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housing matters
Red Tape and Rising Rents

The evidence that local land use regulations are a drag on the U.S. economy—driving up rents, rewarding the rich at the expense of the poor, and making it harder for people to move places where the job market is hot—seems to grow stronger by the day. And the fact that many sclerotic housing bureaucracies drag their feet in approving new construction makes the situation even worse. The Wall Street Journal reports:

The supply of new housing in the U.S. isn’t keeping up with demand in part because of local delays in getting building permits approved, according to new research set to be released next week by real estate tracker Trulia.

The study finds that in metro areas with longer delays in building and zoning approvals, developers are less quick to respond with new housing units when prices are rising and demand is high. […]

Las Vegas, Raleigh and Atlanta had average delays of about four months, compared with average delays of eight to 12 months in New York and coastal California markets.

In other words, as Kip Jackson recently argued, rents aren’t just soaring in deep-blue cities like New York and San Francisco because hordes of affluent Millennial hipsters want to move there. They are soaring because regulators smother new construction under paperwork and permit applications. And the result is an economy that is less fair, less equal, and less free.

Keeping housing affordable is one of the most important aspects of successful public policy, but our municipal governments are failing spectacularly. One starting point for reform, as the Trulia study suggests, is finding a way the construction permitting process. This is a relatively unsexy policy goal that is unlikely to get anyone’s blood boiling. But if done right, it will boost the economy improve millions of lives.

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  • Kevin

    “One starting point for reform, as the Trulia study suggests, is finding a way the construction permitting process.”

    What does this sentence even mean? The gist is clear but …

  • Andrew Allison

    There’s no question that excessive regulation of all sorts is a drag on the economy, but whether housing rewards the rich at the expense of the poor is, at best, questionable. The problem is that, perhaps because of the regulatory burden, developers want to build houses for the rich rather than the poor (because that’s were the money is). The big land use battles in much of the Bay Area involve the McMansioning of communities where they are out of character. Forcing low- to moderate-income housing into high-income neighborhoods is, in fact rewarding the poor and the expense of the rich. Whats needed is incentives for urban infilling and renewal.

    • f1b0nacc1

      Forcing low and moderate income housing into high income neighborhoods also provides LOTS of room for graft and corruption, as the high income denizens take steps to avoid ‘those’ people moving in. This is all about power and control (and the economic opportunities for those with power and control), and the poor be damned….

      • Andrew Allison

        Having been party to some such activities and an observer of others, I can assure you that the graft and corruption are deployed for developers to buy their way in, not to keep them out.

        • CaliforniaStark

          Agree, but have to point out that politicians are the decision-makers for development projects in California. They expect campaign donations from the development industry at election time; and actively solicit them. A prudent developer will make the contribution (often to multiple candidates running for the same office) rather than risk political wrath. In many ways California politics has become a “pay for play” system, in which politicians all but extort money from anyone who requires a government permit or approval. Of course, if in return a politician fails to provide the expected support for their donors’ project, then they will find themselves facing a well-funded opponent in their next election.

        • f1b0nacc1

          Yes, but it is a distinction without a difference. Developers can buy their way in, but unless they can make a significant profit by doing so, there is n point to it. Hence they build what gives them the deepest profit margin….high-income housing. Neighborhoods that don’t want ‘those people’ moving in aren’t competing against developers, they are competing against government apparatchiks who want to push their social engineering, and by a staggeringly happy coincidence, can collect some graft at the same time. Developers don’t bother with such niceties, they go after cheaper neighborhoods to consolidate.

          • Andrew Allison

            With respect, there’s a world of difference. You suggested that the graft comes from people trying to keep developers out. That, in my not inconsiderable experience is false. If the developers were not, pardon the pun, permitted to build high-end housing, they’d do as you suggest.

