A new post on Old Urbanist linking to prior posts about housing affordability, both on his own blog and on New World Economics. The theme is that various design standards – the two sites’ main scourge is streets wider than about 5-10 meters and in general excessive room for parking and front lawns – force the cost of construction up, making housing less affordable.
In reality, the first thing to note about high housing prices is that they exist everywhere: not just in new urbanist towns in the US, the type of development under discussion on the above blogs, but also in New York, and Paris, and Tokyo, and Tel Aviv, and Hong Kong, and London. In my matrix of different types of city planning, every row contains cities whose housing prices stretch the middle class to its limits. Often there’s significant homelessness, but most people have just enough to scrape by. The cities where housing prices are low compensate by either having very poor populations (inner-city Detroit) or requiring people to spend large quantities of money on driving (the Sunbelt): note how across US metro area, the total percentage of household income spent on housing and transportation is essentially constant.
Thus, as a first filter, the cities whose housing prices are low relative to incomes are very spread out and auto-oriented, exactly the opposite of any kind of urbanism other than suburbanism. As a second filter, Ed Glaeser notes that the high cost of housing in coastal cities comes from supply restrictions in the form of zoning, writing about Boston and about Manhattan as case studies.
First, what is clear about situations with unaffordable housing (really, barely-affordable) is that it is not due to high construction costs. Glaeser himself notes that construction of luxury apartments in Manhattan costs about $300 per ft^2, while the sales price per ft^2 is on average $600. In particular, parking requirements and other restrictions that effectively raise construction costs are not the primary agent to blame for high housing costs in general. An extra $20,000 for a parking spot is not going to make housing unaffordable, though it may influence developers’ decisions of what and where to build to maximize profits, in particular by making them abandon urban construction in favor of the suburbs. Glaeser blames persistently high housing prices on a regulatory tax, which forces developers to spend extra money on lobbying and preparing paperwork for permits.
Second, the primary determinant of housing prices is not capital costs, but the cost of the land underneath. An older post on Old Urbanist asks why real housing prices have increased since 1920; the answer is that a house is not a manufactured good, but primarily land, as is especially clear when one considers expensive, desirable cities.
Third, the worth of land is dependent on demand. Land on which a developer can build three apartments is worth three times as much as land on which a developer can build one apartment. That’s why on the level of the individual building, building higher does not reduce rents. Land supply only forms the limiting factor when there’s a regionwide desire to be in an area with a fixed land constraint, such as the national borders of Singapore or Monaco, or the physical extent of the New York City Subway or the walkable radius of Central Tel Aviv. In such cases, it could reduce prices to expand the available space for housing within the fixed constraint, via either increasing density or expanding the desirable area through transportation infrastructure or landfill. But otherwise, there’s not much point.
When high housing prices are genuinely the result of high capital cost, the result is different from that of high demand or a shortage of land. Consider North Tel Aviv, which mandates expensive whitewash on its traditional garden city buildings. When those buildings were first constructed in the 1930s, they were priced too steeply for the working class, leading the rising middle class to move in instead. Since the whitewash is also high-maintenance, apartments deteriorated, and the only buildings that maintain an aesthetic exterior cost much more to maintain and are only affordable to the rich. In effect, the result of high capital cost is worse physical stock, the opposite of what normally happens in Tokyo, New York, and other expensive cities.
Anti-gentrification activists often fight policies that make their areas more desirable; the above three points help explain why. Affordable housing to them is a bargain to richer people, and if they want to move in, they’ll be priced out. The only way to depress housing prices is to depress demand. One activist, a Harlem preacher with extreme right sympathies, even calls for a general economic boycott of his own neighborhood in order to cause an economic collapse and lower rents.
The inevitable conclusion, namely that it’s impossible to make housing persistently cheap without raising other costs or impoverishing people, does not mean that affordable housing issues are moot. First, the equity issue remains; although on average housing is just marginally affordable, to many people it is not affordable, and as a result, expensive cities engage in government intervention to prevent mass homelessness, even ultra-capitalist Singapore.
In addition, although expanding housing supply makes land more valuable and normally prevents prices from falling, it also create better housing in the process. Auto-oriented sprawl in the US has caused dwelling size to increase; upzoning and the construction of better transportation infrastructure in expensive cities would enable people to move from the periphery to the core – or, more precisely, people could stay where they are, but public transit could redefine regions from periphery to core.
For a toy model, suppose there are two kinds of development: regular suburbia and new urbanism, where new urbanism is more expensive. Constructing more new urbanism is going to reduce the price for both kinds of housing (new urbanism has an increase in supply, regular suburbia suffers from a subsequent decline in demand), while also shifting people from regular suburbia to new urbanism. Overall the average price of housing shouldn’t change, but the quality will increase.
In other words, on a national or regional level, affordable housing is never a problem; it may be a problem for poor people, but not in general, on average. Supply restrictions should show in low-quality housing, measured in terms of size, local walkability, aesthetics, and other factors that on the local level determine price.