Tag: zoning

Ignoring the Law of Supply and Demand

A recent report from Fannie Mae finds that baby boomers are not leaving their comfortable suburban homes for lively inner-city communities with walkable streets. As a news article about the report observes, this challenges the “conventional wisdom that ‘empty nester’ baby boomers would eventually downsize from the homes where they raised families, flocking instead to apartments or condos.”

Rather than conventional wisdom, it would be more accurate to say that this notion was wishful thinking among urban planners who believe more Americans should be packed into high-density “compact cities” where they will get around by foot, bicycle, or transit rather than by automobile. In contrast, demographers have known that populations of virtually all age groups, whether millennials or empty nesters, are growing faster in the suburbs and exurbs than in the cities. After all, the baby boomers’ parents overwhelmingly preferred to “age in place” rather than move when their children left home; why should baby boomers be any different?

Despite this, regional planning agencies all over the country are writing plans that presume America will need no more single-family homes, especially on large lots, and instead will need lots of apartments, condos, or townhouses. Many of these plans effectively zone away the possibility of new single-family homes on large lots while they subsidize construction of high-density housing. For example, the San Francisco Metropolitan Transportation Commission’s Plan Bay Area mandates that 80 percent of all new housing be in high-density urban centers.

To justify these plans, the planning agencies often hire Arthur C. Nelson, the University of Utah urban planning professor who in 2006 predicted that the U.S. will soon have 22 million surplus single-family homes on large lots. Nelson wrote a 2011 report predicting that the Bay Area, which has one of the most acute housing shortages in America today, would have a surplus of nearly 572,000 single-family homes by 2040; Plan Bay Area relied heavily on this report to justify its strict land-use policies.

Mayor Bloomberg Doesn’t Understand Economics

Mayor Bloomberg says New York City’s lack of affordable housing is a sign of a vibrant economy, because it proves people want to live there. Despite his reputation in the business world, he obviously doesn’t understand the laws of supply and demand.

“Somebody said that there’s not enough housing,” Bloomberg said on a radio show. “That’s a good sign.” Housing is only scarce, he said, because “as fast as we build, more people want to live here.”

In fact, as I showed in chaper 10 of my book, American Nightmare, as well as in this blog post, high housing prices do not prove that lots of people really find an area desirable. Instead, they are more a sign of government barriers to housing. In a nutshell, downward sloping demand curves means a few people may be willing to pay a high price for any good, but that doesn’t mean the public in general finds that good to be particularly valuable.

As reported by Virginia Postrel on Bloomberg’s own news service a few months ago, America’s elites have built an economic wall around places like New York City and California in order to make these areas more exclusive. Rent control in the city combined with New Jersey’s and Connecticut’s smart-growth policies have turned New York from a fairly affordable place to live as recently as 40 years ago to one that is completely unaffordable today.

Yes, Bloomberg’s city may be building some housing. But it obviously isn’t building enough to meet demand. In 1969, median housing prices in the New York urban area (including northern New Jersey) were just 2.6 times median family incomes, and 3.3 times in 1979. By 2005, they were 8.4 times. Thanks to the recession more than new housing, they were down to 5.3 by 2012–still way too high. But in New York City alone median prices were still 8.7 times median family incomes.

Here’s the surprise: Median family incomes in New York City were just 15 percent greater than in the city of Houston in 2012. But home prices were 284 percent greater. That’s not a sign that people are demanding to live there; it’s a sign of acute shortages.

Houston frets when its median home prices approach $150,000 and price-to-income ratios come close to 2.2. With New York City median prices approaching $480,000 and median values nearly nine times median incomes, Mayor Bloomberg should do more than pat himself on the back; he should recognize that the city is suffering from a major housing crisis.

Zoning vs. Families

Back in 1996 George Liebmann wrote in Regulation about how “Zoning makes it more difficult to keep aged parents close by and care for them.” He recommended that “Duplex homes and accessory apartments should be permitted in all new residential construction. Housing options such as these allow elderly persons to live near their adult children without intruding on their children’s privacy.” (“Modernization of Zoning,” pp. 71, 75)

Now the Washington Post reports

The Rev. Kenneth Dupin, who leads a small Methodist church [in Salem, Virginia], has a vision: As America grows older, its aging adults could avoid a jarring move to the nursing home by living in small, specially equipped, temporary shelters close to relatives.So he invented the MEDcottage, a portable high-tech dwelling that could be trucked to a family’s back yard and used to shelter a loved one in need of special care.

Skeptics, however, have a different name for Dupin’s product: the granny pod.

Protective of zoning laws, some local officials warn that Dupin’s dwellings – which have been authorized by Virginia’s state government – will spring up in subdivisions all over the state, creating not-in-my-back-yard tensions with neighbors and perhaps being misused….

the nation’s elderly population is set to double in just 10 years as more and more baby boomers hit retirement age. Surveys by AARP and others also show that large majorities prefer to live in their own homes or with loved ones rather than in retirement communities.

But local officials think their zoning rules are more important than keeping families together.  They fume that allowing such small structures for grandma would “turn our zoning ordinance upside down.” And what’s more important, saving money and keeping grandma near her family or strict adherence to zoning regulations? Local officials think the choice is clear.

In this case, though, state officials disagreed. Virginia just passed a law “that supersedes local zoning laws in the state and allows families to install such a dwelling on their property” – but only “with a doctor’s order.” They couldn’t just allow families to choose a living arrangement that suits them. No, a doctor has to authorize it.

It’s sort of like medical marijuana – a slight increase in freedom, but also an increase in the medicalization of normal individual decisions.

Doubling Down on Failed Policies

Today in Las Vegas, President Obama will take another $1.5 billion in taxpayer money and let it ride another spin on the roulette wheel otherwise known as foreclosure assistance.  This time, however, he’s not even bothering to send the money to homeowners; its all going to state governments.  

That’s correct, he’s sending a huge check to select state governments to use in almost any manner they choose, as long as it offers some pretense at propping up the housing market.  

The assistance will be targeted at those states that have seen at least a 20% decline in home prices.  Subsidizing states because their housing markets are getting more affordable almost makes one yearn for the days when we subsidized states because their housing markets were too expensive.  What we are really subsidizing is those states whose destructive land-use policies contributed to the magnitude of the housing bubble.  Basic economics tells us that as supply becomes more inelastic (think growth boundaries), prices become more volatile.  It’s bad enough that most of our housing subsidies, both homeowner and renter, have ended up going to states that have crippled their housing markets, but now we are sending them a big check to reward such behavior.

Washington needs to end its constant attempts to prop up the housing market.  The only viable solution to an over-supply of housing is a further decline in prices.  Most of the worst-hit areas, such as California, do not lack for families wanting to buy homes.  They lack a supply of homes at affordable prices, which would be solved by letting prices fall.