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Glaeser: State of the City

I’m a little slow picking up on this one, but the Wall Street Journal recently interviewed Harvard Urban Economist, Ed Glaeser. Here are some excerpts from State of the City: THE WALL STREET JOURNAL: What effect will higher gasoline prices have on urban planning in the U.S.? MR. GLAESER: I would be very surprised to see a wholesale change in the nature of American urban development. We should certainly see changes in the short run, [such as] a slight decrease in demand for housing that’s particularly far away from city centers and dependent on long drives. That [type of housing] won’t be abandoned entirely, but it will certainly be cheaper. WSJ: What about the idea of having the government purchase foreclosed homes and convert them into affordable housing? Would that be good for the economy? MR. GLAESER: The government’s track record as a property owner is not so great. I am less enthusiastic about the government getting into this business. If we want strong policies towards taking care of the least well-off in our society, we should make sure supply is unfettered and continue working on the Section 8 [low-income housing] voucher program — that’s the right strategy. Glaeser discusses Chicago’s success: MR. GLAESER: I think Chicago has been remarkably successful in lots of ways. The city has managed to stay pretty affordable and Mayor [Richard] Daley has been extremely pro-growth. Chicago, for many years, has had a relatively pro-growth environment, at least relative to California and New York — especially [before current Mayor Michael Bloomberg]. The climate in Chicago is, of course, far less pleasant than San Francisco and wages are lower than New York. Still, it is somewhat remarkable that condo prices in Chicago [a median $232,000 in 2007] are less than those in Trenton, N.J. [$248,000], and […]

Glaeser on Affordability of NY vs Houston

Harvard Economist Ed Glaeser wrote an opinion piece in the New York Sun about the differences in housing affordability and other costs of living between Houston and New York. New York is naturally more expensive than Houston because the geographical constraints force higher density development, which is more expensive to build. New York’s highly regulated land use and zoning process adds more constraints that exacerbate this problem. On the flip side, Houston has few geographical constraints and relatively loose regulation, allowing the market to allocate housing more efficiently. In conclusion, Glaeser recommends that New York could do much to improve affordability by loosening it’s many regulations. NY Sun – Houston, New York Has a Problem Why is it so much more expensive in New York? For one, supplying housing in New York City costs much, much more — for a 1,500-square-foot apartment, the construction cost alone is more than $500,000. Also, part of the reason is geographic: an old port on a narrow island can’t grow outward, as Houston has, and the costs of building up — New York’s fate, especially in Manhattan — will always be higher than those of building out. And the unavoidable fact is that New York makes it harder to build housing than Chicago does — and a lot harder than Houston does. The permitting process in Manhattan is an arduous, unpredictable, multiyear odyssey involving a dizzying array of regulations, environmental, and other hosts of agencies. A further obstacle: rent control. When other municipalities dropped rent control after World War II, New York clung to it, despite the fact that artificially reduced rents discourage people from building new housing. Houston, by contrast, has always been gung ho about development. Houston’s builders have managed — better than in any other American city — to make the […]

Amateur Economist: Zoning Hurts Housing Affordability

G.L.C. at Amateur Economist wrote an informative article on zoning, an issue which always gets attention at Market Urbanism – Why Zoning Laws Are No Longer a Benefit to U.S. Home Buyers Virtually every town in the United States has zoning laws which affect land use, lot size, building heights, density, setbacks, and other aspects of property use. Zoning laws are government regulated restrictions on how a particular piece of land can be used – residential, commercial, industrial, agricultural, and recreational. They impose many use restrictions, such as the height and overall size of buildings, their proximity to one another, what percentage of the area of a building lot may contain structures, and what particular kinds of facilities must be included with certain kinds of uses. G.L.C. goes on to discuss how zoning restrictions, such as height and density restrictions, constrain the supply of housing nationwide. These supply restrictions causes prices to be higher than they would be without restriction. The article also cites data from research by Ed Glaeser and Joe Gyourko: Edward Glaeser of Harvard and Joe Gyourko of the University of Pennsylvania studied this problem and attributed the error on the supply side to zoning restrictions. They studied the data from over two dozen American cities and concluded that zoning restrictions kept the housing prices high and did not allow competitive forces to correct the supply and demand position.

