisco area added over 500,000 new jobs during the 2010s but only 76,000 housing units.

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Two Cheers for PHIMBY http://marketurbanism.com/2018/11/20/two-cheers-for-phimby/ http://marketurbanism.com/2018/11/20/two-cheers-for-phimby/#respond Tue, 20 Nov 2018 16:18:06 +0000 http://marketurbanism.com/?p=10497 One alternative to market urbanism that has received a decent amount of press coverage is the PHIMBY (Public Housing In My Back Yard) movement.  PHIMBYs (or at least the most extreme PHIMBYs) believe that market-rate housing fails to reduce housing costs and may even lead to gentrification and displacement.  Their alternative is to build massive […]

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One alternative to market urbanism that has received a decent amount of press coverage is the PHIMBY (Public Housing In My Back Yard) movement.  PHIMBYs (or at least the most extreme PHIMBYs) believe that market-rate housing fails to reduce housing costs and may even lead to gentrification and displacement.  Their alternative is to build massive amounts of public housing.

On the positive side, PHIMBYism, if implemented, would increase the housing supply and lower housing costs, especially for the poor who would be served by new public housing.   And because there is certainly ample consumer demand for new housing, PHIMBYism would be more responsive to consumer preferences than the zoning status quo (which privileges the interests of owners of existing homes over those of renters and would-be future homeowners).

But PHIMBYism is even more politically impossible than market urbanism.

Market urbanists just want to eliminate zoning codes that prevent new housing from being built- a heavy lift in the political environment of recent decades.  But PHIMBYs want to override the same zoning codes, AND find the land for new public housing (which often will require liberal use of eminent domain by local governments), AND find the taxpayer money to build that new public housing, AND find the taxpayer money to maintain that housing forever.  And to make matters worse, the old leftist remedy of raising taxes on the rich might be inadequate to fund enough housing, because the same progressives who are willing to spend more money on housing also want to spend more public money on a wide variety of other priorities, thus making it difficult to find the money for housing.

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The land price argument and why it fails http://marketurbanism.com/2018/10/11/the-land-price-argument-and-why-it-fails/ Thu, 11 Oct 2018 22:53:28 +0000 http://marketurbanism.com/?p=10361 One common argument against all forms of infill development runs something like this: “In dense, urban areas land prices are always high, so housing prices will never be affordable absent government subsidy or extremely low demand.  Furthermore, laws that allow new housing will make land prices even higher, thus making housing more unaffordable.” This argument […]

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One common argument against all forms of infill development runs something like this: “In dense, urban areas land prices are always high, so housing prices will never be affordable absent government subsidy or extremely low demand.  Furthermore, laws that allow new housing will make land prices even higher, thus making housing more unaffordable.”

This argument seems to be based on the assumption that land prices are essentially a fixed cost: that is to say, that they can only go up, never go down.  In fact, land costs are extremely volatile.

For example, a recent Philadelphia Inquirer story showed that in Philadelphia, land costs per square foot  of vacant land fell by 46 percent over the last year.  Why?  A developer quoted in the story suggests that as supply has started to keep up with demand, rents have declined, causing land prices to decline.   In other words, when supply increases, rents go down AND so do land prices.

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Response to “Steelmanning the NIMBYs” http://marketurbanism.com/2018/10/07/response-to-steelmanning-the-nimbys/ Mon, 08 Oct 2018 01:25:17 +0000 http://marketurbanism.com/?p=10352 Scott Alexander, a West Coast blogger, has written a post that has received a lot of buzz, called  “Steelmanning the NIMBYs”; apparently, “steelmanning” is the opposite of “straw manning”; that is, it involves making the best possible case for an argument you don’t really support.  There have been so many comments to this post that I […]

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Scott Alexander, a West Coast blogger, has written a post that has received a lot of buzz, called  “Steelmanning the NIMBYs”; apparently, “steelmanning” is the opposite of “straw manning”; that is, it involves making the best possible case for an argument you don’t really support.  There have been so many comments to this post that I don’t feel the need to respond to every point (and many of the points are very San Francisco-specific).   But here are a few points, each of which begin with a quote from Alexander:

