The Oregonian celebrates the conversion of a dumpy 1950s ranch home into a beautiful craftsman-style home. To the owners, the home’s big advantage was that it was on a half-acre lot.
Making this out of that. Photo from the Oregonian.
The reconstructed home has twice the floor space, a river-rock fireplace, and an island kitchen with a gas stove surrounded by tile and marble. (Go to the article to see more photos.)
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Who loses? Low- to middle-income people. In a relatively unregulated city, neighborhoods cycle through changes. As wealthy people move to the urban fringes, inner-city neighborhoods and then first-ring suburbs become affordable to people with more modest incomes. Eventually, those neighborhoods might be gentrified, pushing lower-income people into some other neighborhood.
Planning-induced housing shortages short circuit this cycle. Instead of building at the urban fringes, wealthy people gentrify existing neighborhoods. This home, for example, is in a first-ring suburb. The problem is that such gentrification doesn’t leave any affordable housing available for lower-income families.
Of course, planners and planning advocates are mostly middle income and aspire to join the upper-middle class. Their tastes are not those of low-income familes, and they don’t see any reason why anyone would want to live in housing that a low-income family would find affordable. So they look away when their plans create hardships for such families.
When they think about affordable housing at all, they propose government subsidies that, at best, will assist only a tiny share of low-income families. Or they pass inclusionary zoning rules that actually make housing less affordable. But that’s what planners do: create shortages of things that people want and surpluses of things that they don’t want.
In the community I work for (as one of those evil planners), the problem has been the planners being thwarted to try and relax the regulations so there’s a range of housing types / choices, not JUST high-end single-family housing (which here is $400,000+). The existing residents know that high-end housing nearby drives their property values up, and they pressure the elected officials to support regulation (and artificial barriers) that only brings in high-end housing. I assume that this is the case in a majority of suburban communities, not only here in PA, but nationally. The problem seems to be more that the elected officials listen to their next vote from people scared to live near anything than high-end housing instead of what would seem to be better for a larger portion of the population (more affordable housing choices).
By the way, Randal, thanks for the blog (and the opportunity to comment). Although you may be against my profession, and I may not agree with the majority of your viewpoints, I think it’s beneficial to us planners to hear your gripes and reasoning for. I can guarantee at least some of the people in the communities we work for feel the same way, so it’s beneficial to us to try to understand your viewpoint.. My main complaint would be looking for alternatives – if planning has screwed up so royally, what’s the alternative? We all know there’s no free market. How do we handle development if we don’t do planning?
It seems to me that a good portion of the development community is only there to get their profit and get out – long term effects to transportation, safety, etc. be damned. How do we control that?
The biggest problem with your desire for new “low-end” housing is that you will try to subsidize it or mandate it or encourage it but new housing is almost always more expensive than old housing. If you must subsidize or encourage housing at all it would be best for all it you encouraged high-end housing. The well off would then move into the abundant new housing leaving the housing they were in for the middle who would leave the housing they were in for the lower end making it more affordable.
Oh and for the “We all know there’s no free market” comment…
There certainly should be a free market, please just get out of the way and let it work. The market almost always allocates scarce resources better than any alternative. The freeer the market the better for all.
As far as “how do we handle development”…why do you need to “handle” it? When govenment is forced to provide a collective good or service (which is rare), just try to price it as correctly as possible. “Free” roads or schools do little to help communicate to free markets.
Come on, this is not really that complex. The question should be: why is it that so many people, especially journalists, beaurocrats and politicians, continue to distrust market based solutions that work while, at the same time, they pursue and embrace interventionist systems and policies that continually fail?
The response to johng’s first paragraph is found in reality. Reality described in Dash’s first paragraph. Reality on the ground. Building more big houses on big lots won’t provision housing for the less affluent.
Who in their right mind would lose money on an investment (what johng describes as a wish for a solution)? Oh, I know: supply and demand is the answer. Well, S&D is not the only thing driving high land rents, as the subtext in the Oregonian says. Gentrification happens in desirable neighborhoods – neighborhoods that can supply amenities people want. Different people. Different demographics – schools for younger folks here, nice restaurants and small yards for the empty-nesters there, mild climates and knowledge jobs over there. It depends. One size does not fit all. But you don’t see gentrification in Elko, NV or West BFE NE, because there’s no there there.
Until some folk learn their micro and apply it to their solutions, their solutions will be nonstarters to the vast majority, as the vast majority acts just like Dash described, not like the wishes johng describes. Pop-tops happen in gentrifying neighborhoods, not in the exurbs. And that’s for a reason.
DS
Dan, you’ve got to start speaking English or I can’t discuss this stuff with you. I don’t really have a clue to understand what you just wrote.
“won’t provision housing”???
Building more big houses on big lots won’t provision housing for the less affluent.
Making more McMansions so the middle class moves out of their current house and the lower class moves into the middle classes’ old house doesn’t work that way on the ground. The moving homeowner won’t accept their investment losing money. Microecon explains how housing gets provis…er…built and why land rents increase, and it’s more than supply and demand.
DS
The assumption behind the filtering model (upper class buys new homes,
middle class moves into old upper class homes, lower class moves into
old middle class home, and the used lower class homes are retired) is
that households have a specific quality level range they look for in a
home and do not change from that range. It also assumes that the
people who are in the lower, middle and upper classes do not move from
their class–in practice, that is easily disputed. Households move up
the income ladder constantly if they have the desire and dedication to
do so.
