Luxury Housing Isn’t the Problem

Indignation at luxury housing construction is one of the few things that unite NIMBYs and renters advocates concerned about gentrification and displacement. Since luxury construction is the only thing that pencils out in many places under existing zoning, this alliance is much more beneficial to NIMBYs, who get to thwart all new construction, than to renters advocates, whose meager gains from avoiding rent increases due to amenity effects are at least partially wiped out by rent increases due to the regional housing supply shortage. Politically, breaking the alliance between NIMBYs and renters advocates is prerequisite to taking any meaningful action on the housing crisis, as these are the two of the largest advocacy groups active in land use policy.

The trick that NIMBY con artists pull is to convince people that luxury construction is crowding out low-income & middle class construction – that every luxury unit built represents a missed opportunity to build a low-income or middle class unit. Of course, NIMBYs would oppose the construction of low-income & middle class housing or subsidized affordable units even more than they oppose luxury construction; that’s why it’s a trick.

For this story to be accurate, you’d have to believe that the economy is churning out housing as fast as possible. This is extremely unlikely. To see why, let’s look at a few graphs from the always excellent Calculated Risk and from FRED, the excellent data service of the St Louis Federal Reserve Bank.

First, here is the level of housing starts in the US.


Nine years after the bottom fell out of subprime lending, both total housing starts and single-family housing starts remain at levels that, since 1968, were previously only seen during recessions. When you adjust for population growth, the level of housing construction is even worse. The graph below shows the number of new housing starts per year for each person of population growth. For decades, we constructed 0.6 to 0.8 housing units for every additional person. That number dropped to almost 0.2 during the crash and has barely recovered to 0.4. (Note that this ignores demolitions, so it systematically overstates the amount of construction per person, but it’s fine for purposes of comparison.)


Now, it could be possible that developers have decided to spend the same amount of money, but build a smaller number of bigger, more luxurious units instead of a larger number of smaller, more affordable units. If this were the case, we’d expect to see housing investment remain at the same level as in the past, despite declining numbers of units.

This isn’t the case either. The graph below shows total real private investment in multi-family and single-family structures. Residential construction spending remains about a third below what it was before the housing boom of the 2000s started, and half of what it was at the peak.


We can adjust this for the number of units by dividing total investment by the number of units constructed. The next graph shows total real private investment in residential structures divided by the number of units started. In real terms, investment per housing unit remains around $210,000-$230,000, similar to what it was in the 2000s.


So, developers are not substituting luxury construction for low-income and middle class construction. It’s just that the total volume of housing investment and construction remains low.

Labor shortages and material costs have been suggested as reasons that housing construction is not higher. However, construction employment is still well below what it was during the last boom.


In addition, employment per housing unit constructed is still above historical averages. Through the 1980s and 1990s, each housing unit built every year supported between 0.4 and 0.5 jobs. This level rose dramatically during the recession, as builders tried to keep their employees despite reduced volume, and has only declined to just over 0.6 jobs per unit. It seems that builders may not be using the labor they have to its full productivity.


Prices for materials like framing lumber are up, but still below what they were during the last housing boom.


Simply put, luxury construction is not behind the housing crisis. It is the low overall volume of construction. Indeed, even if developers switched to building the same number of middle class units, we shouldn’t expect any impact on the regional price level, because the housing shortage would persist. Rich people don’t disappear because you stopped an upscale tower. Luxury construction doesn’t induce rich people into existence.

What has happened is that job growth has been concentrated in large cities in this economic cycle, more so than in previous expansions. These are places like LA, where geography has made it impractical for new single-family construction on the edges of the region, like the IE, to relieve housing demand generated by job growth in the core, like the Westside.

So if we want to understand the housing crisis, we have to look at why the volume of construction in places like LA is so low – lower than at times in the past like the 1960s and 1980s, despite much stronger price support.

The biggest reason at the local level is zoning. Through downzonings that have restricted how many units can be built on a lot and costly regulatory requirements like parking minimums and impact fees, we have made it impossible to build things like dingbats and courtyard apartments, the types of new housing that were immediately affordable to the middle class and even many low-income residents. Filtering is real, but we should make it possible again to build new construction that’s affordable to low-income and middle class people.

