There has been some controversy about the federal government’s new “Affirmatively Furthering Fair Housing” (AFFH) rule. Supporters hope, and opponents fear, that the rule will integrate lily-white suburbs and eliminate exclusionary zoning. However, there is reason to believe that the rule’s impacts will be fairly minor.

The Department of Housing and Urban Development (HUD) which enacted the rule, did so in order to implement sec. 808(d) of the Fair Housing Act, which requires federal agencies “to administer their programs…relating to housing and urban development…in a manner affirmatively to further” the policies of the Act—in other words, to affirmatively further fair housing.

In the past, HUD has sought to implement this statute by requiring grant recipients (such as local governments and public housing agencies) to draft an analysis of impediments (AI) to fair housing. An AI typically described impediments to racial integration, such as exclusionary zoning and racial disparities in mortgage lending. HUD decided that the AIs were not tremendously successful, because they did not contain enough data and were not adequately linked to other planning documents. (80 Fed. Reg. 42348).

The new rule requires grantees to create a new document called the “Assessment of Fair Housing” (AFH) every five years. The AFH will address a community’s barriers to integrated housing, such as “integration and segregation; racially or ethnically concentrated areas of poverty; disparities in access to opportunity, and disproportionate housing needs based on race, color [and other factors]” (80 Fed. Reg. 42355). The AFH will summarize any current litigation, analyze relevant data, and identify major factors limiting housing opportunity. The grant recipient must also set goals for overcoming the effects of these factors.To receive funding from HUD, a grantee must certify that it will affirmatively further fair housing, which means that it must promise to take meaningful actions to further these goals.  (80 Fed. Reg. 42316).  In other words, the grant recipient has to create paperwork stating: “This is why our city/county/area is more segregated than we would like, and this is what we would like to do about it.”

According to HUD, the new rule will impose increased costs of data collection and paperwork upon municipalities, because municipalities must solicit more community participation than under the prior rule. HUD also suggests that the municipalities that have already been taking their AI obligations seriously “may experience a net decrease in administrative burden as a result of the revised process” (80 Fed. Reg. 42349).

The rule does not require any specific policies; instead, it just requires municipalities to describe the status quo, promise to adopt some sort of policy related to fair housing, and to justify those policies to HUD. Thus, it seems to me unlikely (though not impossible) that HUD will actually force significant changes in municipal policy.

In theory, HUD could keep saying no to a municipal AFH until the city or county adopts far-reaching policy changes, or could deny funding on the ground that the city has violated the promises in its AFH. But I doubt that this will occur, for two reasons. First, if HUD has not been using the AI process to remake cities and suburbs, I question whether it will have the willpower to use its new and improved procedural tools much more aggressively. Second, if HUD went to the edges of its authority, it would be risking fights in the courts and fights with Congress.

(Cross-posted from planetizen.com)

Is zoning racist? After a committee designed to study Seattle’s zoning codes suggested some significant reforms to the city’s code, Mayor Ed Murray said: “In Seattle, we’re also dealing with a pretty horrific history of zoning based on race, and there’s residue of that still in place.” Even if this remark is factually true, it doesn’t mean that today’s zoning is racist: low-density zoning exists in black neighborhoods as well as white ones, and opposition to changing such zoning crosses color lines.

But it seems to me that even though zoning is not consistently or intentionally racist, zoning is similar to racist housing discrimination (or “RHD” for short) in a few ways. Both involve a politically influential dominant class (in one case, whites generally; in the other case, homeowners of all colors) who have the votes to impose their will on the political process. In both situations, the dominators use their political power to exclude someone else from its neighborhood; racists usually seek to exclude blacks, while pro-zoning homeowners usually seek to exclude new residents regardless of color (to the extent that zoning is designed to exclude housing smaller or more compact than the status quo, such as smaller houses or multifamily dwellings).*

Both RHD and low-density zoning do, on balance, exclude blacks more than whites—though of course RHD does so much more consistently. One purpose of zoning is to raise housing prices (or, as courts and homeowners euphemistically say, “values”). And higher housing prices mean higher rents, which means that everyone has to pay more for less. If you don’t have any money, you are obviously going to suffer more from that policy than someone who has plenty of money, since the difference between having a small apartment and sleeping on the street is a bit more significant than the difference between having a 8000-square-foot mansion and a 12,000-square-foot mansion. And since blacks tend to have less money than whites, on balance blacks are going to suffer a little more than whites from these policies, just as they are going to suffer more from any tax imposed without ability to pay (for example, an increase in bus fares).**

RHD and low-density zoning are motivated by the same concern: fear of change in neighborhood character. Homeowners believe that new housing will change neighborhood character—and even if such housing does not have any tangible negative impact, this of course is the case. A neighborhood with ten houses per acre obviously looks and feels different than a neighborhood with one house per acre.