So producing more McMansions or downtown condo hi-rises will move the middle class out of their
homes if that is at the quality level that the upper classes want, therefore vacating their homes for the new homes, and the middle class buying their used homes. The process
then filters down to the lower class as well.
It is true that the moving homeowner will not accept their investment
losing money. You cannot compare this to the filtering model because
one of the key assumptions of that model is that people do not change
income groups. When a household’s income increases they either remain
in the same house or move to new home of greater quality to meet their
new income level coupled with their elasticity for demand of housing.
However, the household will not move if the new utility level is not
high enough to offset the costs of moving. If the utility level is
higher then they will move. A household looking to maximize utility
will never accept an investment that loses money; therefore, a
household will only move when it is beneficial to their utility.
On a certain level, this is simply supply and demand. The tricky
element is the meddling of government in the models. I would suggest
that perhaps the reason the lower class doesn’t purchase the used
middle class home is because they have no incentive to do so. Why
leave Section 8 housing to pay a full rent/mortgage payment? It is
the supply and demand that are adjusted in the housing market by
government subsidies and interventions.
Dan argues that supply & demand aren’t the only thing driving land prices, as if gentrification isn’t a pure example of demand in action. I find this amusing.
As to high end housing, never count out lust for power on the part of politicians. High end housing pays higher taxes, and brings owners who pay more of the non-property taxes. Higher tax revenue brings bigger budgets for the politcos to spend in the various wasteful ways they spend. Note also that a politician who supports land use policies like urban growth boundaries that make housing unaffordable can spend that extra tax revenue on “affordable housing”. Such subsidies will never solve the problem, of course, because they don’t eliminate the underlying cause, but they aren’t intended to. They’re intended to increase the power and prestige of the bureaucrats administering the program.
It’s the same phenomenon that renders government “anti-poverty” programs ineffective: if it were effective the bureaucrats would be out of a job. Charities suffer similiar problems when their employees become “professional” and come to regard the charity as a source of cash and prestige rather than a means of doing good.
On a certain level, this is simply supply and demand. The tricky element is the meddling of government in the models. I would suggest that perhaps the reason the lower class doesn’t purchase the used middle class home is because they have no incentive to do so.
Models are an attempt at representing reality. Government doesn’t meddle in the models per se.
Nonetheless, the vacancy supply chain argument you copied is only one way of looking at the macro supply-demand (S&D). When you look at urban land issues, as I’ve said here numerous times, macro S&D doesn’t adequately represent the numerous factors that go on in urban real estate markets (I won’t repeat them here, so as to not look like a broken record).
An interesting model to look at is UrbanSim (by an old professor of mine), which uses the vacancy chain dsscription to try and understand why certain links of the chain continue to have vacancies; micro & urban econ is necessary to explain the vacancies.
Another interesting UrbanSim lab finding is that not all socioeconomic groups fall neatly into assumptions necessary to make the vacancy chain (“filtering model”) work; in Seattle, certain groups prefer to remain proximate to one another and do not migrate as other socioeconomic groups do – that is: nonmarket values drive location choice.
DS
Dan, you make a very good argument. Models have to make assumptions, and there will always be a group of people that do not fall into those assumptions. Your last paragraph insues that for some people it is the “nonmarket values [that] drive location choice.” I am one of those people, so I agree.
However, to make these models work (and any models for that matter) one does need to make assumptions and sweeping generalizations of society and specific groups of people.
So, naturally I am curious as to how your area of expertise (and all government) gets around the need to make certain assumptions when you use models to determine projected population growths, the increase in transit usage per mile of extension, etc.? Do you use models that do not make any assumptions?
Thank you p.
No model is 100%. Then again, no one waits for 100% certainty to act.
The shorthand for planning is ‘plan, check, do, revise’ when doing such things; that is: plans are not written in stone. Some things are changeable, but the basic urban fabric we should assume lasts 50 years. So,
The meeting I attended this evening, for instance, had the chair of the particular commission asking staff to ensure that the assumptions made in the last ____ plan update were still valid, and if not, why before completing this new plan. Then the commission would decide to direct staff to see if it was a tweak or a re-do before final draft to the public. I wasn’t staffing, but I was there to ensure my draft plan was concurrent with the draft ____ master plan the commission was meeting about.
But specifically to the two points, what level of good enough is good enough for the organization? It varies and there is no one answer. My town manager says we have to be the best, so we do our pop growth numbers (we have a capacity build-out due to resource constraints – all places do but don’t admit it or don’t know it yet) as to when we reach that magic number, which drives capital improvement projects’ investment and maturity.
In my particular (fixed dimension of x sq. mi.) planning area, I could reach my capacity level of xx,000 people in x years or y years, depending upon the major unknown as to when the major landowner is sick of holding on to the land. But my number is fixed by topography constraints, natural resource protection and my fixed dimension. I just don’t know when exactly capacity will be reached, as land rents don’t rise at the same rate and landowners may or may not know what their sale level is.
As for transit capacity increases, the clue here is at what level does elasticity change and transit become affordable vs extra time spent on transit (and is this nondiscretionary or discretionary trips we’re talking about – big difference). What is important is the number ($/gal) where ROI numbers cross? And what about when parking no longer is free because CBD employers will stop losing money on parking? That is why plans have a flexibility and iterative component built in.
Lastly, every model on the planet uses assumptions. The key is to look at your rs or Ts (or your preferred validation – science guys say ‘r’ where the social, stat and econ people say ‘R’) to give you an idea of the chance of that model being correct.
Jim Beam makes me kinda yappy. I’ll end this here.
DS