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The Land Value Argument Against New Housing

One common argument against new housing is that permitting it causes land to become more valuable, thus leading to higher rather than lower rents.  It seems to me that this argument is unpersuasive for a few reasons. First, if it was true, places with permissive zoning would have higher rents rather than lower rents, as the possibility of building would cause land values to explode.  Obviously this is not the case. Second, the argument leads to absurd results.  If downzoning reduces land values, obviously the best way to ensure low rents is to prohibit as much housing as possible.  Perhaps we could prohibit all housing not on five-acre lots.  But suburbs with large-lot zoning tend to be pretty expensive, suggesting that such policies are more likely to increase property prices than to lower them. Third, the argument suggests that land costs are the primary determinant of rents.  But in fact, land values are much more volatile.  The Lincoln Institute has created a database of land value data, and shows huge swings in land prices.  For example, in the New York City metro area, the land price (apparently per house) swung from $99,000 in 1996 to just over $433,000 in 2006, down to under $225,000 in 2012, and up to about $250,000 today.  It goes without saying that rents and housing prices follow very different patterns.

When NIMBYs Use Renters’ Health To Stop Rental Housing

Davis, CA, is a small college town a twenty minutes’ drive outside of Sacramento (on a good day).  It has a vacancy rate on par with Manhattan despite being surrounded by flat, developable farmland.  Some critics attribute this absurd vacancy rate to Measure R, a ballot initiative approved by Davis residents in 2000 that requires a public vote on any peripheral development.  Since it’s passage, three developments went up for a vote, and all of them failed. The group that defends Measure R is known as the “Citizens for Responsible Planning” or CRP.  Throughout various development battles, CRP has strategically utilized air quality concerns to push new development further away from existing neighborhoods. They opposed the most recent Measure R development, Nishi Gateway, because toxic air quality made the site virtually uninhabitable, at least in their minds! In fairness: the site is sandwiched between railroad tracks and a major highway, Interstate 80.  So it’s a real concern. But fast-forward just six months later, and CRP is demanding the University of California, Davis, the area’s largest employer, dramatically expand its on-campus housing options for students, staff, and faculty.  In an effort to appear proactive, they produce a map of optimal sites to locate student housing on the UC Davis Campus.  One of the sites they select is adjacent to the Nishi parcel they so aggressively opposed development on just six months earlier.  Another parcel they suggest building housing on is also sandwiched between the same railroad tracks and highway that Nishi sat between, but just a couple miles further south (and further from existing neighborhoods).  You can see all of this in a map provided below, where the Nishi site they killed at the ballot is marked in red and the sites they claim to support student housing on are colored in blue: […]

The Sheer Craziness Of New York City’s Rent Stabilization Mandates

Recently, I met someone who was trapped in a terrible apartment.  Why “trapped”?  For months (if not years) she had been in an adversarial relationship with both her landlord and her neighbors, but she can’t quite bring herself to leave.  Why not? First, she is in a rent-stabilized apartment, and is afraid to give that up because such units are hard to find.  Second, because of rent stabilization, she had made the sort of capital investments in her apartment–such as repairs–that are normally made by landlords, but neglected when they are overseeing these price controlled units. By contrast, in a normal city, my friend’s dysfunctional relationship with her apartment would have ended long ago: either the landlord would have evicted her (something very difficult in New York), or she would have moved to someplace less atrocious.

The Disconnect Between Liberal Aspirations And Liberal Housing Policy Is Killing Coastal U.S. Cities

[This post was originally published on the blog Better Institutions] The people who live in coastal urban cities tend to be a pretty liberal bunch. We’re leading the country on minimum wage laws, paid sick leave, climate change mitigation, and a host of other important issues. We care deeply about equality of opportunity, and we’re willing to invest our time and money to advance that effort—even if the people we help don’t always look like us or come from the same neighborhood, state, or even country. I’m proud to count myself among their number. And then we turn to housing. Maybe it’s just because we’re doing great on so many other fronts, but when I look at our inability to solve the housing crisis in places like San Francisco, New York, and Washington, D.C., I’m left feeling nothing but depression and hopelessness. It’s all the more frustrating because unaffordable housing might be the most important economic problem facing residents of liberal U.S. cities, and we’re perfectly, comprehensively, and unmistakably blowing it.   The causes of this failure are too numerous to ever fully enumerate in a single blog post, and, admittedly, some are out of the hands of cities themselves. But I don’t want to be too forgiving—state and federal policy plays a role, for example, but liberal U.S. cities are also typically located in liberal U.S. states, and federal policy applies equally to all, including the cities that have managed to remain affordable. There’s also the impact of global capitalism on a few world class cities, but it’s hard to feel genuine pity for places where foreign investors are willing to dump billions of dollars. Boo-hoo. At it’s heart this is a problem of liberal governance and/or policy, and we need to face it head on. We can’t blame this on someone else. It’s our […]

If Landlords Can Profit, Homes Must Be Great Investments, Right?

