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Thursday, April 19, 2018

Is the Left’s Skepticism about Zoning’s Increasing Rents like the Right’s Skepticism about Global Warming?

SB 827, the California bill that would have preempted many local zoning restrictions near public transit, has just gone down to defeat. Part of that defeat was the result of opposition from advocates of affordable housing, many of whom remain skeptical that zoning’s limits on market-rate housing reduce the supply of affordable housing. These advocates reason that market-rate housing in high-demand cities does not benefit poorer households, because poorer households cannot afford it. Sometimes such advocates go further to argue that increasing the supply of new market-rate housing actually leads to gentrification, because such housing attracts wealthier residents who bid up rents. To paraphrase Field of Dreams, if you do not build it (i.e., new market-rate housing), they (i.e., wealthy households) will not come.

Is this anti-market theory of gentrification an accurate picture of reality? The debate, nicely captured by this article posted on YIMBYwiki, has recently become a fierce scrum of claim and counter-claim. On one hand, attributing rent increases to new market-rate housing might be like attributing rainstorms to umbrellas: On this view, high demand driven by jobs causes rents to increase, and new construction just follows along, mitigating rather than exacerbating rent increases. If new market-rate housing is not built, then more rich people will just place higher bids on existing units, accelerating gentrification. (The process by which new housing affects rents on existing housing is known as “filtering”: Vox has a typically wonky but clear explanation). On the other hand, if people like living next door to rich people, then market-rate housing could conceivably raise rents on nearby lots through a so-called “amenity effect.” And maybe demand for housing is highly segregated into different, non-competing markets such that rich people only bid on new units and will not bid up the prices on existing units when new market-rate housing is constrained by zoning.

As a guide for the perplexed amidst this cacaphony, I recommend a recent literature review by my colleagues, Vicki Been and Ingrid Ellen, which suggests that (1) increasing zoning restrictiveness seems to lead to higher rents (see pages 7-8 of their paper) and (2) existing housing tends to “filter” upwards if new construction is restricted by zoning, because rich buyers tend to shop among both new and existing units, bidding on formerly cheap bungalows and brownstones when Zoning eliminates new luxury units. The best view of the facts, in sum, seem to suggest that Left advocates of affordable housing should be enthusiastic about reducing zoning restrictions as part of the solution to our housing crisis.

Yet I am pessimistic about many activists’ being persuaded by the evidence. After the jump, some dour speculation that Left activists’ beliefs about housing markets might be similar to conservatives’ beliefs about climate change, resistant to data because of prior ideological commitments and the imperatives of recruiting political allies.


1. Does evidence affect affordable housing activists’ anti-market inclinations?

First, consider the evidence that housing activists are so ideologically hostile to market mechanisms that they will irrationally discount evidence suggesting a need for deregulation. Vicki and Ingrid summarize evidence that has been around for a long time. The California State Legislature’s Legislative Analyst’s Office produced a report two years ago finding that “construction of market–rate housing reduces housing costs for low–income households and, consequently, helps to mitigate displacement in many cases.” Even a study that favors housing subsidies over market-rate construction as a solution to California’s affordable housing crisis concedes that market-rate housing helps rather than hurts poorer households.

Yet housing activists’ response to this accumulating evidence is so insensately hostile that something other than rational assessment of facts must be at work. The Council of Community Housing Organizations, which styles itself the “voice of San Francisco’s affordable housing movement” has, for instance, produced a misleading and misnamed “infographic” claiming that “filtering is a fallacy” because rents continue to rise even when more market-rate units are built. The assertion is a stunning non sequitur: Of course, rents rise when demand outstrips supply, but it hardly follows that restrictions on supply do not matter: To the contrary, the evidence shows that rents rise even faster when market-rate housing is not built. Some of the activist rhetoric is comically inflammatory and confused. One Los Angeles housing activist denounced SB 827, a bill that would increase heights of buildings in areas with lots of transit, describing the bill as “a declaration of war on South LA” and stating that its sponsor “is to gentrifiers what Donald Trump is to racists.” (Given L.A.’s zoning rules’ origins in racist desires for segregation and housing exclusivity, that comparison was rich with irony). Housing activists in Los Angeles initially objected to SB 827’s giving away rights to develop market-rate housing without requiring inclusion of affordable units. When the bill was amended to allow local governments to impose their own inclusionary requirements, however, the same activists maintained their same opposition, complaining that the bill did not do enough to prevent displacement while increasing “speculation” and “diminish[ing] democratic process.” This argument for opposing SB 827 seems threadbare: Yes, of course, increasing heights near light rail and bus lines will not solve all of California’s housing woes, but maintaining single-family zoning in such areas will surely exacerbate them. L.A. currently keeps close to 90% of West Los Angeles in single-family zones, even though the area is close to mass transit. What possible sense does such a policy make, if one’s goal is promoting affordable housing?

