When “Affordable Housing” Measures Restrict Supply

Last Tuesday, voters in Los Angeles approved a ballot measure that would increase costs for developers—which will have the unintended effect of restricting the city’s housing supply and reducing housing affordability further.

From the Los Angeles Times:

Measure JJJ, which passed with nearly 64% of the vote, requires developers to pay higher wages and build below-market rate units if they get exemptions from key planning rules — a common occurrence in Los Angeles, where the city’s zoning is considered outdated.

The measure was pitched by advocates as a way to add more affordable housing in an already expensive city where many new apartment and condo projects are aimed at the luxury end of the market.

 

While improving housing affordability is a noble goal, adding more below-market units will ultimately be ineffective if it means fewer buildings are being built overall. There’s a common misconception that, because new units are billed as “luxury,” their construction won’t improve housing affordability. Activists think, because rich people are rich, high-end housing will be built regardless of cost, so why not force developers to also build a few low-income units?

This argument is simply untrue for the simple reason that today’s low-income housing is yesterday’s luxury housing. Sandy Ikeda explains this dynamic at Market Urbanism:

Let’s say there are 3 categories of housing – A, luxury housing; B, middle-income housing; and C, low-income housing – and that houses are continuously built, age, and wear down.

[…]

A house depreciates because of wear-and-tear, competition from new supply, and changes in the demand for houses. It may then fall from category A to B or even C. Throughout history, as long as there is no government intervention, expensive, well-built residences sink over time within their original category or drop into a lower category – or “filter” – to families living on lower and lower incomes.

For instance, fancy apartment buildings built in the Bronx along the Grand Concourse a hundred years ago are now home to some of the poorest families in New York. Similarly, although I can’t afford a new Mercedes today, I might be able to buy that same car eight or ten years from now.

People currently living in houses in lower categories rarely buy new products in the higher categories. And the less-well-off families tend not to buy the newest, most expensive construction even within their own categories. So, to argue that the poorest people in a city cannot afford the most expensive housing currently being built is to state the obvious.

To again state the obvious, new housing tends to be nicer than older housing simply because it lacks the wear-and-tear that come with years of use. Therefore, it wouldn’t come as too much of a surprise that new building are billed as “luxury” even if they’re aimed at middle-class tenants.

Again, to state the obvious: if these luxury units are unavailable, it’s entirely possible for higher-income residents to buy mid-range housing and renovate it into a “luxury” unit. Restricting “luxury” housing has the opposite effect as intended.

As for California, developers are already planning on dropping projects. Again from the Los Angeles Times:

Al Leibovic is one of those developers and builds small apartment buildings in the San Fernando Valley.

He previously told The Times that if the measure passed he wouldn’t build projects with fewer than 25 units that required exemptions — which many do. But after further running the numbers with his development team, he’s now worried about larger projects as well.

“This is pretty devastating,” he said. “It really throws all of our plans to construct an additional 700 units in the city of L.A. into question.”

700 units may seem small, but it can have a real impact on housing affordability, especially in the long run. Ideally, an even greater building boom created by an overhaul of the city’s zoning will help ameliorate the harm high rents cause on low-income residents.

Photo: Victoria Pickering via Flickr

How Dare You Invest in Your Home!

Like many Americans, I delight in home improvement. There’s something intoxicating about a good before-and-after photo that shows you just how possible renovating your own living space can be. While I myself haven’t had the opportunity to renovate anything in my one-bedroom condo, I know exactly where I would start first.

In fact, home improvement is a bona fide hobby for millions of people. Fortunately, unlike some hobbies, home improvement can actually be an investment in the greatest asset most Americans will ever own.

That’s why I was confused when I listened to this segment on a 99% Invisible podcast about McMansion Hell:

All of this snarky criticism is entertaining, but there is also a larger point to be made about the design of the McMansion. According to Wagner, they are indicative of a larger shift in thinking: a house is no longer a place that we live in (potentially for the rest of our lives) but rather an asset that we are decidedly not supposed to live in forever.

Accordingly, people started designing their houses not just for themselves but with a future sale in mind. Wagner lays the blame for this mindset at the feet of HGTV and similar channels.

I thought the criticism of McMansions was purely aesthetic. This style of oversized suburban homes may be boring, architecturally incoherent, and just plain tacky—but the real problem is that they are viewed as an “asset”.

The program continues:

The excesses of the McMansion were reinforced over and over again on home improvement and house-flipping television shows. These programs convinced people there were always ways to make an abode better and (crucially) more valuable when it goes on the market.

“Home improvement channels would paint a house beige and then you would see this ticker in the corner that says ‘oh we just added $800 to the value of this house’,” laments Wagner. “They would come up with these crazy way just to quantify these sort of improvements.”

While McMansions may be stylistically diverse, many also share similar elements, like granite counters or a certain color of paint or shade of wood. And these superficial changes are not actually as valuable in the long run as structural improvements or energy efficiency upgrades.

99% Invisible has a tendency to let examinations of obscure ideas, technologies, and places descend into screeds against Deкadanт Aмеяiкan Кaрiтalisм. (For example, their examination of an early attempt at cybernetics turns into a mostly unrelated criticism of American foreign policy in South America as you listen on.)

But this criticism of home improvement doesn’t make any sense. What’s the alternative to thinking about your house with “a future sale in mind”? Pretending that your house has no inherent value beyond its place as your home? Never selling your house once you buy it? These approaches have obvious drawbacks. If you can’t or won’t sell your home, you could miss out on better job opportunities elsewhere in the country. And if you don’t renovate before you sell, someone else probably will—reaping the return on investment themselves.

There is no conflict between viewing your house as “a place that we live in (potentially for the rest of our lives)” and viewing it as an asset. Even so, the idea that “something is lost” when people engage with markets is so pernicious that people can’t even remodel their kitchen without having to feel bad about their own materialism and greed.

Ultimately, nothing is wrong with getting ideas from HGTV, even if Joanna Gaines has an unhealthy obsession with shiplap.