>a large portion of foreign buyers won't use the home/condo as a primary residence, but rather treat it as an investment.<
Given the high level of US property taxes and maintenance costs, it's not likely many foreign buyers will eschew leasing the properties to others. In other words, while billionaires may leave their Manhattan or Miami condos empty, this isn't all that common throughout the US. IOW it's far from clear that the presence of foreign capital reduces housing abundance. Who cares whether one's landlord is based in Kansas City or Kuala Lumpur?
Sound logical though it's still wrong. The capital gain one can earn on an empty property usually outweighs the taxes. And keeping a property empty lowers maintenance costs.
>The capital gain one can earn on an empty property usually outweighs the taxes.<
A capital gain is generated only when the property sold makes a profit. A building owner who, say, keeps an apartment building empty for five years and sells it will, in the vast majority of cases in the United States, makes less money than an owner who has fat rent rolls and then sells it. Sixty months of foregone rent is a big hit! What would the purpose be of leaving so much money on the table be?
Were your conception of property ownership valid, we'd see high and rising apartment vacancy rates in the USA. Which, of course, would be great (rents would come down) for many Americans.
Unfortunately that's very much what we do not see.
It is on record that empty apartments are cheaper for many owners to maintain than having to deal with tenants. Especially when the owners are using the apartments to "park their money".
- Luxury construction makes a city more attractive to wealthy people
- With the increased wealth (of some) of the people living in the city, services that cater to that wealth becomes available and/or increases in quality.
- The increased quality and abundance of services makes the city more desirable to other wealthy (though not as wealthy as the people that buy the luxury construction) people.
- Above-average wealthy people are willing and able to pay more for rent to both live in and to lease to provide services.
"Luxury" construction can cause high rents like seeding clouds can cause rain.
>Luxury construction makes a city more attractive to wealthy people<
There's overwhelming evidence that "wealthy people" are primarily attracted by the underlying attributes of a location (access to high-paying jobs, mainly). An absence of luxury buildings does approximately nothing to help poorer residents, for the simple reason that the "wealthy people" you cite are only too happy to buy distressed properties and renovate such properties themselves. They don't need to wait for a developer, and indeed do not do so. Once even very modest numbers of more highly paid people have discovered a neighborhood, amenities (restaurants, shopping, gyms, etc) rapidly multiply. Which makes the neighborhood even more attractive. Rinse and repeat.
You sound as if you've never actually taken a stroll through a gentrifying neighborhood.
That the wealthy people may or may not live in constructions in less salubrious areas does not mean that they don't willingly buy them for a lot of money.
And you should be careful not to sound like a sock puppet for a major developer.
Usually both happens when there is a trend in place of more business hiring plus price appreciation, but gentrification of affordable neighborhoods happens a little slower when yuppie towers are built.
If demand increases but supply does not, price increases (gentrification). If you build yuppy towers, supply also increases, and if you build enough, price either remains the same or falls. Unfortunately, it is very hard for supply to meet demand in housing. It's a lot easier for 50,000 people to move to a new city than to build 50,000 new housing units at the same time for them. Nonetheless, it is critical we do build those units. Because if we don't, the demand is still there, price (rent) increases, and you get gentrification. There is no other way around it. Simple Economics 101 I wish every America understand.
The article is excellent. I find that it doesn't mention one other effect that people often ignore. I live in the Cambridge/Somerville area of MA where there is huge demand for upscale housing by people moving to the area to work mainly, but not only, in the pharmaceutical industry. In Cambridge and to a lesser extent (so far) Somerville there is also a huge NIMBY population who attempt to block all new market rate housing exactly as described in the article. Obviously, that doesn't reduce the demand, so what do people looking for housing do? They do the rational next best thing which is to buy modest housing, which in Somerville at least is still relatively plentiful, and put a couple of hundred thousand dollars into fixing them up to the standards that they desire. After a few dozen of these around places like Union and Davis Squares, you end up with neighborhoods that formerly had Fords and Toyotas out front to Audis, Lexus and BMWs.
The upshot is that these new neighborhoods are now unaffordable by most people's standards exactly like housing NIMBYs would have been trying to prevent. One can imagine that if "luxury" housing had been allowed how much less demand would have been put on the existing stock.
Gentrification of an area is a normal urban process. What is bad about what is happening today is you thinking that huge towers of small boxes is a good solution.
OK, you've told us what you don't want. How, other than high density building, would you propose solving the housing problem that is largely an urban housing problem? After all, there's only so much land.
