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robertogreco : kevinerdmann   2

interfluidity » Home is where the cartel is
"Housing is a bitch.

A case can be made that divisive hot-button issues like inequality and immigration ultimately derive from housing dysfunction. Kevin Erdmann eloquently tells the tale. Matt Rognlie has famously argued that the increase in capital’s share of income, often blamed for inequality, is due largely to housing, once depreciation is taken into account. All of this reinforces the thesis of people like Ryan Avent, Edward Glaeser, and Matt Yglesias who have argued for years that housing supply constraints are to blame for high rents in powerhouse cities, and may constitute an important drag on productivity growth and a cause of macroeconomic stagnation. (See also Paul Krugman, quite recently.) Several of these writers argue that cities should eliminate restrictive zoning and other regulatory barriers to development, then let the free-market create housing supply. In a competitive marketplace, high prices are supposed to be their own cure. Zoning restrictions, urban permitting, and the de facto capacity of existing residents to veto new development are barriers to entry that prevent the magic of competition from taking hold and solving the problem.

My view is that the “market urbanist” diagnosis of the problem is more persuasive than its prescription for addressing it. As a positive matter, they just won’t win the political fights they propose. On normative grounds, I’m not sure that they should. The market urbanists present themselves as capitalist deregulators but I think they can be described with equal accuracy as radical redistributionists. The customary property rights surrounding homeownership in many cities and suburbs include much more than the use of a square of earth and whatever is built on it. Existing homeowners bought into particular neighborhoods in large part because of their “character”, which includes nice-sounding things like walkability or “charm”, as well as not-so-nice-sounding things like access to exclusionary education. Newer residents have bought and paid for those amenities, while older residents may feel they have earned them by helping to create them. Economists describe houses as a form of capital that provides a stream of services, rather than a cash flow, to owner-occupants. We should also describe the arrangement of neighborhoods as a form of capital that provides services people value. Property owners have disproportionate use of, and, informally, enjoy substantial control rights over this “neighborhood capital”, and these benefits have been capitalized into residential real-estate prices. (Location, location, location!) “Zoning reform” is an anodyne way to describe an expropriation of those customary rights. It amounts to diminishing residents’ ability to preserve or control the evolution of their neighborhoods, in order to challenge the exclusivity on which the value of existing neighborhood amenities may be based.

Market urbanists sometimes respond that eliminating restrictions should, in economic terms, be good for existing property owners. Suppose I own a plot of land, and today I’m only allowed to have a two story house on it. If tomorrow I suddenly have the right to build ten stories, but I can still keep the little house if that’s what I prefer, the new option can only improve my property’s value, right? Surely de-zoning would be a windfall for property owners, as land prices would include part of the capitalized stream of rents from the ten urban lofts that could now, potentially, be built there.

This is unpersuasive “partial-equilibrium” reasoning, which explains why homeowners are usually unpersuaded. Any given property owner rationally wants restrictions lifted on the use their own property, but lifting restrictions on neighbors’ use of their properties creates risks and costs. The ultimate effect of a general upzoning is hard to predict and may not be positive for incumbents, especially when potential impairment existing amenities — “neighborhood capital” — is factored in. Far from being a sure gain to existing residents, upzoning is a form of risky investment, the proceeds of which will be shared with developers and new residents, the costs of which will be concentrated on people whose financial statements and human lives are deeply exposed, with little diversification, to the quality of their neighborhoods. Even if, in aggregate, land values increase, densification of an existing neighborhood creates risks for individual property owners they many not wish to bear. If an apartment block is built next door, my old neighbor may have gotten rich from selling, but my plot may not be suitable for putting up yet another tower, and my home may be worth less for its busy, unquaint new neighbor. People experience individual not aggregate outcomes, and individual outcomes are usually riskier than aggregate outcomes. Absent some insurance mechanism, it is rationally hard to persuade individuals to consent to policy changes that, in aggregate terms, would meet a return-to-risk hurdle but at an individual level might not. When market urbanists point to how much more productive and awesome the city as a whole might become, they are missing this point."

"I don’t know what will work. But, looking around a bit, I’d suggest we take a look at two particularly promising examples. The housing policies of Singapore and Germany couldn’t be more different. But both countries have been remarkably successful.

Singapore never solved the problem we are banging our head against, how to take existing prosperous neighborhoods and make them more dense. It never tried. Instead, Singapore expanded its housing supply, at remarkable speed and scale, by building out extremely dense but nevertheless green, livable, and attractive “new towns“. Rather than restricting our attention to putting more housing in existing desirable neighborhoods, why not follow Singapore and build new neighborhoods, and when we run out of space for those, new ring cities? Singapore has done a ton of experimenting, in regulation, architecture and urban design, in putting greenspaces around (and on) increasingly creative high-rise developments. Obviously, Singapore is very different, socially and politically, than the United States and other Western countries. Some things won’t (and shouldn’t) translate. But we still have a lot to learn from their experience. Are we really incapable of building new, compact, microcities without their becoming Cabrini-Green or the banlieues of Paris?

