Showing posts with label gentrification. Show all posts
Showing posts with label gentrification. Show all posts

Friday, February 15, 2019

Solutions to Gentrification

To follow up on previous posts about gentrification and rising housing costs (here and here), I've laid out some policy recommendations, most of which have already been articulated by the Obama Admin and the Urban Land Institute.

Much of the narrative around gentrification has been shrouded in confusion. The left-wing activists who have taken up this cause frame the problem in terms of race and class warfare, which might be emotionally appealing but is factually wrong. Rent hikes are not caused by malicious landlords intent on taking every last penny from their working class tenets, or white hipsters and yuppies conspiring to remove minorities from an area, but bad land use policies that drive up rents by restricting the supply of housing; landlords and yuppies, like other suspected bad faith actors, are simply following the incentives created by governing agencies.The negative affects of gentrification (i.e. pricing out low income often minority tenets) cannot be alleviated without eliminating the main contributing factor to astronomical rent hikes: artificial limits on the supply of housing. As I explained in the previous post, the main problem is local zoning and building code restrictions that prevent developers from creating enough housing to accommodate growing populations. One very straight forward solution is to allow more by-right development, especially for rent controlled and low income housing, and waive impact fees (Jakabovic, Ross, Simpson, & Spotts, 2014). This would not only expedite the construction approval process, eliminating the time needed to apply for multiple variances and entitlements, but also reduce the cost of starting projects (Jakabovic et al., 2014). Reducing or eliminating parking space minimums, restrictions on unit size and density requirements will allow developers to build accommodations for more residents (Jakabovic et al., 2014). Inclusive zoning that allows alternatives to single family housing, such as group homes, multi-family complexes, Accessory Dwelling Units, and mirco-units will not only provide more options but also make metro areas more affordable for more people. Additionally, allowing non-profit charities to build tiny houses for the homeless, which could be done as low income housing, would both reduce homelessness and alleviate the burden on city shelters saving local taxpayers money and providing the underclass with an independent living space and an opportunity to get back on their feet. Waiving impact fees would be a necessary first step to allow these types of projects. As the Urban Land Institute noted in their 2014 report on affordable housing, impact fees tend to impose higher costs on smaller projects when they fail to account for factors such as unit type and size. Offering property tax exemptions for affordable and low income housing production would also make it more readily available.

Streamlining permitting and monitoring processes and coordinating housing regulations across multiple jurisdictions would make new rental units, both market rate and rent controlled, more affordable, on the supply side. Urban regions often have multiple jurisdictions with different building and zoning codes (Jakabovic et al., 2014). Having to comply with multiple and sometimes contradictory sets of procedures and regulations burdens developers working in multiple jurisdictions; coordinating zoning and building codes or having a unified code for all land and housing regulations would reduce compliance costs (Jakabovic et al., 2014). Eliminating duplicative paperwork for the underwriting, due diligence, and monitoring processes for each lender and regulatory body would also reduce compliance costs (Jakabovic et al., 2014). Additionally, jurisdictions should provide developers with a clear permitting time frame to reduce delays in construction and holding costs (Jakabovic et al., 2014). Of course, housing markets are not monolithic so cities and states will have to tailor any land reforms to the needs of their residents.

Instead of trying to find a convenient scapegoat to blame for these problems, we could work together to find solutions without the unproductive protests and grievances. Unfortunately that would also require us to change the current narrative about gentrification which many people are politically and emotionally invested in.

References

Jakabovics, A., Ross, L. M., Simpson, M., & Spotts, M. (2014). Bending the cost curve: Solutions to expand the supply of affordable rentals.

Friday, February 1, 2019

Gentrification is A Land Use Problem

A growing concern on the left and especially among minority groups is demographic displacement, in certain cities and neighborhoods, caused by rising house costs associated with the influx of middle and upper-class, mostly white, young professionals. Due to economic illiteracy, the white yuppies and hipsters are blamed for rent hikes that make living in an area unaffordable for mainly poor minority tenants when, in fact, there is a third variable called land use policy (e.g. zoning ordinances, urban planning, property taxes) that has a much bigger impact on their rent. However, the left tends to frame this as a racial/cultural issue, which makes it simpler to talk about, but steers the conversation clear of any plausible solutions. Take for instance this gem that was featured on a liberal HBO show.

It’s basically when, for me, it’s a lot of white people come move into the hood and kick everybody out that’s there. I’ve been a witness of it since I was a small jitterbug so I mean now that I’m grown up and I’m seeing it, I understand it a little more,” he said during the interview with Maher, according to the news outlet.

Or how about these bozos, who protested an Austin, TX restaurant for moving into a building that was formerly occupied by a Mexican-American owned tire shop and using Spanish words to advertise their merchandise.

Activists with Defend our Hoodz — Defiende el Barrio on Friday announced via Facebook of their plans to protest outside Lou's Bodega on 1900 E. Cesar Chavez St. Since its recent opening by a pair of high-profile developers, the development has been widely lambasted by East Austin residents already anxiety-raddled over the brisk pace of gentrification that's resulted in soaring property values and residents' displacement.

