Market Urbanism https://www.marketurbanism.com Liberalizing cities | From the bottom up Fri, 21 May 2021 14:45:58 +0000 en-US hourly 1 https://wordpress.org/?v=5.1.1 https://i2.wp.com/www.marketurbanism.com/wp-content/uploads/2017/05/cropped-Market-Urbanism-icon.png?fit=32%2C32&ssl=1 Market Urbanism https://www.marketurbanism.com 32 32 3505127 Local iniquity https://www.marketurbanism.com/2021/05/21/local-iniquity/ Fri, 21 May 2021 14:45:29 +0000 http://marketurbanism.com/?p=66140 There was an interesting article in the New York Times magazine this week on the rise of extended stay hotels, which specialize in renting to a group within the working poor- people who have the cash for weekly rent, but cannot easily rent traditional apartments due to their poor credit ratings. This seems like a […]

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There was an interesting article in the New York Times magazine this week on the rise of extended stay hotels, which specialize in renting to a group within the working poor- people who have the cash for weekly rent, but cannot easily rent traditional apartments due to their poor credit ratings.

This seems like a public necessity – but even here the long arm of big government seeks to smash affordability. The article notes that Columbus, Ohio “passed an ordinance that subjects them to many of the same regulations as apartments” because “The hotels had an unfair competitive advantage.” In other words, the city is basically rewarding landlords for turning out bad-credit tenants, and punishing the hotels who seek to house them.

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Book Review: The Housing Bias https://www.marketurbanism.com/2021/03/09/book-review-the-housing-bias/ Tue, 09 Mar 2021 10:45:48 +0000 http://marketurbanism.com/?p=65208 The best book on zoning and NIMBYism you’ve never read might well be The Housing Bias by Paul Boudreaux. The author is a law professor, but you’d be forgiven for thinking he’s a journalist. His writing is engaging – and occasionally funny – and he does what is unthinkable for many scholars: drives to various […]

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The best book on zoning and NIMBYism you’ve never read might well be The Housing Bias by Paul Boudreaux. The author is a law professor, but you’d be forgiven for thinking he’s a journalist. His writing is engaging – and occasionally funny – and he does what is unthinkable for many scholars: drives to various places to interview people who are engaged in the (legal) drama of what we now call “the housing crisis.”

Boudreaux had the misfortune of being ahead of his time. The housing market was so soft in 2011 that his book landed with nary a sound. A quick web search turned up no book reviews besides the publisher’s blurbs. The book (and you’ll be forgiven if you stop reading right here) will set you back.

That’s unfortunate. Just a few years later, the book would have connected with passions shared by the rapidly growing YIMBY movement and a publisher would have marketed it to the masses.

Boudreaux’s thesis is that “the laws that govern our use of land are biased in favor of one specific group of Americans—affluent, home-owning families—who least need the government’s help.” He keeps his ideological cards close to the vest. But that’s the point: one need not lean left or right to want to stop using the power of the state to comfort the comfortable and afflict the afflicted.

The first chapter is the most important, because it lays out the foundation for all that local governments do, good and bad, in land use: the police power. He’s writing from Manassas, Virginia, where “restaurants with Aztec pyramids on them” telegraph the large Hispanic immigrant community. A vocal minority opposed this local immigration, and pressured local governments to stop it. Of course, the city doesn’t issue passports, but the police power allows local governments to make life uncomfortable for an unwelcome minority in many ways.

In the second chapter, Boudreaux meets the last holdout in a Brooklyn condominium condemned for the megaproject anchored by the Brooklyn Nets arena. Eminent domain is a unique city power – and one that fits uneasily with the rest of book. Daniel Goldstein (the condo holdout) is the sort of affluent homeowner in whose favor the system is biased. The appearance of Robert Moses’ successors is a good reminder that “not in my backyard” was once a heroic rallying cry of Davids fighting Goliaths.

The book moves along with a history of the Mount Laurel decisions (Chapter 3) and a retired farmer in Michigan fighting large lot zoning. For housing scholars and advocates, most of the material is not new, but it’s refreshed and worth reading from a muckraking law professor’s point of view. And (if you’ve got a spare Benjamin) it’s the perfect book to buy for the friend who promises to read just one book on housing if it will only shut you up.

