Since the issue of housing and how to make it affordable comes up every so often, I thought I would offer my 0.02 Federal Reserve Notes. The debate is dominated by by Yimbys and anti-yimbys or sometimes people like to call them “left nimbys”. But I believe that both groups are incapable of offering practical solutions to housing affordability. The Yimby solution to housing affordability is to build lots of dense housing, or what one might call “urban infill”. When Urban infill does get built, people will complain about it not being affordable enough and trying to haggle developers into making it more affordable. People will debate endlessly about market rate vs subsidized, but neither group wants to address the issue, cost. The practical reality is for a variety of reasons, urban infill is more expensive to produce and this is reflected in the price you pay for it. Urban infill is more expensive for several reasons.
Land Prices – land inside areas that are already built up always costs more than land on the outskirts of town unless the place is economically depressed. https://www.bloomberg.com/news/articles/2017-11-02/america-s-urban-land-is-worth-a-staggering-amount
Reduced economies of scale – https://housing.wiki/wiki/Infill
Teardown costs – unless the urban infill is built on a vacant lot then there will be an added cost of destroying already existing buildings. IF the infrastructure is unable to handle new buildings, then the infrastructure has to be torn out and replaced https://www.hometowndemolitioncontractors.com/blog/structural-demolition-cost-guide
Environmental Cleanup costs – if an urban infill project is a brownfield site, then the cost of environmental cleanup can be substantial. The EPA puts the average brownfield clean up cost at over 600,000 dollars. https://www.bloomberg.com/news/articles/2014-07-29/how-much-cleaning-up-brownfields-is-really-worth
Political realities – regulatory and labor costs in major urban areas tends to be a lot higher than in other places. This could be changed, but the reality is that it is unlikely to change. Major urban areas micromanage developers and constantly demand concessions from them and charge very high developer fees. https://hbr.org/1995/05/the-competitive-advantage-of-the-inner-city
Then you combine these disadvantages with urban growth boundaries/greenbelts/conservation easements and other forms of growth management you take the disadvantages of infill and make them even greater by raising the cost of land and confining development to existing areas. The most unaffordable places either are genuinely constrained by geography or have green belts that make land artificially scare. Growth management makes infill the only form of development available. Plus place with greenbelts do other things to make development expensive such as having high developer fees.
There are several solutions posed to these issues.
One idea is to densify within the urban growth boundaries/green belts a lot more. The problem with this is that you would need very high levels of density to off set high land prices.
One study found that in order to have a break even rent of about 2,300 per month, you would need 12 floors in San Francisco. Shorter buildings would require rents of 4,000 a month or higher.
Much of San Francisco’s high land prices are due to greenbelts that restrict 75% of bay area land (https://www.greenbelt.org/blog/bay-area-open-space-75-percent-is-being-protected-but-300000-acres-are-still-at-risk/)
The problem with that is most places that proposed legislation to allow for densification would only allow very modest densities. They all propose things like “missing middle”, adus, duplexes and so forth, and none of these densities would offset high urban land prices. All the yimby legislation proposed and passed so far only has provisions for very modest densities. Basically greenbelts or expensive urban areas render missing middle and mid rise type development uneconomical. Personally I am fine with high rise buildings, but nimbyism is a reality that you can’t just wish away. You could make San Francisco more affordable by bulldozing large sections of it and replacing those with modern high rises, but that is politically not feasible. Greenbelts also create an incentive for nimbyism because any dense development is going to mean less single family homes available as the greenbelt makes building new ones much more expensive.
Another proposal is “inclusionary zoning”, this would require that developers make a certain percent of their units “affordable”, depending on how that is defined.
However you can’t mandate away economic realities. The net effect of inclusionary zoning is fewer units and the costs being passed on to other units. It also delays new units from being built too because activists feel that it is necessary to fight developers every time something is proposed.
Other ideas like rent control, vacancy taxes and so forth are proposed and they largely don’t work. They don’t want to address scarcity.
Another proposed idea is that there are shit tons of vacant homes. This doesn’t take into account location differences and apartments switching tenants, Pointing out that there are more vacant homes than homeless people doesn’t sufficiently addressing housing scarcity, because people other than the homeless people want homes.
Curtailing or eliminating airbnb would have to be replaced by more hotels being created. Just because you eliminate airbnb doesn’t mean demand goes away.
Another solution is to create large amounts of public housing. This is even more impractical than many yimby fantasies. IF you think nimbyism is bad for market rate housing, imagine what it will be like with public housing. The barriers to public housing in the US are an unwillingness by governments to spend money on it, a lack of high quality government institutions and the bad taste the public has from “the projects”. In general the American public sector is not as large as European ones because it isn’t as good and Americans have a general distrust of government. Simply throwing more money at the public sector won’t replicate the performance of other countries.
Basically current policies that basically mandate urban infill are more or less mandating the housing equivalent of filet mignon while adding production cost to filet mignon and then getting mad that it isn’t cheeseburger prices and then demanding affordable filet mignon quotas.
Some Yimbys will point to Tokyo as an example of their ideas at work, but Tokyo, while dense, still does greenfield development. Many suburbs in Japan are railroad suburbs.
Another fallacy is that California is somehow running out of land.
Quite the opposite, much of California is non urbanized. Much of it is farmland and hills that could easily be developed, but isn’t thanks to regulation. Someone might say that the unoccupied land is desert, but this isn’t true. There’s plenty of farmland that is developable in Ventura county for example.
How would I solve housing affordability? I would reduce the cost of permitting and reduce the time it takes to get a permit. I would abolish greenbelts. I would get rid of lot size and setback requirements. Other regulations I would deal with on a case by case basis.
Some might complain that abolishing greenbelts will lead to more sprawl. Places with greenbelts don’t really eliminate sprawl unless they are super aggressive ones. Moreover, how are we defining sprawl? Are we simply defining it as the outward expansion of cities or are we defining it as low density single use post world war II development? Even before the advent of cars and before the creation of levittown and the first strip malls, cities grew outwardly and upwardly. Cities expanded out through steam boats, then commuter trains, then streetcars and subways. Greenbelts try to focus on where development happens rather than what kind of development happens. My own proposal would be suburbanization created around transit like in the Old Days. IF you didn’t have lot size and setback requirements you could build development that is walkable with more units per acre.
European countries have had success with creating non sprawling greenfield development