Thursday, October 19, 2017

Asking the Wrong Question

A few days ago I spent some seven hours attending a meeting of the San Jose City Council. I was there to speak against a proposed gun control law, but there were other interesting things in the meeting. One of them was a discussion of the Evergreen Senior Homes Initiative, a ballot measure proposed by  developers who want to build 910 units of housing on land currently zoned for industrial use, an idea to which the Mayor is opposed.

His argument is that, despite the references to affordable housing, seniors, and veterans, what the plan actually proposes is a gated community for wealthy residents. He may, for all I know, be correct. It does not follow that building it will not make more affordable housing available for the non-wealthy.

When someone moves into one house he moves out of another, which is then available for someone else to move into. If the development is built and the units are bought by people currently living in San Jose, the net result will be to increase the city's housing stock by almost a thousand units. Doing that will make more housing available in the city and lower its cost. The question the Mayor should be asking, assuming that what he is really interested in is the welfare of the citizens of the city and not merely his ability to control things, is whether the development will draw mostly from current residents or mostly from people who would not otherwise live in the city. Pretty clearly, that question never occurred to him.

The assumption of the Mayor–I think of city planners more generally–is that the way to get affordable housing is to build affordable housing. That is not the only way of getting it. The alternative, very common in the history of U.S. cities in the past, was for poor people to move into housing that had been occupied by, possibly built for, less poor people, vacated when the less poor people moved into newer and better houses. 

The same way poor people get cars.


Jonathan said...

Good point. Although, if houses are built for rich people, the effect will probably take quite a while to trickle down to affect poor people. Moving home is a rather slow and expensive process, so there's a lag built into the system. And the immediate effect of the new housing will be to attract some proportion of rich people from outside the locality.

Anonymous said...

Housing as I recall in San Jose is over $1000/sq ft, yet construction costs for apt buildings up to 40 stories is around $300/square foot. Pretty clear, that as you mentioned, the real issue is artifically restricted supply. The poor are the main loosers in this restrictive zoning policy

Bill Friedman said...

That's an interesting claim and one I'd like citations for so I can quote it, Anonymous. If you have sources you can site for those claims, can I ask for them?


David Friedman said...

Jonathan: Your second question, where the residents would come from, was the point of the title of my post. I don't think the time lag you describe is a big issue. however you build new housing, for high income or low income, it takes time to build it. Once it's built, moving is a matter of weeks or perhaps months, not years.

Anonymous: Looking at houses on Zillow, asking price per square foot varies a lot but the typical figure seems to be about $500, not $1000.

Jonathan said...

I think it's normal for the sale of a property to take months, perhaps even years in some cases -- although my limited experience of the process is in England and Spain, not in the USA.

What I was thinking was that the trickle-down process requires a long series of such sales. If expensive properties become available, few if any of the buyers are going to be moving out of really cheap properties. Some of them may be moving out of slightly less expensive properties, and after a long series of such sales there may be an increase in housing supply at the bottom of the market. But it would surely take years; I don't know how many years. It would be an interesting thing to measure in the real world, if such a measurement could be made.

LH said...

On the other side of the spectrum (from the new/expensive properties that might have a longer-than-usual delay in being sold to the next occupant) there are those properties that are so run-down that they are no longer fit for occupancy, many of which remain vacant for many, many years. Which faces the longer period without occupants? Which constitutes the greater total available living space? The greater total value uncaptured? When the focus is on building so-called affordable housing, the issue is not just the forgone process that David has mentioned, but also (it seems to me) that there would be a longer delay in the demolition of condemned properties and construction of new ones (which is problematic no matter the income level for which the properties are designed, as a lack of new construction implies, barring extensive renovations, forgoing new building technologies).

Regardless, the point about the potential delay seems overblown. We're not talking about epochal time scales, and making decisions about long-term goods based on what might be short-term effects, contrary to long-term effects, seems to be an obviously incorrect strategy *for the ostensible goal* of making housing affordable. On the other hand, if the goal is political or seeking yummy rents, maybe the council's strategy is the appropriate one.

Jonathan said...

In my comments here, I'm not arguing with the original post, which made a good point that I'm happy to agree with. I've merely pointed out that building high-cost housing doesn't _immediately_ increase the supply of low-cost housing: there's some delay. How much delay, and whether the delay matters at all, will vary from place to place and from time to time.

mark wilson said...

This is a good case of how general equilibrium results sometimes differ from partial equilibrium results. Thank you, Leon Walrus, for starting this discussion (ca. 1875). And thank you, David, for pointing out a current example.

Anonymous said...

The case in question involves rezoning an industrial zone to residential. Few here have acknowledged that other residential tracts can also be rezoned. The trend I've noticed in my metro area is that old industrial areas are being re-zoned to residential in the form of high-dollar lofts and townhomes, while empty/abandoned/foreclosed residential properties are razed and re-zoned to commercial or left as empty lots.

Tom Hudson said...

Jonathan: In my experience, the US real estate market moves much faster than the UK market.

I've bought & sold 3 houses in the US over the last 16 years, and am now living in the UK. All 6 of my transactions were in markets far less torrid than Silicon Valley, and I think five of the six had an offer within a month of being put on the market and closed ("completed") within 2 months of that initial offer.

I'd never heard of explicit lengthy chains in the US which are so commonplace in the UK.

Anonymous said...

Hi David,

I apologize for the comment long after this has died down, but there's another argument to be made for leaning against new luxury development. All I have is anecdata, so feel free to treat this as speculative, but a friend of mine is in the South Bay real estate business, and has told me that the foreign investors that have purchased chunks of Manhattan, London and elsewhere are looking at properties in cities like SJ now.

The argument, of course, is that if you want homes occupied by real, breathing humans who work and live in a community and whatnot, then you should build homes that those people want/can afford, rather than ones that cater to the global wealthy-elite.

David Friedman said...

Are you assuming that foreign investors are buying real estate that they plan to occupy themselves? If not, the obvious assumption is that they build housing in order to rent or sell it to living, breathing humans. Why does it matter whether the investor is in Berlin or Los Angeles?