One Possible Solution to America's Housing Crisis
A simple solution to a complicated problem: Build more.
If we take the housing crisis issue at surface level, having enough housing should be simple.
Maybe you’ve read a report, or seen a news release, saying that the state is down 1 or 2 million units. So just build more of it. Clean and cut, problem solved.
As we know, nothing is ever easy in human society. What seems at first to be a simple question of supply and demand is a tangle of incentives, ideas, disagreements, and stalemates.
Right now, there is quite a debate currently going on what type of housing we should build. Many believe that building more market-rate housing encourages more overall affordability. Should we just build more housing, regardless of whether it’s affordable housing or not?
In Value Capture Reconsidered, a paper by UCLA researcher Michael Manville, one idea is clear. The act of not building housing can potentially be very harmful to a city such as Los Angeles.
The value of land is redistributed when people build on it. And this act, of just building housing, doesn’t happen nearly enough in places around Los Angeles. This is one tenet that Manville repeats throughout the paper.
So maybe it really is that simple: Just build more.
According to Manville, this act of building more should include upzoning. The construction should include higher-density housing that holds more people.
Every time we build less than a parcel could hold (whether by it’s zoning or physical limits), it’s a loss for potential residents. There are countless examples of developments that fall short, such as a 10-housing unit housing development on a property that could hold 15. As Manville relates, you multiply this over a million parcels and you have some big differences.
One of the problems is NIMBYism, and the knee-jerk reactions that often happen when developments are proposed in high-end or gentrifying areas.
This can be especially true in traditionally low-income areas. Rent might be increasing at a steady rate in a neighborhood, making people worry about losing their place. With the addition of some new high-end housing in the area, the idea that new housing (that’s not affordable) needs to be resisted.
This may feel intuitive on some level. According to some data reported on by City Observatory, it has the opposite effect. Two different neighborhoods in Washington D.C., Navy Yard and Capitol Hill, took different approaches to housing. Navy Yard allowed apartments to be built, actually driving down rents. Capitol Hill, on the other hand, saw rents rise.
For more on this, check out the City Observatory article.]
This can easily lead to what I call the California problem: without enough housing, older (non-updated) units get rented out for an increasing price. As a landlord, you can do almost nothing to upkeep a property and make a decent profit in the process.
Although building more won’t help those in the lowest brackets of income, we could do a lot of good by just building more homes, especially in parts of California. The strange ecosystem of zoning in California cities (and many U.S. cities) assembles a number of critics for any type of zoning, including affordable housing advocates who oppose the building of market-rate housing.
Strange to think that there is somewhat of an agreement between those advocates and the typical NIMBY homeowners who oppose any type of upzoning or change in density.
One way to do this is to tax only land, not development, thus incentivizing more development to happen.
As Manville puts it, there is an implicit subsidy given to those who just sit on land, rewarding those who help the housing scarcity persist. Unfortunately, this category includes a vast majority of landholders, who keep housing artificially low while making money off of empty property.
So what should value capture look like? According to Manville, its first goal should be encouraging development, and targeting the hoarders and speculators who just sit on land and watch it rise in value.
We can do that by not taxing development and, instead, taxing property that just sits there, undeveloped to its highest use. At the same time, we don’t impose erroneous zoning restrictions on land that would benefit from upzoning.
Let’s think about a scenario. A developer wants to build apartments on a lot. If they go ahead with this project, they might be required to build a certain amount of affordable apartments. This reduces the incentive to build in the first place, adding to their cost. Since they also run into a number of issues every time they try to build, from long review periods to requirements to build amenities for the city, building something at all can be quite discouraging.
Land value rises because of all of this. It is a public value, rising because of nice parks, neighborhoods, small businesses, and a general standard of living. Landowners make tons of money in places like Los Angeles by doing nothing at all, exchanging lucrative parcels that hardly need to be updated or built on to make a profit. This “inefficient equilibrium”, as Manville puts it, is bad for pretty much everyone but landowners, who have to live in expensive housing units that haven’t been updated in years.
And the ones that are updated cost a literal fortune to live in.
I’ll let a quote from Manville take us out:
Most land, most of the time, is not being developed.
All efforts to build new housing — market-rate,
public, affordable, whatever — struggle against a
status quo that lets people make a lot of
money by not building at all.
To read Manville’s paper, follow the link below:
https://www.lewis.ucla.edu/research/value-capture-reconsidered/