Seeing the Supply for the Houses, or the Houses for the Supply

In cities facing housing crunch problems like rising rents and gentrification, there are generally two schools of thought about how the problem should be addressed. One school holds housing supply paramount, noting that land use restrictions like zoning suppress development of market rate housing, which invariably drives up places and causes displacement. This school focuses on liberalizing land use controls as the solution to housing issues. The other school holds community integrity paramount, focusing on regulatory measures that prevent existing residents from being evicted.

The difference in tactics between these two groups often leaves them at odds with each other. However, these schools of thought are two sides of the same coin, with similar goals but approaching the problem from opposite ends. Call the land use liberalization advocates the “macro” view, focusing on overall regional housing supply, and the anti-displacement advocates the “micro” view, focusing on the stories of individuals affected by rapid neighborhood change.

If you’re mainly worried about regional housing supply (and regional is the level that ultimately matters), you need to recognize that individual stories matter. There is value in neighborhoods that cannot be monetized, something the urban renewers of yore learned the hard way. Places like California have been building up a deficit of housing for decades, something that will take years for a functioning housing market to rectify.

If you’re mainly worried about displacement, you need to recognize that regional housing supply matters. Economic models are not abstractions that economists seek to impose on people, they describe how human beings interact with each other under a given set of regulations and traditions. The land use regulations we have today, which constrain housing supply, require that somebody lose, be it existing residents or would-be immigrants. In the absence of increased housing supply, all you can do is pick different losers.

See the forest for the trees, or see the trees for the forest.

The key is to realize that we all share a common goal – a city that is affordable and accessible to all those who want it. When land use liberalization advocates and anti-displacement advocates argue with each other, we let the truly responsible parties – wealthy neighborhoods that stifle any and all development – off the hook.

10 thoughts on “Seeing the Supply for the Houses, or the Houses for the Supply

  1. Jake Wegmann

    Another fantastic post, LGLA. I always look forward to them. Whoever you are, you are an original thinker who always has a fresh take on these issues that are discussed endlessly in circles. BTW I’m planning on using your past post on the economics of dingbat apartments in one of my classes on the economics of real estate development projects.

    I’ve thought of gentrification in this micro- versus macro- way as well. I really like how you’ve articulated this. I think, however, that there are at least two points on which micros and macros often genuinely differ, and that aren’t just the byproduct of looking at the problem of gentrification from two different scales. (I’d be curious to see if you or others agree with me.) Here goes:

    1) The role of place-based subsidies, and the importance of having access to particular locations. The macros tend to emphasize how inefficient place-based subsidies are, and tend to want them to be converted to vouchers. The micros tend to argue that you have to have place-based subsidies–even if they’re somewhat cost inefficient!–because it is a matter of equal opportunity and social justice for people of lower incomes (at least some of them) to have the ability to live in the most favored neighborhoods (with the best transit, best schools, most walkability, best access to jobs, lowest crime, etc, etc). On the other hand, vouchers will not give tenants access to the best neighborhoods, unless the Fair Market Rent standard were to be drastically raised. (Which would represent a massive increase in the cost of Housing Choice Vouchers to the federal government, and will therefore never happen any time soon with the GOP running Congress.) So effectively, even if they don’t say so, most of the macros tend to not put any priority, at all, on having dedicated low-income housing in the strongest market subregions. They might not put it like this, but they’re basically fine with Echo Park and Silver Lake becoming wealthy neighborhoods with few low- and middle-income people living in them, so long as lower income people find decent housing somewhere else in the region and can still get to their jobs.

    2) Whether local supply sparks local demand, or whether they are independent. Micros think that new housing (whether created via renovation or new construction) created in a previously ungentrified neighborhood helps open the floodgates for much more such housing to follow in its footsteps. This is because they believe that most would-be gentrifiers won’t feel “safe” moving in before other people who resemble them (in race, in class, in consumption habits, in education, etc) are living there. Macros downplay this mechanism, and assume that the housing market pressures operating at the regional level make it inevitable that sooner or later (probably sooner) housing development will happen in well-located ungentrified neighborhoods. Micros, on the other hand, fight new development, even when it doesn’t directly displace anyone, because they think that if they succeed then they will delay gentrification of their neighborhoods.

