Where has US housing supply grown?

Housing supply increased in low density suburbs ("Sub low"), like Nashville, but not much in in high-density suburbs ("Sub high) or in central cities (CC high or CC low).  Supply is limited in these other three areas by zoning, so price has increased instead.

From Journal of Economic Perspectives:

Low-density suburbs have grown much faster than all other types of neighborhoods, accounting for 78 percent of the growth in housing units in the set of neighborhoods observed in 1980. However, home price growth has been fastest in high-density suburbs and the most prosperous and high-density areas of central cities. Moreover, the rate of new housing construction has been low or falling in all types of locations since 2000, but particularly so in the low-density suburbs and rural areas where most of the recent quantity growth has occurred. Altogether, the US housing stock has been getting older, more crowded, and less affordable in recent years.

Density used to be green, now it kills

Anyone who has followed this blog, knows that I was a big fan of urban density: it reduces commuting costs, pollution, urban sprawl but, most importantly, it increases the supply of housing.  I vilified NIMBY's in places like SF and NY for erecting barriers to new housing that would have increased density, and supply.  I even blamed them for homelessness, inequality, and segregation.

One of the things I love about myself is that I can admit it when I am wrong.  Although I still believe in what I wrote, now we have a bigger problem.

Density Kills,The coronavirus has been much more deadly in places like New York City or Boston than in rural settings. As demographer Joel Kotkin notes, Los Angeles has done much better than other big cities, because it’s less dense. “L.A.’s sprawling, multi-polar urban form, by its nature, results in far less 'exposure density' to the contagion than more densely packed urban areas, particularly those where large, crowded workplaces are common and workers are mass-transit-dependent...

Mass Transit kills. Kotkin mentions mass transit, and an MIT study found that NYC subways were a ”major disseminator” of the coronavirus in New York. This is unsurprising: New York City subways are crowded, poorly ventilated and filthy. The city is only just now starting to clean them every night. (A bit late.) Cars come with built-in social-distancing: With a car, you’re riding in a metal and glass bubble with filtered air. Subways and buses, not so much. Whether this virus sounds the ”death knell” for mass transit or not, people will be far more reluctant to ride packed vehicles in the future. and Bureaucracy kills. 

Bureaucracy kills. Much of the fight against the coronavirus has also involved a fight against bureaucrats dead set on making things worse. Early on, the Centers for Disease Control and Prevention declared COVID-19 a public health emergency, which raised the bar for testing requirements. As a result, hospitals and universities faced significant barriers to getting alternative tests approved by the Food and Drug Administration. Worse yet, the CDC tests turned out to be defective.

To be fair to myself, I always knew that Bureaucracy kills, but thank goodness I don't follow my own advice. 

Thoreau was a polluter

Economist Ed Glaeser talks about cities.  Watch for the knock on Thoreau, and the ecological disaster wrought by back-to-the-land environmentalists.  (see Stewart Brand's Ted Talk on this).
 If Prof Glaeser is right, that density is green, does this mean that organizations like the Tennessee Land Trust, who work to reduce density, are wrong?

I think the answer is clear:  the Land Trust offers tax breaks to private land holders, to keep their property from density increasing development. That they can claim that this somehow benefits the public interest is mere propaganda.

A smaller city council may be better for Nashville

Right now, with 40 members, the Nashville City Council organizes itself by practicing "council-manic courtesy," by deferring to whatever each local council member wants.  

This organizational form has likely contributed to our very restrictive (low density) zoning, as the local council members are concerned only about what goes on in their narrow slice of Nashville.  Expanding each council member's area of concern might change this.  Here's how: higher density zoning in one area would expand supply and bring down prices in all of Nashville, which would benefit renters and potential buyers all over the city.  As such, it might generate some principled support for higher-density zoning (as opposed to narrow, self-interested opposition to development).

If so, the State Legislature which passed a law limiting council size to 20 (Tennessean) may end up helping Nashville.

Density is green!: California housing supply to increase.

Restrictive zoning laws have decreased supply and driven up housing prices in almost every state, especially in California. This has led states to build "affordable housing" to combat the problem that their own restrictive zoning laws created. But now, the California Governor is trying to attack the zoning problem directly.

Newsom previously had shaken up single-family zoning by signing legislation that allowed more homeowners to build in-law units on their properties. SB 9 takes that further, allowing property owners to build up to two duplexes on what was once a single-family lot.

However, the usual suspects [we hypocrites] are opposing density that reduces sprawl, pollution, and traffic:

Slow-growth group Livable California, which has pushed back against SB 9, called it a “radical density experiment” and worried developers would use it to remake neighborhoods without community input.

