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.

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9 thoughts on “The Lamborghini and The Dingbat

  1. Dan Keshet

    I agree with everything you say here, exccpt the last bit:

    “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.”

    The ‘people who are lucky enough to already live in LA’ might not be saved here. I don’t know what % of people who live in LA (or SF or NYC) are homeowners, but I doubt it’s more than 50%. Renters can be pushed out by rising rents every time the lease is up. Probably not for those living in any of those places you mentioned, but for those rich enough to outbid them for their current homes. What anti-supply policies do is save cities for those who can and are willing to spend the money, as well as a few Affordable Housing lottery-winners.

    Reply
    1. letsgola Post author

      LA has a pretty high portion of renters – I think around 55%. If you’re in a rent-stabilized apartment, there’s a limit to how much your rent can go up every year, but over time, yes, those folks end up getting pushed out too.

      Reply
  2. Pingback: A Short High-Rise Editorial | Let's Go LA

  3. Pingback: 1 – Developers don't build cheaper housing because we make it illegal to do so

  4. Michael Brandeis

    I also disagree that the wealthy won’t buy cheap housing. They absolutely do, using cash purchases that force out lower income families – and then they turn around and rent the house out. I’d love to buy a house. The last three we put an offer on were bought buy someone with a cash offer and immediately rented out.

    Reply
    1. mdv59

      Well his point is that the wealthy won’t buy cheap housing to live in. The fact that affordable housing is so scarce is what makes it attractive as an investment to people with money.

      Reply
  5. scottzwartz

    There is no limit on construction in Los Angeles, making the premise of this article ludicrous. Take Hollywood, for example. Under the Hollywood Community Plan (from 1988), developers face no meaningful restrictions. The HCP allows for a population of 235,000 ppl. Between 1990 and 2010, the Hywd population dropped from about 214,000 ppl in 1990 to only 198,228 in 2010.

    Under supply and demand, developers would not construct more units in an area which had had a steady unbroken decline in population. In fact, the area where the developers want to build, council district #13, lost so many people between 2000 and 2010, that CD 13 ceased to qualify as a legal council district.

    Despite the unbroken downward trend, developers have gotten unanimous approval for every mega-projects which they propose. Most these projects are subsidized by the government to include affordable units and to make the units handicapped accessible. Thus, the idea that there is any actual restriction on construction in Los Angeles is a delusion. Affordable Housing, however, is basically a scam whereby the City funnel hundreds of millions of HUD money (tax payer dollars) to developers who then pocket the money rather than provide the affordable handicapped accessible units for which they were paid.
    http://bit.ly/1MPaZrA April 4, 2016, CityWatch, How City Hall Cheated the Disabled to Make Money for Developers, by Richard Lee Abrams

    Rather than new construction being limited in Los Angeles, it is subsidized by the theft of HUD money.

    Reply
      1. scottzwartz

        Only a fool would upzone when the current zoning is so high that it is killing Hollywood. Hollywood needs drastic down zoning, but it won’t get it.

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