Germany’s virtues are less sexy than Singapore’s sci-fi eco-towers. But they are great virtues nonetheless. Somehow, Germany has managed to avoid the price booms that in so many countries (including the Scandinavians) have segregated society between those who were homeowners at just the right times and those who were not. Germany’s path is ideologically mixed. On the one hand, German property owners have a right to build within broad planning parameters. On the other hand, what we in the United States call rent controls are universal in Germany. (German leases are implicitly “rent stabilized”. Berlin has recently begun an experiment with old fashioned administered prices.) Lending for home buying is regulated and conservative in Germany, preventing joint credit/housing booms. (You’ll recall that German banks had to dive headlong into American junk housing securities and Southern European bonds to get themselves into trouble, since their own economy wouldn’t produce enough product.) Homeownership and renting are roughly balanced, and home prices have had no tendency to increase dramatically. Homes in Germany are what a naive economist might predict they should be, a very durable consumption good that provides a stream of housing services, not a ticket to financial gain at all. Germany’s cities are very affordable relative to their counterparts elsewhere in Europe and in the United States. Germany’s housing success seems boring, in the way that your chest might seem boring to a guy who has just been stabbed and is spurting blood from a ventricle. Boring, but wonderful.

Boring Germany, sci-fi Singapore, or something else entirely. Urban housing is a really hard problem. We’ll need lots of inspiration. That economics textbook might help a little, but don’t try to use it as a cookbook."
housing  economics  via:tealtan  2015  steverandywaldman  germany  singapore  us  capitalism  cities  urban  sanfrancisco  rents  inequality  affordability  regulation  policy  ryanavent  edwardglaeser  paulkrugman  kevinerdmann  mattrognlie  exclusion  outcomes  risk  aggregation  matthewyglesias 
december 2015 by robertogreco
Idiosyncratic Whisk: Housing, A Series: Part 77 - Housing is defining politics and the repercussions are dreadful
"Take immigration. As I have been pointing out, in the open access part of the country, we live in a classical economics world. If a city has opportunities, it leads to population inflows which cause incomes to moderate back toward equilibrium with the rest of the country. Housing supply pretty efficiently rises in these cities to increase housing without skyrocketing costs (unless there are extreme temporary fluctuations such as in the North Dakota oil fields). In closed access cities, opportunity leads to a bidding war for housing, so that incomes can remain elevated, but costs become elevated also.

The differences between these two types of cities are stark. You can tell what type of city it is just by looking through the newspaper. In open access cities, people complain that poor people are moving in and taking away jobs, pushing down wages. In closed access cities, people complain that rich people are moving in and bidding up rents.

People in red states have been taking in an inordinate amount of low income migration, both domestic and international. But, poor people are fleeing the closed access cities. So, to someone living in a closed access city, it seems racist for people to focus their ire on Mexican immigrants. Poor people are struggling just to get by as it is.

Los Angeles has a foot in both worlds. It takes in a lot of Hispanic and low income workers, but it also has sharp housing constraints, so it has high cost and moderate incomes. There tend to be anti-immigrant sentiments in southern California. Meanwhile, San Franciscans proudly proclaim that they are a sanctuary city. In Los Angeles, 44% of households speak Spanish as a first language, compared to 40% who speak English. In San Francisco, only 15% of the population is Hispanic. It's easy to be a sanctuary when you've made your city so costly that even middle class professionals can't afford to live there any more.

There has been a noticeable shift in immigration stances since the days of Reagan and the elder Bush. How much of that shift has come from the economic stresses and migration flows caused by the closed access cities? The open access areas are taking the bulk of the low income immigrants, and in addition the worst limited access cities attract high income immigrants, leading to net domestic migrations of 10% of their populations per decade, or more.

These different experiences, which are the result of different local policies, affect many political sentiments. Think of the different reactions to poverty. Red state voters seem indifferent to the problem of poverty and inequality. But, because their local policies are open access, most of them don't experience an unusual level of inequality or poverty. Locals with high income potentials move away to the closed access cities to capture the high incomes that closed access creates, so those areas lose some of the top-end of their income distribution, and their open access policies don't lead to extreme gains in gross incomes for those who stay. Meanwhile, they see poor households moving in because their cities represent opportunity.

On the other hand, people living in closed access cities see family after family failing to make ends meet. It seems to demonstrate a lack of information when someone like Bernie Sanders or Elizabeth Warren complains that Americans are working harder and harder to take home less and less. Statistically, it is clearly the opposite. Households have fewer earners, typically working fewer hours, and earning more. But, that is really an open access phenomenon. The ever speeding treadmill really is the experience of voters in closed access cities. This is something I intend to post about soon. Much of the rise in aggregate US income inequality is due to rising gross incomes in places like San Francisco. But, once rent expenses are factored in, median households in those cities are actually losing ground. Much of the measured increase in income inequality is a mirage created by using household specific income figures but using nationally averaged cost of living adjustments. To someone in Silicon Valley, it really does seem like an $80,000 household income is unsustainable."

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housing  economics  kevinerdmann  sanfrancisco  losangeles  siliconvalley  2015  poverty  gentrification  costofliving  immigration  migration  us  cities  population 
december 2015 by robertogreco

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