I suspect that racists similarly believe that an influx of blacks into their neighborhood will lead to crime, poor schools, and of course lower property prices—but even if they didn’t believe this, racists might believe that a neighborhood where they have to look at black faces on a regular basis has a different character from one where they don’t. Certainly, other forms of illegal discrimination affect neighborhood character: for example, a neighborhood full of Orthodox Jews has a very different character than an equally affluent neighborhood that does not, in that stores will be closed on the Jewish Sabbath and restaurants will comply with traditional Jewish dietary laws.

More importantly, both RHD and low-density zoning are rational for an individual neighborhood but perhaps irrational for a city, region or nation as a whole. A racist in the pre-Fair Housing era no doubt wanted to live in an all-white neighborhood, and even non-racist homeowners might have rationally favored RHD because they did not want to take a chance that integration would lead to unwelcome change. But the widespread adoption of fair housing legislation suggests that many whites did not welcome the nationwide results of rigid segregation.

Low-density zoning is more clearly rational for an individual neighborhood. After all, what homeowner would not like his home to be worth a little more, and what homeowner really wants his neighborhood to change (even in intangible ways)? But if no one liberalizes their zoning enough to accommodate new residents, rents explode, and a city’s prospective residents are either priced out of the city or forced to live on the streets.

So what? Why should we care about these similarities? It seems to me that if RHD and zoning have similar results, maybe they should be attacked with similar remedies. RHD was not eliminated by allowing neighborhoods to discriminate a tiny bit less than they had discriminated in the past or by requiring only a few neighborhoods to cease discrimination. Instead, Congress and state legislatures responded with a meat ax: the Fair Housing Act generally prohibits housing discrimination, and has only a few narrow exemptions. Maybe state legislatures in high-cost states should use a similar meat ax in addressing zoning.

*As opposed to commercial and industrial enterprises, or houses larger than the neighborhood norm.

**On the other hand, to the extent that higher home prices increase property tax revenue, and property tax revenue means better government services, poorer people (and thus blacks) may get a countervailing benefit from better government services—if the extra revenue goes to services that disproportionately benefit the poor (a very big IF).

(Cross-posted from planetizen.com)

Every so often I read an argument that says something like this: “There’s no way that rents can ever go down in expensive cities like New York and San Francisco, because rich foreigners are buying up everything, and as a result demand is essentially infinite. So there’s really no reason to allow new apartments because the foreigners will just buy them all.”

This argument could certainly be true in theory: for example, if an entire city were so expensive that only wealthy foreign investors could afford to live there. But it doesn’t seem to fit the social reality of the expensive city I am most familiar with (New York).

If demand was essentially infinite, there would be some evidence of this fact other than high real estate prices. For example, if New York was growing faster than any city in the United States, there might be a credible argument that new demand is truly insatiable. In fact, many low-cost cities are growing far more rapidly than New York and yet have cheaper rents. Between 2000 and 2010, Austin and Raleigh (both of which are far cheaper than New York) grew by 20 and 46 percent, respectively, while New York grew by less than 10 percent.

It could be argued that New York is dissimilar to other high-growth cities, because the number of wealthy foreigners is so huge that it makes New York a high-growth city. For example, if New York had to accommodate not only half a million new residents per decade but also three million wealthy foreigners seeking second homes, its housing-consuming population would have grown by about 45 percent over the past decade, about the same level of population increase as Raleigh. But are there really that many wealthy foreigners in the New York housing market?

I suspect not. According to a New York Times article about the evils of foreign investment in New York housing, “About $8 billion is spent each year for New York City residences that cost more than $5 million each.” Using the magic of long division, I calculate that even if each residence cost only $5 million and not a penny more, there would be 1,600 such residences. In fact, some residences cost far more, so the actual number of super-expensive residences is lower (and of course, the number of such residences purchased by foreigners is lower still). In a city with 8 million people (and thus a few million households), a thousand or so really rich people seems to be like a drop in the bucket, even if their wealth does give them disproportionate influence and notoriety.

Moreover, it seems to me that if New York really were flooded with millions of foreign billionaires, housing prices would be even more expensive than they are. During my last year in New York (2013-14), I lived in a 448-square-foot studio in Midtown and paid $2,330 a month in rent  (The same apartment would cost $2,680 today). This rent is very expensive by the standards of Planet Earth—but by the standards of Planet Foreign Billionaire Oligarch (FBO), it is nothing. What self-respecting FBO lives in a 450-square-foot studio? And what self-respecting FBO pays less than $3,000 in rent? I don’t know how much FBOs make, but I’m guessing that the median FBO income was at least $10 million per year (1 percent interest of $1 billion in wealth)—which means that any self-respecting FBO should be able to afford $60,000 per month (the price of the most expensive New York apartment I found on zillow.com).

