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How The Housing Market Works

[Editors note: Sandy Ikeda was an original Market Urbanism writer and is now a regular columnist for the Foundation for Economic Education, or FEE.org. FEE has offered republishing rights, so Sandy’s past work will be appearing here every Tuesday at 10am eastern time] People sometimes argue that we need substantial housing subsidies in some very expensive cities because “the cost of building new housing is greater than what most people can afford.” It’s certainly true that families earning low or moderate incomes have a hard time buying or renting brand-new housing. But that’s not only the case today; it’s been true throughout the history of civilization, from Uruk to New York. The ABCs of Housing The housing market is subject to the same forces of supply and demand as any other market, although of course there are things that distinguish it from, say, the market for fast-food. For instance, unlike a hamburger, a house is durable: it’s not consumed all at once. It also depreciates: the average house in the United States, for example, has a useful life of about forty to sixty years before major renovations become necessary. Let’s say there are 3 categories of housing – A, luxury housing; B, middle-income housing; and C, low-income housing – and that houses are continuously built, age, and wear down. In the real world there are of course many more than 3 categories but let’s assume for simplicity that there are only these three. Now, this is very much like the market for automobiles, which are also durable. In the new-car market you have at the high-end the Mercedes S-Class Sedan, while at the low-end the Ford Fiesta, and in the middle there’s the Honda Accord. And within each category there’s an array of prices depending on initial quality, age, and […]

Cities And The Growth Of Our Collective Brain

In his famous 2010 Ted Talk Matt Ridley points out that a growing human population has facilitated increasing standards of living because more people means a faster growth rate of innovation. He explains that humans’ propensity to exchange means that as a society we all benefit from each other’s ideas. No single person knows how to make a pencil from scratch, but we can all benefit from pencils (and much more complex tools) because collectively we have the knowledge to produce them. Ridley describes technological progress as a product of the collective brain — the space where our “ideas have sex.” Ideas “meet and mate” perhaps most obviously on the Internet, where the best encyclopedia in human history is crowd-sourced. This process is constant in the analog world also. The story of Microplane — a company that went from making printer parts, to woodworking tools, to kitchen gadgets and instruments for orthopedic surgeons — illustrates the innovations that come from ideas meeting and mating across entirely different industries. Cities provide the ideal location for these meetings because they bring together people from varied industries, backgrounds, and priorities. In The Death and Life of Great American Cities, Jane Jacobs identifies four qualities that are necessary for diverse neighborhoods: At least two primary land uses; Small blocks; Buildings of diverse ages and types; and A high density of buildings and people. These characteristics facilitate an urban environment in which people of different professions, interests and income levels come into contact with one another as they go about their daily routines. In turn, this human contact puts people in an ideal position for innovation and entrepreneurship. Sandy Ikeda describes the entrepreneur’s environment as the “action space.” Today, an action space could be in a suburban home for an entrepreneur who creates a digital product that’s sold online. While […]

Market Urbanism MUsings August 19, 2016

  1. This week at Market Urbanism Buses and Trains: The Turtle and the Hare? by Asher Meyers With buses a relatively safe, cheap and green form of travel, the wisdom of the government favoring trains at great public expense is dubious. This isn’t to say that trains are bad and buses are good—to each his own. But given the trade-offs involved, buses cannot be dismissed as inferior and obsolete—in the real world, budgets are limited and prices matter, so a small sacrifice of time and comfort is worth the savings. Parking Requirements Increase Traffic And Rents. Let’s Abolish Them. by Brent Gaisford Let’s get rid of parking minimums and allow new apartments to be built either without parking, or the reduced amount of parking preferred by developers. People without parking are less likely to drive, and less driving means less traffic. Plus, we’ll be one step closer to reducing our stratospheric rents. 2. Where’s Scott? Scott Beyer is in Austin. His two Forbes articles this week were about how Washington, DC’s Zoning Regulations Target ‘Fast Casual’ Restaurants and Tokyo’s Affordable Housing Strategy: Build, Build, Build The city had 142,417 housing starts in 2014, which was “more than the 83,657 housing permits issued in the state of California (population 38.7m), or the 137,010 houses started in the entire country of England (population 54.3m).” Compare this with the roughly 20,000 new residential units approved annually in New York City, the 23,500 units started in Los Angeles County, and the measly 5,000 homes constructed in 2015 throughout the entire Bay Area. Scott’s previous article on Austin’s rail transit, already well-cited by local media, got additional coverage in the American Spectator. 3. At the Market Urbanism Facebook Group: Adam Hengels on Stark Truth Radio with Robert Stark Ahmed Shaker posted videos of pedestrian and street traffic in […]

Parking Requirements Increase Traffic And Rents. Let’s Abolish Them.