In case I have to translate, "community input" means "no new supply" which raises the price of housing which benefits older, richer homeowners who are likely to vote; and hurts younger, poorer would-be homeowners who are less likely to vote.

 

HT: The Pamphleteer

What Nashville can Learn from NYC: Affordable Housing mandates reduce the supply of affordable housing

The Nashville City Council is considering requiring that a certain percentage of units in new residential developments be priced as affordable. The mandates would apply to multi-unit developments bigger than five units.

While this may sound good, lets think clearly about its effects: mandates reduce the profitability of new development.  This will lead to less new development, or developers will substitute towards smaller developments, not subject to the mandate.  In the former case, fewer new developments would be built; in the latter, lower-density development would take place.  Either way, this represents a decrease in supply.  A decrease in supply would increase price, exacerbating the very problem--expensive housing--that it was designed to ameliorate.   (And don't forget that density is green.)

Housing markets are also subject to what is known as "filtering," apartment rents tend to go down as the apartment building ages.  So today's expensive housing is tomorrow's affordable housing.  This implies that a reduction in the supply of expensive housing today, will reduce the supply of affordable housing tomorrow.

These kinds of zoning restrictions are popular because they drive the price of existing housing above replacement cost, benefiting Nashville's homeowners. But they come at the expense of renters and new residents. As the Financial Times put it:

They are the ransom that renters and recent buyers must pay to existing homeowners – whose homes the rules protect – for use of an artificially limited stock of housing. So severe have those restrictions become that the value of the ransom runs into the trillions. 

Wealth of this kind is far more destructive than the alleged sins of the top 1 per cent. It is wealth created not by improving our living standards but by making them worse; by building too few houses in London and San Francisco, not too many. It is not earned by skill or effort. It is taken directly from the pockets of some – the young, especially those who were born poor – and transferred to others via political regulations on building. This is not wealth, this is plunder. 

The effects of affordable housing are similar to price gouging laws that in Mississippi prevented generators from reaching the Gulf Coast after Katrina. Similarly, affordable housing mandates will prevent new housing from reaching Nashville.  The market wants to help, so let it.

OK, if mandates won't do it, how do we increase the supply of affordable housing in Nashville?  Here I think Nashville could learn something from New York.  In New York, the affordable mandates are triggered only by a relaxation of zoning.  For example, a developer buys up a block of houses and asks the planning commission to re-zone it for a multi-unit apartment complex.  In exchange for the zoning change, the developer agrees to set aside some of the units for lower income tenants.

The crucial difference is that in NY, affordable mandates are triggered only by development that increases supply.  In contrast, the proposed change in Nashville would reduce supply.

[REPOST from 2015] 

I sent Nashville's Mayor a copy of Chapter 8, "Understanding [housing] Markets."

Here's why:  "Nashville voters ... are especially looking to Metro leaders to address the city's affordable housing problem."    

If the mayor and the council honestly look the cause of the crisis, they will find it is caused by zoning restrictions (see previous post) that limit supply.  With 100 people moving to Nashville each day, the only thing that can adjust is price.  

The standard feel-good response is affordable housing mandates on new construction which raises the cost of new construction and limits supply--exacerbating the very problem it is designed to alleviate.  (See What Nashville can Learn from NYC: Affordable Housing Mandates Reduce the Supply of Affordable Housing.)

...mandates reduce the profitability of new development.  This will lead to less new development, or developers will substitute towards smaller developments, not subject to the mandate.  In the former case, fewer new developments would be built; in the latter, lower-density development would take place.  Either way, this represents a decrease in supply.  A decrease in supply would increase price, exacerbating the very problem--lack of affordable housing--that it was designed to ameliorate.   (And don't forget that density is green.)

What Nashville can learn from Seattle

How to break up a homeowner cartel that raises prices by blocking new entry:

In large and small ways, these homeowners, who tend to be white, more affluent and older than the average resident, have shaped neighborhoods in their reflection — building a city that is consistently rated as one of the nation’s most livable, as well as one of its most expensive. ...

The homeowner-dominated neighborhood councils have typically argued against land use changes that would allow more density (in the form of townhouses and apartment buildings) in and near Seattle’s traditional single-family neighborhoods, which make up nearly two-thirds of the city. Including more renters and low-income people in the mix could dilute, or even upend, those groups’ agendas.

In other words, the neighborhood councils act like cartel managers who prevent lower-priced entrants (higher density apartments) from serving lower-income, would-be homeowners and renters. The result is higher prices that benefit the cartel members (homeowners).

What would it take to break the cartel-like function of Nashville's zoning process?