Back to the story: the final chapter, set in Los Angeles and narrating the political difficulty of infill development, ends on a dour note like the four before it. A modest attempt to ease permitting for accessory dwelling units (ADUs) in LA was politically annihilated. This echoes the setbacks in Manassas, where Hispanics quietly moved away; Brooklyn, where Daniel Goldstein took a buyout; New Jersey, where Governor Chris Christie announced a “funeral” for a Mount Laurel program; and Michigan, where the farmer lost his court case.

A decade later, we know that’s not where LA’s story ends. California State Senator Bob Wieckowski led an ADU enfilade in Sacramento that succeeded while his colleague Scott Wiener’s frontal assaults on single family zoning occupied the opposition. A series of bills hammered away at the limits California cities could place on ADUs.

As a result, the City of Los Angeles issued 6,747 ADU permits in 2019, up from 80 in 2016.

The story of America’s housing bias is still being written. And if the 2020s really do bring a revolution in housing policy and the urban environment, I hope Paul Boudreaux writes a book about it.

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Why rents aren’t keeping up with house prices https://www.marketurbanism.com/2021/03/03/why-rents-arent-keeping-up-with-house-prices/ Wed, 03 Mar 2021 11:50:45 +0000 http://marketurbanism.com/?p=65117 Christian Hilber and Andreas Mense argue that the price to rent ratio only increases with a demand shock where supply is sufficiently constrained

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Global house prices have been out of control for quite some time. This has helped to reduce economic growth, increase unemployment and was even diagnosed as the greatest cause of inequality in the developed world in a 2016 paper by Matthew Rognlie. However, rents have failed to show the same turbulence (as shown below) – this has led some to question the common response that the crisis of house prices is caused by a supply shortage.

(Hilber & Mense 2021)

The most famous example of this argument is from Ian Mulheirn. He argues that the collapse in the mortgage interest rate since the 1990s, as well as growing demand from international investors, has made it easier to purchase property causing a rise in demand. To him, this is the biggest reason for the crisis.

However, simple price theory tells us that prices only rise when supply grows less than that rise in demand. Whilst lower interest rates have made it more affordable to buy houses, if supply were to rise simultaneously by the same amount then we should expect prices to remain stagnant. Indeed, we can observe this in history – after the Great Depression, Great Britain reduced interest rates massively. However, rather than causing a boom in prices they remained stagnant, due to an increase in housebuilding. Moreover, this is unhelpful from a policy perspective given increasing interest rates would risk higher unemployment. The argument is therefore unhelpful at best, and insufficient at worse in explaining why rents aren’t increasing as quickly as prices.

A recent paper published by the Centre for Economic Performance at the LSE has sought a better explanation. Here, Christian Hilber and Andreas Mense argue that the price to rent ratio only increases with a demand shock where supply is sufficiently constrained. Indeed, they find that in Greater London, one of the most toxic areas to house building in the world, local labour demand shocks account for 63% of the increase in the price to rent ratio. So why do supply constraints affect house prices so much more than rental prices in superstar cities?

Since rental markets depend largely on short-term demand and supply, then the elasticity of this supply curve will determine the impacts of a demand shock on prices. This means that markets will experience higher rent inflation after a demand shock where housing supply is less elastic in the short run.

What they find is that short-run supply is a lot less elastic than the long run (which is a determinant of prices). This is because demand shocks lead investors to update their expectations of risk premiums and growth rates. Given rental markets will be determined more by the short-run than house purchasing markets this will have the effect of the impacts of a demand shock being less substantial.

This can be explained through the diagram below:

The blue line represents location A and the red line location B. In location A supply (an area with less price constraints) is a lot more elastic. This is because there are less planning constraints to building more housing. The effect of this is that where housing rents increase in the short run the market can react leading to rents falling from RA1 to E(RA2).

However, in the less elastic market (representing a city with more planning constraints) supply does not react as substantially. This results in the demand shock (D1 to E(D2)) having a significant effect on prices rising from RB1 to E(RB2).