>How do we incentivize the NIMBYs to change? As in - what’s in it for them?<
YIMBYism has to up its game in terms of political communication to address this very issue. I believe the recent failure in NY State amply shows this. A few suggestions:
1) Don't use the word "density." EVER. Talk about housing abundance. Talk about being able to walk to a nice coffee shop or a Trader Joe's. Talk about stuff that comfortable professional people enjoy.
2) Talk about property rights. Mention the Long Island family sitting on a large lot who might have a $600K windfall just waiting to fall into their bank account—if the law allowed them to sell a piece of their land.
3) Talk about how building high quality multi-unit dwellings preserves more of our beautiful country for fishing, hunting (yes, hunting, with guns and everything!) and outdoor recreation. IIRC this tactic was successfully used recently in Montana. Notice no mention of "density" is required.
4) Talk about making it possible for your daughter's teacher or the cop who arrests bad guys NOT to have to endure a 60 mile commute.
5) Talk about preventing your grandchildren from having to move 900 miles away.
6) Talk about how a single mom raising a kid on a waitress salary while she tries to earn a degree might—if we have housing abundance—be able to rent a decent apartment for her and her child that doesn't cost 190% of her wages.
7) Talk about a contractor—a burly fellow with a working class accent who probably voted for Trump—was all set to begin construction on new homes when a NIMBY lawsuit forced him to cancel at the last minute (and lay off eight workers).
Some people are just selfish pricks. You can't convince *everybody*. But my sense is most folks are more reasonable than we might give them credit for. And in any event you thankfully don't have to convince everybody.
It's early days yet. Housing abundance advocates need to sharpen their game. But I believe they'll do so. And in the fullness of time I'm personally optimistic they'll win (you just have to be realistic about how long this is going to take: it's not an overnight project).
“Folks have realized that there’s nowhere in Lexington for their kids to live if they want to move back after college,” said Planning Board chair Bob Peters. “And we also have residents who have hit retirement age and want to downsize, but can’t find anywhere in town to do that. The answer we have in front of us is to build more multifamily housing.”
Matt Yglesias actually commented on Lexington's approach the last couple of days. His take, which I can't specifically refute or accept, is that the large well-off Asian community in Lexington is a large part of the difference in approach.
I mainly focus on the "abundance agenda" for lower-info uncommitted voters, property rights and "making normal neighborhoods legal again" (look up the article by Daniel Herriges from Strong Towns) for more right-leaning or nostalgic voters, and the "jobs/housing balance" / musical-chairs concept with left-NIMBYs. (And I've had serious conversations with my State Senator and one of my County Supervisors about trying to impose some kind of formal linkage where building departments can't approve offices w/o citing the linked housing, whether in their own jurisdiction or some other where they cut a deal to transfer benefit payments in exchange for having the linkage, with a mechanism fo bonuses/penalties depending on transit adjacency, distance, etc.)
Sometimes I've been blunt and say if we don't have places for the currently homeless to live then they will just camp anywhere they want. The people are already here so you can choose to let in neighbors who can afford higher rent or those who can't.
It's language that is appalling in progressive circles (and, to be VERY CLEAR, is antithetical to my personal values) but it definitely targets a certain audience. Persuading people who hold different values (i.e., selfish pricks) often isn't pretty.
"2) Talk about property rights. Mention the Long Island family sitting on a large lot who might have a $600K windfall just waiting to fall into their bank account—if the law allowed them to sell a piece of their land."
If perceived as contrary to other external interests (such as an increase in traffic, crime, or hipsters), this argument really only succeeds against libertarians. And I mean *actual* libertarians, not libertarian-leaning conservatives. And it also requires them to look past the fairly clear disingenuousness of the argument, when compared to all of the other regulations coming down from central-planning Utopians.
Before arguing that one should be able to sell your 1/4 acre in a subdivision to a developer to build a 50 story condo, how about re-stating for the record that you're still allowed to use gas appliances.
I seriously doubt the appeal of a potential windfall would be as weak as you seem to think. People need cash. Especially when they no longer work. Under the status quo, many older homeowners have to move or take on debt to access equity. I'm not suggesting the number of homeowners moved by this argument is vast. But I doubt it's zero, either.
And in any event there are multiple pro YIMBY arguments that can be cited. No doubt there others I haven't thought of. No single argument need carry the day.
Talk about how much money developers can make selling developments with sub-standard construction to people desperate for accommodation while providing no additional infrastructure or services to deal with the increasing density. [No matter, I'm sure we can setup a plan for people to book time in a local park for their kids to play.]