  1.  “Even in the best case scenario, increased housing supply will just make apartments slightly more affordable.”  But the post states that if housing supply increases by the admittedly ambitious 2.5 percent a year, the monthly rent for a one bedroom San Francisco apartment will go down from $3500 to $2100- a forty percent decrease.   Moreover, in looking at the effects of new supply it isn’t enough to compare the benefits of reform to the status quo, because it is quite possible that if we continue “business as usual” policies rents will keep rising.  So instead of comparing $2100 to the current rent, maybe we should compare it to whatever the rent will be if San Francisco continues along its current path (which I am guessing is more than $3500).
  2.  “If your theory predicts that turning a city into Manhattan will make rents plummet, then consider that turning Manhattan into Manhattan made rents much worse, and so maybe your theory is wrong.”  This is another version of the theory that density causes rent to rise.  I have responded to that argument here. (Brief summary: Manhattan has gotten LESS dense over time, so if density was bad for rent, Manhattan should be a bargain now!)
  3. “And I have heard YIMBYs counter that if people don’t want to live in an urban environment, they shouldn’t have bought a house in a city. But they kind of didn’t. They bought a house in a medium-density suburb, then some other people came and said “No, this has to be a city”.   In other words, suburbanites (and by implication, city residents who are also NIMBYs) relied on the status quo and therefore their preferences should be enforced.    Although the reliance argument has some emotional power, it has a few flaws:
  • the reliance argument is a self-fulfilling prophecy; the zoning that the reliance argument justifies itself creates the reliance.  If you had less zoning, people would be less likely to rely on the status quo.
  • it proves too much.  If my reliance on my neighborhood’s density justifies legal enforcement of the status quo, why not my reliance on my neighborhood’s racial or religious composition (both of which, I suspect, affect housing decisions just as much, if not more, than density)?
  • Restrictive zoning might violate other people’s reliance interests.  For example, if I move to city X and get married and start a career, am I relying on the likelihood that housing will continue to be affordable in city X? If I buy land, am I relying on the possibility that I can do what I want on the land?

I note that the reliance argument is not as pro-suburban as Alexander thinks.  If neighbors of a proposed building or subdivision get veto power over housing because they relied on the status quo, this means housing should be built where fewer neighbors have relied on the status quo- that is, where fewer people live near the building/subdivision.  Such places would by definition be the least dense places- that is, suburbs or rural areas as opposed to cities.

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Why Do We Hate Developers? http://marketurbanism.com/2018/09/26/why-do-we-hate-developers/ Wed, 26 Sep 2018 12:00:16 +0000 http://marketurbanism.com/?p=10330 Earlier this year, researchers Paavo Monkkonen and Michael Manville at the University of California Los Angeles (UCLA) conducted a survey of 1,300 residents of Los Angeles County to understand the motives behind NIMBYism. As part of the study, they presented respondents with three common anti-development arguments, including the risk of traffic congestion, changes to neighborhood […]

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Construction project

Earlier this year, researchers Paavo Monkkonen and Michael Manville at the University of California Los Angeles (UCLA) conducted a survey of 1,300 residents of Los Angeles County to understand the motives behind NIMBYism. As part of the study, they presented respondents with three common anti-development arguments, including the risk of traffic congestion, changes to neighborhood character, and the strain on public services that new developments may bring. But according to their findings, the single most powerful argument motivating opposition to new development was the idea that a developer would make a profit off of the project.

At first blush, this finding might seem kind of obvious. People really don’t like developers. As Mark Hogan observed last year on Citylab, classic films from “It’s a Wonderful Life to “The Goonies depict developers as money-grubbing villains.

But, when you think about it, it’s pretty weird that this is the case. In what other contexts do we actively dislike people who provide essential services, even if they happen to turn a profit? I don’t begrudge the owner of the corner grocery every time I buy a loaf of bread or a gallon of milk, and I hope you don’t either. In fact, most of us are probably happy that folks like doctors and dentists earn a lot for what they do. So why are developers, who provide shelter, any different?