Other policy changes besides zoning reform could work to serve this goal. For example, it’s easy to get a highly-leveraged federally guaranteed loan to buy a single-family house, but not to build a small apartment building or mixed-use project. This is true despite the fact that apartments in centrally located parts of the region are much safer investments than single-family houses on the fringe. If policy had not been oriented this way in the 2000s, perhaps the housing boom would have produced a large number of conveniently located apartments instead of empty subdivisions in the desert. As another example, the much-maligned investment of foreign money in US real estate could be guided towards building apartments rather than pied-a-terre purchases.

NIMBYs, of course, don’t want to see any of this. It’s easy to get mad about rich people buying big houses and luxury condos, and NIMBYs exploit that to their advantage in trying to stop all new construction. To solve the housing crisis, though, we need to realize that luxury construction is a distraction from what we need to do – figure out why housing construction is at such historically low levels, and changing policy to fix it.

Autonomous Vehicles and Human Factors

Over in VC-land, we are told that autonomy will change traffic in cities from circuit switched to packet switched and from TDMA to CDMA. We will take this to mean that (a) riders may use several vehicles over the course of a trip and (b) several riders and several uses (passenger, freight) may use a vehicle for portions of a trip as the vehicle travels between two points. The alternative interpretation, that different portions of vehicles will be sent via different routes and different vehicles will simultaneously occupy the same space on the road, would be a bit too fantastical.

Astute readers have no doubt noted that we already have packet-switched CDMA transportation in cities: fixed-route transit service, where people board and alight at many points along the vehicle’s route, and users may be forced to transfer one or more times between different vehicles to reach their destination.

Looking past the annoyance of everything being turned into tech jargon, this is worrying because it is nothing more than a tech industry reframing of the mistaken “water through a pipe” philosophy of early traffic engineers. The idea that human users can be routed through a transportation network like packets of data across a communications network is akin to the idea that drivers move through a transportation network like water through a pipe. Understanding the human factor is one of the hardest learned lessons of traffic engineering, indeed, something many engineers still struggle to do.

People do not act like water in a pipe or packets of information on a network. Transfer penalties are real and vary with the person, the weather, the trip purpose, and other factors. Many people are not willing to share a ride with one anonymous person – note that the practice of “slugging” arose where HOV restrictions required three people rather than just two.

It is also not certain that ride sharing will replace single occupancy vehicles as autonomous vehicles become more prevalent. None other than Randal O’Toole provides some reasons why: people like having their own car with their own stuff in it, people don’t like the idea of a stranger using their personal property, and if autonomous vehicles reduce the cost and annoyance of car ownership, more people may choose to own. You’d be crazy to pay to keep a car in Manhattan & drive it around, but what if you could have the car drive you around and then go park itself in New Jersey when you don’t need it?

Another example of ignoring human factors is some presentations of automated intersections. For this to work, if pedestrians and bikes are to be permitted at all, they would have to behave in a perfectly predictable manner. Of course, we don’t – we stop to take out our phones, we stop to look at things, bike chains slip off gears. If full automation and vehicle-to-infrastructure communication are achieved, these intersections could prove useful for junctions of limited access facilities, but they won’t be popping up in cities. (And they will likely be more conservative than presented in these simulations, due to the need to allow for mechanical failures, unexpected pavement conditions, and so on, but that’s another issue.)

I don’t mean to suggest that autonomous cars won’t have any impact on cities. The improvements to safety alone from eliminating human error, inattention, and bad behavior will be well worth it. But if you’re waiting for the paradigm shift of changes being hyped in some of the press, I wouldn’t hold my breath.

Trolley Problems

The New York Times has the latest in a long series of pop think pieces that wonder how driverless cars will deal with variations on the so-called “trolley problem”: is it ethical to make a decision that saves some people’s lives at the expense of another person’s life? This article asks whether your driverless car should hit a pedestrian to save your life. Not surprisingly, most people in the studies chose to save their own lives over that of a hypothetical pedestrian.