Everybody in LA can agree on one thing – traffic blows hard. Harder, even, than these guys:               Hate traffic? Blame parking. But here’s a secret: people don’t cause traffic. Cars do. And you know what makes people use cars? Parking. If you’ve got nowhere to put your car when you arrive, you aren’t going to drive, and you aren’t going to contribute to traffic. Research has shown that for every 10% increase in parking, 7.7% more people commute with a car. Hate high rent? Blame parking. That’s a bad start. But it gets worse. Parking is also driving up your rent. Building parking spaces is incredibly expensive – each underground parking spot in LA costs about $35,000. Even if your unit includes “free” parking, you’re paying for the cost of that parking in your rent every month, whether you want to or not. Parking is cheaper to build above ground (if you can call $27,000 cheap), but then it takes up valuable space for apartments. All those dollar signs have an impact–UCLA professor Donald Shoup has calculated that requiring parking reduces the number of units in new apartment buildings by 13%. But parking is even more insidious than that. Often, when a new housing project is proposed, one of the first things that angry people (NIMBYs) yell about is traffic. Sometimes, those NIMBYs successfully stop housing from being built, and we desperately need all the housing we can get to contain our skyrocketing rents. Then why the hell do we require all new buildings to include so much parking? You’d think, then, that developers might stop providing parking. But they can’t, because we did something really, really dumb. We’ve created a system that requires parking to be provided with all new projects. For an apartment […]

Buses and Trains: The Turtle and the Hare?

  In America, there is an almost stifling consensus among pro-urban types—trains are good, trains are right, trains work. Trains have marked the upward surge of mankind—trains clarify and capture the essence of the American spirit. “Just look at Europe!” Yes, let’s look at Europe. What you’ll find is a startling change—Europeans are embracing the conventional coach bus for trips once exclusively the province of trains and private automobiles. The Economist has called it a ‘Revolution on Wheels.’ The consultancy Oliver Wyman titled their report ‘Hit by a Bus: European Rail.’ Why did this happen? Trains were supposed to be the future, and buses a shoddy relic of the past. Up until a few years ago, it was illegal to run intercity buses in Germany and France, among others, to protect their state-owned train system from competition. When Germany relaxed this ban in early 2013, suddenly a host of newcomers sprang up to serve the demand for travel between cities. By year’s end, weekly bus journeys in Germany had increased by 230%. The industry went through a cycle of intense competition between several players, followed by consolidation into a few big rivals. Just this summer, the biggest player in Germany, Flixbus, acquired the continental operations of Megabus, a big player in the United States, as well as domestic operations by Germany’s Postbus. During the summer of 2015, France followed with its own deregulation to allow intercity buses. The Economist writes that “France had only 100,000 intercity coach passengers in all of 2014, but saw 250,000 in the single month from mid-August.” Italy, Sweden and Finland have also deregulated their markets in recent years. Buses have one premier appeal—they are cheap. For the 140-mile trip I took this weekend from Brussels to Cologne, tickets were $10, while a train ride was $44. Browsing […]