One possibility is that developers are often, for lack of a better term, assholes. This is surely the case with at least some developers. Our president is arguably America’s most famous developer, even if he isn’t exactly the master builder he played on television. And President Trump’s defining characteristic in his “Celebrity Apprentice role—and evidently in real life—is that he is a bit of an asshole.

But it isn’t just him. Most cities have a Trump-like major player in the real estate market: the kind of guy whose business model is built on over-the-top marketing and conspicuous displays of wealth. They thrive by calling attention to themselves, and in so doing, attract the imprudent investors and impressionable customers that make deals work. Meanwhile, they’re drowning out the large majority of vanilla developers who are earning an honest living building up their communities, coloring how we view developers for the worse. But entrepreneurs in many fields can be assholes. Why do we especially dislike developers?

A second possibility is that many people, especially homeowners, cynically see developers as unscrupulous competitors. Consider that for most Americans, their house is their single biggest investment. If they know anything about supply and demand, they probably have a sense that more housing mean lower housing prices. Even absent a rudimentary theory of housing markets, homeowners may see developers as threatening the things that give their house its value: the neighborhood’s character, the great schools, what have you. And if someone’s threatening your nest egg, that’s a pretty good reason to dislike them.

This is a kind of expanded version of the homevoter hypothesis, developed by the economist William Fischel, which postulates that much of the political behavior of homeowners can be understood as an effort to preserve home values. It’s not a big step to say that this type of desire could bleed into cultural attitudes as well. You don’t need to be Joseph Campbell to know that people like a good David and Goliath story. Thus, development narratives often take the form of ‘humble homeowner saving for retirement versus the wealthy developer maximizing for profit’ (note that this closely parallels narratives about local stores competing with chains). You hear this narrative even in the tony suburbs of places like Boston and the Bay Area, where in many cases homeowners are likely wealthier than the average developer. It’s a compelling hypothesis, but it doesn’t do anything to explain why a renter might dislike developers. To do that, we need a broader theory.

One final possibility is that the the way we regulate development tends to reward the worst kind developer. As unpacked by Anna Fahey of the Sightline Institute in her recent post, the current system of heavy land-use regulation favors developers with deep pockets and an aggressive approach. When virtually every large-scale development—or in a place like San Francisco, every development—requires a rezoning and multiple variances, the developers who thrive are those who are able to extract permits from local governments, rather than those who provide a quality product at a decent price.  

To some extent, this is how developers like Trump succeed: they aren’t particularly adept at financing or building buildings so much as they are at lobbying lawmakers to give them what they want. From zoning permits to eminent domain to tax abatement, urban development as it exists today is a complicated and ugly process unintentionally designed to benefit developers with the fewest qualms about greasing palms and buying off opposition. This isn’t to say that there’s anything wrong with applying for rezonings or variances—far from it. Virtually all developers have to apply for them. But they serve as a massive barrier to small-scale, squeaky-clean developers, and, even when used for honest purposes, they can look a lot like cronyism to the untrained eye. This could explain why even renters often hold negative opinions of developers.

Under this final hypothesis, the harder we make it for honest developers to turn a buck, the more we end up with shady developers. This could have even larger downstream effects. This could produce a vicious cycle, as the more that developers are cast as unsavory characters—and housing development as an inherently corrupt profession—the fewer decent people will go into the field. Thus comes Monkkonen and Manville’s ironic conclusion: if people don’t like the developers they have, they should make it easy for more public-spirited developers to come in and steal their business. That is to say, cities should make building housing as open and competitive as starting a grocery or selling t-shirts. In an open housing market, the comparative advantage of the asshole developer disappears. Of course, one or two movies with an honest developer as the protagonist also couldn’t hurt. I’m thinking “The Goonies 2”?