So, prices rising faster than rents, as Ian Mulheirn holds, doesn’t tell us that supply constraints are an improper diagnosis for the cause of our housing woes. Instead, it is the opposite. The main reason why this discrepancy exists is down to supply constraints.

Therefore, challenges to the conventional wisdom that higher house prices are down to supply constraints made through appeals to the price-rent ratio should be ignored. Instead, we should focus on increasing supply as a vehicle to help bring down both rental and buying costs of housing.

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The Duplex: Gateway Drug to Urban Density https://www.marketurbanism.com/2021/02/24/the-duplex-gateway-drug-to-urban-density/ Wed, 24 Feb 2021 09:44:49 +0000 http://marketurbanism.com/?p=65012 After over a century, Berkeley, California may be about to legalize missing middle housing – and it’s not alone. Bids to re-legalize gradual densification in the form of duplexes, triplexes, fourplexes, and the like have begun to pick up steam over the last several years. In 2019, Oregon legalized these housing types statewide while Minneapolis […]

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After over a century, Berkeley, California may be about to legalize missing middle housing – and it’s not alone. Bids to re-legalize gradual densification in the form of duplexes, triplexes, fourplexes, and the like have begun to pick up steam over the last several years. In 2019, Oregon legalized these housing types statewide while Minneapolis did the same at the city level. In 2020, Virginia and Maryland both tried to pass similar legislation, though they ultimately failed. This year, though, Montana and California may pick up the torch with their own state bills (even while the cities of Sacramento and South San Francisco consider liberalizing unilaterally alongside Berkeley).

Allowing gradual densification is an absolutely necessary step towards general affordability. Supply, demand, and price form an iron triangle–the more responsive we can make supply to demand, the less price will spike to make up the difference.* What I really want to focus on here, though, is less about policy and more about political economy. I believe allowing medium-intensity residential development could make additional reforms easier to achieve and change views around development going into the future.

We Love What We Know

More often than not, I think a generalized status quo bias explains a lot of NIMBYism. Homeowners are most comfortable with their neighborhoods as they are now and are accustomed to the idea that they have the right to veto any substantial changes. Legalizing forms of incrementally more intense development could re-anchor homeowners on gradual change and development as the norm.

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A duplex – the (hopefully) gateway drug to urban density

The first part of the story is about generational turnover. If the individuals buying homes today–and the cohorts that follow–are exposed to gradually densifying neighborhoods in their day-to-day, they’ll anchor on that as what’s normal and therefore acceptable. Moreover, if we’re debating whether to rezone an area for mid-rise development a generation from now, I imagine that those changes will get a much fairer hearing if for no other reason than the homeowners in prosperous communities will have spent a lifetime seeing gradual densification and population growth. 

Making Homeowners Pro-Growth

Beyond simply changing what people are used to and therefore comfortable with, I think there’s another pro-growth element here that’s about economic incentives. In a world where homeowners can add housing to their properties to make money, they’ll increasingly become focused on their right to develop their own land instead of their right to stop other people from developing theirs.

This doesn’t necessarily mean everyone is going to tear down the family home, put up a duplex, and live next door to or above some tenants. But if that type of development is legal, it’ll be priced into the market value of everyone’s property, giving homeowners additional incentive to anchor on a pro-development norm–to do otherwise would be to actively advocate for reducing one’s own property values. 

A lot of land use rules need to be changed in a lot of places across the country. As we address the technical challenges of better policy, we have to address the incentive structures and belief systems that conspired to create the world we’re dealing with now. And I’m happy to say that as we start to bring back neglected forms of residential development, I believe we’re going to get progress on all three fronts.

*See Nolan Gray’s Density is How the Working Poor Outbid the Rich for Urban Land.

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Latest rent research https://www.marketurbanism.com/2021/02/21/latest-housing-cost-research/ Sun, 21 Feb 2021 19:57:02 +0000 http://marketurbanism.com/?p=64994 A recent paper by UCLA researchers discusses 2019-20 literature on the relationship between new construction and rents. The article discusses five papers; four of them found that new housing consistently lowers rents in nearby buildings. For example, Kate Pennington wrote a paper on the relationship between new construction and housing costs in San Francisco.  What […]

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A recent paper by UCLA researchers discusses 2019-20 literature on the relationship between new construction and rents. The article discusses five papers; four of them found that new housing consistently lowers rents in nearby buildings.