    Just to put my cards on the table: I’m a card-carrying macro in the sense that I absolutely believe that regional housing market dynamics (exacerbated by overall scarcity in places like the Bay Area) are the ultimate “forcing mechanism” (to borrow a climate change term) in the situation, and that NIMBYs in wealthy subregions are the biggest villains. But I whole-heartedly agree with the micros that we should subsidize a lot of housing in places where the tide of gentrification is sweeping in. I don’t think we can stop gentrification altogether, short of becoming a socialist society, but I think we can do a whole lot more to allow at least some low-income people (hopefully a substantial number) to benefit from the economic revitalization of their neighborhoods. It might be “inefficient,” but it’s worth it. (You will never convince someone that the redevelopment of their neighborhood is great if they don’t think there’s at least a chance they could get to stick around to enjoy it, and who could blame that person?)

    We need a basic principle that if you upzone in a soon-to-be gentrified neighborhood, then the public takes back a healthy chunk of the uplift in the form of required subsidized housing (located in the neighborhood if not directly on-site). The Mission Bay redevelopment in SF shows that in the strongest market cities, a 30% share of subsidized housing is attainable. And we need to crank out much more subsidized housing in high-opportunity neighborhoods even in cases where there is no redevelopment happening. But that, of course, requires NIMBY-busting mechanisms and political will that are in short supply.

    1. letsgola Post author

      Thanks for reading, and I’m glad you find the blog interesting! On these two points:
      1) There’s definitely disagreement on place-based subsidies, and to form a coalition, both sides would have to accept something less than their ideal plan. In the long run, place-based subsidies are inefficient. However, places like California are so far behind on housing construction, the short run effects of a construction boom, like displacement, could be quite large. I think the macro viewpoint underappreciates the benefits of community continuity, especially in low-income areas. For example, in a community with long-term social relationships, it’s easy to find someone to watch your dog for a weekend or babysit your kid for an hour while you’re on your way home from work, with the understanding that you’ll help them out in return. The costs of dog-sitting or child care are minor, or at least manageable, to middle class and upper class folks, but for a low-income person, not being able to find someone to babysit might mean being late for work and losing a job or missing an exam at school. Part of the reason public housing in the urban renewal era didn’t work as hoped is that it severely disrupted those informal social relationships through wholesale demolition of communities. On the other hand, I think the micro viewpoint overestimates the fragility of communities and relationships. So I think that place-based subsidies may be necessary in the short run, but if the housing market starts working properly in the long run, the need will disappear. In the long run, there should be no reason for place-based housing subsidies any more than there’s a need to require a certain amount of SNAP benefits to be spent at Whole Foods. And I agree that you can’t stop gentrification unless you want to go full Soviet and tell everyone where they have to live.
      2) The overall price level is determined regionally; this is why the Inland Empire is so expensive – it wouldn’t be possible if it weren’t next to LA & Orange County, which are even pricier. The distribution of new construction in response to the price level would logically be determined by local variation in neighborhood desirability; however, zoning greatly distorts this distribution so that new construction goes to the most desirable neighborhoods where construction is allowed. From a market perspective, it is counterintuitive that there is more construction in Boyle Heights than Mar Vista; this *only* happens because of zoning. In addition, the costs (both time and money) of development under our current regulatory scheme make it difficult to do purpose-built for-profit affordable housing, so new development tends to cater to higher-income renters and businesses that can pay higher commercial rents. Combined this creates a perverse localized effect, where it’s bad for low-income residents to have their neighborhood be the most desirable neighborhood that allows construction. Higher-end apartments and retail will make a neighborhood more desirable to higher-end renters through amenity effects – i.e. once the stereotypical yuppie retail like Whole Foods opens, that neighborhood is then “on the map” for that class of renters. So this creates a weird incentive where low-income neighborhoods don’t want new amenities. On this point, macros need to do a better job of convincing micros that upzoning in wealthier areas will reduce gentrification pressures. I’m not sure that it’s inevitable that well-located neighborhoods will gentrify or see development under a scenario where builders were allowed to build in upscale areas; New York always had well-located cheap neighborhoods despite having virtually no zoning or place-based controls until WW2.