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Housing Still Suffers the Same Ills That Caused the Great Recession—Just Not the Ones You Think http://marketurbanism.com/2018/09/25/housing-still-suffers-the-same-ills-that-caused-the-great-recession-just-not-the-ones-you-think/ Tue, 25 Sep 2018 12:31:50 +0000 http://marketurbanism.com/?p=10301 If you type “housing crisis” into Google search, “2008” is no longer the first result. The subprime mortgage crisis that toppled the global economy just a decade ago has been supplanted on Google trends by “housing crisis 2018.” This time, the crisis isn’t an overabundance of housing; it’s a chronic housing shortage. But economist Kevin […]

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If you type “housing crisis” into Google search, “2008” is no longer the first result. The subprime mortgage crisis that toppled the global economy just a decade ago has been supplanted on Google trends by “housing crisis 2018.” This time, the crisis isn’t an overabundance of housing; it’s a chronic housing shortage. But economist Kevin Erdmann argues that the 2018 housing crisis is just the second act of the same tragedy.

With local governments issuing fewer building permits and millennials beginning to buy their first homes, millions of Americans struggle to find affordable housing in 2018. The crisis is arguably the worst in California, where about one-third of all city-dwellers cannot afford local rents in every city in the state, San Diego to Sacramento. Economists and policy experts that study housing largely agree that the chronic unaffordability of American housing stems from persistent shortages in the quantity of housing supplied relative to the quantity demanded.

Most housing scholars agree that “not in my back yard” (NIMBY) zoning laws are to blame. In many areas, NIMBY zoning laws have prevented developers from building multifamily housing in residential areas or forced developers to adhere to mandated minimum lot sizes.

What resemblance, then, does our world of NIMBY-induced housing shortages have to do with the pre-2008 world with fast-and-loose credit policies [pdf] and overbuilt McMansions? That pre-2008 world, Erdmann argues, doesn’t really exist. [pdf]

The traditional loose credit story is an easy one to tell––it appeals to populist sentiments (by demonizing rich bankers) and exudes the moral weight of an anti-capitalist parable about greed and gluttony. It makes for a great movie, “The Big Short.”And, to its credit, the traditional credit story even seems to explain much of the financial bedlam of 2008. Banks and investors placed too much confidence in risky mortgage-backed assets, perhaps because they knew Congress would bail them out.

But by focusing on big banks and complex financial instruments, the traditional story overlooks evidence in the real, physical economy of actual houses and homebuyers.

According to the traditional narrative, the housing bubble saw an increase both in the supply of housing and the price of housing, fueled by a combination of loose monetary policy, irresponsible government-backed mortgages, and reckless Wall Street speculation. For the traditional story, the spike in new single-family home construction from 2000 to 2005 is the smoking gun.

Yet during the early 2000s, new residential construction overall was steady, with single-family homes simply displacing multifamily units, like condos and apartments. Many high productivity population centers like New York, Los Angeles, and Seattle faced huge housing shortages during the early 2000s, evidenced by skyrocketing housing costs. Shortages in these cities, dubbed Closed Access cities, were caused, in large part, by laws which made it difficult to construct new housing.

Sound familiar?

Consider these two quotes, both from commentary in the Wall Street Journal, one from 2005 (the peak of the first housing crisis) and one from 2018. From 2005,

What we do have is a serious housing shortage and housing affordability crisis. Despite robust construction, unsold inventory stands at four months, well below its 25-year average. Private builders complain they can’t get land permitted to meet demand.

And from 2018,

A combination of tightened housing regulations, a lack of construction labor and a land shortage in highly prized areas is driving the crisis, according to industry experts….Now, construction isn’t matching rising demand, not only in glamour cities such as San Francisco and New York, but also in metropolitan areas such as Grand Rapids….That, in turn, is pushing up prices at what economists say is an unsustainable pace.

Both complain of high (and rising) real estate prices, and both indicate builders face major hurdles in keeping up with demand. Moreover, both attribute the supply shortage to local authorities’ stinginess with building permits—a direct result of NIMBY laws.

While the traditional story about credit may explain some of the demand side of inflated housing prices, Erdmann’s work demonstrates that more flexible housing policies in Closed Access cities could have headed off the shortage which generated the housing bubble.