2. How do ideological commitments and political economy influence activist rhetoric?

The opposition of housing activists to SB 827, in sum, is so detached from empirical reality that it seems explicable only as an ideological obsession, a strategy of political organization, or little of both.

Consider, first, the role of ideological obsession. Deregulation of housing supply to help solve California’s housing crisis relies on market mechanisms towards which Left activists feel instinctive suspicion. The “filtering” mechanism essentially meets housing needs through hand-me-down housing. As new market-rate housing is snapped up by wealthier households, the aging existing units become less attractive, and their owners reduce their units’ price to attract renters or buyers, thereby “filtering” the units downwards to poorer households. Such a mechanism, however, immediately invites activists schooled in attacking Republican macroeconomics from Reagan to Bush to denounce filtering as “trickle-down economics.” (Get it? The houses “trickle down”!). Never mind that filtering — i.e., using existing structures to meet current housing demand — has nothing whatsoever to do with cutting income tax rates to stimulate investment. The rhetorical resemblance trumps any rational economic analysis. That market-rate housing is produced by private developers who stand to make a profit only makes the rhetoric more appealing.

Against the rhetoric, of course, stands the plain, boring, perhaps unpalatable reality that huge amounts of affordable housing are supplied by an aging housing stock. Weicher, Eggers, and Moumen, for instance, found that 45 percent of the rental units that were affordable to very low-income renters in the U.S. in 2013 had filtered down from owner-occupied or higher rent categories in 1985. If one cuts off the new market-rate housing with stringent zoning regulation, wealthy households will bid on those existing units that might otherwise descend to lower-income households. Little carriage houses, bungalows, and brownstones once deemed to be working-class housing can filter upwards to become luxury units in Brooklyn Heights or the West Village.

Second, consider the role of political strategy in inducing housing activists to fight to preserve zoning restrictions that injure low-income households. Activists need votes on local legislators. But local legislators tend to favor NIMBY neighborhood groups whose members turn out with reliable ferocity when their down payment is threatened by the construction of new buildings. Opposing zoning restrictions is a great way, therefore, to lose support on City Council. Rather than challenge Goliath to a duel, therefore, affordable housing advocates find it more comfortable to pretend that Goliath is their pal, fighting for the same cause.

Bob Ellickson long ago noted the irony of inclusionary housing requirements that could be used to exclude affordable housing by making market-rate housing impossible. By now, this irony has been amply confirmed: Even the New Jersey Supreme Court, once a big fan of inclusionary zoning, has warned that excessive inclusionary percentages can be, in fact, exclusionary. But housing activists calling for 50% set asides can conveniently ignore this inconvenient reality, comforted by the apparent generosity of a handful of “trophy units” while ignoring the affordable housing lost as a result of the elimination of new market-rate housing.

I encountered the political economy of local leftism in Ann Arbor, when I first began teaching land-use regulation back in the 1990s. The head of the local chapter of the Sierra Club consistently opposed every proposal for new apartments, even though such proposals seem consistent with the national Sierra Club’s support for urban density. It became plain to me that he was being driven by his foot soldiers — the rank-and-file members who counted on their local Sierra Club chapter to fight the good fight against unsightly new multi-family housing. Of course, those homeowners were almost unanimously college-town liberal Democrats. But the economics of housing are complex enough for them to convince themselves that opposing market-rate housing would not injure the poor. After all, poor people could not afford to live in most of the units for which building permits were sought. It was easy to ignore the possibility that, by eliminating new housing, the city council was insuring that richer people would bid up the price of existing units where poor people did live.

