The Most Dangerous Myth

In the world of housing advocacy, a dangerous myth has taken hold, one that is now being manifested in the form of legislation. That myth goes as follows: If you just build more housing, housing will get cheaper.

Were it so easy. And yet for some reason this simplistic notion keeps getting accepted at face value by a lot of people who should really know better. This myth is more or less the fundamental belief of self-proclaimed YIMBYs, who are really feeling their oats in California right now with the introduction of Scott Weiner’s SB 827. If passed by the California State Legislature, SB 827 would basically exempt any housing project within 1/2 mile of a major transit stop from most zoning regulations, particularly height and density restrictions and parking requirements.

Predictably, YIMBYs were eager to jump on board, praising Weiner as some sort of urbanist visionary. But they seem to have been taken by surprise by a diverse coalition that has formed in opposition to the bill, which includes some members with pretty serious cred: tenants and immigrant rights organizations, housing and homeless advocacy groups, and even transportation advocacy groups like Move LA and the Los Angeles County Bicycle Coalition. These weren’t the usual Beverly Hills suspects that could be so casually dismissed as “NIMBYs” (not that this has stopped some YIMBYs from trying).

In short, what we’re seeing is the inevitable shattering of the broad coalition that overwhelmingly defeated Measure S less than a year ago. The urbanists who prematurely declared that victory as a sign that Los Angeles was uniting around an urban vision for its future overlooked something crucial: this fight was never just about what gets built in this city; it’s about who gets to live in this city.

I’ve briefly touched on the problems with YIMBYism before, but they basically boil down to an absurd faith that left to its own devices, the real estate market will sort itself out. Build more housing units, the thinking goes, and the price for each individual unit will go down. Basic supply and demand, right? The obvious problem with this reasoning is that housing as a commodity doesn’t function like the simple models you studied in your microeconomics class. Supply is just one of numerous factors that affect the cost of housing in a speculative real estate market. In pricey cities like Los Angeles, the cost of your housing unit probably has more to do with how old it is and how much speculative capital is flowing into new construction in your neighborhood. After all, the old real estate mantra is “location, location, location,” not “supply, supply, supply.”

To once again quote Karen Narefsky’s marvelous article on YIMBYism:

The YIMBY narrative rests on an idea called filtering, which maintains that even luxury construction increases affordability: as new luxury units are built, wealthier residents move into the new housing stock instead of competing for existing lower-quality housing. Apart from the condescension — should low-income people really have to wait for housing to “filter” down to them? — this framework ignores the reality of today’s housing market. Existing housing is more likely to be turned into short-term rentals through Airbnb, flipped to a condo developer, or turned into a high-end rental than it is to be occupied by a low-income family. There is also strong evidence that rents in existing housing near new luxury housing rise more than rents in apartments that are not close to new luxury housing.

What’s more, just because new housing units get built doesn’t necessarily mean that people will live in those housing units. As Narefsky writes, “The idea of filtering, as well as the premise that new construction will bring down rents, means little when housing can be, and often is, used as an investment.

Given all this, it’s no wonder that SB 827 has many housing advocates in South L.A. and East L.A. worried. “Local control” is a term that has been tainted in Southern California by its association with Beverly Hills or Santa Monica homeowners who wielded it to keep out low-income residents and people of color. But in South L.A. and Boyle Heights, residents have struggled for years to gain some degree of control over their futures, and their efforts have finally begun to bear fruit with accomplishments like the People’s Plan and Metro’s revised plans for Mariachi Plaza. City-wide, there has been a greater push to require developers to provide affordable housing and incentivize transit-oriented affordable housing through initiatives like the voter-approved Measure JJJ—an incentive that would be completely disregarded should SB 827 pass in its current form, undoing years of hard work.

Even for transit advocates, the prospect of what SB 827 could wrought has given pause for thought. On the face of it, more density around transit is good. But there’s a healthy difference between development that’s transit-oriented and development that’s merely transit-adjacent, and SB 827 makes no delineation between the two. What’s more, market-rate housing is going to cater to the wealthy, who are the least likely to use transit no matter what. Density does transit little good if all the people who use transit get displaced.

Now, some people have defended SB 827 by pointing out that it could potentially be amended to include more provisions for affordable housing. But this just speaks to the limitations of relying on the speculative real estate market to address our housing crisis. The reality is that nothing short of forceful interventions into that market are going to bring costs down. Mandating affordable housing in new developments is a baby step, and one that doesn’t go far enough because the market is never going to produce enough housing to meet the huge demand for affordable housing, even if you throw all zoning regulations to the winds. What is needed is an ambitious project to construct enough affordable housing units to meet this huge need—something most easily accomplished through a massive public housing initiative—coupled with tenant protections and rent controls to ensure that these new units remain affordable for years to come. Only by taking housing outside of the parameters of the market will you make it accessible to the masses.

These are the battle lines now being drawn in the housing debate, and the fight over SB 827 is just the first of many to come. YIMBYs are hardwired to think of every single one of their opponents as a NIMBY, but this is not going to be a battle between those who think development is bad and those who think it’s good. This is to be a battle between those who are fighting for their right to remain in their homes, and those who are merely content to watch developers toss out a few scraps for the rest of us.

8 thoughts on “The Most Dangerous Myth”

  1. You haven’t rebutted the central claim of YIMBY groups. You’ve only asserted that you think they are wrong. You hold no moral high ground, and have not provided an alternative that would alleviate the rent increases, disparities in wealth, and homelessness rates we are currently dealing with. The YIMBY thesis would do something about all three.

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  2. The most significant factor in LA high housing costs is corruptionism. The city has allowed spot zoning to price most the residential housing at its high Developer Value rather than at its low Living Space value.