Since the recession, federal housing agencies have stopped the credit policies, like “no income, no job, no assets” (NINJA) loans, which made housing deceitfully affordable during the pre-2008 shortages by saddling households with more debt than they could pay. As a result, many potential homebuyers today are giving up on buying altogether.

Erdmann argues that an aggressive federal credit policy was actually the right move pre-2008 because it helped consumers buy housing at historically average levels, even recommending a return to those policies now. But the uncanny resemblance between housing markets in 2005 and 2018 should still be a cause for concern.

For one, another housing bubble is not out of the question, and a housing collapse could still turn consumers skittish [pdf] and decrease spending across the economy. Readopting Fannie and Freddie’s pre-2008 mortgage practices would only exacerbate that risk. The Great Recession should have made it clear that a demand stimulus is not a sustainable solution to a supply problem.

But the ongoing shortage of housing in places that require more workers is also unsustainable. Besides the boom-and-bust risks of housing disequilibrium, housing shortages in Closed Access cities prevent people from working where they will be most productive and earn the highest wages. Over the last half century, one paper from the National Bureau of Economic Research estimates [pdf] that prohibitively high housing prices have thereby reduced America’s growth by about half.

On August 13, Housing and Urban Development (HUD) Secretary Ben Carson announced that the department would change the way it enforces the Fair Housing Act to address the housing crisis. Secretary Carson says he wants to incentivize cities to lower barriers to affordable housing by making HUD grants, which cities use to build and maintain roads, sewers, and other infrastructure, contingent upon conforming to less restrictive zoning policies. Democratic Senator Cory Booker has also introduced legislation that hopes to take on restrictive zoning policy at the federal level.

Supply-focused approaches along these lines address the fundamental problem of the disequilibrium Erdmann describes in the housing market and reduces risk of boom-and-bust cycles that led to the Great Recession.

The political economy problem of land and housing is as old as social science and will no doubt be with us for the foreseeable future, but reforms like Secretary Carson’s and Senator Booker’s are signs of lessons finally learned.

Albert Gustafson is an economics and public policy contributor for Young Voices. Follow him on Twitter @apgustafson

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The Foreign Buyers Are Taking Over (Not!) http://marketurbanism.com/2018/09/14/the-foreign-buyers-are-taking-over-not/ Fri, 14 Sep 2018 21:52:09 +0000 http://marketurbanism.com/?p=10313 A headline in the Boston Globe screams: “Boston’s new luxury towers appear to house few local residents.”   The headline is based on a report by the leftist Institute for Policy Studies, which claims that in twelve Boston condo buildings, “64 percent do not claim a residential exemption, a clear indication that the condo owners are […]

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A headline in the Boston Globe screams: “Boston’s new luxury towers appear to house few local residents.”   The headline is based on a report by the leftist Institute for Policy Studies, which claims that in twelve Boston condo buildings, “64 percent do not claim a residential exemption, a clear indication that the condo owners are not using their units as their primary residence.”*

The report accordingly concludes that these buildings do not “address Boston’s acute affordable housing crisis.” This seems to be another version of the common “foreign buyers” argument: that new housing does not hold down rents, because it will all be bought up by rich foreigners who will let the units sit unoccupied forever. Although the report does not explicitly endorse restrictive zoning, it does urge the city to require new residential buildings to be carbon-neutral- a rule that might make residential construction more difficult.

But this inference would be wrong.  If you own a condominium, you have three choices: (1) to live in it; (2) to sit on it and lose money on your mortgage; or (3) to rent it out.   Obviously, you make the most money through choice (3)- renting out the condo.  So even a condo owner who does not choose option (1) has a strong incentive to adopt choice (3).   Thus, it seems likely that at least some, if not all, of the condos will be rented out, thus increasing rather than decreasing regional housing supply, which in turn will have a positive effect on housing prices.

 

*The residential exemption saves Boston homeowners up to $2500 per year on their tax bill.  I would think that at least some owner-occupants are unaware of or forget to file for this exemption- but since I have no idea how common this is, I am reluctant to argue that this possibility alone makes the IPS report defective.  A Bostonian might want to chip in here.

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