3. How anti-market Left rhetoric resembles anti-climate change Right rhetoric

One’s ideological priors and the requirements of political organization, in sum, can be powerful incentives to ignore economic reality. In this respect, hostility to market-based housing solutions bears a resemblance to conservative rejection of evidence on climate change. In both cases, the evidence suggests that social practices very popular with particular constituencies have high social costs that the practitioners would prefer to ignore. Driving an SUV from a exurb to a distant office or mall will likely cause temperatures to rise faster. Campaigning to keep vast swathes of a high-demand city in single-family zones will likely cause rents to rise faster. There are big psychological incentives, therefore, to ignore the evidence. Filtering must be a “fallacy,” and global warming a “hoax.” The ideological plausibility of these stances is enhanced by one’s ideological dislike of the mechanism and messenger. Lefties living in Brooklyn brownstones or San Francisco painted ladies can denounce those greedy developers and their “trickle-down economics,” all the while enjoying massive appreciation in their real estate investments that plainly show upward filtering of housing stock. Republicans — at least those living far from the coast — can safely mock the hockey stick as a figment of dorky and likely liberal professors while enjoying massive appreciation in their oil stocks.

In the end, the feedback mechanism between data and policy becomes so attenuated, Florida sinks into the sea, and San Francisco sinks into a housing crisis. That is a disheartening way to end an overly long post, but here is one perhaps useful take-away: No side, Left or Right, has a monopoly on the capacity to ignore evidence staring them balefully in the face when the data are inconsistent with their ideology and pocketbooks.

Posted by Rick Hills on April 19, 2018 at 04:32 AM | Permalink

Comments

Dan Immergluck doubts that zoning's effect on housing prices is as plain as carbon's effect on the environment. He thinks, therefore, that my analogy between skepticism about global warming and skepticism about zoning's effects on rents is misplaced. His evidence is that new market-rate housing can have local amenity effects that cause rents in the immediate neighborhood to increase.

As I noted both in the original post and in the comments, there is uncertainty about whether a high-end building in a particular neighborhood will cause rents on nearby buildings. One can call this an "amenity effect": If a neighborhood becomes more desirable because rich people move into it and if more rich people move into a neighborhood with new market-rate housing, then that new housing have the local effect of increasing local rents. On this analysis, the tenants' opposition to high-end housing in their neighborhood is individually rational but collectively detrimental. From such a tenants' point of view, new luxury housing ought to be built somewhere in the city to relieve price pressure eon existing housing -- just not in their immediate neighborhood. Michael Hankinson has a nice article describing how the renters' opposition to rental housing is a species of NIMBYism that exacerbates the housing crisis in those cities. See https://mhankinson.com/assets/jmpWeb.pdf

Dan, it strikes me that, far from making the "climate change analogy" inapplicable, the politics of local "amenity effects" makes the analogy even more germane. The reason is that climate change also has geographically heterogeneous costs. People who live near the costs or in warmer climates will suffer the most from climate change. People who live in cooler climates with less coastal exposure will suffer less. One could imagine, therefore, that an exurbanite with a new SUV living in, say, Idaho would resist a gas tax because the local effects would be quite costly for him even though such a tax would be beneficial for the nation as a whole. Like the tenant resisting a luxury condo, such a person will fight tooth and nail to save themselves from a local cost (the gas tax, the amenity effect) even though their victory will impose a greater regional, national, or global cost (global warming, rising rents).

And here's where the tenants' organizations have a job to do from which they are, I think, shirking: They need to face up to the certainty that there is this wider cost from resisting market-rate housing. It is one thing to acknowledge that new housing must be built but bargain to get compensation for the losers (say, some affordable housing in the new building for local residents who might suffer from an amenity effect). It is another thing altogether to pretend that excluding that luxury condo will not harm the city's supply of affordable housing.

I am afraid that too many community organizations are taking that latter approach: they pretend that they can eliminate all new market-rate housing without affecting the current stock of affordable housing. That is unambiguously nonsensical. It is also either unprincipled demagoguery or colossal economic ignorance. Either way, it bears a strong resemblance to climate change politics of global warming deniers.

