Wealthy San Francisco residents may have their private street back but this may not bode well for the city

Remember that private street with wealthy residents in San Francisco that fell behind on its taxes and was sold at auction to some other California residents? The street is now back in the hands of the well-off residents:

For now, Presidio Terrace belongs to its residents again. Their victory isn’t cause for celebration, either. The city’s first-ever tax sale reversal smacks of preferential treatment. It’s hard to imagine elected leaders going to bat for, say, each homeless individual who has had property seized by the city. Farrell, the city council member quoted above, is also the author of Prop. Q, a controversial measure approved by San Francisco voters in 2016 that allows the city to clear homeless camps given 24 hours notice.

But the saga of Presidio Terrace may not be over yet. Although the city promised they’ll get their $90,000 purchase price back, Cheng and Lam have said they plan to sue. For progressive politics, San Francisco was once a city upon a hill. Now it’s rich people squabbling over one.

While New York City rightfully gets a lot of attention for its mix of world-leading buildings, residents, activities, and expensive housing, San Francisco may be a more fascinating case. A limited amount of land (both due to local policies and different topography) plus rapidly increasing wealth in recent decades (with the tech industry leading the way) plus consistently liberal politics yet sharp divides between the rich and poor makes for big housing problems. Kind of like how President Trump regularly uses Chicago as a case of how crime is not being addressed, San Francisco has become a common conservative rallying cry for how not to address housing and growth.

At the same time, many of the housing issues facing San Francisco also are issues for many other American cities: how to construct more affordable housing when few want to live near it? How to encourage jobs for many residents that provide good standards of living (which then gives people access to more housing)? How to encourage economic growth and development across the city rather than within particular trendy or desirable neighborhoods?

How postwar DuPage County used zoning to limit poorer and non-white residents

I was recently reading the 1976 political science book Poliscide and part of Chapter 8 on the postwar zoning practices of DuPage County caught my attention:

Although no county can place guards at the county line to inspect the socioeconomic and racial characteristics of newcomers, such powers as zoning and control over subdivision and building codes make the county a highly effective arbiter of the types of structures to be built and, hence, the final arbiter of the types of people who will live in its jurisdiction.

For example, DuPage County enacts a subdivision ordinance requiring a developer to retain a large portion of his prospective subdivision for public facilities such as parks and schools; the county combines this with a zoning ordinance requiring single-family dwellings and a large minimum lot size. This effectively prohibits a developer from profitably building anything but high-cost housing not accessible to lower-income persons.

Stringent county building code standards, requiring expensive building materials and high-quality plumbing, wiring, and heating systems, also serve to increase housing costs. The county’s industrial zoning policy restricting heavy industry serves to limit job opportunity for lower-income persons and to prevent a decline in residential property values surrounding an industrial development – which might create housing opportunities for lower-income groups. Moreover, the county’s relations with various financial institutions make it difficult for a developer to secure financing for a project not approved by the county. Indeed, because of the obstacles the county is capable of placing in the path of a developer, the county’s objection may be sufficient to convince a financial institution that investment in a project would be unwise.

The county’s relations with other units of government give it yet another means of influencing the course of residential and industrial development. It is not, for example, an uncommon practice in Illinois for the county forest preserve district to condemn, at the count government’s behest, land on which an unwelcome development is planned…. And courts have made it a point not to intervene. If the acquisition was for a “public purpose,” there is no inclination to examine the underlying motives. (179-180)

And, as the political scientists point out, these were all legal procedures. Local governments, whether at the municipality, township, or county level, often have the power to dictate what can be built on the land over which they have jurisdiction.

At the same time, there have been court cases seeking to reverse these zoning powers. In 1971, DuPage County residents and a local fair-housing group brought suit against the county for exclusionary zoning practices. The Mount Laurel cases in New Jersey led to famous decisions suggesting municipalities cannot completely restrict cheaper housing (even if implementation has been messy).

More broadly, Sonia Hirt argues zoning in the United States serves one primary purpose: single-family homes. When wealthier suburbanites or urban dwellers get the opportunity to live in the homes they want or ones that have plenty of desirable traits, they tend to resist efforts to include cheaper housing nearby. (For a more recent urban case, see Portland.)

