March 6, 2020 / 7:07 PM / a month ago

Breakingviews - Review: The rent is too darn political

NEW YORK (Reuters Breakingviews) - Want to rile up America’s coastal millennials? Ask them what they pay in rent. Sky-high housing costs are the scourge of many U.S. cities. And the solution seems pretty obvious: build more housing. But politics often complicates this. “Golden Gates” – an excellent new book by The New York Times writer Conor Dougherty – dispenses with ideology to offer some economic sense on a genuine crisis.

Protesters hold placards during a city council vote for a new "head tax" on the city's biggest companies, including Amazon.com, as a way of fighting a housing crisis sporsors attibute largely to a local econonimic boom driving real estate costs, in Seattle, Washington, U.S., May 14, 2018. REUTERS/Gregory Scruggs

The housing struggle is real for many Americans. Roughly a quarter of tenant households shell out over half of their income on rent, writes Dougherty, and evictions are dislodging around a million households every year. Perhaps nowhere is the problem more visible than in the San Francisco Bay Area. Here, monthly rent for an average one-bedroom can easily top $3,400. Yet homelessness in the city has also reached such extremes that human feces can be found littering streets not far from some of the world’s most valuable companies.

Employees of relative come-latelies like Facebook and Twitter often get blamed for changes to neighborhoods. But blaming workers for seeking housing near their employers seems pretty misguided. It’s easier to blame landlords – especially as some are also large companies, such as the $61 billion Blackstone. But, again, criticizing a landlord for increasing rents to the current market rate also misses the mark.

A rising population doesn’t have to create a housing crisis. California saw its population more than double from 1940 to 1960, but a spike in building also occurred. National construction of single family homes jumped from around 114,000 in 1944 to 1.7 million in 1950, Dougherty writes, with construction in the Golden State booming. As any economics student could explain, the supply met the demand, and prices didn’t get out of control.

But economics models aren’t often built with NIMBYs in mind. The not-in-my-backyard label is typically applied to residents who oppose new building projects, often citing threats such as traffic, crime or – horror of horrors – shadows cast by new developments. Dougherty documents how zoning laws, which restrict the type and amount of housing that can be built, have allowed development opponents – NIMBY or otherwise – to block the construction of housing for decades.

There is now a pro-development alternative – YIMBYs, or yes-in-my-backyard. Sonja Trauss – a young PhD-dropout – created the SF Bay Area Renters’ Federation in 2014 to hound officials to build more housing. Unlike some opponents of gentrification – such as Democratic presidential candidate Bernie Sanders – who often criticize the building of so-called luxury housing, many YIMBYs argue that any increase in the housing supply is an improvement.

This is where the problem gets trickier. To close the gap between housing demand and supply, California would need to build 3.5 million housing units by 2025, according to a 2016 McKinsey Global Institute study. But building a 100-unit affordable housing project costs around the equivalent of almost $42.5 million as of 2016, according to University of California Berkeley’s Terner Center for Housing Innovation. A lot of this is due to regulation and land costs, but it’s also because unlike some industries, the productivity of construction employees hasn’t much increased in the past few decades.

And changing zoning laws won’t fix every problem. Dougherty describes a teenage girl from a low-income community who develops panic attacks when facing eviction. She clearly can’t wait for the benefits of increased housing supply to trickle down. Some form of rent control could be a solution. Though an expansion of subsidies – like the current Section 8 housing voucher program – would probably be more effective, as even Dougherty admits that rent control can often raise rents overall.

Not all opposition to development is pure NIMBYism. Poorly planned development can arguably make an area less livable if it dramatically reduces greenspace, leads to severe overcrowding or proves an eyesore. Local communities should have some control over how their area grows. But federal oversight would also be needed to ensure that this doesn’t result in discriminatory laws – as it often can. And another partial solution could be expanding high-tech opportunities in other U.S. cities – especially university towns – so that the benefits and burdens of new industries can be more evenly spread.

Thankfully, “Golden Gates” doesn’t read like a dry white paper. And the quirky characters and genuine plot twists make the policy wonkery more effective. In an election year filled with fantastical policy promises, Dougherty’s thoughtful take on a hot-button issue seems downright radical.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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