Posted by: Rick Hills | Apr 23, 2018 7:10:18 AM

Even if new housing is a Pareto improvement, that's hardly a reasonable measure of good public policy. Almost nothing is a Pareto improvement. The housing activists may be (maybe!) working to protect specific "vulnerable folks" but at the direct expense of a much larger group of "vulnerable folks".

This kind of special pleading might be one thing for hyper-local neighborhood activists who at least don't hide their naked partiality, but it is inexcusable in an organization like the Sierra Club. Like the transformation in the ACLU the Sierra Club has been transformed to reflect the preferences of its staff and leadership even when those preferences directly contradicts the chartered and long standing mission. That amounts to a kind of theft.

Posted by: brad | Apr 22, 2018 5:37:34 PM

I am sorry, but, it is not helpful to equate skeptics of localized supply side effects (or, more precisely, supply side effects overwhelming amenity effects) to climate skeptics. The Been and Ellen review specifically says this:

"In short, while it is clear that the construction of new homes will moderate price and rent increases citywide, neither theory nor empirical evidence provides clear guidance about when localized spillover effects might occur and when they might actually cause an increase in the prices and rents of immediately surrounding homes."

In short, there is effectively no strong empirical literature that neighborhood or sub-neighborhood increases in new supply result in a NET lower rents, which is the key question. The California LAO work (which is quite weak methodologically utilizing cross-sectional census tract data) looks at an estimate of displacement (which is not well measured by census data, and not on rental increases. (Rents could well increase without direct displacement.)

Anyway, my main point is that the equating of housing activists - who are working to protect vulnerable folks - with climate change deniers is both NOT evidenced by strong empirical evidence on whether supply or amenity effects dominate effects on rents, and is really out of bounds, IMO.

Posted by: Dan Immergluck | Apr 22, 2018 1:45:24 PM

@Paul Horwitz

Another example, though I think the ACLU one is apt, is the anti-smoking movement and its response to vaping.

Posted by: Brad | Apr 21, 2018 6:59:01 AM

compare denying of mass extinction and potential human catastrophe to zoning? yeesh

Posted by: anon | Apr 20, 2018 9:06:29 PM

Isn't the more obvious comparison with the think-tank effort on the right (Heritage, Cato, etc.) to villainize "land use regulation" as a concept in its entirety? Both rhetorics are overblown and unhelpful to resolving the issues at hand.

Posted by: Stephen R. Miller | Apr 20, 2018 9:02:38 PM

Nice piece. I think it would be strengthened by choosing a less charged analogy than climate change denial. The work of Dan Kahan at Yale on "cultural cognition" demonstrates how all of us (not just those we disagree with) rely on group affiliations to choose which policies to support. Casting our opponents as irrational is unfair because you and I are irrational as well. Worse, it's unhelpful. The helpful path forward is the slow, tedious work of assembling group affiliations that support good policy, by embracing rather than decrying the politics in politics.

Posted by: Sam Penrose | Apr 20, 2018 10:41:36 AM

Thanks, Joey, for the thoughtful comment. You write that “the science is absolutely clear” on climate change. Just to provide a bit of pushback, I guess the accuracy of your statement depends on what you mean by “the science.” Comparing apples to apples, I would say that “the science” on filtering in housing markets and climate change is (are?) both equally clear in general and reasonably controverted in the details.

Of course, in the main, the conclusion is warming and that human production of carbon is responsible is absolutely clear. But so too is the general conclusion that restrictions on housing supply increase housing cost.

Descend to the details, and — here’s the provocative part, I guess — there is plenty of room for reasonable debate on climate change. There is doubt on the precise rate of climate change. There is doubt about the best policy responses: How should we divide costs? Is it possible to harden coastal cities? Is sequestering carbon cost-justified? And the same goes for new housing’s effects on rents. There is, for instance, likely some sort of “amenity effect” from new housing such that local renters might reasonably fear displacement from that incoming luxury condo immediately next door. (On this point, see Michael Hankinson’s article at https://www.cambridge.org/core/journals/american-political-science-review/article/when-do-renters-behave-like-homeowners-high-rent-price-anxiety-and-nimbyism/72B5F7B4CFEC099E9EC4A7A1EAD8611D. ).