To some degree, the plan worked for a while in DuPage County. The authors of Poliscide say the county was the 3rd wealthiest in the nation, businesses were growing, and much of the development was relatively high-end. Yet, things changed over time. In the 2010 Census, DuPage County was the 62nd wealthiest county in the United States. (It would be interesting to analyze what role zoning played in vaulting all those other counties above DuPage County.) In the same census, the white along population was just over 70%. Some of this might be due to how the authors of Poliscide suggest municipalities fought back against the county: they moved to incorporate themselves as well as annex land so that they took over jurisdiction of land and DuPage County had less control over new development.

Politicians should not anger the “prosperous but far-from-rich suburbanites”

According to the Washington Post, one group that may not like the Trump tax cuts includes wealthy – but not too wealthy – suburban residents:

The tax push illustrates the political risks of attacking provisions favored by prosperous but far-from-rich suburbanites, a powerful voting bloc that often faces the financial stress of living in increasingly pricey neighborhoods. Many in the GOP already are worried about losing their grip on this important group after Tuesday’s result in the Virginia governor’s race, where Democrat Ralph Northam crushed Republican Ed Gillespie by running up votes in the dense areas outside cities.

Alpharetta is part of a booming region known as North Fulton, where no one bats an eye at $600,000 homes, Whole Foods and West Elm are eager to locate, and property taxes are relatively high to fund the top-performing public schools that attract striving white-collar professionals. And when it comes to their taxes, residents often have more in common with people living just outside New York City and Washington, D.C., than those in other parts of Georgia…

North Fulton seems like a place that could afford to pay more in taxes, but residents say their low-six-figure incomes obscure the economic challenges of living here…

Other residents say North Fulton is a place where earning $100,000 — nearly twice the national median household income — means a surprising degree of struggle.

I’ll refrain from saying much about whether suburbanites who are in the top 20 percent of American earners are leading difficult lives.

I will note that the true battleground between Republicans and Democrats is in suburbs just like this. Studies in political science and other disciplines from the last ten years or so suggest that cities and inner-ring suburbs vote consistently Democrat, exurbs and rural areas lean Republican, and the middle suburbs – including these sorts of communities outside of Atlanta – are up for grabs depending on the election cycle and the particular issues at stake. There actually may not be that many people who fit the bill of this article but (1) they can be very vocal and (2) they can be swayed in elections.

Does talking about the McMansions of yachts make sense?

Purchase a luxury yacht – a “floating McMansion” – or you can choose one below that level yet still expensive:

The four-bedroom, three-bathroom luxury cruiser offers three floors of light-flooded living space, sundecks galore, two full kitchens and no shortage of closet space. The bedrooms are surprisingly spacious — more-so than most New York City apartments — and a gyro built into the hull keeps the boat so level at sea it hardly feels like a boat at all, even when it tops out at 25 miles per hour, Curry said.

“They are like a house and that’s what they are for these people — vacation homes,” said Chris Broadbent, a salesman for Grande Yachts. “You can buy a vacation home in Montauk for $1.6 million or more and you’re stuck there — which there are worse places to be stuck — but you can pay almost the same price for one of these and go anywhere.”

While the Norwalk Boat Show offers impressive examples of a luxury life at sea, not every boat needs to feel like a floating McMansion and run upwards of $2 million to be realistically livable for an extended period of time.

Mike Bassett, co-owner of Louis Marine in Westbrook, said the essentials for comfortable on-board living include heat and air conditioning, hot water and a microwave. Typically these boats are 35 to 40 feet, and can run anywhere from $130,000 to nearly $500,000 depending on the level of luxury, detailing and features that are added. The larger the boat, the more maintenance required, so really, it’s all about the lifestyle one is willing to live.

