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housing matters
Soaring Rents Are a Policy Choice

Economists have been growing increasingly concerned that restrictive urban land-use regulations, engineered by a strange alliance between environmentalists, wealthy NIMBYs and grassroots left-wing activists, are driving up rents and choking job-creation by making the workforce less mobile.

And new report from the real estate database Zillow suggests that they are right to worry: Since 2011, cities with onerous zoning laws have experienced much steeper rent increases than their less-regulated counterparts:

[O]ver the past five years the typical rent in the highly regulated city of San Francisco increased 42.4 percent. In more laissez-faire Chicago, median rent increased just 7 percent over the same period. On average, rents in the nation’s least restrictive cities rose 6.1 percent over the past five years, while rents in the most restrictive cities rose 16.7 percent. And while land use regulations are not the whole story, they certainly contribute.

Excessive zoning has a number of insidious effects, even beyond dampening economic growth and biting deep into workers’ paychecks. First, it tends to drive up economic inequality: The (disproportionately white and wealthy) people who already own real estate in highly regulated areas see their property values appreciate, while striving poor and middle-class people are shut out of the market entirely. In that sense, zoning might be added to Jonathan Rothwell’s list of ways that “politicians and intellectuals often champion market competition among low-paid service workers” while allowing “elite professionals [to] sit behind a protectionist wall.”

Soaring rents also have undesirable demographic effects: They drive middle class families (generally a moderating force in city politics) out of urban areas, and make it difficult for young people not in fields like finance, tech, or consulting to get a footing in the housing market—a critical step toward achieving adulthood. Getting rents under control should be a major priority for any reform-minded politician—Left or Right—who wants to prioritize fairness, growth, and political stability. And that means beating back corrupt and outdated building restrictions.

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  • Andrew Allison

    The chart tells a somewhat different story, namely that rents have risen even more steeply in less regulated cities.
    http://cdn2.blog-media.zillowstatic.com/3/Land-Use-Regulation_Rent-1-c2f916.png

    • bannedforselfcensorship

      That trendline is there for a reason.

      • Andrew Allison

        Yup, it’s there to make a specious argument. Draw a horizontal one through Washington (the most restrictive city) and you’ll still have about the same number of cities above and below the line, but the conclusion would be the opposite of that drawn. The vertical line separating “Less” and “More” does the same.

        • Jim__L

          Is there a chart tracking either “unemployment” or “new jobs created”?

          People move where the jobs are. Companies move to San Francisco because it’s trendy. Aerospace companies move from Silicon Valley to Denver / Aurora because it’s cheaper — or at least if you drop $800k on a house, you get a bit more of what you pay for. And the environmental regs aren’t as onerous.

          There’s a lot more going on here than just regulations. Jobs have a lot to do with it, and decisions about jobs are made primarily by Urbanista elites with little or no regard for families.

          • Andrew Allison

            It’s axiomatic that regulation (other than rent control) increases the cost of housing. My point was simply that the data in the chart contradict the argument that rents rise proportionally with regulation. It’s not as simple as where the jobs are either — Google, after all, is running a bus service between San Francisco and Mountain View. I think that SF may be more a result of the high salaries being paid in the Bay Area, which allow the young to live where they chose.

          • Jim__L

            Workers at Google really don’t “live where they choose” — the ones with kids don’t live in the suburban houses they want to, for example. Also, the commute time to the Mountain View campus keeps most Google workers out of the South Bay. By the way, *Cupertino* is considered “South Bay” rather than Peninsula nowadays, despite being 20 minutes or less from Google in clear traffic, and far closer than that to Apple.

            Salaries have a bit to do with the high prices of course, as a scarcity
            premium can’t exist without some number of people able to sacrifice
            everything else to pay for it.

            But, if the most expensive places were in fact urban, you might have a case that when people “live where they choose” they live in cities. The fact is they don’t. The most expensive neighborhood in California is a patch of one-acre estates in Atherton, where Obama goes to fundraise while he’s in the area.

            When money is no object, and people can choose whatever they please, ***people live in areas far less dense than most suburbs***. If they’ve got a little bit of cash sloshing around and they’re in that narrow portion of life between college and family, the best choice they can afford is a playground city that’s close to work, *but they can’t afford better*.

            By the way, Google buses all have WiFi, so being on the bus IS basically being at work — so San Francisco is, for all intents and purposes, within walking distance of Google.

            People go where the jobs are. It’s that simple. And they sacrifice a lot of what they value — living space, family — to do it, because without a job nothing else really matters. The short end of this stick is very short indeed, and a lot of people are hanging onto it.

          • Andrew Allison

            People DON’T go where the jobs are, the go where they chose (and can afford) to live.