    If all R-1 homes were fixed with an unbreakable R-1 zone, then the price of housing in LA would fall dramatically. No developer would overpay for a piece of property which he could not UpZone. Then, only people bidding for these family homes would be families who wanted to live in them rather than turn them into rental businesses. Living Space value is 2 to 3 times lower than Developer Value which is why LA residential; prices are 2 to 3 times that of residential housing in places like Austin and Nashville.

    When Family millenniuals could buy a reasonably prices r-1 home in LA, they would not leave and our brain drain would stop. Developers would have not motive to buy up Boyle Height or South LA in order to tear down homes for apartments.

    High housing costs have nothing to do with lack of construction. LA’s tiny population increase is due to new-borns who do not increase demand for housing and it is due to Millennials who are moving away. Each family millennial who moves away opens up housing supply. Thus, it is another falsehood that we have a housing shortage.

    Likewise it is false that lack of construction has increased homelessness. The low end of the market has a shortage because we have destroyed over 25,000 rent controlled units – which is enough to house all of LA’s homeless.

    In brief, housing prices would fall if every detached home were locked into R-1 and there could be no Up Zoning of any property. Once the developer were out of the market, no one would bid up the value of residential property below its lower Living Space value.

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  3. Hello John, Thanks for your article.

    I have been reading about California’s real estate crisis with interest. CA provides a textbook example of the economic damage caused by insufficient land tax – for the last 40 years.

    Have you read “Landlords and Heirs: Why Prop 13 isn’t just unfair, it’s un-American” on medium.com?
    View at Medium.com

    Also I highly recommend Phillip Anderson’s book “The Secret Life of Real Estate and Banking” – a highly entertaning history of land prices in USA since 1800.

    I will be presenting a poster at the Landmark Wisdom Conference for Global Transformation in Monterey in May with the intention of raising awareness of the link between Land Tax and economic prosperity.

    – Tony Graddon

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  4. I’m favorable to the YIMBY point of view, and the idea that building housing would decrease housing prices is most of my reason for that. (There’s some other stuff to do with density being better for carbon emissions, but buying carbon offsets would be another way to do that. And there’s another part where bringing tech people together in the SF bay area helps extremely useful things like cancer, clean meat, and materials science research – all things my bio friends in the bay area work on. But housing prices is my biggest crux, and if I thought building more housing wouldn’t help, I’d be much less interested in it.)

    As you note, there’s two effects to increasing the supply of housing – the usual supply-demand effect, plus what Devon Zuegel calls the agglomeration effect where increasing the number of people in a place can make it more valuable, which increases house prices.

    So I’m very interested in finding good estimates of the size of the agglomeration effect versus the supply-demand effect. Do you know of any? Karen Narefsky’s article says there’s strong evidence that rents in existing housing near new luxury housing rise more than rents in apartments that are not close to new luxury housing, but honestly I’m a bit suspicious. She links to a report by the Lincoln Institute of Land Policy, but I read the relevant part, and they present a theoretical argument that it could happen, but don’t have data that it does happen.

    What I’d expect strong evidence to be, would be economics papers finding that increased supply of housing raises prices, rather than decreases them like it does for most things. I searched for estimates of supply elasticity, and found this working paper, Housing Demand, Cost-Of-Living Inequality, and the Affordability Crisis (the lead author was a fellow at the Lincoln Institute of Land Policy at the time – the institute whose report that Narefsky quoted approvingly). It’s a bit much for me to follow, but they say their “compensated estimates suggest that the uncompensated own-price, income, and substitution elasticities are all near two-thirds in absolute value”, which I’ve seen people summarize as “rents decrease by 3 percent for each 2 percent increase in the housing stock”. They describe a bunch of similar estimates in the “Motivation and Related Literature” section. So from my very brief search of the literature, it looks like increased housing decreases prices. But maybe the elasticity is different in the most desirable places like San Francisco? I wish I could find the relevant papers.

    It’d be great to find a really good overview of the academic literature, with all the elasticities people have estimated, especially if they’re local to particular areas like San Francisco. You’re probably familiar with this, since you’ve landed on a strong opinion on it. Might you write it up? It’d be great if someone could cover the major papers and describe what’s good or bad about them.

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    1. I very strongly recommend reading “Democracy in Chains” by Nancy McLean (2018). This will make you suspicious of any theory that is not supported by research and data (as you are already!). The author identifies precisely how such theories are promoted by organizations that have a deliberate agenda to disrupt and subvert logical debate. Read the book and understand the current context for economic debate in USA.

      The fundamental problem with housing affordability in California is the real estate speculation that has prevailed for 40 years since Proposition 13 was enacted in 1978. Proposition 13 sets the context for California’s economy. It is a “Landist” economy – not a capitalist economy. This can be seen in the high levels of inequality, poverty and homelessness.

      Government and municipalities might be able to work around Prop 13 by building large quantities of affordable small houses that are not attractive to middle class residents. However, this will only work if the houses are owned by the public sector. If the dwellings are owned by rentiers then the rents must be regulated by the state to prevent predatory pricing.

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      1. Thanks for the recommendation! I’d heard some bad things about Democracy in Chains (Vox said it makes misleading claims), though I haven’t looked into that in detail. I know it’s hard to write a whole book without any errors. Maybe I should check it out.

        I do agree that the epistemic landscape is warped by many interest groups promoting their views. And Proposition 13 does seem to have been disastrous.

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  5. … “this fight was never just about what gets built in this city; it’s about who gets to live in this city.”

    ALmost always it’s actually all about who gets to own the land and collect the value of the rent.
    The land owners maybe don’t care who lives there, so long as the renters pay the rent and do not engage in collective action.

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