          • f1b0nacc1

            No, you miss my point…the developers aren’t the ones that high-incomes types are trying to keep out…developers are the ALLIES of the high-income types. They are trying to keep the governments (and more precisely their low-income clients) out.
            The developers have no real interest in low-income housing…there is virtually no money to be made there, particularly in the current regulatory environment. If there were, then we would see plenty of it, as some developers would see it as a worthwhile option. If you are a developer and you are going to build in this environment, you want the maximum return with minimum risk, and that is high-income housing.
            The various governmental groups, on the other hand, want to buy off their clients, and that means low-income housing. The higher income groups will pay through the nose to keep those types out of their neighborhoods….

          • Andrew Allison

            Sorry, but ’tis you who are missing mine. Developers are the ENEMIES of the owners of high-end housing. Of course the developers have no interest in low income housing. That’s why, as I wrote, they need incentives to build it. Making it easier for them to build high-end housing is NOT the answer.

          • f1b0nacc1

            Perhaps we are talking past one another…could you give me an example of what you are arguing, then perhaps I can respond properly to it?
            As for making it easier to build housing of any sort (low/high/etc.) I am all for it…though in truth that is quite unlikely to happen…

          • Andrew Allison

            Sure. I live in Monterey County (which has the dubious distinction of being known as the most corrupt in the State). Until the recent election, four of the five county supervisors had never seen a development they didn’t like. It’s not hard to find out why. Several of the clearly illegal approvals have been stopped and/or extensively modified thanks to a citizen-funded non-profit organization (landwatch.org). Meanwhile, the city of Salinas is trying to annex prime agricultural land for low density development instead of infilling and adding high-density housing (http://www.landwatch.org/pages/issuesactions/salinas.html). Can you smell, er spell tax revenue?

          • CaliforniaStark

            “I live in Monterey County (which has the dubious distinction of being known as the most corrupt in the State).”

            This is like Ali baba trying to determine which of his 40 member cohort is the best thief. They each exhibit talents that would qualify them for this distinction.

          • f1b0nacc1

            Lucky you….gorgeous place to live! I did some consulting work at DLI about a million years ago (OK, 30+…sigh…), and still remember how much I enjoyed it…
            I repeat however, that I think we are making the same point, but perhaps coming at it from different directions. Either way…I will sit here baking in Kansas City (probably the closest thing to the opposite of Monterey that I can imagine) swelter, and envy you!

    • Nevis07

      Andrew, I work in affordable housing (development side) and certainly it has to be said that regulation and red tape are a drag on the ability of developers to construct affordable housing. Where I am in the Northeast (and in a very blue state), I can attest that many states are pursuing just what you’ve suggested.

      One of (un)expected results of such policy as you’ve suggested is that the cost per unit of that housing is increased for developing in the urban centers. This is partly a result of HUD and state LIHTC QAP scoring, but also a reflection of market economics. Either way, the cost of developing government subsidized housing (i.e. “affordable housing”) is to actually increase the costs of it’s development. For example, if you want to build affordable housing, you have to use state union prevailing wages – and if you’r using federal funds and building infrastructure from elsewhere to your development along state highways – yes, you have to pay federally mandated wages. One way of the other taxpayers will end up paying this bill:

      http://www.housingfinance.com/news/high-development-costs-under-scrutiny_o

      One of the things that can and I do expect to backfire on the policy of building affordable housing in urban centers is a decrease in market rate housing in those same centers because of the subsidized competition. This will do two things: 1) for those who prefer to live in urban centers, they will have to pay premium on top of what they otherwise could afford and 2) for those unable to qualify for affordable housing, but unable to now afford those urban dwellings that they would prefer to live in, they will end up moving to where they can afford to now live, which means most likely the suburbs.

      I’m not saying there’s a simple answer to this, but there are consequences either way you go, I suspect. The quickest and surest way to encourage more development is to cut regulation – especially for that housing deemed as starter family homes – at least IMHO.

      • Andrew Allison

        I agree with everything you wrote. What I object to is TAI’s purblind class warfare.

  • Pete

    1. Keep low income housing (Section 8) out of the suburbs.

    2. End rent control in the cities.

    • Beauceron

      Well that’s not going to happen. Obama’s last major act was to basically destroy the suburbs (too white). The new AFFH rule is disastrous. They’ll be shipping hundreds of thousands of inner city blacks to the ‘burbs once it gets rolling.

