Housing as the ultimate marker of poorly functioning (free) markets

Alexis Madrigal considers generational access to housing and the high real estate prices in some markets:

There are obviously many reasons that coastal housing markets have gone so bonkers. But it is an ironic twist that residential property, which once served as the bedrock for American capitalism, has become the most obvious sign for young people that something is deeply wrong with the markets.

What exactly has gone “deeply wrong” with these housing markets? Madrigal lays out a number of factors. But, I wonder if we could extend the analysis a bit further from “housing markets” to “economic markets” more broadly. Here is what two opposing sides might say:

One side: these housing markets with high prices have never truly been free. For decades, federal policy has privileged single-family homes. Local policies have made particular choices, often toward protecting property values and limiting density. Open up these markets to true competition. If affordable housing is needed, limit regulations and let all the money of potential buyers drive new development.

The other side: housing markets have not been regulated enough. The federal and local policies have tended to privilege certain actors – like the white middle-class and connected developers – over the needs of many working-class and poor residents as well as non-white residents. Policies aimed at providing more housing for all need more teeth and the ability to compel protected wealthier residents to accept development near their own homes.

As a sociologist who has studied this for over a decade, I tend to side with the latter argument: (1) markets are rarely ever completely and free and (2) the scales have been tipped toward whiter and wealthier residents for a long time. Perhaps the true lesson of these high-priced housing markets is that calls for regulation and oversight only go so far when property values and who neighbors are is truly at stake.

Five forces behind the American affordable housing problem

Affordable housing is not an easy issue to address and one overview provides five factors at play:

Baby boomers—those aged 55 or older—are living longer and more independently than previous generations. They’re also more likely than previous generations to be divorced and living alone. This means less housing stock has been freed up by elderly people dying or moving into assisted-living facilities. In some cases, boomer homeowners are looking to trade down and compete for entry-level homes with other generations, putting upward pressure on prices on homes in the lowest price tier…

While subsequent administrations have swung the agency’s priorities between promoting homeownership programs and assisting poor renters by offering housing subsidies, the federal government consistently subsidizes middle- and upper-middle-class homeowners rather than low-income renters, seniors, and the disabled…

Restrictive zoning codes are often an effective tool in the fight against new construction and, frequently, densification, helping to suppress housing supply even as demand rises. Whether by limiting the height of new buildings or deciding that large apartment buildings need a minimum number of parking spots, these restrictions make construction more difficult and more expensive. California cities like Los Angeles and San Francisco are known for impeding new construction through these methods, which has led to the state’s severe housing shortage

The “affordability” of housing isn’t all about the housing itself: As rising rents and home prices push low- and middle-income households farther from major urban centers—where the greatest number of jobs and the most robust public transit systems tend to be—lower housing costs in suburbs and exurbs get offset by increased spending on transportation.

Three quick thoughts:

  1. As an academic, I am sympathetic with arguments such as this that try to explain a social problem with more complexity and nuance. Short answer for a typical academic answer to a social issue: it’s complicated. As a person who wants affordable housing to be addressed, I want solutions sooner rather than later.
  2. One advantage of the complexity/nuanced argument is to highlight that whole systems are at play. Making serious headway with one or two factor may not move the needle. All the issues need to be addressed and everyone needs to keep in mind their connected nature. To put it differently, this requires large-scale societal change, not just piece-meal approaches. There are a variety of social levels and actors involved and they should aim to work toward common goals. It is often hard to think in this structural or system way but necessary when tackling large problems.
  3. I wonder how helpful it would be to cite successful models or places, even if they are relatively small communities. Even if systems need to be addressed, it can be hard to tackle everything at once without some hope that the goal can be reached. Are there cities/municipalities/states/regions that have some answers that can be adopted elsewhere

The suburban way of life is not the result of free markets

Even as Americans have exercised some agency in choosing to live in suburbs, the whole system cannot truly be described as being the result of free market activity:

I get the concern and rarely disagree with Shelley, but there’s nothing free market about current single-family zoning rules. The suburban landscape largely is a creation of subsidies and zoning rules, which mandate only one house per certain size of lot and require umpteen parking spaces for every new shopping center, restaurant, office and church. Everything is micromanaged in the planning department.

I’m on the building committee of our church and have closely examined many proposed construction projects. It is so hard to build, expand or try any new development ideas because these planning edicts—designed mainly to protect our suburban way of life, and backed by residents trying to bolster their property values—are costly and inflexible…

But the underlying debate is about two visions of our California landscape. One side wants to protect our suburban model and the other side wants to urbanize. It’s a false choice driven by their own personal preferences. We need more apartments and condos. We need more single-family neighborhoods. We need to allow builders to provide the housing products people want, and different people want different things. The same people want different things at different stages of their lives. I live on an acreage, but now that we’re empty nesters, my wife and I plan to move into the city. That’s why I’m squarely on neither side.