For example, Kate Pennington wrote a paper on the relationship between new construction and housing costs in San Francisco.  What is unique about this paper is that while other papers focus on a broad sample of new construction, Pennington focuses on one subset of the market: “new construction caused by serious building fires.” Why?  Because most new construction is in high-demand areas.  Any study that focuses on such construction will be more likely to conclude that the new construction is related to high rents, when in fact the real cause of increased rents is increased demand for certain neighborhoods.

Pennington found that rents actually decreased within 500 meters of new buildings- by 2.3 percent, compared to similar blocks without new buildings.   Pennington also found 17.1 percent less displacement (which she defines as moves to poorer zipcodes) near the new buildings, and found that landlords were less likely to evict rent-controlled tenants.

One paper was a partial exception to the pro-supply trend of recent scholarship: a paper by Anthony Damiano and Chris Frenier found that new buildings in Minneapolis lowered rents for most nearby buildings, but increased rents for the cheapest buildings. But the UCLA researches point out that “Damiano and Frenier do not adjust the rents in their study for inflation, which is an unusual decision, and one that makes the rent increases they report look much larger than they actually were.” Adjusted for inflation, rents near new buildings declined by 7 percent overall, and increased by only 0.2 percent for the cheapest buildings.

One point that the UCLA researches do not mention: although the Damiano/Frenier paper seems to be more skeptical of the benefits of new housing supply than the other papers, even Damiano and Frenier admit that “Research shows that new housing supply at all affordability levels is an important step toward ensuring housing is affordable to urban residents.” (p. 30)

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Cyberpunk 2077’s Dystopian City Planning https://www.marketurbanism.com/2021/02/11/cyberpunk-2077s-dystopian-city-planning/ Thu, 11 Feb 2021 20:16:24 +0000 http://marketurbanism.com/?p=64752 Night City: the cyberpunk themed sandbox of William Gibson’s darkest tech-themed dreams, and despite the host of game-breaking glitches, home to all the anti-urban nightmares that the genre helped spawn. In this episode of Pop Culture Urbanism, I dig deep into the cyberpunk genre, the era that spawned and popularized it, and subsequent “unseen” opportunity […]

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Night City: the cyberpunk themed sandbox of William Gibson’s darkest tech-themed dreams, and despite the host of game-breaking glitches, home to all the anti-urban nightmares that the genre helped spawn. In this episode of Pop Culture Urbanism, I dig deep into the cyberpunk genre, the era that spawned and popularized it, and subsequent “unseen” opportunity cost of de-urbanization that continues to haunt us to this day.

Be sure to follow future episodes by subscribing to the Pacific Legal Foundation on YouTube! We have a lot of content in the hopper that you won’t want to miss.

Directed by Calvin Tran and produced by our friends at the Pacific Legal Foundation.

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How YIMBYs used Ostrom to recruit conservatives https://www.marketurbanism.com/2021/02/10/how-yimbys-used-ostrom-to-recruit-conservatives/ Wed, 10 Feb 2021 09:37:52 +0000 http://marketurbanism.com/?p=64716 A major barrier to the market urbanist’s ability to make the case for building more housing is the question of aesthetics. When you refer to density in cities, it’s easy to picture large brutalist towers and the slum-like conditions that can be seen in much of the developing world. Of course, this isn’t what we […]

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A major barrier to the market urbanist’s ability to make the case for building more housing is the question of aesthetics. When you refer to density in cities, it’s easy to picture large brutalist towers and the slum-like conditions that can be seen in much of the developing world. Of course, this isn’t what we advocate, but it is a problem we have to repeatedly address. Homeowners, whether we like it or not, are a powerful voter group and they want to live in areas that look nice. 

Fortunately, the British Government has found the golden mean of housing plans by accepting the results of the Building Better, Building Beautifully Commission.. The key takeaway of this report is street-voting. This represents an excellent middle ground between the seemingly opposite need for housing to be popular, and the need for housing to be plentiful. 