          • Jim__L

            I’m sorry, that is simply not consistent with any of my experience of life.

        • Enemy Leopard

          Linear regression is really hard, I know. I agree that we should all be free to draw lines wherever we’d like to make our points.

      • Wayne Lusvardi

        Here is a much better graph explaining the effects of regulation, scarcity (including interest rates), and topography on housing affordability. Go to graphic at link below:

        http://voxeu.org/article/regulation-blame-england-s-surging-house-prices

        In places like San Francisco, which is built out and located on a peninsula, are the high housing prices due to regulation or to scarcity and topography? The graph shows no. Lifting land use regulations alone would have lowered housing prices by about 35% according to the study.

    • Proud Skeptic

      I wonder why the title of this graph is “Figure 1: Rent Appreciates Faster in More Regulated Cities”?

      • Andrew Allison

        Because that’s the narrative the authors wanted, and which TAI bought hook, line and sinker. As the chart shows, supply and demand are an issue across the board.

        • Proud Skeptic

          The title on YOUR graph is the one I was referring to.

          • Andrew Allison

            Not my graph and not my title!

          • Tom

            I’m looking at the graph, and that regression line looks legit to me.

    • Wayne Lusvardi

      What am I missing? The orange dots are the most restrictive cities and reflect that FASTEST rent appreciation (NOT HIGHEST RENTS). Conversely, the blue dot cities are the least restrictive and the SLOWEST appreciating rents. You wrote that “rents have risen more steeply in less regulated cities”. That is a non sequitur (does not follow from the data) and a misinterpretation of the chart. Even the title of the charts is: “RENT APPRECIATES FASTER IN MORE REGULATED CITIES”. This chart does not show higher or lower relative rents at all.

      • Andrew Allison

        What you are missing is that the color of the dots is (deliberately, I suspect) misleading. The horizontal access is degree of regulation, i.e. not all orange dots are equal. The most highly regulated city saw rent increases LOWER than about half the cities on the chart, and significantly lower than for the much less-regulated poster child San Francisco. Similarly, the widest range of increases, from -20% to over 60% occurs along the 0.0 axis. Rotating the chart 90 degrees shows a very different, namely that the cities are roughly equally scattered around 12% regardless of degree of regulation.

        • Wayne Lusvardi

          Not LOWER, but FASTER.

  • Blackbeard

    Living here in the New York metropolitan area nearly everyone I know is either liberal or ultra liberal. They all support every fashionable leftist cause be it a $15/hour minimum wage, or recognition of Palestine, or the existential threat of climate change. But suggest a policy that might affect their real estate values and you will be torn limb from limb.

    Concern for social justice is all well and good, but not if it actually costs liberals money.

    • johngbarker

      “you will be torn limb from limb” and then disemboweled and burned.

      • Jacksonian_Libertarian

        This is known as being “Drawn and Quartered” like William Wallace.

    • f1b0nacc1

      The phrase ‘limousine liberal’ comes immediately to mind.

  • Frank Natoli

    The author writes “getting rents under control” and thus unfortunately uses Leftist vernacular. The problem, causing unaffordable rents, is out of control government. Fix the latter, fix the former.

    • dave schutz

      I think you can make a start with stiff congestion pricing and encouraging uberlyft type ride sharing services. If people can really commute at 50 miles/hour in a van or shared car, they get less desperate to live in San Francisco/Sunnyvale. Gilroy and Vallejo start to look more plausible.

      • Frank Natoli

        If by “congestion pricing” you mean charging people for driving into inner cities, I don’t see how that reduces inner city rents. If anything, by making inner city locations even more attractive, in a “free market”, which of course congestion pricing is not, that will raise rents.
        As the author correctly notes, housing supply or more properly lack thereof is the problem, and the problem is caused by government strangling housing supply.