After my housing column last week, I’ve heard from readers who oppose the legislation. Frankly, I’m frustrated by some of their arguments. To summarize some comments: If you can’t afford to live around here, then maybe move someplace else. There are too many people here already and too much traffic congestion. If your kids can’t afford California, they should consider less-costly states. Such views transcend political affiliation.

Zoning is a good example of how regulations can dictate what communities can construct and then who can reside or work in such locations.

Add two other other less-than-free-market aspects of suburbia:

1. A legacy of racial and class discrimination in suburbs.

2. Government subsidies for highways and other local services as well as propping up suburban housing in the form of single-family homes.

Americans might not acknowledge the ways suburbs developed and may even resist seeing them as social products. But, addressing tough suburban issues such as affordable housing probably requires thinking and acting at more collective levels than letting the beloved local governments dictate what they want (which can often deliberately lead to exclusion).

What might be behind a debate over affordable housing in a new Naperville development

Naperville’s Housing Advisory Commission recommends 20% of the units should be affordable housing in a proposed new development of roughly 450 residential units. Let the debate commence:

“Here’s our chance,” said Becky Anderson, a city council member and liaison to the housing advisory commission. “We own this land, so let’s make the most of it and … make sure that we include some more affordable housing.”

The city is required to provide a report by the end of June 2020 to the Illinois Housing Development Authority listing the number of units needed to comply with the 10 percent minimum and identifying sites or incentives to help reach the goal. In a position paper, the housing advisory commission said the city failed to submit such a report by the last deadline in 2015.

Mayor Steve Chirico said it’s best to use multiple sites — not only 5th Avenue — to work toward the requirement…

Mayoral candidate Richard “Rocky” Caylor, however, said incorporating 20 percent affordable units into plans for 5th Avenue sites could help take a step toward 10 percent….

Dan Zeman, who lives in the Park Addition subdivision one block north of 5th Avenue, said he originally was skeptical of affordable housing on the sites slated for redevelopment. But once he researched the topic, he decided “maybe I was just being a NIMBY,” and thinking “not in my backyard.”

A few guesses about what might be lurking behind this affordable housing discussion in Naperville:

  1. As far as I know, the Illinois requirements have little teeth and operate more like recommendations. The repercussions for Naperville for not meeting the targets might be limited.
  2. This is a sizable project near the downtown train station and within walking distance of the downtown. Because of the size and location, this is an important project.
  3. What people actually mean by affordable could differ. The current mayor is quoted in this story saying it is about “entry-level workforce housing.” Does that mean young professionals or people who work in retail or service jobs? Naperville is a wealthy large suburb.
  4. This could be a proxy conversation about poorer residents in Naperville. The poverty rate in Naperville is only 4.4%. But, do Naperville residents and leaders want more poor residents? The status and image of the community is important to many.
  5. Deconcentrating affordable housing may seem like a reasonable idea but would the city follow up in other new projects? Are there other sizable projects in the works (such as a development on the southwest side of the suburb) that could also include affordable units?

Promote smaller, cheaper housing by calling it “missing middle housing”

Even if the median size of new American homes is smaller in recent years, this does not mean it is easy to construct smaller new homes in communities:

To propel the movement, he recommends using the term “missing middle housing,” rather than terms such as “upzoning,” “density” and “multifamily,” which he says have a negative connotation.

“I can’t imagine a single neighborhood in the country where people will get excited about the term ‘density,’ ” Parolek said. “Even things like ‘multifamily’ can be a scary term that’s past its life span.”

His larger recommendation is for cities to change their zoning ordinances. Parolek advocates for form-based zoning, which allows more flexibility for what can be built on a property…

“Zoning in and of itself is a system that encourages single-family home construction in cities,” Parolek said. “Most cities don’t have effective zoning for missing middle housing, so the easy thing to do is to build a single-family house. There’s no neighborhood pushback and less risk. There’s a reason it’s being done, but it’s not responding to what the market wants.”

Very few neighbors or communities would be excited to live next to or approve cheaper housing. The assumption is that more expensive housing is good: it will bring in more tax dollars, typically has fewer residents (so lower local costs), and connotes a higher status. In contrast, it is thought cheaper housing brings down surrounding property values and the kind of people who live in cheaper housing are not as desirable as higher income residents.

Would communities react better to “missing middle housing”? Perhaps. Many places talk about the need to have housing where hard working professionals with a stake in the community, like teachers and firefighters, can reside in the place where they work. Or, it is desirable to provide denser housing for young professionals and retirees to keep them in the community. Yet, as Parolek notes, the goal is still to move people toward a single-family home (with some flexibility for townhouses and condos) in the long run. Changing zoning is not easy because many people purchase a home and then work hard for years to protect the value of that home. Cheaper housing may be more acceptable if located away from existing larger and more expensive housing, if it is allowed in the community at all.

Missing from even this suggestion about “missing middle housing” is an acknowledgement of the necessity of housing for lower-class and poorer residents. True affordable housing needs to go beyond the middle-class and provide housing for those working in the retail and service industries. But, I don’t think most communities and America as a whole wants to talk about this kind of housing.