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  3. Build LA

    This article is trying to make amends to an issue that is far more complex then merely trying to understand both sides. Los Angeles development historically is a PROCESS. During this process, the “micro” point of view (as this article describes) has run prevalent as seen by the large tracts of single family homes out there. Now with limited land and environmental awareness, we need to thing holistically about our landscape.

    This article suggests we need to understand both sides but at the end of the day, we still NEED TO MAKE A CHOICE. We don’t get something for nothing. In our tangible physical world of limited resources, amid a growing population, the point will come where something has to give. Holding hands and singing “Kum-ba-yah” isn’t going to help.

    1. letsgola Post author

      To maybe clarify a little, I don’t think advocates of “build nothing but single family homes” are the same people as anti-displacement advocates, though there may be some overlap. The driving force behind R1 zoning is not low-income neighborhoods worried about gentrification, it’s wealthy neighborhoods that don’t want to let anyone else in. If people worried about displacement are also arguing for no new development at all, then there’s no common ground, but if macro & micro can agree that R1 zoning in wealthy areas is part of the problem, there may be a common policy goal they can work towards, despite having different ideologies.

      1. Build LA

        “The driving force behind R1 zoning is not low-income neighborhoods worried about gentrification, it’s wealthy neighborhoods that don’t want to let anyone else in.”

        Disagree. Is this why USC had to shell-out $20 million to the low-income crowd just to start their Urban Village project?! Why did Jordan Downs redevelopment proposals fail so many times? How about the low-income residents in Boyle Heignts or near the Mariachi Plaza? The list goes on. It’s hardly just the wealthy folks, although they are included too! So good luck trying to idealize the balance between the “macro” and “micro” view. LA for at least the last half century has been skewed towards the “micro” NIMBY crowd. And everyone knows that the “macro” view has been anemic with LA’s lack of central planning. This macro view has long been gone with the likes of planners like Calvin Hamilton.

        We are an in an era where NIMBYism and the “micro” views are leading the charge, having seen so many projects stopped or down-sized. LA will continue to grow, but in an ad-hoc slow process that will never allow it to reach its true potential like other great urban environments. It’s not surprising we continue to rank 6th and fall behind other global cities.

      2. anonymouse

        Is the area around USC R1 zoned and wealthy? Is Boyle Heights R1 zoned and wealthy? From what I know about LA, neither of those are remotely the case. But development happens there in part due to the success of Westside/Santa Monica NIMBYs in preventing anything from getting built in their backyard. So it gets displaced from the wealthier neighborhoods to the poorer ones. The current preferred solution that the poorer neighborhoods have come up with is to try to displace the development somewhere else, whereas we can and should try to convince them to push back on the rich NIMBYs who want to preserve their neighborhood without actually paying for the many negative externalities of such a policy.

      3. Build LA

        @ anonymous

        Why don’t you figure out who brought up the R-1 word in the first place. And yes, there are lots of SINGLE FAMILY HOMES near those places I’ve mentioned. I’ve walked those streets!!! And lots of NIMBYs in those places too!

    2. Jake Wegmann

      To me, the reason that LGLA’s framework is so helpful is not that those two sides can or will hold hands. It’s that they can get hardheaded and start to cut some deals, where each gives up something but also where each ends up with more than if they just continue screaming at each other like they are right now.

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