Moreover, if we move from scientific certainty to moral culpability, I would suggest that liberal urban residents who deny the exclusionary effects of their preferred zoning on affordable housing are actually more culpable than the exurban conservative who drives an SUV on a long commute and denies the effects of carbon emissions on the environment. After all, the former directly benefits from rising rents: In many ways, the owners of coastal high-demand real estate are the new plutocracy. (This is the upshot of Matt Rognlie’s work btw: https://www.economist.com/blogs/freeexchange/2014/06/thomas-pikettys-capital ). Those brownstoners are profiting from their willful blindness. But the conservative who warms up the climate does not directly benefit from rising temperatures and might indeed be submerging in Texas or Florida him- or herself.

Posted by: Rick Hills | Apr 19, 2018 6:25:34 PM

The post is thoughtful and provocative. But I do think one important difference between the 'new exclusionary zoning' and global warming is that with global warming, the science is absolutely clear. With zoning restrictions, the evidence is pretty strong, but the social science is inherently muddier, and the phenomenon itself considerably more variable from place to place.

To lay my cards on the table: I spend a lot of time in my neighborhood in fast-gentrifying Austin arguing with neighbors about these matters (and this being Austin, the entire argument takes place between two factions of the left, cf. Ken Stahl's comment above). In these debates, I am on the YIMBY side; I've pressed for multi-family development in my mostly-single-family neighborhood, and generally for greater density across the city any way we can get it, whether luxury units or anything else, in the hope that it will all filter through the housing market and ultimately slow the pace of housing cost increases. (Housing prices are currently skyrocketing here amid rapid growth.) In general, I see building more units as a way to mitigate this problem; some of my neighbors view the creation of luxury units as something that mostly exacerbates the problem. We're all on the left and all share a goal of slowing the growth of housing costs.

I'm confident enough of my convictions and the empirics -- thanks Vicki Been, Ingrid Gould Ellen, and others -- to advocate for my positions. But in no way is this like global warming. For instance, many of the people I'm arguing with make the argument that turning Austin into a city with much more luxury housing increases the city's attractiveness to absentee non-resident buyers looking for pied-a-terres who would not have even considered buying in Austin before the recent luxury development boom. And while I would not much credit this argument in NYC, in Austin it seems likely to be somewhat true; the question is the magnitude of the effect. (We don't have the Russian oligarch buyers of London and NYC, but we do have wealthy absentee buyers of multimillion dollar units from Latin America and elsewhere, in a way we did not have 20 years ago). The rise in luxury development in Austin has been linked with a transformation of the city into more of a global destination (we now have a Formula One race, for instance, along with way more fancy restaurants, etc.) At some point, in this conversation, we are not just talking about housing market effects, but an interconnected web of effects that shape a whole city, including shaping who its future residents will be. These dynamics are much more locally specific, and much more particular to the complex dynamics of various forms of competition among different municipalities, than a phenomenon like global warming, which is fundamentally a global rather than local.

Do I think my NIMBY-ish neighbors are right? No. Do I find arguing with them to be like arguing with global warming deniers? No, not at all. I find my neighbors to be far more open to persuasion and argument in most cases. And on the other side, I myself am far more open to persuasion and argument on these issues and their nuances than I am to arguments about global warming. So, I think this analogy has some pretty serious limitations.

Posted by: Joey Fishkin | Apr 19, 2018 12:40:28 PM

Fun post, Rick; thanks. One piece of political economy less discussed here is the self-perpetuating nature of groups and entities, which may begin with a sincere commitment to change on an issue and a particular position on that issue, but also (and naturally) have a desire to thrive and continue to exist, including through publicity and fundraising. That motivation and the pressures it creates can certainly make it difficult for such a group to alter its position, collaborate or compromise with its adversaries, or even accept victory: crisis and an external enemy seem to be commonly agreed-upon ingredients in successful (or, anyway, conventional) fundraising and membership drives. Those pressures, along with genuine changes in issues and ideologies, can ultimately lead to changes in the mission of a group: Anthony Romero was pretty open about tacking about on some issues, priorities, and positions in order to keep the ACLU “relevant,” ie. to retain or increase membership levels and find new funding sources, and the modern ACLU seems rather different than it used to be. But the factors I’ve talked about, along with ideological commitment, make change much harder.