NIMBY zoning is hurting our kids

Housing prices now consume 40% of the income of new home buyers. Baby Boomers paid only 30%. The difference is NIMBY zoning. Plus density is green. Fabulous essay by Ken Glaeser:

Americans who settle in leafy, low-density suburbs will leave a significantly deeper carbon footprint, it turns out, than Americans who live cheek by jowl in urban towers. And a second paradox follows from the first. When environmentalists resist new construction in their dense but environmentally friendly cities, they inadvertently ensure that it will take place somewhere else—somewhere with higher carbon emissions. Much local environmentalism, in short, is bad for the environment.

...

Thoreau was wrong. Living in the country is not the right way to care for the Earth. The best thing that we can do for the planet is build more skyscrapers.

Link to Chapter 8: restrictions on housing supply (zoning) prevent supply from expanding and raise price.

In Los Angeles, why do equivalent land parcels sell for 35% difference?

New paper compares sales of individual parcels of land to sales of plots that are immediately assembled into bigger aggregate parcels used for building higher density buildings, like high-rise apartments. Controlling for amenities like distance to a highway and access to commuter rail, the authors find that soon-to-be-assembled parcels sell for 35-40% more than similarly situated individual parcels in the same neighborhood.

Why?

The 40% price differential means that it is not possible to turn individual parcels into soon-to-be-assembled parcels for one of two reasons:

1.  Zoning, like that in Sweden where residents can veto new development plans, makes it difficult, if not impossible, to assemble bigger individual parcels into plots of land (on which higher density apartments can be built).

2.  The hold out problem, where owners of individual parcels of land hold out in expectation of a better offer.  This is a type of "free riding," that can be analyzed as a prisoners' dilemma.

Either or both of these problems could account for the premium on land that can be assembled into larger parcels.

HT:  Marginal Revolution

Is religion good for you?

The question is fairly difficult to answer because nature doesn't randomly assign individuals to carry strong religious beliefs (experimental group) or to agnosticism or atheism (control group).

Jonathan Gruber (yes that guy) uses religious density as an instrument that changes religious beliefs--acting as sort of a natural experiment--that allows him to trace out of the causal effects of religion.  Here is his conclusion:

Religious density significantly increased level of religious participation, and as well to better outcomes according to several key economic indicators: higher levels of education and income, lower levels of welfare receipt and disability, higher levels of marriage, and lower levels of divorce.

Bottom line:  religious beliefs have tangible benefits.

Density is green

Ed Glaeser's new book makes the point:

Living out of town may feel green, but it isn’t. Americans live too far apart, drive too much and walk too little. The tax- deductibility of mortgage interest encourages people to buy houses rather than rent flats, buy bigger properties rather than smaller ones and therefore to spread out. Minimum plot sizes keep folk out of, say, Marin County, California. He sees it as an indictment of planning that spreading Houston has “done a better job of providing affordable housing than all of the progressive reformers on America’s East and West coasts.” Mr Glaeser hopes, for the planet’s sake, that China and India choose density over sprawl and public transit over the car. If his own country set a better example, there might be more chance of persuading them.

Did the government cause the affordable housing crisis?

"Yes," says the Washington Post, for three reasons:

1. Restrictive zoning reduces the profitability and therefore the supply of housing:

The White House’s calls for local policymakers to expand by-right development (where allowable building projects can proceed administratively, without years-long public hearing processes) and accessory dwelling units, to repeal or reduce minimum parking requirements, and to rezone neighborhoods for greater possible density all amount to restoring landowners’ rights to develop property as they and the market see fit. As the tool kit notes, inappropriate parking requirements, in particular, can raise the expected rent in a new development by as much as 50 percent, while depriving towns of socially and commercially productive land.

2. Regulatory delays and requirements raise costs to the point where only high-end apartments are profitable (Nashville's problem):

Establishing by-right development and streamlining local permitting processes will allow developers to respond nimbly to market demands and will relieve the “guilty until proven innocent” status of new building development, which depresses construction starts across the country by delaying and inhibiting housing projects. What’s more, adopting leaner codes would remove obstacles to the countless smaller developers and would-be builders who want to invest in strengthening their local communities, but currently can’t afford to navigate the vast regulatory burdens and uncertain futures awaiting anyone who tries to build in America today. Trulia economist Ralph McLaughlin found that these regulatory delays may have an even bigger impact on housing production than zoning restrictions.