Should driverless cars be programmed to serve the greater good, even at the expense of the passenger?

How would you even know what the greater good is? What if the passenger has children in the car? What if the passenger is the only person in the car, but is the sole breadwinner for a large family and is taking care of disabled relatives? What if the passenger is 70 years old and the pedestrian is 35 years old? What if the passenger is 70 but in excellent health and the pedestrian is 35 with a terminal illness? What if the passenger in the car was on their way to commit a crime? Even if we, as a society, could agree on what the greater good might be, there would not be enough time to determine all the relevant information in time for anyone – human or machine – to make an ethical decision.

Quite simply, I do not think humanity is about to take the extraordinary step of allowing a fully automated system to decide who dies and who lives.

Instead, driverless cars will be expected to perform the same way we expect almost all other machines to perform: with an extreme deference to preserving human life. Think about the machines you interact with on a daily basis. You have to be negligent in the extreme to get killed by a machine because of something the machine couldn’t avoid doing (as opposed to something idiotic that the machine’s human operator might make it do). And even if you do something incredibly negligent, like step in front of a train or stick your arm inside rotating machinery, the machine’s owner might still end up with significant liability for your injury.

Many people view autonomous vehicles as incremental improvements to automobiles. And it’s true that there will be great improvements in safety from “driver assist” technologies like systems that help keep you in the lane and keep you from hitting the car or pedestrian in front of you. These technologies will save lives without a doubt.

However, full automation is not an incremental improvement. It’s a shift to a much different level of social/cultural expectations and liability. Drivers are held to extremely low levels of liability for damage they cause; in California, the state minimum is $15,000 for death to one person and $30,000 for death to multiple persons. In contrast, Metrolink paid out $4,200,000 for each death in the 2008 Chatsworth crash, and the number was only that low because of federal law that caps railroad liability at $200,000,000 per incident.

The reason railroads have much higher liability limits than drivers is that most people in the public identify as or with drivers, while very few people identify as railroads. If the state tried to raise the auto insurance minimums to $4 million per death, insurance premiums would skyrocket and there’d be a political revolt.

In other words, if you maim someone with your car, but you have the state minimum auto insurance and few assets, that person is shit out of luck. Google, on the other hand, is not going to have its liability capped at $15,000 per death. It has the financial wherewithal to pay for insurance that actually covers the damages caused by auto accidents, it has the assets to pay damages in excess of its insurance limits, and it’s not going to get any sympathy from the public if a driverless car runs over someone’s kid, someone’s mom, or someone’s grandpa.

It seems to me, then, that fully autonomous vehicles will by necessity take a very large discrete step towards eliminating deaths from automobiles. They will be programmed to do so by having very conservative software. The large corporations – and their insurers – responsible for the software, and maybe for owning and operating the vehicles as well, will demand it. No one is going to accept an incremental improvement in safety in exchange for a hundredfold increase in liability. Fully autonomous vehicles will only kill someone in cases where the victim is grossly negligent, and even then, there will likely be out of court settlements.

The nature of Silicon Valley frequently rewards entrepreneurs for being the first to the market with a product, even it means frequent incremental updates to fix bugs. As long as they don’t deal with the security of private data, software problems usually have minor consequences. Apps freeze and crash; Google Maps has its share of erroneous data; formatting in Word is still frustrating as hell. But as Theranos shows, other industries don’t work that way.

Railroad signaling may offer clues as to what will be expected of fully autonomous vehicles. Braking performance assumptions are very conservative. Automatic train control is not expected to be marginally safer than human drivers; it’s expected to completely eliminate train to train collisions. The system is designed to assume it’s not safe to move unless otherwise directed, not to assume that it’s okay to move unless informed otherwise. Railroads were just forced to spend billions on Positive Train Control, one function of which is to help protect railway workers against the trolley problem by insuring it never comes up in the first place.

It’s not that incremental improvements aren’t good. It’s just that cultural expectations change when we turn a task over to a machine. We don’t expect machines to make ethical decisions, we expect them to be safe enough that they never have to.

