Tag Archives: scale

Large actors in the US housing market and building more homes

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Derek Thompson argues those interested in more housing in the United States should be more concerned with local NIMBY activity than private investment firms buying up homes to rent:

Photo by Lady Emillia on Pexels.com

Far worse than corporations taking a few thousand units off the market for owners are the governments and noisy NIMBYish residents taking millions of units off the market for owners and renters alike—by blocking construction projects in the past few decades. (California alone has an estimated shortage of 3 million housing units.) From New York to California, deep-blue cities and states have amassed a pitiful record of blocking housing construction and failing to meet rising demand with adequate supply. Many of the people tweeting about BlackRock are represented by city councils and state governments, or are surrounded by zoning laws and local ordinances that make home construction something between onerous and impossible.

One of the issues at play here is a numbers one: who exactly is acting within the US housing market and how much sway do they have. Concerns about corporations and housing can be placed in the larger context of how many housing units there are and how many are being built. Here are the numbers Thompson provides:

The U.S. has roughly 140 million housing units, a broad category that includes mansions, tiny townhouses, and apartments of all sizes. Of those 140 million units, about 80 million are stand-alone single-family homes. Of those 80 million, about 15 million are rental properties. Of those 15 million single-family rentals, institutional investors own about 300,000; most of the rest are owned by individual landlords. Of that 300,000, BlackRock—largely through its investment in the real-estate rental company Invitation Homes—owns about 80,000. (To clear up a common confusion: The investment firm Blackstone established Invitation Homes, in which BlackRock, a separate investment firm, is now an investor. Don’t yell at me; I didn’t name them.)

If I am calculating correctly, institutional investors currently own 2% of the single-family rentals. Of course, this number could grow if these firms find this to be a good investment.

Also of interest is the number of new homes being constructed. Thompson links to figures from the National Association of Home Builders that shows 6.8 million new single-family units were created in the 2010s. So, concerns about big investors buying homes could be considered alongside housing construction: if the investors are buying more quickly than new homes are being built, this could be an issue.

Thompson settles on local actors – governments and residents – as holding back housing construction. In this numbers game, restrictions on a local level collectively are holding back the construction of single-family housing. If these restrictions were lifted or lessened, concerns about institutional investors would presumably diminish because there is a larger supply of houses to choose from.

One problem I see with this among the larger numbers: while local actors might in the aggregate have oversight over millions of units, they individually have control over relatively few units. Let’s say a particular suburb in the Bay Area (and this NIMBY argument often comes back to California) is against building new single-family homes. Depending on the size of the community and the availability of land, this might affect just a few homes to several thousand. This is not many. Zoom out to the whole region and many suburbs doing this adds up to tens of thousands of potential homes. Do this across all of California’s metro areas and the numbers add up. Similarly, you could do this across all the metro areas in the United States.

However, convincing all these municipalities to act in the interests of the region, state, or country as a whole regarding housing is a difficult task. Housing is local and this makes legislation at the state or federal level very difficult. California’s recent efforts with SB 50 did not go through. Illinois just recently gave some teeth – but not all the teeth – to affordable housing guidelines for communities set almost two decades ago. Federal guidelines are met with the suggestions that the suburbs are going to be abolished. One reason Americans like suburbs in the first place is that local government, presumably more responsive to the needs of residents, has the power to exclude (particularly on race and social class) and protect the existing single-family homes.

All of this does not necessarily mean Thompson is wrong. Yet, to get to the numbers of new homes constructed that would make a significant difference – whether in reducing the need many metro areas have for more affordable housing or outweighing the actions of investment firms – would require a lot of change across many communities. State or federal legislation may or may not be successful and would be unpopular in many places without a significant public groundswell of support that this is an issue that all or even most communities need to address.

Together, municipal changes regarding zoning and NIMBY could add up. But, changes would need to come across communities to make a big difference.

The lack of variation in ordinal scales: color-coded terror alerts plus employee surveys and ratings

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In the last few days, I ran into a few stories that are related in unusual ways: they both concern a lack of variation in an ordinal scale. First, let’s start with the announcement from the Department of Homeland Security regarding the color-coded terror alert scale:

A government review determined that the five-tiered color-coded system instituted in 2002 had suffered from a lack of credibility and eroded public confidence. The color has not been changed since 2006 and has never gone below yellow, or “elevated,” risk. Setting the risk level to green, or “low,” was never even considered.

In the long run, the problem was that the scale didn’t change. Theoretically, there were five options but the alert was generally in the same place. Since the alert was always “elevated” or above, this was not helpful. (This also seems related to the argument some have made that a multi-decade “war on drugs” or “war on poverty” doesn’t make much sense because wars are supposed to have an end. Always being at war or on alert for terror erodes the sense of urgency.)

I also came across a human resources website that recommended businesses avoid five point scales regarding certain questions asked of employees:

A typical ranking, called a Likert scale, runs from Strongly Agree to Strongly Disagree. And it’s fine for many psychological and sociological surveys. When you’re asking for ratings from 1,000 random people, you’ll get a wide variety of answers.

“But inside an organization, a 5-point scale loses its effectiveness,” Murphy says. “If you ask a group of employees at Acme Inc. to rate the statement, ‘Acme is a good place to work,’ you’re not going to get very many low responses (i.e., 1s and 2s). That’s because if you truly thought Acme was an awful place to work, you probably would have quit already.”…

But as with employee surveys, we don’t think 5-point scales are effective for performance evaluations. Many HR pros tell managers that only a very small percentage of their subordinates, say 10 percent, can be awarded the highest rating. And, managers are understandably reluctant to rate anyone as unsatisfactory—even when that’s the rating he or she deserves.

This is not just a hypothetical situation: I remember reading recently about the extremely high percent of teachers in a large district that were given satisfactory or higher ratings. (One group suggests that 91% of Chicago teachers in 2007-2008 were rated “superior or excellent”.) If the ratings mean anything and are actually measuring performance, it is difficult to believe that such a high figure is true.

The lesson to be learned here from these two cases? Be sure that there will be variation in responses if using an ordinal scale. Otherwise, the scale is quite unhelpful.

A website to help understand scales

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The BBC has put together a cool website that maps certain physical features, manmade features, or events onto other maps to provide a sense of scale.

Once we get to large numbers, many of us are not very good with visualizing how large something is. Take, for example, the national debt – it is nearly beyond comprehension. Or the distance between Earth and the sun. Or the population of China. We tend to think in smaller units so larger numbers tend to cause problems. People who operate in such units try to break it down into more manageable sizes: this is the average debt per US citizen, that distance would equal X number of trips from the Earth to the moon, that population would be roughly 37 times the population of California.