I am always intrigued to see what other consumer or luxury goods are compared to McMansions. Using the term implies more than just an expensive item: it is a mass-produced, gaudy or garish item of questionable quality intended to flash the status of their owner. Does a luxury yacht fit this bill? I would say no based on three factors:

  1. The price of the yachts said to be “floating McMansion[s]” costs more than the average American McMansion. (The average price would include a rough estimate based on housing markets across the United States.) This puts what is truly a more unusual consumer good already (how many Americans can purchase boats after their other expenses) out of reach of many people.
  2. These expensive boats are not mass-produced on the same scale as McMansions. There are plenty of boats in the United States – nearly 12 million registered boats according to Statista – but how many of them are these more expensive boats?
  3. The architecture or design of an expensive boat receives less attention than houses. Are new expensive yachts garish or poorly designed compared to older big yachts? It is hard to know what people’s perceptions are of this if the conversation is not as public or the conversation does not exist.

I’m open to hearing arguments for why this comparison – expensive boats are like McMansions – makes sense.

Historical irony: Naperville magazine suggests “discover Hinsdale”

Naperville’s size, wealth, accolades, and amenities make it a suburban behemoth outside of Chicago. Yet, when Naperville Magazine features in its current issue the story titled “Discover Hinsdale” (see the cover image below), it is a reversal of history regarding which community was more desirable.

NapervilleMagazineSep17

Naperville was founded first in the early 1830s though Hinsdale was not far behind (and the community was originally known as Brush Hill and then Fullersburg). The two communities share a rail line in and out of Chicago, originally the Chicago, Burlington, & Quincy, which opened in the mid-1860s. While the two communities were similar in size until the postwar era, Hinsdale was the wealthier town. It had a hospital. It attracted executives as residents. It was at the eastern edge of DuPage County and just 15 miles from downtown Chicago. Naperville, in contrast, was seen more of a farm community, there wasn’t much development between it and Aurora (and little at all to the south or southwest), and it had lost some luster after losing the county seat to Wheaton in 1867.

Long-time Naperville resident and real estate agent described the relationship between the two suburbs in Is it Eden? Is it Camelot? It is Paradise? Better yet…It’s Naperville.

I discovered an overlooked “fact of life” one Saturday afternoon when a well-dressed, house-hunting couple entered our office. Both were quite disappointed to learn that our town had no tree-lined street full of gracious, period-type houses built in the 1920’s and 30’s, the likes of which they could find in some affluent suburbs east of us. They were also shocked to find we had so little “speculative” building and that our listings were generally of very old homes. The wife then made a biting comment that raised the hairs on my neck. She said, “Did you know that Naperville is rated a class ‘C’ town in some Hinsdale real estate offices?” “What in the world do you  mean!” I sputtered through clenched teeth. “Oh, don’t get made,” she replied, “Just in the area of ‘income per capita’.” “What in the world do you mean!” I sputtered through clenched teeth. “Oh, don’t get made,” she replied, “Just in the area of ‘income per capita’.” Well, Hal, I admit that I was truly deflated. Deflated because, even though it seemed such a minuscule area to me in light of all of Naperville’s ENDURING values, it was a fact of life, and there would be more people of this bent for us to deal with in the future. Hinsdale today is probably still the “class” community of the western suburbs. Time, effort and planning have earned it its reputation. Housing costs in Hinsdale are, on average, 30% higher than in Naperville. However, by now we must have about caught up in “income per capita”. I would (secretly) like to challenge Hinsdale to a rating battle based on “percent of residents with advanced college degrees.” Maybe then I might be able to walk into a realty office in their town and square a long-remembered rebuke by saying, “Did you know that in Naperville, some real estate offices rate Hinsdale a Class ‘B’ community?” I wonder if they’d squirm a little, as I did?” (“Dear Hal” column, Aug 28, 1981, The Naperville Sun)

A later story:

For as long as I can recall, having a Hinsdale (Ill.) residence address had the same effect on others as did the car, wristwatch, or college on attended – it “made a statement.” Aesthetic Hinsdale, with a population of only 17,000, has the highest income per capita of any community in DuPage County… ((“Dear Hal” column, May 17, 1981, The Naperville Sun)

The Naperville Magazine piece is similar to many you can find in suburban magazines. Here is the primary text that then leads to a list of attractions:

Just about halfway between Naperville and Chicago you’ll find the village of Hinsdale, known for its stop-and-stare-worthy homes along tree-shaded streets and a cute, compact downtown lined with shops and restaurants. Though the abundance of women’s clothing boutiques and pampering salons make it a popular destination for a ladies’ day out—no question—there’s a little bit of something for everyone in Hinsdale.

