Daily Archives: June 14, 2014

The Lamborghini and The Dingbat

One of the protests against allowing more housing construction is that supply and demand has failed – that developers only want to build luxury units or that the global elite will invariably buy all the new supply anyway.

This is based on the misconception that we’re having a housing boom. But that’s not the case; LA, and California in general, haven’t had anything resembling a construction boom since about 1990. In reality, housing construction is very limited; it’s being restricted by zoning and permitting laws. Because developers can only build a few new units, they’re building luxury, since that’s the most profitable.

Consider, for example, that luxury cars account for 12% of vehicle production, but 50% of auto manufacturer profits. There’s no limit on vehicle production, so automakers produce a lot of cheaper low-margin cars too. But if auto production was capped at, say, 15% of what was produced last year, they’d only produce luxury cars.

chris_brown_jetfighter_lamborghini

One of these vehicles offers the possibility of huge profits off rich d-bags.

One of these vehicles offers the possibility of huge profits off rich d-bags. The other one, not so much.

A person looking at such an auto market might conclude that the problem is that Lamborghinis are too expensive for ordinary people to afford. But really, the problem isn’t that Lamborghinis are too expensive, it’s that not enough Honda Civics are being produced.

Current affordable housing policy is akin to requiring that a certain percentage of Lamborghinis be sold to a lucky few people at a huge discount. It should be obvious that we can’t solve society’s mobility problems by trying to ensure that everyone gets a $250,000 car. We don’t need subsidized Lamborghinis, we need Honda Civics. Trying to give everyone a Lamborghini would cost way too much. (And if Chris Brown is in your Lamborghini, that’s another major problem.)

centurycity

One of these views is from Century City and worth millions. The other one, not so much.

One of these views is from Century City and worth millions. The other one, not so much.

The global elite argument really falls apart here. The global elite might buy a lot of luxury apartments and Maseratis, but they’re not going to buy Honda Civics or new dingbat construction in Pacoima.

Now, maybe you genuinely don’t think the market can produce enough Honda Civics for everyone. Fair enough, we can argue that point. If you don’t think the market can produce enough housing for everyone, we can debate that too. But you need an alternate solution: massive government housing construction, housing societies like Hong Kong, something. Otherwise you’re just arguing to save the privilege of those lucky enough to already live in LA (or SF, or NYC) at the expense of people living in Lagos or rural Appalachia or San Salvador, who would very much like to take advantage of the opportunity for a better life offered by the city.