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housing matters
High Rents Squeeze the Young

The always-interesting Joel Kotkin is out with a new essay exploring the implications of skyrocketing housing costs—especially in coastal blue cities—for America’s politics and settlement patterns:

There’s little argument that inequality, and the depressed prospects for the middle class, will be a dominant issue this year’s election. Yet the most powerful force shaping this reality—the rising cost of housing—has barely emerged as political issue. [. . .]

Driven in part by potential buyers being forced into the apartment market, rents have risen to a point that they now compose the largest share of income in modern U.S. history. Since 1990, renters’ income has been stagnant, while inflation-adjusted rents have soared 14.7 percent.

As Kotkin emphasizes, this is a middle-class issue. But it’s also a generational issue: Rising rents and housing costs hit young people, whose incomes are lower than the incomes of older Americans, especially hard. The ability to buy a home or afford a decent apartment is a major element of achieving adulthood, of being able to support oneself, and being able to start a family. Making home ownership attainable is essential to making young people feel that the American economic system can work for them.

As we’ve said before, prohibitive housing costs are at least in some ways a policy choice made by constituencies with political power in America’s big blue cities. Upper-middle class professionals tend to prefer restrictive land-use regulations because of their cultural preference for Manhattan-style “density.” Union monopolies on construction drive up housing costs. And rent control and other policies meant to help subsidize the poor often end up favoring wealthy property owners while squeezing upwardly mobile young people.

Getting housing policy right is one of the most important things a country can do for itself—and getting it right means making it work for young people.

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  • WigWag

    Fix escalating costs in housing, medical care and higher education and the problems of the Middle Class disappear almost entirely. Each of those three problems is eminently fixable, but traditional politicians will never fix them.

  • Fat_Man

    It is not mere preference the drives home owners to favor policies that restrict the supply of housing. It is bedrock self-interest. If supply is restricted the value of existing stock must continue to rise. It is astounding and upsetting to see that the ratio between home prices and median incomes has resumed its pre-2008 levels, and soared far beyond its pre-millennium equilibrium.
    “The Bigger Picture for Median U.S. New Home Sale Prices”

    Rent control is another such policy. The impact has been direct. In New York City, rent control made apartments unavailable, and caused the value of owner occupied apartments (condos and co-ops) to soar.

    Environmentalism and Not in my backyardism (which are allied, but not identical) are ideas firmly held by the same people who advocate for development restrictions and rent control.

    Like most of American politics they are out to impoverish the middle class, and enrich the already comfortable.

  • Pait

    I believe there is an error in the phrase “Upper-middle class professionals tend to prefer restrictive land-use regulations because of their cultural preference for Manhattan-style “density.””

    Zoning and other regulations tend to prevent higher densities, not to encourage more development. Very often regulations set limits to building height or number of units per square feet of area. I am not aware that land use restrictions MANDATE taller buildings or smaller plots very often.

    Notwithstanding this mistake, inequality is indeed a growing problem.

    • Jim__L

      In the Bay Area, the general idea of land use is to rezone suburban areas for high-density housing, and keep unbuilt areas “green space” (although frequently these areas are steep hillsides and not particularly suitable for housing anyway.)

      So… yeah. Restrictive land use and high density do go hand in hand.

      Stuffing more and more people into one place causes congestion problems, not least of which is the fact that if you hold living space constant, large-scale apartment buildings are more expensive because it’s just harder to build bigger buildings.

      Bottom line — America would be a far healthier place if jobs were distributed throughout the country, rather than concentrated in “disruptive” Silicon Valley.

      • Pait

        If the green areas are unsuitable for housing, clearly it is not zoning that makes density high. What keeps density low is suburban zoning – one family homes, lot sizes ,and so on. Rezoning only repealed the restrictions to higher density.

        And density is what the market forces want – that’s why people and businesses concentrate in cities and places like Silicon valley. Now perhaps you don’t believe in free markets, or you disagree with the wisdom of the crowds and think that the government should intervene – via zoning and other interdictions – to prevent density. I don’t much buy the argument, but perhaps for some special circumstances it has merit,

        Larger buildings are cheaper to build and maintain than single-family houses spread over wide areas – more so if you count all the necessary urban equipment, including roads, parking, and utilities. Closer proximity also lowers congestion, all the other factors being equal, because then not all trips have to be done by car, which is less efficient in the use of roads compared to all other forms of transportation.