  Homeownership boosters use many arguments in favor of buying rather than renting, one of which is that purchasing a home is a key part of the path toward a lifetime of financial success. They often say that renters are helping landlords profit when they would be better off paying their own mortgage instead. But a more nuanced analysis shows that it’s possible both for landlords to profit and for renting to make more financial sense than buying for some people. Someone purchasing a property to rent out will be purchasing an investment rather than a home — an emotionally fraught purchase often fueled with American Dream mythology. Because of the large transaction costs in buying and selling houses, people tend to buy the home they foresee wanting for many years after the purchase date. A childless couple might purchase a four-bedroom home in a good school district for the future, meaning that they end up over-consuming housing for their yet unborn children. If this hypothetical couple decided to rent until their children were school-age instead, they would likely be able to save and invest a substantial amount by spending less on housing in the near term. Would a landlord purchase this couple’s single family dream home? Probably not. Rather, with the same money, he might purchase a small apartment building in a  less desirable part of town. These differences in purchasing decisions help to explain why landlords can profit in the same cities where people may not come out ahead by buying instead of renting. In addition to having disparate motivations when purchasing property, a potential landlord likely has other comparative advantages that make him more likely to profit from real estate relative to the average homebuyer. He may have above-average knowledge of which neighborhoods are likely to see […]

7 Reasons To Oppose Los Angeles’ Neighborhood Integrity Initiative

[This piece was originally published on the site Better Institutions.] On March 7th, Los Angeles is going to vote on the type of city it wants to be. The vote will be over Measure S, formerly known as the Neighborhood Integrity Initiative (NII), which seeks to limit housing development in the city. Backers of the initiative claim that City Council is too beholden to developers, and that the pace of new housing and commercial development in the city is out of control. They also express concern that “mega projects” are making Los Angeles less affordable, since few new homes are being targeted at low and moderate income households.   It’s a really bad plan, but calling Measure S “bad” doesn’t go nearly far enough. It is, in fact, the Donald Trump of ballot initiatives. It’s a cynical effort to co-opt a legitimate sense of frustration—frustration felt by those who haven’t shared in the gains of an increasingly bifurcated society—and to use that rage and desperation for purely selfish purposes. It invites us to vent our frustrations and, in so doing, to further enrich those who helped to engineer our ill fortune. And as with Trump, a Measure S victory will roll back the clock on years of steady progress. Since I think there are a lot of folks out there who genuinely haven’t made up their minds about the initiative, or aren’t yet familiar with it, I’d like to summarize some of the most important reasons to oppose it when it comes time to vote this March. 1. IT WILL MEAN FEWER AFFORDABLE HOUSING UNITS FOR LOW INCOME HOUSEHOLDS. The Coalition to Preserve LA, which is backing the initiative, is turning this into a referendum on housing development in Los Angeles. They’re arguing that new homes have “wiped out thousands of […]

Burrowing Owls, Comic Books, and Telling Stories That Change the World

[This article, originally published on the site Tech for Housing, has been updated. Mai-Cutler’s kickstarter has a few days left. You can donate here.] How Burrowing Owls Lead To Vomiting Anarchists (Or SF’s Housing Crisis Explained) is Kim Mai-Cutler’s 2014 TechCrunch masterpiece exploring the history of Bay Area land use policy. It was the first investigatory piece to thoroughly survey the political, economic, and historical precursors of today’s housing crisis. And in explaining the problems that plague San Francisco, it provided the intellectual spark for nearly two years of grass roots organizing and advocacy. And now there’s a kickstarter to turn it into a comic book. As it stands, the kickstarter has raised over 16K in pledges (I personally pledged $100 last week). This total means a professional artist can work on the project full time and produce a finished product come March. Turning KMC’s tome on Bay Area land use into a graphic novel might seem a frivolous use of resources to some, but let me tell you why this is actually important. Burrowing Owls is the seminal work on Bay Are Housing. It’s also over 10,000 words long. That means that as good as it is, there was only going to be a small audience of wonkish individuals that would ever be able to wade through the entire thing. Translating the article’s information, ideas and arguments into a visually consumable format, however, makes it accessible to a much larger group of people. For every person that read the original article, there are probably fifty who would thumb through the comic book if left out on your coffee table. So if you’ve got a few bucks, please consider making a pledge. And after that, pass the message along. Ideas matter, but so do the ways in which we choose […]