Market Urbanism MUsings August 5, 2016

  1. This week at Market Urbanism Does Home-sharing Create Negative Externalities? by Michael Lewyn Homeowners’ fear of being overrun by “transient” renters is based on an outmoded picture of urban life. In a rural area where most people are born and die in the same town, a fear of “transients” may make sense- but urban life is already highly transient. In renter-dominated blocks, people move in and out every year, so transience is already the norm. 2. Where’s Scott? Scott Beyer has, starting tomorrow, one week left in Austin. Tomorrow he’s visiting the southwestern Texas town of San Angelo. His two Forbes articles were about a Houston builder constructing the nation’s largest micro-unit project and Why Austin Needs to Unleash Sixth Street These noise complaints follow the same rationale as complaints now routinely made about new housing, offices or retail. That is, people move into urban areas thinking they will enjoy the benefits of greater density and culture; but when those qualities prove inconvenient, they try to squelch them. Scott’s work was also splashed all over Austin’s local news this week. He did two TV appearances–to discuss the city’s rail transit line and safety on sixth street–and was cited about these issues in the Austin American-Statesman, the Austin Business Journal, Curbed Austin and Austin.com (among other publications). 3. At the Market Urbanism Facebook Group: Ahmed Shaker reports his experiences of Chuadanga, Bangladesh and finds it dense, bustling, full of mixed-uses, and private transportation options are plentiful. Shanu Athiparambath wrote Why Do People Love Their Cities But Hate Urban Living? Todd Litman wrote: Funding Multi-Modalism at Planetizen via Rocco Fama and Christopher Robotham: Donald Shoup and Aaron Renn on the City Journal podcast via Mark Frazier: Does Elon Musk Understand Urban Geometry? via Matt Robare: City taxes as urban growth policies: choosing the taxes that get you […]

Does Home-sharing Create Negative Externalities?

  A decade or two ago, a traveler who wished to stay in a city temporarily had no alternative to a hotel. Even if the owner of a house or condominium wished to rent out a room for a short period of time, the costs of advertising in a newspaper would have at least partially canceled out the financial benefits from renting. But the Internet has made home-sharing much more economical, through websites like Airbnb.com.  At first glance, the home-sharing industry seems highly beneficial: guests get a cheaper and/or more exotic vacation, home-sharing hosts get extra money to pay off mortgages, and their neighborhoods benefit from tourist revenue. Nevertheless, NIMBYs have attacked home-sharing.  One major argument is that home-sharing creates negative externalities.  For example, a recent law review article(1)  notes that some neighborhood activists in Silver Lake (a trendy Los Angeles neighborhood) sought to exclude home-sharing from their neighborhood on the ground that shared homes are “hotel-like room rentals”  and such a “commercial use [causes] the noise and traffic levels of the area [to] increase as a result of people coming and going, and the transient nature of the establishment can increase the crime rate.” As a result of these problems, home-sharing “brings nuisances to residential areas, thereby lowering the value of all homes in the neighborhood.” In other words, the “externalities” argument rests on the following chain of logic: Assumption 1: Home-sharing, as a commercial use, is no different from hotels. Assumption 2: Commercial uses bring down property values. Conclusion: Home-sharing brings down property values. But none of these claims has significant factual support.  First,  home-sharing is somewhat different from a large hotel. An individual hotel might have hundreds or thousands of guests on one block.  By contrast, home-shares tend to be spread out over a much larger space, […]

Market Urbanism MUsings July 29, 2016 (100 years of NYC Zoning bonus links)

  1. This week at Market Urbanism Does President Obama Have A ‘Regionalism’ Agenda? by Scott Beyer Such policies represent less a turn towards socialism, than one away from the nation’s existing socialized paradigm favoring suburbs, wherein housing regulations restrict dense infill development, while the public foots the costs of state highways, local roads, and other sprawl infrastructure. Obama, for all of his supposedly urban bias, has not been immune to extending this paradigm; for example, his stimulus package, writes economist Ed Glaeser, disproportionately benefited low-density states with low unemployment. 100 Years After Zoning In New York City, Government Dominates Land Use by Vince Graham Zoning is segregation – not only of land uses deemed incompatible, but of people deemed “undesirable.” Progressives behind New York City’s 1916 zoning ordinance regarded immigrants moving into northern cities from Europe and the South as “undesirable.” NIMBYs Outdo YIMBYs In Organizing Ability by Krishan Madan The reason boils down to the classic problem of concentrated costs and dispersed benefits: the beneficiaries of new housing are scattered, while those who benefit from a housing shortage–and thus higher prices–are concentrated. These organizational skills enable NIMBYs to dominate the discussion. 2. Where’s Scott? Scott Beyer spent his 3rd week in Austin. His two Forbes articles were Dallas And Houston: Centers For Economic Development and Austin’s Commuter Rail Is A Monument To Government Waste In 2014, the rail line had an operating deficit of $12.6 million. The upfront capital costs of $140 million, when amortized at 2% over 30 years, creates an additional $6.2 million annual cost to taxpayers. Add these two sums up, and then divide them by the line’s number of annual unlinked trips—763,551—and the per-trip subsidy works out to $24.62. 3. At the Market Urbanism Facebook Group: A Market Urbanism podcast with Nolan Gray?  Yes, it’s coming, and some hints leak […]

