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.