What Kind of Transportation Will LA Need in 2066?

(Note: as a civil engineer, I obviously have a self-interest in infrastructure financing.)

An opinion piece in today’s LA Times wonders if LA Metro’s proposed ballot initiative to fund mass transit, road, bike, and pedestrian improvements will soon be obsolete due to changes like driverless cars, hyperloop, and self-contained communities.

With the usual caveat that anything is possible and predicting the future is hard, I think this is pretty unlikely. Assuming the projects are well-executed, LA Metro’s plan will prove to be a beneficial investment in the region’s infrastructure.

As far as innovation in transportation goes, remember that transportation is a well-established industry. The major modes of transportation we use were developed decades ago: railroads in the mid 1800s, bicycles in the late 1800s, cars in the early 1900s, and airplanes in the mid 1900s. The last truly revolutionary changes in transportation were what – the jet engine for commercial air travel and containerization for freight? It’s possible a new technology like hyperloop will be developed and come to market; however, as currently conceived, hyperloop is a low-capacity luxury intercity service, not a solution for local mobility in cities.

Autonomous vehicles (AVs) should probably be analyzed in the same way. They are an incremental improvement on long-standing technology, not a new type of transportation. At this point, the theorized increases in highway capacity and reductions in car ownership are just that: theoretical. Trains and airplanes, which operate in much more controlled environments, don’t follow each other so closely that crashes are inevitable if something goes wrong, which is an underlying assumption of achieving major capacity increases with AVs. They will be great for safety, but the number of fatalities per billion miles traveled has fallen from over 200 in the 1920s to less than 20 today, thanks to things like better mechanical engineering for cars and better civil engineering for roads. AVs aren’t a revolution in safety; they’re just finishing a job that’s over 90% done. And if AVs do reduce the cost of driving, they may increase car ownership rather than decrease it.

Self-contained communities are also unlikely, because they buck the pattern of how people use cities. As cities grow, they can serve an increasing diversity and specialization of interests, and accessing them requires good transportation across the region. For example, let’s say you work in finance, which concentrates in downtown LA. You’re going to want to live somewhere convenient to downtown, as will most of your coworkers. However, you might really like Chinese food, and want to live in the San Gabriel Valley, while one of your coworkers might really like the beach and want to live in Santa Monica. Your partner might work in a logistics park in Ontario, and might really like the food in Little Saigon in Orange County. People and businesses distribute themselves around the region on different patterns. You can only take advantage of everything the city offers if you can easily travel around it. Logistics improvements like same-day delivery just invert the trip; instead of you traveling to the amenity, the amenity travels to you. Telecommuting will work well for a small set of people, poorly for a larger set of people, and not at all for an even larger group.

The transportation we need in 2016 is not very different from what we needed in 1966; in fact, the transportation we need in 2016 is not even all that different from what we needed in 1916, when rapid transit lines and electric railways were proliferating, and the first controlled access roadways were less than a decade away. SoCal is going to keep growing, and we’re going to need to fix our roads, expand transit, and improve bike and ped facilities. The LA Metro ballot initiative is something we can do today to help meet these needs for decades to come, and anyone who cares about the future of LA should strongly consider supporting it, rather than hoping for technological silver bullets to solve our transportation problems.

Three Stories

On Sunday, I traveled back from the east coast, and met three people who experience LA in very different ways.

The first person barely made it onto our 6am flight, having received an epic send-off party from friends the night before. They were fresh out of school, and had just landed their first job at a marketing firm in El Segundo. Sunday they moved across the country; Monday was their first day of work. They got an apartment in El Segundo, and were excited to live near the beach and start their job, but were worried that not owning a car would make it harder to make friends. I offered a welcome and encouragement, but flying out of Boston, I couldn’t deny that not having a car in El Segundo would impact one’s social life.

The second person picked me up on the upper level of the LAX central terminal area – a driver for a popular ridesharing app. They had moved to LA in 1990 with a sibling to try to pursue a career in music. It’s a tough industry and the early 90s were a very tough economic time for LA, and they hadn’t found the success they’d hoped for. They now live in the far west of the Valley, having gotten a deal on rent from an in-law. The sibling had already departed for the Midwest; they were considering doing the same, where their money would go a lot further.