The growth of commerce and population density will always raise land values; in this sense, gentrification is inevitable wherever new development occurs on relatively cheap land. Like any other market, higher demand raises the cost of housing, but since real property is fixed in supply to certain locations, unlike cars or smartphones, the market can only reach an equilibrium by lowering demand, which in the current case means raising rents. But the housing market does not have to be a sum-zero game. Removing artificial restrictions on the supply of housing can make it more affordable for low income minority renters. Zoning ordinances, such as those which restrict new development to single family housing, excluding group homes and multifamily complexes, require a minimum number of off street parking spaces, reducing space for potential residential units, restrict residential conversion, prohibiting the conversion of former office space into residential property, combined with lengthy permitting processes for new construction artificially inflate property values and rents in dense urban areas. Ordinances that dictate the minimum size of units, such as those in Oakland also drive up the cost of housing. In a white paper on housing development, the Obama admin noted that gentrification and other problems associated with surging housing costs are, for the most part, caused by local land use restrictions.

When new housing development is limited region-wide, and particularly precluded in neighborhoods with political capital to implement even stricter local barriers, the new housing that does get built tends to be disproportionally concentrated in low-income communities of color, causing displacement and concerns of gentrification in those neighborhoods. Rising rents region-wide can exacerbate that displacement.

The Obama Admin's Housing Development Toolkit drew from previous research on housing development, land use restrictions, and the widening gap between construction costs and new home prices. Previous research has concluded that for most U.S. regions, the price of new homes is only marginally greater than the construction costs. The exceptions are major cities, particularly in coastal regions, such as Los Angeles San Francisco, New York and Boston.

Researchers have also documented a sharp increase in the gap between home prices and construction costs, with stringent housing regulations now driving cost increases previously shaped by construction costs and quality improvements. Localized studies have supported these national conclusions – documenting sharp increases in zoning and other land use restrictions in metropolitan Boston, New York City, Los Angeles, and San Francisco.

The effect that increased zoning restrictions place on housing costs is best illustrated by these examples. For instance, in 1960 Los Angeles was zoned to accommodate 10 million residents when it only had a population of 2.5 million people. Today, the city is only zoned to only accommodate 4.3 million people with a much larger population of about 4 million people. Of course, the same problem has transpired accross the California coast.

Emerging research has shown that in areas with high-cost housing such as California, zoning and other land-use controls contribute significantly to recent sharp cost increases, reflecting the increasing difficulty of obtaining regulatory approval for building new homes.

Most importantly, cities and states experiencing 'gentrification' should, along with reducing zoning restrictions, shift property taxes from building values onto location values. This would further incent new construction and improvements to existing residential properties, while simultaneously discouraging real-estate speculation and recapturing the value that new amenities and businesses add to rental and selling prices. This would ultimately generate more tax revenue that could be wisely spent improving public transit, reducing traffic congestion and the demand for more parking spaces, which is a win/win for the environment.

The left can either choose to whine about gentrification and stay in a state of perpetual victim-hood or take meaningful action by reforming their obtuse zoning regulations and property taxes instead of protesting people for following the incentives their own governments create or asking for more rent control and subsidized housing, which only creates a housing shortage by forcing prospective tenants into a queque for affordable units. Gentrification could, and should, become a bipartisan issue, but the left would have to abandon their race baiting tactics and stick to hard economic analysis for that to occur.

Tuesday, February 14, 2017

Political Superstitions (part 4): Gentrification and Identity Politics

This is a somewhat obscure topic that is of exclusive concern to the left, since the right dismisses it entirely, that despite being controversial is shrouded in superstition. Merriam Webster defines gentrification as the process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces poorer residents. It is most often viewed through the lens of identity politics as wealthy young whites displacing minorities from traditionally minority neighborhoods because they can no longer afford the rent. The solutions prescribed range from rent control to subsidized housing all of which merely address the symptoms.

The difficulty arises when rent is spoken of as a single unit instead of a composite. Rent in its common usage refers to both interest payments for the use of a building and rent for the use of a specific site or location. The latter is economic rent. Property values are a combination of the value of the building or any improvements to the land (e.g. drainage, pavement, water supply) and the rental value of the land that arises from demand for a fixed supply of it (e.g. amenities and proximity to business district). The law of rent stipulates that increases in population density, growth in commerce, improvements in education, improvements in infrastructure and basic government services like policing all add to the rental value of land and drive up the cost of living, especially housing. The unintended consequence of urban renewal is that wages are consumed by incrementally growing rent, as their purchasing power decreases in proportion to rent. A lower margin of production, the floor of wages, would inevitably hit the lowest income earners the hardest.

A single tax on land rent would raise the the margin of production, providing higher wages, and recapture the value added by public services and private businesses for public expenditure. Unlike property taxes and sales taxes, a land value tax would not be passed onto tenants and consumers because they are not paying for a good or service, but a government granted monopoly that is fixed in supply. This concept is not new. Cities that charge parking rates on busy streets already levy a form of land value tax. Similarly, states that require hunting and fishing licenses are levying a form of land value tax and countries such as Australia, New Zealand, Estonia, Canada, and Norway already have them at either the local or national level, though none recapture all rents.

Side Note: To ensure each person’s natural right to use the earth, a citizen’s dividend could be funded from the surplus revenue providing low income tenants with a non-paternalistic dole instead making them dependent on a plethora of social services.