      Clinton tried a similar experiment back in the ’90s. I know– my hometown was literally destroyed by it. They changed housing to HUD and built new housing and moved people fro the cities in. In the space of a couple of years we had Crips and Bloods and drive by shootings. The local police just couldn’t handle it. The murder and rape rated skyrocketed. My parents moved after an elderly lady a few houses up from them was pistol whipped in her driveway, dragged into her home and robbed. Pretty much all the previous residents sold their homes at a loss and moved. There are sections in my old town where it’s not safe to drive down the streets.Obama’s new rule is a much expanded version of that– and unlike with my parents there will be no place to flee to, really.

      • Jim__L

        This is simply a matter of exporting deep-blue Urban voters to the suburbs, to shift voting patterns.

        If pressure on police to stop policing continues, those migrants will spread toxic culture everywhere they go.

        On the other hand, if policing in suburbs continues to be strict, there’s actually a chance that the people arriving there will be able to assimilate to more positive suburban values — reddening the migrants, if you will. So it could be either a good or a bad thing, in the long run.

        • Beauceron

          Do you really believe they are going to become Republicans? I mean seriously.

          It also shifts costs. Those people are expensive.

  • CaliforniaStark

    in attempting to determine the cause of the difference in the price of housing in Las Vegas, Raleigh and Atlanta vs. New York and coastal California, I would suggest including two other variables — (1.) comparing the cost of comparable parcels of undeveloped land; and (2.) comparing the resale price of homes. Both would be a better reflection of supply and demand; and less affected by bureaucratic red tape. My hunch would be both would be much lower in Las Vegas, Raleigh and Altanta vs. New York and Coastal California. Also, there are a significant amount of foreign non-resident buyers of housing in coastal California, which tends to increase price, which may also be the case in New York.

    Simplistic arguments claiming bureaucratic delay is the main reason for higher prices of housing in coastal California and New York are not looking at the whole picture. Bureaucratic delay it is a factor, and regulations like state prevailing wage statutes significantly raise costs (as another comment indicated); but removing bureaucratic delay likely would not cause housing prices in coastal California or New York to fall that much in comparison with the other three cities. Developers in coastal California and New York build housing at the highest price point at which there are willing buyers; and in both locations there are enough affluent buyers to keep housing costs high.

    • Jim__L

      A number of friends of mine are looking to build their own community on a parcel of undeveloped land in or around Silicon Valley. Either the land is in the hills (at a near 45-degree angle), or over an hour’s commute from the Google campus where many of them work. Even though these people are highly-paid tech employees, single-family homes are simply beyond their reach.

      On the plus side, when you can find a large multibedroom house that’s slated to get knocked down (in advance of having a larger, more expensive house built on the property) you’ve got quite a bit of time to lease it as a group house at a good price, while the owners wait for the permit process to wind its way through city council.

      Not a real great place to put down roots and start a family though, as many of the women — pushing 35, 40, or even 45 — are finding out. Reality, in the form of the politically incorrect but still urgent biological clock that impels you to not leave your 30’s childless (just like the currently socially acceptable urge not to leave your 20’s a virgin), is catching up with them fast.

      The real question is, what lesson will the 20somethings in the house learn from this? One could hope the obvious answer, “The Silicon Valley Way totally sucks for families, and ‘innovative’ family structures really don’t work all that well” will sink in.

      We’ll see.

  • Josephbleau

    There are always enough people to buy all offered properties, even in california, until there are not, (real estate agent of 1992-2008.)

    • Jim__L

      Partly depends on how many offshore Chinese investors there are, looking for quick, rich flips, or for high-yield rental properties.

  • Guest

    Govt. red tape has made me rich. I understand that it has harmed many families, but that’s not my problem. After all, it’s not like there’s really a community any more in which the ideal of public virtue is of any importance. Apres moi le deluge.

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