Rangel Now Only Hoards Three Rent Controlled Apartments

[flickr photo: aznatca68] Democratic Congressman Charlie Rangel has announced that he will vacate the rent controlled apartment he has been using as a campaign office. This apartment is just one of four rent controlled apartments he is hoarding in the Lenox Terrace apartment building in Harlem. NY Times – Rangel to Relinquish Apartment Used as Office: Representative Charles B. Rangel has decided to move his campaign office out of one of four rent-stabilized apartments he leases in Harlem, his spokesman said on Monday. One of the units — a one-bedroom apartment that he paid for with money from his re-election fund and from a political action committee — had been used as a campaign office, despite city and state guidelines that require rent-stabilized apartments to be used solely as a primary residence. Because that apartment is rent-stabilized, Mr. Rangel paid $630 per month, while similar market-rate units in the building rent for $1,700 a month and higher. Under House ethics rules, a gift is defined as any “gratuity, favor, discount, entertainment, hospitality, loan, forbearance, or other item having monetary value.” And some suggest that the difference between what Mr. Rangel pays for the second, third and fourth apartments and the market rate could fit that definition. . But Mr. Rangel said that it was ludicrous to consider the rent-stabilized apartments a gift because he paid rent for them. He also said that two of the units were combined by a previous tenant. Rangel should either resign or return every penny he saved by hoarding this apartment while using it as a campaign office. For this apartment alone, that should be $1,000 per month for as long as he has used it as a campaign office. Also: Reason – Rangel’s Down, But He’s Not Out

Congressman Rangel Legally Plunders $30,000/year in Four Rent Controlled Apartments

[update! Rangel Now Only Hoards Three Rent Controlled Apartments] In case you missed it, powerful New York Congressman Charlie Rangel has been hoarding four apartments in Harlem’s Lenox Terrace. Coincidently (perhaps not so coincidently) Lennox Terrace is the same building where New York’s Governor Patterson, Patterson’s father, former Manhattan Borough President, Percy E. Sutton, and Rangel’s Cheif of Staff, Jim Capel hoard rent-controlled (ahem, Rent Stabilized as it’s referred to by NY politicians) apartments. Not only does Rangel have four rent-controlled apartments in the building, but he has been using one of those apartments as a campaign office! [flickr photo: jschumacher] New York Times – Rangel Defends Use of Rent-Stabilized Apartments: The Times reported on Friday that Mr. Rangel has four rent-stabilized apartments at Lenox Terrace, including three adjacent units on the 16th floor overlooking Upper Manhattan, in a building owned by one of New York’s premier real estate developers. (The apartment is featured in “Style and Grace: African Americans at Home,” a book published by Bulfinch Press.) Mr. Rangel, the powerful Democrat who is chairman of the House Ways and Means Committee, uses his fourth apartment, six floors below, as a campaign office, despite state and city regulations that require rent-stabilized apartments to be used as a primary residence. Mr. Rangel, who has a net worth of $566,000 to $1.2 million, according to Congressional disclosure records, paid a total rent of $3,894 monthly in 2007 for the four apartments at Lenox Terrace, a 1,700-unit luxury development of six towers, with doormen, that is described in real estate publications as Harlem’s most prestigious address. The current market-rate rent for similar apartments in Mr. Rangel’s building would total $7,465 to $8,125 a month, according to the Web site of the owner, the Olnick Organization. The use of multiple apartments that might […]

Subsidies and Taxes Favor Owning Over Renting

Paul Krugman asks a question that has been addressed at Market Urbansim: But here’s a question rarely asked, at least in Washington: Why should ever-increasing homeownership be a policy goal? How many people should own homes, anyway? Listening to politicians, you’d think that every family should own its home — in fact, that you’re not a real American unless you’re a homeowner. “If you own something,” Mr. Bush once declared, “you have a vital stake in the future of our country.” Presumably, then, citizens who live in rented housing, and therefore lack that “vital stake,” can’t be properly patriotic. Because the I.R.S. lets you deduct mortgage interest from your taxable income but doesn’t let you deduct rent, the federal tax system provides an enormous subsidy to owner-occupied housing. On top of that, government-sponsored enterprises — Fannie Mae, Freddie Mac and the Federal Home Loan Banks — provide cheap financing for home buyers; investors who want to provide rental housing are on their own. (Krugman neglects to mention that landlords also deduct mortgage interest, passing some of the savings to tenants. However, landlords pay taxes on income and gains, which the homeowner usually does not.) Krugman then gives 3 downsides to society of encouraging ownership: First of all, there’s the financial risk. Although it’s rarely put this way, borrowing to buy a home is like buying stocks on margin: if the market value of the house falls, the buyer can easily lose his or her entire stake. I agree, sometimes these risks are better absorbed by the capital markets if the risks cannot be properly diversified through an individual’s portfolio. Owning a home also ties workers down. Even in the best of times, the costs and hassle of selling one home and buying another — one estimate put the average cost […]