        • Jim__L

          Nope, please note the “living space constant” part of my spec. Larger buildings are NOT more efficient, unless you’re using the term like it is used in “efficiency apartments”. Building up takes more work than building outward, the law of gravity make that inevitable.

          The simple fact is that telecommuting has made the modern high-density city obsolete. You’ve got people “working” in Palo Alto and living in Oregon. Lucky ba*ds.

          Once Google hits the skids, expect to see Silicon Valley disintegrate.

          • Pait

            Larger buildings are cheaper in the long (and not so long) run to build and maintain when you include all costs – energy, heating and cooling, roads and other transportation infrastructure, elevators, utilities, and so on. The reason we know that, even before doing any analysis, is that denser buildings are the result of market forces, whenever zoning does not prevent taller buildings and higher densities, unless (or even if) roads are paid up by the government and not included in the costs.

            It is conceivable that telecommuting will make cities less attractive for the educated professionals in places such as Silicon Valley. However that is in contradiction with the premise of the original article, which is that these professionals prefer higher density living.

            In any case, the argument of the post is still in error. Zoning in almost invariably slanted to limit density, not to force it.

          • Jim__L

            Market forces push density because there is a density of money in Silicon Valley that gets pushed to many of the tech workers here. There is more money to lavish on less-efficient large buildings.

            The solution here is to distribute the jobs across the country. For many corporations, it is obvious to build satellite offices in other parts of the country when expenses get too high at the primary location. But in Silicon Valley, cash-rich companies Google can keep building up Mountain View, Apple can keep building up Cupertino, VC money can keep building up startups in San Francisco, and rents in the nearby areas rise accordingly.

            It’s not about efficiency. It’s about an oversupply of cash.

          • Pait

            And how are jobs to be distributed across the country, against the wishes of workers and companies alike? Perhaps by some form of central planning by the federal government? I think it has been tried before in the Soviet Union. The idea has some merit – if you believe that concentration is such a bad problem – but the drawbacks are well known.

            As for “less-efficient buildings”, you are incorrect. As I wrote before, operating costs of buildings are lower than that of isolated houses, and the overall cost of constructing infrastructure is much lower. If you only take into account the price of building walls and foundations, then perhaps 2 or 3 family homes are cheaper, but of course that makes no sense economically.

            It is possible that densest places such as Manhattan are past the point of highest cost efficiency, but unlikely that less dense places are, judging by the density of cities around the world.

          • Jim__L

            If large buildings were truly more efficient, market forces would push every village of 1000 people in this country to stuff all 1000 of those people into a single Manhattan-style apartment building.

            Your argument for “efficiency” is purest nonsense.

          • Pait

            “I want a 5 ft straw man. You prefer a 6 ft straw man. But then you must prefer a 20 ft straw man. A 20 ft straw man is bad, so I’m right and you’re wrong. Nananana booboo.” Great argument. Not.

            As I wrote, Manhattan densities may be too much for most places. It depends on the use. Hotels for example tend to be denser and higher than other constructions. N York City itself used to have more population, before people were able to afford more expensive homes in the suburbs – and even there, massive subsidies to road building, which you pay for whether you use it or not, played a role.

            Rural areas of course will have lower densities than pretty much anywhere else. Cultural and financial centers highest. Others will fall in between.

  • FriendlyGoat

    A great example of “getting housing policy wrong” was having investor pools of cash buying up thousands of foreclosed homes at cheap prices in the aftermath of the Great Recession—–to turn them into rentals.

    • CapitalHawk

      How so? This moved the property from the hands of people that didn’t want/couldn’t afford them and into the hands of people that could. This also prevented the properties from becoming vacant, which is bad in multiple ways for the surrounding neighborhood. This also caused the property to be occupied by people who can actually afford to live there (because the prior occupants could not). I don’t see who any of that is bad. Lots of the actions leading up the to foreclosures were bad, yes, but not after.

      • Boritz

        A huge infusion of cash to allow people to “stay in their homes” is likely what is being implied as a solution.

        • FriendlyGoat

          We had the huge infusion of cash, via TARP and several rounds of QE. The banks and related parties such as AIG got the cash to keep THEM from going under on their bad bets—-but nothing was offered for the homeowners at all for their “bad bet” of having the bad luck to have bought a house—-most any house—in a bubble. Ever wonder what happened to all those “toxic” assets—-those mortgage bonds which suddenly found only one party in the world who wanted to buy them for more than they were worth? You could have put the same cash through the homeowners’ mortgage payments to keep both the homeowners and the institutions solvent. But, nope, saving people involves “moral hazard” while saving corporations supposedly does not. Funny how that works.