NIMBYs Outdo YIMBYs In Organizing Ability

  A problem that pro-housing YIMBYs face in communities nationwide is that the NIMBYs opposing them are much better organized. The reason boils down to the classic problem of concentrated costs and dispersed benefits: the beneficiaries of new housing are scattered, while those who benefit from a housing shortage–and thus higher prices–are concentrated. These organizational skills enable NIMBYs to dominate the discussion, something evident after the recent rejection of a development project in Ardsley, New York. The Jefferson Development Group wanted to build the Saw Mill River project, a development that would include 272 apartments in downtown Ardsley on land now owned by the chemical company Akzo Nobel. During a February hearing for the development, 30 people spoke against it while none spoke in favor. A petition against the project got 1,300 signatures, and houses and streets were adorned with signs reading “STOP THE JEFFERSON.” A blog with that title was also made. As a consequence, Akzo Nobel cancelled its contract to sell the property to Jefferson because they lost confidence that the property would be rezoned from industrial to mixed-use commercial and residential. One complaint was that the project would cause excess traffic. Ardsley, which is an affluent suburb just north of The Bronx, has narrow roads compared to other suburbs in Westchester County. Local developer and placemaker Padriac Steinschneider noted that traffic lights retard the flow of automobiles. The pre-programmed delays impede people, but they do not improve safety because drivers rely on the color of the light more than their own senses. He suggested that replacing traffic lights with stop signs, which force drivers to be alert, would speed traffic in Ardsley. He also discussed how Addyman Square, a towncenter featuring several restaurants and shops, could be made more pedestrian friendly if it was redesigned as a roundabout, […]

100 Years After Zoning In New York City, Government Dominates Land Use

This month marks the 100th anniversary of two pieces of legislation that revolutionized the way we live. On July 11, 1916, President Woodrow Wilson signed the first Federal Aid Road Bill. And on July 25, 1916–exactly 100 years ago today–New York City passed the country’s first comprehensive zoning ordinance. Prior to 1916, transportation infrastructure was primarily a local and/or private responsibility. For example, cities leased their rights-of-way to trolley companies, which operated transit lines. Railroad companies provided travel service between cities. The 1916 Federal Road Bill was the first step in nationalizing transportation infrastructure funding, with the state highway departments formed to manage federal appropriations for roads. These two pieces of legislation produced radical change, as government favoritism of automotive infrastructure crowded out other transportation modes and undermined innovation. In the century prior to 1916, entrepreneurs invented steam ferries, trains, bicycles, trolleys, and automobiles. Such advances ceased after 1916. Yes, today’s cars are more comfortable and powerful, but they have the same steering wheel, four tires, and internal combustion engine as the Model-T Henry Ford was building 100 years ago. As for roads, the main difference is they are bigger. Unable to compete with government favored automobiles, Charleston’s last private ferry operator closed shop in 1930. Its trolley lines, which carried 20 million passengers/year (compared with CARTA’s 5 million/year) stopped running in 1937. Zoning is segregation – not only of land uses deemed incompatible, but of people deemed “undesirable.” Progressives behind New York City’s 1916 zoning ordinance regarded immigrants moving into northern cities from Europe and the South as “undesirable.” In 1921, then U.S. Secretary of Commerce Herbert Hoover tapped Edward Bassett, the leading advocate of New York City’s 1916 zoning, to create a model zoning ordinance. Engineer Morris Knowles also served on this committee. In its 1926 landmark decision in Euclid v. […]

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