Posted by: Paul Horwitz | Apr 19, 2018 11:49:19 AM

Interesting post , I haven't studied personally that issue of housing market in L.A or part of it . What I know , is typically , where lies the issues , in such issues. The Idea , that the economy should be based necessarily on empirical studies , is really baseless with all due respect . This , for too many reasons , it would be sufficient just to remind us , that , markets mechanisms are many times too dynamics, and a price of an asset , can't really be divided clearly , to its empirical components . For too many times , the sentiment, exceeds in great amount , the realistic price of an asset . That is to say , that fluctuation is always occurring , and has nothing to do , with any economic reality.

But most important :

The respectable author of the post , is sure , that ideological bias , dictates the practical stance or concept . It is not so accurate . For what the Republicans or conservatives oppose , is not the " climate " but the " change " . That is to say , that none of them , is in favor of polluted environment , on the contrary !! They like it natural , and clean . But , what they oppose is :

To be cheated , or , granting excessive priority to environment, over , other vital needs of communities and human beings . Every factory is polluting the air or the environment , yet , some of them , produce medicines which save lives. So , it is rather the balance , over ideology . And indeed :

What they present , are also empirical studies , which would refute clearly those suggesting climate change , or rather finally : what is the right balance , what is the most preferable policy to adopt : environment V. well beings .

As such , it is far greater more complicated . And trust me, one could present further empirical evidences , refuting clearly , what has been presented so coherently in this post.

The magic word , is " dynamic " over ideology or empiric data ….. But , of course , we shall fall short here .

Thanks

Posted by: El roam | Apr 19, 2018 10:42:27 AM

I totally agree on the irony, Rick. And don't even get started on the Sierra Club. https://www.modernluxury.com/san-francisco/story/green-house-divided

Posted by: Kenneth Stahl | Apr 19, 2018 10:05:30 AM

Fair enough, Ken: The Left is divided on zoning reform, and the YIMBY movement is fairly characterized as a bipartisan movement, with both libertarian and left support. And you are also absolutely right that Repubilcans tend to love zoning, as evidenced (for instance) by Governor Christie’s war on Mount Laurel and support for exclusionary zoning in New Jersey. (I blogged on Republican support for exclusionary zoning back in 2010: https://prawfsblawg.blogs.com/prawfsblawg/2010/12/christies-war-against-the-mount-laurel-doctrine-do-conservatives-really-like-private-property-rights.html#more ).

I emphasize the support for restrictive zoning given by housing activists who style themselves as on the left only because such NIMBYism has special irony. Defending single-family zones near transit and fighting density-bonus developments in the Mission hurts the very constituencies for whom these groups claim to be champions. .

Posted by: Rick Hills | Apr 19, 2018 9:59:28 AM

This is an excellent post, and for interested readers I would also recommend John Mangin's piece "The New Exclusionary Zoning," making many similar points. I do not agree with the left-right comparison, however, because one point the author does not mention is that most of the impetus for challenging the anti-market orthodoxy on housing is also coming from within the left, via the YIMBY movement. As one of the organizers within the YIMBY movement, it's clear to me that the bulk of YIMBYs identify as "left." Many YIMBYs wish to pair zoning reform with public housing, reform of Proposition 13, and in some cases, even rent control. The "left" is not a monolith, at least not in California. At the same time, Republicans in California are among the biggest NIMBYs out there (See Newport Beach, for example, an overwhelmingly Republican city that has stringent growth controls in place and has barely grown at all in decades while Orange County's population has exploded). I don't see a similar divide on climate change. There is no faction on the left that denies climate change, and I don't know that there is any group on the right (at least any group with any real political influence today) seriously advocating for climate reality.

Ken Stahl, Chapman University Fowler School of Law
People for Housing Orange County (OC YIMBY group)

Posted by: Kenneth Stahl | Apr 19, 2018 9:37:50 AM

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