          • Jim__L

            Careful FG, you’re starting to sound like the anti-bailout type of Tea Partier. 😉

          • FriendlyGoat

            I don’t think Bernanke was wrong from his understanding of the Great Depression that he and the Fed could not (COULD NOT) let the institutions go down en masse, because the snowball effect from that would have been just too far-reaching and too much a shock to the world economy. So, the Tea Party approach was not for me.

            But I have wondered, seriously, why the money to rescue the institutions could not have been funneled through the homeowners in the form of payments made to the lenders to keep those institutions afloat and people in their houses at the same time with the same money. I’ve never actually heard anyone else even discuss the concept, but what was wrong with the banks and the bonds was people defaulting on payments. Help those people (maybe even all people) make payments for a time, might we have said “what crisis”?
            It’s not like we didn’t pump in trillions anyway. But who got dumped and who got to buy steals for “investment” of their cash on hand?

          • Jim__L

            Probably because the banks were in trouble whether or not the homeowners were behind on any payments, and would have remained in trouble if the equity had been funneled into the homeowners’ hands.

          • FriendlyGoat

            Perhaps. In any event, the national “we” somehow decided to let a lot of people lose their equity in homes——and now we get to talk about how many more people are renting and how the rents are going up.

          • Jim__L

            That equity was phantom equity in the first place, and loans were handed out that people did not have the least ability to repay — I know, Wells Fargo offered me one. Their rationale? “Well, it’s insured by the FHA”.

            The fact is that there are places in this country where it is still cheap to build (and therefore to buy) homes. Life would be far better for the average American if the urbanist brainworm weren’t infecting so many people who made decisions about where to cite jobs.

          • FriendlyGoat

            Gotta agree with your last sentence. I’m sure you are painfully aware in CA of the difficulties associated with that.

      • FriendlyGoat

        Evidently you don’t know the difference between living in a subdivision of owner-occupied homes and living in one where large numbers of your neighbors are renting. You could ask any board member of a Home-Owners’ Association about the “differences” in how that works out.

        • CapitalHawk

          Actually, I do know the difference. I’ve lived in both and I prefer living in where most or all are owner-occupied. Renter occupied is still waaaay better than vacant.
          Also, I have been on the board of an HOA, so I know how that goes too. Guess what – the HOA collects money from the owner of the property either way and gets paid either way, with one exception. The exception being people who are defaulting on their mortgage. We have one house in our HOA that hasn’t paid the HOA fee for years (I mean, years) and currently owes us nearly $30,000. They haven’t been paying the mortgage (or other debts) either. I’ve seen multiple process servers at their house over the years. Why haven’t they been foreclosed on, you may ask. Because of “homeowner protection”/anti-foreclosure laws passed in the wake of the housing crash. So, we have deadbeats sticking it to us and making us pay for their water (no they don’t have separate water meter), trash, snow removal, landscaping and other common maintenance. In short, I know a lot of people that would be very happy to see someone foreclosed on and kicked out.

          • FriendlyGoat

            In the last fifteen years, I have lived three places. Two of them were in HOA subdivisions of newly-constructed homes and my third (final, never moving again) is rural with no HOA.

            We bought into the two subdivisions as they were being built by national-name builders. We were advised both places that the number of homes being sold to investors for rentals was strictly limited below 20% one place and below 10% the other. After the crash, all bets off. Both of them are now at least 1/3 rental, one may be near half. It’s not cool.

            As for the HOA’s——they were good at sending letters to people who left their trash containers out front. That was about it, but after attending meetings of those things in both places for several years, you have my sympathy.

          • CapitalHawk

            I’m not a fan of HOAs either. But where I live had too many other things going for it for me to veto it because it’s in an HOA. But all things being equal, I would choose not to live in a house that has an HOA.

  • Jacksonian_Libertarian

    Free markets are most efficient when they are free of Government meddling. This means free of price controls, subsidies, government back loans, regulations that go way beyond public safety, and other forms of Government meddling. All of which distort the market and drive up the costs of housing, as well as restrict increases in the supply of housing.

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