Hinsdale is now the quaint and wealthy suburb to visit. There are upscale restaurants and shops to explore as well as a few historical sites. The community is still wealthy and on average has higher incomes and housing values than Naperville. The teardown phenomenon seems to have begun earlier in Hinsdale in the 1980s before spreading to Naperville (according to several late-1980s columns by Herb Matter). Local celebrities seem to live more in Hinsdale than Naperville.

Yet, Naperville is the more vibrant place. It is clearly bigger. The downtown is more lively. Hinsdale is older money, Naperville more emblematic of the late-twentieth boom among the white-collar and educated.

More (pricey) senior housing units in the (expensive) city

Several developers are constructing luxury senior housing in Manhattan and trying to tap a new market:

Senior housing has traditionally been suburban-focused because land is so much cheaper outside cities, and developers hadn’t seen a big enough market to justify paying more, and charging more, for urban locations near transportation and nightlife, Knott said. The aging members of the massive baby-boom generation helped change their minds. Now, he said, many living in cities have the means to pay a premium to remain in familiar environments.

And many will need special care. In New York state alone, about 460,000 residents aged 65 and older are expected to be living with Alzheimer’s-related dementia in 2025, some 18 percent more than there are today, according to the Alzheimer’s Association.

To serve the wealthiest of them, senior-housing developers are taking cues from their tony-apartment building counterparts and putting extra emphasis on finishes and flourishes, to make their facilities look like the places residents left behind…

It is, of course, a rather small group of any age or mental ability that can handle the monthly rents these kinds of places will command. They’ll start at $12,000 at the complex that Maplewood Senior Living and Omega Healthcare Investors Inc. are putting up on Second Avenue and 93rd Street. Some will top more than $20,000 at the building Welltower Inc. and Hines are about to break ground for on the corner of 56th Street and Lexington Avenue.

The top 10% ages as well.

If this catches on, will it make it even harder to construct senior housing for average Americans (those who lived as adults around the median household income)?

I had a somewhat radical thought: many community leaders suggest that their residents should be able to age in their community, if they so desire. Would it be possible to set aside plots of land to be used for senior housing? The community would not necessarily have to designate what kind of housing is placed there but setting aside or zoning certain land might take away some of the market-rate pressure for land. Communities and developers regularly do this for other important uses such as parks or schools. Why not get out ahead of the aging population and make a tangible contribution to allowing senior residents to stay?

Can the housing industry survive by only catering to the wealthy?

In the short-term, it appears the housing industry is aiming at the wealthy. Can this work in the long run?

It’s possible to get rich if your business only caters to rich people. But it’s hard to have a massive and really successful industry in the United States today if you only cater to rich people. There are only so many people in the country with good credit and lots of cash sitting around. And this week, we got evidence that one of America’s largest industries may be running into trouble because its products appeal only to the upper crust. I’m not talking about jewelry or apparel. I’m talking about housing.

And yet the article goes on to provide little evidence that the housing industry will be in trouble if it continues on this path. The profit margins are higher. The big builders, like Toll Brothers highlighted in the story (as they almost always are when there is a story about luxury housing), and the big investors who swooped in during the housing crisis are doing fine. There are not that many smaller builders left. A loss in building volume would probably mean some job losses in real estate, construction, banking, and other related services. But, perhaps the housing industry in the future is leaner and aimed at the upper end?

As I mentioned in Friday’s post, if markets work as they are said to work, there are plenty of opportunities here for businesses to jump in. Newer technologies can lead to cheaper housing units and lower construction costs. There is a huge need for affordable housing so there shouldn’t be a shortage of demand (even if it may be difficult to find sites where neighbors aren’t opposed to it). Doesn’t someone want to grind out profits at a lower margin? The question moving down the road is whether the housing industry will react in such a way or not. There is no guarantee that it will.