Socialist Cities

So, you think the planners in your area are taking something a little too far? Be glad you aren’t in Venezuela… I wish I could link to the article by Michael Mehaffy in The Urban Land Institute’s May edition of Urban Land titled “Venezuela’s New Socialist Cities”, but ULI doesn’t provide the online edition to non-members. However, I have been able to find some related articles online, which I can share with you. Development of Caminos de Los Indios, the first of five “Socialist Cities” has begun south of Caracas. In his 2007 inaugural speech, Hugo Chavez said, “We need to a system of cities based on federations, federal regions. We need to build communal cities, Socialist Cities.” “Economic power needs to be transfered to these local bodies (“councils of popular power”) – so that we can work toward the communal and social state and move away from capitalism.” The concept is tauted by the government as a way of empowering locals and creating sustainable places for the 1/2 million residents. In Nov 17, 2007’s Washington Post, Ramón Carrizales, Venezuela’s housing minister is quoted “A city that’s self-sustainable, that respects the environment, that uses clean technologies, that is mostly for use by the people, with lots of walking paths, parks, sports areas, museums and schools within walking distance.” However, many environmentalists are appalled, since these cities will be build in the wilderness, requiring roads and infrastructure to these newly deforested locations. Not only that, many rural residents will be forced to resettle into the “Socialist Cities.” The history of these sort of projects are dismal. From the Washington Post article Chávez’s ‘Socialist City’ Rises: “The majority of socialist cities that were built in socialist countries failed,” said Maria Josefina Weitz, an urban planner in Caracas. “When you create something by […]

Bush’s “Ownership Society” and Subprime

From Rationalitate – The WaPo finally realizes the root cause of the subprime crisis Agencies like FHA and HUD, and pseudo-private agencies like Fannie Mae and Freddie Mac, were the government’s tool to manipulate the market for mortgages, and manipulate it they did: 40% of all mortgages are financed by lending companies Fannie Mae and Freddie Mac, which hold $5.3 trillion in outstanding debt, and receive tax breaks (read: subsidies) to the tune of $6.5 billion a year. Part of the irony of Bush’s “ownership society” is that it requires taxpayers to fund it. While on its face home ownership might seem like the paragon of private property and private ownership, it’s really not in very high demand in the actual free market. While America does indeed have very high rates of homeownership, it’s in spite of the market, not because of it. (I don’t really agree with the phrasing, “it’s not really in high demand.” I think almost all people desire to own their dwelling, but at a price that makes sense for them.) “Experts” often say how important it is for people to “own” their homes. I agree that ownership is great. But, at what cost? Market distortions that create bubbles? Wealth transfers from the less fortunate and landlords to “owners” of homes? “Ownership” isn’t best for everyone, especially the “owners” of a junk loan…

Want Density? Turn the Free Market Loose

Matthew Yglesias – What Price Density The solution, as Ryan Avent says, is to build denser communities. We ought to build more transit infrastructure, of course, but it’s cheaper to use what we already have more intensively. And, of course, it’s more practical to build new infrastructure if there’s a reasonable expectation that it will serve intensive development. Beyond that, density also serves to make walking and biking more practical for more trips. And best of all, getting denser could be accomplished mostly through growth-enhancing relaxation of regulatory burdens. And of course if the supply of housing in central cities and nearby suburbs were radically higher, then it would be much easier for people to afford to live in them. Instead, restrictions on the supply of conveniently located housing lead to high prices and the “drive until you qualify” phenomenon that’s currently leaving many Americans in deep trouble as they try to pay for fuel. In general, relaxing density restrictions will ease housing prices. But, a couple notes: Creating more socialized infrastructure, whether transit or roads, disperses development. High densities create demand for transit, not the other way around. Transit creates demand to locate near the stations, but not elsewhere. This is because as commuters are diverted from roads, congestion subsides, allowing drivers to commute from further-out places. So, if density is the goal, I would privatize highways & parking, while putting the breaks on construction of new public highways & parking prior to building new expensive transit. If individual commuters were to pay for their use of the roads, many would alter their habits and perhaps where they choose to commute to / from. The change in location preference will, no-doubt, increase density. Building densely has higher construction costs per unit as land costs are dispersed among more units, […]

LA’s New Housing Rules Band-aid the Symptoms, Exacerbate the Problem

LA Times: Los Angeles limits ‘mansionization,’ downtown hotel conversions Reason: In Soviet Los Angeles, Housing Affordables You! LA’s City Council voted unanimously to treat the symptoms of the City’s gentrification problem by restricting property owner’s right to improve their property. Did anyone ask the council what would be the long-term effects of restricting the supply of upscale housing? As supply is restricted, eventually what was once considered middle class housing will be needed to meet the needs of the wealthy. With less stock for the middle class to afford, they will move downscale as well and gentrify the most affordable areas. Then, when the affordable housing is gobbled up, the City Council will probably enforce even greater restrictions. It won’t be long before upper-middle-class people will be living in tiny studios just like New York and everyone else is priced out. So, the solution is to do the opposite of what the council did. Remove restrictions on property and allow developers to build densely to meet the needs of the market. Some single family neighborhoods would gradually be redeveloped as multifamily, allowing the city to meet the housing needs of more people. Otherwise, gentrification will sweep over LA faster than ever and affordable market-rate housing will be a thing of the past.

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