3. FHA loans prohibit mixed use, further reducing the profitability and supply of housing:

To this day, FHA standards for loans, which set the market for the entire private banking sector, prohibit any but the most minimal commercial property from being included in residential development. As a groundbreaking report by New York City’s Regional Plan Association found, these standards are “effectively disallowing most buildings with six stories or less.” And depending on the program, a building could have to reach to 17 stories before it is eligible for participation in the normal housing markets. Without the FHA’s blessing, projects are granted the “nonconforming” kiss of death unless their developers can persuade a local bank to write an entirely customized loan for them, one whose risk the bank would have to keep entirely on its own books.

Enlightenment Now!

Alex Tabborock opines I hate paper straws:

There is a wing of the environmental movement that wants to punish consumerism, individualism, and America more than they want to solve environmental problems so they see an innovation agenda as a kind of cheating. Retribution is the goal of their practice.

If you find yourself drawn to the weird atavistic sensibility to get back to the land (which would dramatically increase our carbon footprint--remember density is green), or unplug and return to a simpler (read dirtier, riskier, less interesting) golden past, don't. Instead read Steven Pinker's Enlightenment Now: The Case for Reason, Science, Humanism, and Progress.

In this elegant assessment of the human condition in the third millennium, cognitive scientist and public intellectual Steven Pinker urges us to step back from the gory headlines and prophecies of doom, which play to our psychological biases. Instead, follow the data: In 75 jaw-dropping graphs, Pinker shows that life, health, prosperity, safety, peace, knowledge, and happiness are on the rise, not just in the West, but worldwide. This progress is not the result of some cosmic force. It is a gift of the Enlightenment: the conviction that reason and science can enhance human flourishing. 

...Many commentators, committed to political, religious, or romantic ideologies, fight a rearguard action against it. The result is a corrosive fatalism and a willingness to wreck the precious institutions of liberal democracy and global cooperation.

And as if to prove this point, The Atlantic shows up:

...the Enlightenment emphasis on the autonomous, rational individual can also lead to alienation and isolation, which make tribalist mythology all the more appealing.

NIMBY opposition to power plants falling

In other posts ( Unions using CON laws as a barrier to entry, Unions using zoning laws against Wal-Mart, and Make the local zoning rules or your rivals will) we have pointed out how firms and unions use local zoning rules to protect their competitive positions.

Now, the Saint Consulting Group reports that NIMBY (Not in My Backyard) opposition to power plants is falling.

Americans are waking up to the need for more electric power plants. The number of Americans who support power plant development in their hometown rose dramatically over the past year, according to the 2007 Saint Index(©) survey on attitudes toward real estate development.

Thirty-eight percent of American adults support a local power plant project, compared to just 23 percent in 2006 — a 15 percent rise.

Why is this important?

Development of real property has become agonizingly tough. What started on both coasts of the US has spread throughout heartland America: population density, maturing markets, and intense competition are causing battle lines to be drawn in numerous wars over how cities and towns are being developed.

...

The outcomes are determining which companies gain market share, who wins local elections, and what communities are going to look like into the future.

YIMBY's retake the moral high ground

• NY Times: 

NIMBY stands for “Not in my backyard,” an acronym that proliferated in the early 1980s to describe neighbors who fight nearby development, especially anything involving apartments. ... NIMBYs who used to be viewed as, at best, defenders of their community, and at worst just practical, are now painted as housing hoarders whose efforts have increased racial segregation, deepened wealth inequality and are robbing the next generation of the American dream.

• June 5, 2022 State Court of Appeal allows Tiburon Development (p.108):

CEQA [California Environmental Quality Act] was meant to serve noble purposes, but it can be manipulated to be a formidable tool of obstruction, particularly against proposed projects that will increase housing density. A CEQA lawsuit “provide[s] a uniquely powerful legal tool to block, delay, or leverage economic and other agendas,” and “is now the tool of choice for resisting change that would accommodate more people in existing communities.” 

...However, when private opposition is joined with official hostility, CEQA becomes an even more fearsome weapon. When the project proponent faces sustained private opposition, plus the combined animus of two levels of local government, the temptation to throw in the towel must be overwhelming. Something is very wrong with this picture. 

• More Battles Lost and Won:

 California’s chronic housing shortage shows no signs of abating with construction scarcely half of the 180,000 new units the state says are needed each year to close the demand/supply deficit. 