How Lexington Can Expand Affordable Housing (Without Touching the UGB)

  Lexington, Kentucky is a wonderful place, and that’s getting to be a problem. There’s nothing intrinsically wrong with the city: its urban amenities, thriving information economy, and unique local culture have brought in throngs of economic migrants from locales as exotic as Appalachia, Mexico, and the Rust Belt. The problem, rather, is that the city isn’t zoned to support this newfound attention. Over the past five years, the city has grown by an estimated 18,000 residents, putting Lexington’s population at approximately 314,488. Lexington has nearly tripled in size since 1970 and the trend shows no signs of stopping, with an estimated 100,000 new residents arriving by 2030. Despite this growth, new development has largely lagged behind: despite the boom in new residents, the city has only permitted the construction of 6,021 new housing units over the past five years—not an awful ratio when compared to a San Francisco, but still putting us firmly on the path toward shortages. The lion’s share of this new development has taken the form of new single-family houses on the periphery of town. Create your own infographics. Sources: ACS/Census Bureau   At the risk of sounding like a broken record, there’s nothing intrinsically wrong with single-family housing on the periphery of town. Yet in the case of Lexington, it’s suspect as a sustainable source of affordable housing. Lexington was the first American city to adopt an urban growth boundary (UGB), a now popular land-use regulation that limits outward urban expansion. As originally conceived, the UGB program isn’t such a bad idea: the city would simultaneously preserve nearby farmland and natural areas (especially important for Lexington, given our idyllic surrounding countryside) while easing restrictions on infill development. Create your own infographics. Source: Census Bureau   The trouble with Lexington is that the city has undertaken […]

Thoughts On Today’s Emily Hamilton Vs. Randal O’Toole Cato Discussion

Because of work obligations, I listened to only about a third of today’s Cato Institute discussion on urban sprawl.  I heard some of Randall O’Toole’s talk and some of the question-and-answer period. O’Toole said high housing prices don’t correlate with “zoning” just with “growth constraints.”  But the cities with strict regionwide growth constraints aren’t necessarily high cost cities like New York and Boston, but mid-size, moderately expensive regions like Seattle and Portland. He says that if land use rules raise housing prices they violate the Fair Housing Act.  Maybe this should be the case, but it isn’t.  Government can still regulate in ways that raise housing prices, but just have to show reasonable justification for those policies under “disparate impact” doctrine. He also says cities would be less dense without zoning.  Is he aware that most city regulations limit density rather than mandating density? O’Toole says growth constraints are why American home ownership rates are lower than in Third World countries and that the natural rate of home ownership is 75 percent.  But why are home ownership rates so low in sprawling Sun Belt cities? For example, metro Houston’s home ownership rate is about 59 percent – higher than New York or San Francisco, but lower than Philadelphia or Pittsburgh.  The highest home ownership rates are in Rust Belt regions like Akron, I suspect because of low levels of mobility. Some things he gets right: 1) public participation in land use process is harmful because it leads to more restrictions, not less; (2) the mortgage interest deduction doesn’t make much difference in home ownership rates.

Private Neighborhoods And The Transformation Of Local Government

Urban Institute Press • 2005 • 494 pages • $32.50 paperback In Private Neighborhoods and the Transformation of Local Government, Robert H. Nelson effectively frames the discussion of what minimal government might look like in terms of personal choices based on local knowledge. He looks at the issue from the ground up rather than the top down. Nelson argues that while all levels of American government have been expanding since World War II, people have responded with a spontaneous and massive movement toward local governance. This has taken two main forms. The first is what he calls the “privatization of municipal zoning,” in which city zoning boards grant changes or exemptions to developers in exchange for cash payments or infrastructure improvements. “Zoning has steadily evolved in practice toward a collective private property right. Many municipalities now make zoning a saleable item by imposing large fees for approving zoning changes,” Nelson writes. In one sense, of course, this is simply developers openly buying back property rights that government had previously taken from the free market, and “privatization” may be the wrong word for it. For Nelson, however, it is superior to rigid land-use controls that would prevent investors from using property in the most productive way. Following Ronald Coase, Nelson evidently believes it is more important that a tradable property right exists than who owns it initially. The second spontaneous force toward local governance has been the expansion of private neighborhood associations and the like. According to the author, “By 2004, 18 percent—about 52 million Americans—lived in housing within a homeowner’s association, a condominium, or a cooperative, and very often these private communities were of neighborhood size.” Nelson views both as positive developments on the whole. They are, he argues, a manifestation of a growing disenchantment with the “scientific management” of […]

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