The third person is a friend of a friend, who stopped by to chat after lunch. They had moved to the Inland Empire a couple years ago to help take care of family. However, they live in a very family-oriented area (like you do in the IE) but do not have children, and miss the social and cultural opportunities of LA. The long drive from the IE makes it difficult to take advantage of the city, and the IE does not offer the same opportunities for one’s personal life as LA.

These are three people out of 18 million in LA/OC/IE, at different points in life, going in different directions. The land use planning system that we’ve constructed doesn’t work for them. There are millions of other stories out there with the same thread connecting them. There are probably plenty of people who’d want to live in El Segundo without a car and have lots of friends close by. There are many people that want to pursue artistic work that doesn’t pay well but enriches LA’s culture, who are needlessly punished by high housing costs. There are lots of people in the IE who don’t have families and would like to have a greater variety of social and cultural opportunities nearby.

Rigidly-defined land use planning forever locks neighborhoods, cities, and regions into the patterns chosen by a very small portion of people – usually very vocal opponents of any development other than single family homes. More importantly, it locks people into those patterns – it shapes and restricts their lives, their dreams & opportunities.

It’s long since time to dispel with the myth that everyone wants the same type of suburban family-oriented development, and that the desires of the people who do want that type of development should absolutely trump the hopes of everyone else. It’s also time to recognize that the social, economic, and cultural outcomes are what matter, not the built form of the city. SoCal is a big place; we have plenty of room to allow all kinds of development and for everyone to pursue their dreams.

‘Round Glendale: One Block on Elk

In our first tour of Glendale, we took a long walk down W Wilson Ave, from the city center on Brand Blvd to the industrial edge at San Fernando.

Today, we’re going to go seven blocks south and look at a short block on W Elk Ave, between the end of the ramps from the 5 and Pacific Ave. This stretch is barely 700’ long, but has a remarkable diversity of buildings.

From the freeway off-ramp, the view is at first dominated by Brio, a large apartment complex that was finished in 2012-2013. The left side is large apartment house with three wings; the right side of the street is a set of 14 townhouse-style units built as part of the same project. The 186-unit apartment building has a Colorado St address but takes up the whole block, with the wings opening up towards Elk.

Like most large new construction apartment buildings with boatloads of on-site amenities in LA, rents aren’t exactly cheap. Studios start around $1,800/month and a 2BR will run you over $3,000/month. The side facing Colorado has first floor retail.

The apartment portion of the project is zoned SFMU, which is Glendale’s basic mixed-use zone, allowing up to 100 du/acre and 75’/6 stories height. (These are slightly reduced when abutting other multi-family zones and significantly reduced when abutting single-family zones.) This is more or less equivalent to the RAS4-1L zone in Los Angeles. On some streets (San Fernando, Colorado, & Broadway), commercial uses are required on the street frontage. The townhouse portion of the project is zoned IMU-R, which is Glendale’s most generous mixed-use zone, allowing everything up to heavy manufacturing. (Multi-family requires an administrative use permit and mixed-use requires a conditional use permit.)

Moving beyond Brio on the right, there are three single family homes.

Well, there were three single family homes. Now there’s one and a hole in the ground.


The demo permit for this job was just issued at the end of March. Soon, a 6-unit townhouse will be rising on the site. This is going to leave on SFR in between Brio & the townhouses, for some infill developer in the future to tackle. The south side of Elk from Brio to Pacific is zoned R-2250, one of Glendale’s basic multi-family zones. As the name suggests, this allows one unit per 2250 SF of lot area, or 19 du/acre, similar to the RD2 zone in LA.

The next building up looks like an SFR at first, but is at least a duplex and maybe a triplex, and it might even have a backyard cottage too. Walk around this part of Glendale, and you’ll notice the density is often hidden; it’s nearly impossible to tell how many units a property has from the street. This is classic missing middle affordable housing, which we ought to be building in spades all over the region, especially towards the edges of the city where there’s housing demand but apartments might not pencil out.