And I wasn’t even living in the neighborhood’s cheap housing: had I chosen to live in a walkup, I could have paid around $1,700-1,800 per month—not exactly billionaire rents. And in the supposedly oligarch-ridden Upper East Side, rents are even cheaper.

And these non-FBO-friendly rents are in the nice parts of Manhattan; rents are even cheaper in most of the outer boroughs. Thus, it is pretty clear that to live in New York (even in the nice parts of Manhattan) you don’t have to be a FBO.

In sum, the overwhelming majority of people who are living in, and bidding up the price of, New York real estate are not FBOs. There is no reason, other than government regulation (and the technical difficulties of building housing in a city that is already “built out”) why supply could not rise to meet demand more effectively.

Having said that, there is two grains of truth in the “insatiable demand” argument.  First, even if New York only has a thousand FBOs, it has lots of domestic rich people- not just billionaires, but “ordinary” people earning in the high six figures, people who cannot afford to pay $60,000 per month but can afford to pay $5,000.  The more rich people a city has, the more money that will be used to bid up real estate prices, which in turn means the city has to work harder to keep supply growing.

Second, even if an adequate building supply kept rents down, it might be that no politically feasible policies will increase supply enough to restrain rents. But as readers of this blog are probably aware by now, “policies I favor” and “politically feasible policies” are two concepts that rarely intersect.

(Cross-posted from planetizen.com)

 (Cross-posted from planetizen.com)

I just learned that national tables from the 2013 American Household Survey (AHS) are public. These tables contained a variety of information that I thought was at least mildly interesting. To name a few items:

• Cars are really expensive—even when gas is cheap. The average household spent $800 per month on car-related costs. (Table S-04C). Only $200 of this sum was on gasoline—which means that even if gas was free, cars would still cost $600 per month. About half of household spending was for car payments, 15 percent was for insurance, and the rest was split between parking and maintenance.

• Single family housing dominates the landscape. Sixty-four percent of all occupied housing units (and 62 percent of units built over the last several years) are detached single-family houses (Table C-01). This is especially true for owner-occupied units: even in central cities, 79 percent of owner-occupied units are detached houses (Table C-01-00).

• Most single-family housing is not dense enough to support public transit. The average owner-occupied housing unit takes up 0.3 acres, as does the average housing unit built in the last several years. Thus, most blocks probably contain about three or four units per acre; basic bus service requires at least seven units per acre to be economically viable. (Table C-02).
• Despite public controversy over high-rises, they are far more rare than low-rise apartment buildings. Only 3 percent of housing units (including only 6 percent of central-city rental housing units) are within half a block of a multifamily building with over seven stories; by contrast, 18 percent are within half a block of a multifamily building with one to three stories. (Table S-03, Table C-01-RO). Even among multistory structures in central cities, only 22 percent of buildings even have elevators (Table C-01).

• Commuting statistics underestimate public transit use. About 17 percent of occupied housing units used public transit to some extent (Table S-04-A), but only a quarter of that group always used transit to get to work or school. The rest used transit for other uses or less frequently. Transit use is especially high among central city renters—41 percent of their households included a transit user (Table S-04-A-RO), as did 1/3 of all poverty-level renters regardless of their location. New construction continues to be more auto-oriented than other housing; in units built over the last four years only 10 percent used transit. Although transit advocates often focus on the concerns of seniors, seniors were actually less likely than the general public to use transit: only 12 percent of households headed by someone over 65 used transit.

• Americans will put up with more hassle to use faster modes of public transit. Eighty percent of bus riders walked to a bus stop, and 93 percent lived within a mile of transit. By contrast, only 41 percent of subway/light rail riders lived within a mile of their stop, and only 44 percent walked to a rail stop. (26 percent drove, and the rest took a bus to the train or biked. (Table S-04-B)

• Many Americans have inadequate pedestrian access to nearby blocks. Only 55 percent of American housing units have sidewalks, including only 49 percent of over-65 householders. However, new construction is actually more likely to have sidewalks—about 60 percent of units built in the last four years have them (Table S-04-C). Only 43 percent of Southerners have them, as opposed to 69 percent of westerners (the North and Midwest hover around 60 percent). Bike lanes are still pretty rare; only about 14 percent of units have them.

 (Cross-posted from planetizen.com)

The public benefits of Airbnb (a website allowing people to rent out rooms in their houses and apartments) seem fairly obvious to me. Visitors and new movers can pay less for their lodging by renting a room in someone’s apartment than by renting a hotel room, thus enabling longer trips, thus enabling city economies to benefit from more tourism. So it might appear that Airbnb might make housing more affordable, at least for visitors and movers.

But the hotel lobby and a variety of other opponents have sought to shut down Airbnb, especially in high-cost cities like New York and San Francisco where it competes most effectively with hotels.