There is no single reason, but rather a toxic mélange of high costs, regulatory overkill and stubborn resistance from local government officials catering to the not-in-my-backyard sentiments of their constituents. [However, ...] pro-housing pressures may be having some effect:

• SACRAMENTO: Anyone who doubts the negative impact of high costs on housing should take a look at the budget for a 124-unit affordable housing project on the state-owned site of a former National Guard armory. ... The state is donating the land to the non-profit developer, Bridge Housing Corp., without cost and the City of Sacramento is waiving $468,624 in impact fees. But the budget for the project is still $82.4 million, which works out to about $665,000 per unit — enough to buy a very nice house for every projected low-income tenant.
• CONCORD: What would be the San Francisco Bay Area’s largest ever housing development, 13,000 units on the site of the former Concord Naval Weapons Station, is stalling out.
• HUNTINGTON BEACH: Orange County ... finally approved a 48-unit condominium project... Years of court battles with pro-housing groups and pressure from new state laws finally forced the city to throw in its beach towel last month.
• TIBURON: ... the state Court of Appeal last month slapped down Tiburon’s nearly half-century-long efforts to block construction of a few new homes on a hill overlooking the tiny city.  [see decision above] 

Forget income inequality, lets go after zoning restrictions...

The Financial Times has a nice article on the causes of housing price inflation (House prices are rising as a percent of national income (from 10% to almost 60%).  

A clever 2005 study by American economists Edward Glaeser and Joseph Gyourko compares the price of an extra square foot of land attached to a house (a slightly bigger back yard, perhaps) with the average price of a square foot of land under a house in the same city. If the problem is a natural shortage of land, the two prices should both be high because it is profitable to build on the back yards until the two prices converge. 

That is not what happens, however. In the cities of coastal California, the average price of urban land is 10 times the price of land in a back yard because zoning laws make it impossible to turn one into the other. ...  

The ratio of these two figures – as much as 10 to 1 – suggests only 10 per cent of the value of land in expensive cities is due to its natural scarcity. The rest is planning restrictions.

BOTTOM LINE:  zoning restrictions transfer income from those who own houses to those who do not.

The desire to preserve open space and familiar, low-density cities is quite natural – but it is time to wake up to the enormous cost. ... If we want to make society fairer and more equal, just let people build.

On the post-pandemic future of cities

Bloomberg has an optimistic vision of the post-pandemic central business district (CBD), as more work from home, and density has come to be associated with disease:

... The CBD can no longer function as a collection of low-end grab-and-go cafeterias, chain coffee shops, restaurants and salad bars. To evolve and survive, its offerings will have to become more local, authentic and actively curated. A day at the office will be spent less in a single building and become more like a localized business trip, with maybe an onsite meeting, checking some emails at an outdoor workspace, doing a group fitness session with colleagues, and taking some offsite meetings over lunch or coffee. The downtown expert David Milder dubs this as a shift from the old Central Business District to what he terms the Central Social District, in which workers and people meet, collaborate and socialize together. As I see it, the Central Business District will evolve into a hub in a system of more decentralized Neighborhood Business Districts that span from the city center out to the suburbs and rural areas. Far from being dead, the CBD is perhaps the single best place to be transformed in this way. 

Homelessness, inequality, and segregation are a housing problem

NY Times article based on Golden Gates: Fighting for Housing In America

Nearly all of the biggest challenges in America are, at some level, a housing problem. Rising home costs are a major driver of segregation, inequality, and racial and generational wealth gaps. You can’t talk about education or the shrinking middle class without talking about how much it costs to live near good schools and high-paying jobs. Transportation accounts for about a third of the nation’s carbon dioxide emissions, so there’s no serious plan for climate change that doesn’t begin with a conversation about how to alter the urban landscape so that people can live closer to work.

When it was Ms. Trauss’s turn to speak, she argued that the entire notion of public comment on new construction was inherently flawed, because the beneficiaries — the people who would eventually live in the buildings — couldn’t argue their side.

What this suggests is that the real solution will have to be sociological. People have to realize that homelessness is connected to housing prices. They have to accept it’s hypocritical to say that you don’t like density but are worried about climate change. They have to internalize the lesson that if they want their children to have a stable financial future, they have to make space. They are going to have to change.

HT: MarginalRevolution.com

Mobile phones save lives--but not in the way that you think

Before the 1990's, gangs created markets for illegal drugs based on location, and used violence to protect their markets ("turf") from entry by outsiders.  This changed with the advent of mobile phones, as it became relatively easy for non-gang members to organize illegal drug transactions over the phone. As a consequence homicide rates fell sharply:

Studying county-level data for the years 1970-2009 we find that the expansion of cellular phone service (as proxied by antenna-structure density) lowered homicide rates in the 1990s. Furthermore, effects were concentrated in urban counties; among Black or Hispanic males; and more gang/drug-associated homicides.

Similarly, the ease of online shopping through the Internet has caused brick and mortar retailers to respond to the shrinking of their "physical" marketplace, see, e.g.,

• How does Walmart compete with Amazon? 
• How does Walmart compete with Amazon (II)? 

HT: MarginalRevolution.com