Then we have a newer development with two houses on one lottwo houses on one lot, but who knows, maybe one is a duplex.

After that, we have two classic 1980s buildings. The building on the right was finished in 1988 and is built on two lots, just like the new 6-unit townhouse project being built. However, it has 15 units. So unfortunately, the permitted density here has been reduced by more than half since the 1980s, making it impossible to construct smaller, more affordable units. If you can only put 3 units on a lot, you need to make them pretty big to make it worthwhile. The building on the left was finished in 1989 and has 5 units.


Three small structures take us to the corner of Pacific. The one on the right is a duplex; the middle is single-family. The last is two units on one lot and actually has a Pacific Ave address.

The north side of Elk is still zoned SFMU all the way to Pacific, so eventually we may see another mixed-use development pop up here. For now, most of the north side between Brio and Pacific is occupied by a generic light industrial building, mysteriously and awesomely named “Promoting Growth AWAP”. A little digging reveals this to be an auto parts wholesaler.

The last building, a set of twin apartment buildings at the corner of Pacific, was built so long ago they actually got away with a surface parking lot. It has a Pacific Ave address, and provides 16 apartments.

This little block on Elk displays a lot of the different types of housing you’ll find in Glendale. It’s providing a variety of housing for a variety of people, but it’s also a warning about what we’re at risk of losing the LA region. New buildings like Brio are great; new townhouses are great. But we’re not building the small duplexes, the small apartment buildings, or the medium size apartment buildings that fit in many small, but affordable, apartment units.

If we want to maintain the dynamism that makes LA such a great city, we’ve got to be building those missing middle housing types. Land costs are such that it might not make sense to build them in this particular neighborhood today, but there are places where it would – if we only allowed it.

The Housing Crisis & Wages in Tight Labor Markets

A short note on the impact of the housing crisis on wages in tight labor submarkets, as a follow up to a Twitter conversation about the impact that moving to an expensive city has on disposable income.

In The Rent is Too Damn High, Matthew Yglesias argues that you can’t command higher wages to live in a high-cost city, even if your skills are relatively scarce, because employers roughly “pay workers according to how valuable their work is… nobody is going to offer you a higher salary to offset your high cost of living just to be nice.”

Anecdotally, I can tell you this is not true. Working in an industry where there is currently high demand for certain niche skills and limited supply of workers, we have to offer substantial pay raises to get workers to relocate to LA. My engineering skills are not particularly specialized, but you’d still have to pay me more if you wanted me to relocate to SF or NYC or some other place more expensive than LA. We’re not offering higher salaries to be nice; we’re doing it because the high cost of housing gives workers the ability to cut into our producer surplus.

The reason is that labor has a supply curve too, and the cost of housing is an input into the cost of supplying labor. If housing is more expensive, less people are going to be willing to relocate to the city. Obviously, the amount of money it would take to convince a worker to move will vary – some people don’t want to move to LA for reasons other than cost, some people really want to move to LA despite the cost – but overall, workers will demand higher compensation to relocate to higher cost cities.

The increase in pay that workers can demand depends on the number of potential workers and the demand for their skills. For jobs that many people can perform, modest increases in wages should bring about a decent increase in the number of workers. On the other hand, for niche skills, the supply curve might be pretty steep, and workers may be able to command substantially higher wages. On the demand side, if employers can easily automate work or move it to another city, they may not offer much in the way of wage increases. But if the work cannot easily be moved elsewhere, demand will be less sensitive to wages and workers can again demand substantially more money.

Employers almost always have some alternatives to raising wages. They can try to have the work performed remotely; the reduced productivity of remote work may be more than offset by wage savings. They can forgo the work entirely; in some cases it might be impossible to do the work profitably.

All of this implies that high housing costs will be borne jointly by workers and employers. Higher paid workers with niche skills will be able to force more of this cost onto their employers, though by no means all of it. The cost to employers becomes a deadweight loss, money that could have been otherwise invested in expanding a business and employing more people. Lower income workers are affected worse than higher income workers, making solving the housing crisis even more important.