For example, Sen. Dianne Feinstein (whose is in the hotel business)* has written an op-ed arguing that Airbnb allows landlords to “vacate their units and rent them out to hotel users, further increasing the cost of living.”

In other words, Airnbnb opponents see lodging as a zero-sum game: what benefits visitors must harm existing renters. By this logic, govenrment should just outlaw hotels, since every hotel unit is a potential apartment.

More seriously, the zero-sum argument assumes that every room rented to a visitor would otherwise be rented to a roommate. But the two “products” are not reasonably interchangeable; roommates involve advantages (such as familiarity and a regular rent check every month) and disadvantages (such as a 365-day relationship) that differ from those of Airbnb “temporary roommates.”**

Moreover, the supply of Airbnb rooms is actually pretty limited; for example, I just searched for Airbnb rooms in San Francisco renting for under $100 (and thus cheaper than most private hotels) and found a grand total of 486 rooms (not counting entire apartments, which compete more with ordinary landlords than with hotels). When I searched for rooms cheaper than the cheapest hotel on hotels.com, I found only 74 rentals- hardly enough to affect housing prices.  In less expensive cities, Airbnb is even less popular and thus even less likely to affect housing supply; for example, in Houston, I found only 139 rentals for less than $100.

Feinstein argues that renters should at least be kept out of single-family neighborhoods, because temporary renters would create “a blanket commercialization of our neighborhoods. ” This argument makes no sense to me; renting a room in a house for a night is no more “commercial” than renting the whole house for a year.  In both situations, someone is paying for lodging.

*In the interests of full disclosure, I note that I am an occasional Airbnb customer and thus have a small financial interest in this issue myself).

**I realize that this argument is slightly less absurd when the Airbnb host is renting out an entire house or apartment, since this “product” is more similar to a traditional tenancy.

But my own condo-buying experience suggests otherwise. In 2002, I bought a one-bedroom condominium in Atlanta for $133,000. On one hand, Atlanta is not one of the nation’s more expensive cities; on the other hand, my condo is in one of the city’s most affluent areas, Buckhead. The average house or condo value in Buckhead’s zip code is about half a million dollars—lower than in Manhattan, but higher than that of many outer-borough neighborhoods. In short, this is a high-demand zip code.

My condominium was certainly a luxury building when it was built. In addition to the pools and clubhouses common in Atlanta buildings, this building has a 24-hour doorman, a fairly unusual feature in Atlanta. So I would imagine that when my building got its first occupants in 1988, the developer did not think it would be “affordable housing” in any sense of the word.

But then the recession happened. The last time I checked, Zillow.com said that the condo was worth only $94,000, and that if someone bought it, he or she would pay $516 for the mortgage and property taxes (plus condo fees). My condo is certainly far more affordable than I had envisioned, even by Atlanta standards.

What happened? Of course, the recession reduced demand for housing in Atlanta. But according to the National Association of Home Builders, regional housing prices are only about 10 percent below their 2006 peak—far below my unit’s 30 percent drop.

More importantly, there seems to be a lot of newer housing in Buckhead; Zillow lists 126 condos for sale in zip code 30305; almost half of them were built after mine (which was built in 1988), and 45 of them were built after 2000.  (By contrast, on New York’s 10023 zip code in the Upper West Side, only 30 of 291 units for sale were built after 1988.) Thus, it appears that Buckhead’s surge of new housing may have held down the price of older units such as mine.

It could be argued that because Atlanta is a low-cost city, its experiences are therefore irrelevant to those of more expensive cities. But in Atlanta, as in New York, new units are luxury units. Of the 45 condos for sale in my zip code built after 2000, not one is as cheap as mine. Only two of the condo units are being offered for less than $200,000 (though seven foreclosed units being put up for auction have lower “Zestimates,” which are Zillow’s guess of their value), and the median price is $375,000. Pre-2000 units are cheaper; five were less expensive than my $94,000 estimate, and ten foreclosures have lower Zestimates. The median price of pre-2000 units was slightly below $200,000. So in both Atlanta and New York, it appears that newer units are more expensive than older units.

It therefore seems to me that the law of supply and demand applies to housing even where new housing is significantly more expensive than older housing. The presence of new units holds down the price of older units by increasing the overall supply of housing and by making the older units less desirable in comparison. It logically follows that if any city builds (or allows the private sector to build) enough new housing, the desirability of new construction should make existing units more affordable. The only difference between a high-demand city and a low-demand city is that the city has to work harder to produce the new housing.

Yet my walk is missing something: variety. Once I leave the commercial area a couple of blocks from my apartment, I see almost nothing but single-family homes until I get to work. One lesson of my walk is that even if an area is incredibly well-designed, it gets boring without diversity of uses.

(Cross-posted from cnu.org)

]]> http://www.smartgrowthforconservatives.com/2014/07/23/dont-blame-the-rich-for-high-rents/feed/ 0