If a megaproject proposal doubles the number of onsite affordable housing units in a bid to get approval, doesn’t this mean the profits will be substantial?

The latest proposal for the Lincoln Yards project on Chicago’s north side will now include 600 on-site affordable housing units – 300 more than before:

It will be the largest on-site commitment in the 16-year history of Chicago’s affordable requirements ordinance, according to Ald. Brian Hopkins, 2nd. Hopkins will join the Chicago developer and affordable housing advocates to announce the revised plan in a news conference Tuesday morning at City Hall…

Sterling Bay wants to build about 15 million square feet of commercial and residential buildings on 54.5 acres of riverfront land along Lincoln Park and Bucktown. That includes 6,000 residential units on the sprawling site between North and Webster avenues…

Under the compromise unveiled Tuesday, Sterling Bay will provide 600 on-site affordable units, while the maximum number of off-site units it will provide within 3 miles decreases to 300, from a previous 600. The Affordable Housing Opportunity Fund payment remains unchanged.

Half of Sterling Bay’s $39 million fee will support construction of about 1,000 affordable units citywide, and the other half will support 15 years of rental subsidies for 130 very low-income families through the Chicago Low Income Housing Trust Fund, according to Hopkins.

Two quick responses:

1. If the developers can offer more onsite units, then Chicago should probably think hard about increasing its requirements. The developer is still very interested in the project even with providing more on-site units.

2. This project must really be projected to turn a nice profit if these last-minute adjustments can be made. Perhaps it is all about negotiating – offer a low figure and then it looks nice if you adjust up – but developers tend to want to get plenty of profit by the end.

On the whole, when these kinds of prime properties come up for development and/or a developer gets a big idea, there could be better ways to ensure there is more affordable housing included in what is eventually built rather than just settling for a relatively low figure. Even with more land devoted to affordable housing and parks, the plans still provides plenty of room for money to be made. Would Sterling Bay be scared off if the affordable housing requirements were higher and, if so, would other developers jump right in to develop such a property?

Linking Microsoft giving $500 million for Seattle area housing to tech companies and declining gov’t support for housing

Microsoft is pledging a substantial amount to address the important issue of housing in Seattle:

Microsoft plans to lend $225 million at subsidized rates to preserve and build middle-income housing in six cities near its Redmond headquarters. It will put an additional $250 million into low-income housing across the region. Some of those loans may be made through the federal programs that provide tax breaks for low-income housing.

The company plans to invest the money within three years, and expects most of it to go to Seattle’s suburbs.

The loans could go to private or nonprofit developers, or to governmental groups like the King County Housing Authority. As the loans are repaid, Mr. Smith said, Microsoft plans to lend the money out again to support additional projects.

This article frames the giving as part of the housing issues wrought by the actions of tech companies:

Microsoft’s money represents the most ambitious effort by a tech company to directly address the inequality that has spread in areas where the industry is concentrated, particularly on the West Coast. It will fund construction for homes affordable not only to the company’s own non-tech workers, but also for teachers, firefighters and other middle- and low-income residents.

From this point of view, the health of a region matters for companies. If workers, whether ones employed by a particular company or organization or others, cannot find affordable housing, it will be harder for the region to find and hold on to workers. Whereas businesses often focus on a good business climate (low taxes, tax breaks, business-friendly governments, etc.), housing is a big factor in finding a strong work force. Additionally, Microsoft can help show through these actions that they care about local conditions in ways that tech companies are often said to ignore because of their global status. Would Microsoft be the same if it were not in the Seattle region?

Another way to view this is that private companies are now taking on what the federal government should address:

The government spent about three times as much on housing programs in the 1970s as it does today, according to the National Low Income Housing Coalition. In the years since, the government has gotten out of the business of building public housing. And capital funds to repair the remaining public housing stock have been cut in half over the last 15 years.

Over this time, federal resources have increasingly shifted away from subsidizing the construction of affordable housing to subsidizing renters who find housing in the private market. And now most new below-market-rate housing is built not by public agencies, but by nonprofit developers leveraging tax credits. The value of those credits has declined recently as well, as a result of changes in the tax bill passed in 2017.

In a sense, Microsoft’s proposal is an extension of this story, as private actors continue to step in where the government once stood.

Ed Goetz, a professor at the University of Minnesota who has studied the history of public housing in America, said: “I don’t want to diminish the magnitude of what they’re doing. I think it’s important, and it will help. But it won’t solve Seattle’s problem.”

This argument suggests that private actors can only do so much to address housing issues. Because so much money is involved and the issue is so widespread, even $500 million may not do much in a single metropolitan region with high land and housing costs. Of course, the government is involved in the housing industry: the federal government for decades has supported single-family homes, primarily in the suburbs. At the same time, the government and the American people have always been more ambivalent about public housing. It is not as if  the housing market is a free market: the United States subsidizes mortgages.

At the least, this will be an interesting experiment: can Microsoft make even a small dent in the housing needs of the Seattle area? Will this help strengthen the metropolitan region or primarily serve as good publicity for the company?