The current system used in England fails to provide a fair way of measuring public views on plans. This works by assessing the views of nearby residents through a consultation. This allows any resident to attend, or write in, laying out their views on the plan. It may sound democratic, but local consultations are notoriously unrepresentative of a community. Those who take part are overwhelmingly middle-class, property-owning white people who stand to benefit from a housing shortage. Rather than taking into account the views of the local area, this method merely measures the views of those who would be economically burdened by addressing the crisis. 

The city as a commons

What we’re left with is what social scientists would call the tragedy of the commons. This is where you have a common-pool resource where individual use of that resource depletes the stock for other parties. Cities can also be understood to be “the commons” in that they are non-excludable and are subtractable (easy to manipulate). The traditional response to this argues that the only feasible solution is government intervention to prevent overuse of the resource. 

However, Nobel Prize-winning economist Elinor Ostrom famously showed that the commons do not have to be tragic. Ostrom devised a framework of how common pool resources can be managed—one that applies perfectly to housing. The most important of these is her argument that rules and decisions must be made democratically, and that these decisions must be adaptable to local conditions. 

The Solution

So, how does one create a system of regulating house building that empowers local interests, and is readily adaptable to them? Street voting— a policy that empowers each individual street, or commons, to vote on a design code. Once this is voted upon, then any new housing proposed to be built that complies with this code is automatically permitted. 

It was this policy that became a key feature of the recommendations of the Building Better, Building Beautifully commission. Their report fulfils the “traditional urbanism” vision of Sir Roger Scruton in a way that also addresses the urgent need for more houses to be built. Indeed, the clearest examples of this vision are in the terraced townhouses of Bloomsbury and Bath: both significantly denser than modern suburbia. 

The Government response to the street voting proposal was remarkably positive. Whilst they have yet to reach a definitive answer, they have explained that they’re supportive of changing “the nature of permitted development to enable popular and replicable forms of development”. This may not be a full endorsement but this, combined with the new proposals in the Planning for the Future White Paper to allow the construction of additional stories to houses without a full planning consultation, do indicate a desire from the Government to deliver meaningful housing reform along the lines of Elinor Ostrom. 

Although the Commission was led by a social conservative in Roger Scruton, its findings represent a coalition with the growing YIMBY community in the United Kingdom. In addition to conservatives, there’s been growing support for street voting amongst market urbanists like John Myers of London YIMBY and Sam Bowman formerly of the Adam Smith Institute

There’s a perfect marriage to be had between the need to build plentifully and the public demand to build beautifully. No, it’s not the ideal plan to develop cities (if it were politically feasible, Japanese style zoning would be the way to go), but it just might be popular enough to allow for meaningful long-term improvements in the housing sector. By using the principles of Ostrom, the tragedy of the commons can be overcome. Should Robert Jenrick, the Secretary of State for Housing, back street voting then it would be a big win for the Government in addressing the dire housing crisis Britain has suffered for too long. 

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Pop Culture Urbanism: What Twin Peaks Understands About NIMBYism https://www.marketurbanism.com/2021/01/28/pop-culture-urbanism-what-twin-peaks-understands-about-nimbyism/ Thu, 28 Jan 2021 17:00:55 +0000 http://marketurbanism.com/?p=57696 Welcome to Twin Peaks: home of black coffee, cherry pie, murder, intrigue, and the endangered pine weasel. To kick off season two of Pop Culture Urbanism, I dive into David Lynch’s eccentric nightmare/daytime soap opera world to examine the age old trope of the bad guy developer and how they manipulate environmental regulation to their […]

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Welcome to Twin Peaks: home of black coffee, cherry pie, murder, intrigue, and the endangered pine weasel. To kick off season two of Pop Culture Urbanism, I dive into David Lynch’s eccentric nightmare/daytime soap opera world to examine the age old trope of the bad guy developer and how they manipulate environmental regulation to their financial advantage.

Video goes live at noon PT 1/28!

Be sure to follow future episodes by subscribing to the Pacific Legal Foundation on YouTube! We have a lot of content in the hopper that you won’t want to miss.

For the New Urbs article that inspired this video, click here.

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