        • dave schutz

          It seems to me that there are a number of moving parts here. Yes, there is clearly not enough housing in the inner city. Part of this is because people actually desire to live in Manhattan, SF, Cupertino, DC. Part it because it is such a huge pain in the ass to get there from the burbs, so even folks who might like a more spread out life face a daunting commute. We have in recent years been shifting, it looks to me, towards a Paris type situation where the inner city is golden and the banlieues are where no one wants to be. And a lot of WHY it is so difficult to get into town is the roads are wildly congested and it’s twenty-five dollar parking when you get there. It’s worth a lot to get quit of that.
          You do serious congestion pricing, say twenty-five dollars per car, and suddenly people get a lot more humble about forming car pools and van pools. Also there are a lot more car and van pools. Result? It’s suddenly less awful to live in Gilroy, or Manassas, or Worcester – you can be in the city pretty fast, and you get your quarter acre and barbecue. So I think this lessens the urgency of living in the inner city, and takes the pressure on rents down just a little. And if you are paying your share of a $25 toll in a twelve person van pool, and commuting at fifty miles an hour, both the poor and the rich are better off with less pressure on inner city prices.
          I live in DC burbs, and we have seen inner city and close in suburb prices skyrocket for just these reasons, it is so unpleasant to try and get in from Chantilly. Everybody from the outer ring is sitting in his own car alone and crawling forward. My town (arlington va) is funding a sort of transit advocacy website, Mobility Lab, which just did a nice piece about tolling: http://mobilitylab.org/2016/04/07/congestion-soviet-bread-line/
          This make sense to you? That by reducing the relative desirability of inner city, congestion pricing can lower the pressure on inner city housing? And further that it can enable both rich and poor to have better lives in the periphery? And thanks for your comment. Dave Schutz

          • Frank Natoli

            Born and raised in Brooklyn and Queens. Whether I was in the city or on Long Island or in Jersey, while working in Manhattan, I took mass transit. I cannot imagine why anyone whose origin and destination are served by heavy rail mass transit would not take advantage of it. NYC subway system is, on a mileage basis, the best, but DC Metro is great, as is Boston MTA. I have no idea why several million people are circling DC on the beltway unless either their origin or destination are not served by heavy rail mass transit. How would “congestion pricing” change that?
            But getting back to the author’s correct premise, that government strangles housing, I read an article recently enumerating locations within a relatively modest distance of Silicon Valley that are absolut verboten regarding housing construction, e.g., Santa Cruz. Thousands of acres of “preserved” woodlands. Preserve the woodlands, send rents and house prices to Jupiter and beyond the infinite. Nobody will get a PhD documenting that.

          • dave schutz

            I take Metro to work. Despite its current travails, I love it. But yes, origin and destination not served. I think most commuters will drive unless it costs them to do it. Your own car, your own radio, you get out of the house when you are done with breakfast and get out of the car when you get to work. Under current conditions, the roads are clogged, and you get nothing but aggravation if you scrabble together a carpool. You don’t get there any faster, because the roads are full of all those other schlubs driving alone. If driving alone costs you 25 in tolls and another fifteen in parking, then that’s 40 a day, you notice this, you work hard to find a carpool and – magic! – all those other drivers have made the same calculation and the roads are far less clogged. If you get three other guys AND everybody else has the same incentives, you pay ten a day for your commute and it’s quicker because those three cars are off the road and so are thousands of others.
            Once that change is in place, the relative desirability of the center goes down, and rents relative to the center drop. So even if the government DOES ‘strangle’ housing, Gilroy is not so bad and San Jose is not so relatively good.

          • Jim__L

            Telecommute, and you get to work in your jammies and have breakfast as you read your email.

            When 70-80% of jobs that can telecommute 70-80% of the time, do telecommute 70-80% of the time, the traffic on roads will be cut in half — and that assumes that people won’t do the sensible thing and choose off-peak hours to drive to work, dropping commute times even further.

            When the jobs that can be done 95% remotely ARE done 95% remotely, (fly in to the office one day a month), you’ll probably see population densities in cities start to *shrink*. More Silicon Valley types will move places like Oregon. (I know a guy that does this. My feelings are equal parts envy, and hope for the future.)

            Bluntly, if a city doesn’t have mass transit already, it won’t get it. Plowing under suburban houses in Sunnyvale could cost *literally a billion dollars a mile* if you pay market rate for the houses you’re taking. Plus, the value of the house near the track — the track, not the station — erodes significantly.

            That’s the problem with rail. If you’re within a short walk of a station it’s nice. If you’re not, it’s a nuisance. A whole lot more people are in the second category than the first.

          • dave schutz

            “..if a city doesn’t have mass transit already, it won’t get it..” I think you are right on heavy rail Metro MBTA etc. I think there are real possibilities in new els, gondola systems, and BRT – things which don’t compete with existing land uses and rights-of-way. Telecommute is great for people with defined responsibilities, tougher for people who are trying to freelance and get a continual flow of new jobs, or for people who need to, say, man the counter (‘person the counter’?) at a city office. So I continue to think it’s urgent to make it easier to commute in a way that’s less painful for long distances. And that seems to me to involve a massive shift to vanpools, motivated partly by congestion pricing.

          • dave schutz

            My first reply here could have been a little more complete: I think heavy rail metro is going to be financially difficult for a long time. It needs a LOT of density to come close to financially justifiable. I also suspect that Lafayette is going to be successful at fending off BARF http://www.sfgate.com/news/article/City-activists-brazen-new-battle-cry-Sue-the-6485289.php most of the time. So my guess on the likely future is that Antioch is where the affordable housing will be, most of it, and Vallejo, and Brockton, and the best way to make the situation more tolerable is to make it pay for people to car pool. Which is why I am pinning so much hope on congestion pricing.

        • Jim__L

          The problem is incentivizing too many jobs in too small a space.

  • Gary Hemminger

    Blackbeard, this is the second post where you are absolutely right on with respect to your comment. Via Media is trying to get the truth out, but it won’t do any good. In NY and CA no one is interested in bringing rents or housing prices down. What they are interested in is blaming someone for it. Out here in CA the blame is on the techies. It isn’t that their restrictive zoning laws and regulations are the cause…it is the techies and gentrification. And the answer of course, is to build a few low cost housing units for the poor. This makes them feel better, but of course, does nothing to solve the root of the problem.

    • slovokia

      What people are most interested in is in thinking well of themselves. Any system of thought that enables that will be embraced. Being a good person these days is defined by holding the “correct” opinions – not by doing good deeds.

      • dave schutz

        Not just thinking well of ourselves, we want to show off to others how enlightened we are. Virtue signalling! That’s what we do.

        • Andrew Allison

          Virtue signalling is a luxury enjoyed by limousine liberals.

          • dave schutz

            I don’t think it’s JUST limlibs. People on the right who are showing off the depth of their opposition to some outrage of the moment are showing off, too.

          • Jim__L

            PJ O’Rourke, from Give War a Chance (1992) —

            “The principal feature of American liberalism is sanctimoniousness. By
            loudly denouncing all bad things — war and hunger and date rape —
            liberals testify to their own terrific goodness. More important, they
            promote themselves to membership in a self-selecting elite of those who
            care deeply about such things…. It’s a kind of natural aristocracy,
            and the wonderful thing about this aristocracy is that you don’t have to
            be brave, smart, strong or even lucky to join it, you just have to be
            liberal.”

  • Jacksonian_Libertarian

    This is a self correcting problem, as urban areas become too expensive, the people will leave for cheaper more affordable places and the City will shrink and decay like Detroit.

  • Wayne Lusvardi

    It is not only excessive zoning and planning laws but the defacto designation of certain neighborhoods as landing zones for immigrants and low wage earner families. This is done through draconian rent control which entitles all renters to lucrative relocation benefits from landlords, one-sided eviction courts stacked against landlords, highly selective application of building code compliance, etc. to create housing for low-wage earners proximate to wholesale clothing, furniture, flower, and food markets. Typically selected for these low wage earner neighborhoods are areas with older housing stock in the first concentric ring around the city’s core that are adjacent to the designated wholesale districts. In the case of Los Angeles, the indigenous White working class were intentionally driven out by riots, arson, crime and graffiti fomented by unions and Leftist organizations to carve out these zones of “affordable” housing. But as one urban planner described to me, what is pushed out in one place pops up in another place. So the working class is driven out to the suburbs where they are labeled racist. Then the process is repeated in the suburbs which are forced to adopt “inclusionary housing” policies or forfeit their share of state road, school, and transportation funding. The low wage earner neighborhoods are historically where first time homebuyers found cheap housing to work their way up the occupational and real estate ladder. But real estate markets have been eclipsed and distorted for political goals that favor the illegal over legal, tax paying residents and first time home buyers must commute to work 50 miles so that immigrants can have low paying jobs (now guaranteed a minimum wage of $15/hour). What keeps the public from seeing how this pernicious spoils system works is the public perception created by urban newspapers that White, privileged, racist people created unaffordable housing by gentrification. Soaring rents are created in San Francisco due to the symbiotic relationship between rent control and lack of affordable middle class housing. In San Francisco, rents have skyrocketed for middle class housing stock to attract new high tech workers back into the city. The problem is that there is not enough land even at high density zoning to create housing for a new economic base of high tech workers. And the city desperately needs to re-attract high tech workers if they are going to maintain a tax base that can subsidize all the takers and free riders on rent control and welfare programs. San Francisco is landlocked and located on a peninsula and is entirely built out. But it is not lack of available land or zoning laws alone that create high rents; it is the sub rosa spoils system described. In Los Angeles, this spoils system is coupled with a history of urban riots manufactured by Leftists together with complicit union controlled newspapers to ruin the workings of the real estate market for first time homebuyers. The way the homeownership market once worked is that first time buyers bought cheaper homes in older neighborhoods and then moved up to higher priced housing. That housing and economic escalator has been ruined by the political Left. Sans the San Andreas Fault wiping it all out, there is no possibility of reforming this spoils system.

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