People are "desperate for accommodation" precisely because so many locations suffer from housing scarcity. It would be irrational for any person to settle for substandard housing in a market where providers of housing have to compete for one's business.
Are so you unware of the shift of vast amounts of wealth in the US, and other OECD countries, away from the middle and upper classes to the very rich that you believe developers can "solve" a housing crisis that the developers themselves intentionally created?
Housing scarcity is primarily enabled by politicians who court the votes of homeowners who greatly value the stasis subsidy they derive from NIMBYism. We saw an example of this last week in New York State. This had virtually nothing to do with developers, many of whom support housing deregulation.
(To be sure, some developers—those who are entrenched, those who know how to work the system, those who do well out of the status quo—oppose deregulating the housing market. They don't want the competition!)
House scarcity is cause by many factors. Choosing to blame it on left-wing hippies that don't what to see their neighbourhood destroyed is an easy, if misplaced, target. Follow the money - the only winners in a housing crisis are developers (and the politicians to whom they donate.)
I don’t think we can incentivize NIMBYs to change. The best we can do is educate people on why YIMBY is good & encourage them to vote. YIMBY is already popular! ~60% of people support it when asked if they support basic YIMBY beliefs.
In Austin, many of of the council members are YIMBY and many of the need are especially pro YIMBY.
No, people are not assigned NIMBY at birth. However, NIMBY ideology is usually rooted in preserving their own self-interest. For example, a NIMBY homeowner is a NIMBY because he would rather his neighborhood not change. He doesn't care about your arguments about affordable housing or walkability because all he wants is for his neighborhood not to change. He likes his Prop 13 tax rates, he likes his single-family home neighborhood, and he doesn't want towers. It's pretty much impossible to convince these people, since you would have to convince them to go against their own self-interest. They will simply dig in their heels.
Instead, I would recommend try to leverage the massive support YIMBY already has among the people. In some cases, when polled about basic YIMBY ideas, 60% of people, usually more, support them. Local elections already have few voters as it is, so getting out the YIMBY vote is critical to winning power. For example, most local elections only have 10-15% voter turnout, compared to 50% during election years. I think it is a better use of time & resources to organize the YIMBY support there already is in the people, rather than try to break down entrenched interests.
Maybe they'd like their adult children and grandchildren to live closer? Not in the exurbs or the sunbelt. And the same for their friends. Some of whom might also move to be closer to their own kids.
I once heard a pretty convincing NIMBY argument in Mountain View. Don’t ban housing, ban (and tax) offices. I thought this was a good example of fighting the rain instead of fighting umbrellas. You can’t ban offices anymore with working from home, but NIMBYs are creative, I’m sure they can figure something out. The only problem is if you prevent the rain too well you get crop failure, but that’s a problem for another day.
Boy is it ever. The US situation is dire in much of the country, but at least we have the safety valves of places like Charlotte, Tampa, Houston and so on (not that the Sunbelt is immune to NIMBYism these days, it isn't—but it's not yet near California crisis levels).
Interesting - could distressed cities in the northeast (Hull, Sunderland, Newcastle, etc) become safety values with the right public policy? England also has the problem of generally being against building up, even if it is more dense than the US.
So I don't think you know that housing is not a strictly market based enterprise. Its "strict market" is interfered with on numerous levels. First, is incentives to builders, there's the cheating of the contractors (best exemplified by Trump who would not pay his contractors and then also sue them out of business), then there are buyers who buy for investment and never live there (including many billions of dollars of drug or other illegal profit money), last but not least are corporate investments, also involving billions of dollars.
So new construction was NEVER a strict market and still isn't and therefore doesn't follow strict market principles, even in the aggregate. Look at someplace like Vancouver, where market rents and housing prices increased exponentially (and far above affordability) when literally tens of thousands of new units went up (one single development was about 50,000 new condos in 1990, something like 1/2 of which stood empty until last year) bought mostly by investors from Hong Kong who were creating a bolt hole for themselves should Hong Kong ever get really awful (like it is now under Xi Jinping). The market for this housing was never Vancouver itself but really it was Hong Kong with Hong Kong prices and layouts and other concerns (like light and density).
Vancouver is a actually the perfect illustration of NIMBYs not allowing housing supply to match demand. Yes, some towers have gone up in downtown and Yaletown and so on....but outside of the central core the city remains zoned almost exclusively for single family housing. Metro Vancouver has had massive economic and population growth over the last generation, fueled by tech and yes, immigration (of all income levels). But outside of downtown and a few waterfront areas the city turns immediately into SFH, with 40+ storey towers blocks from ordinary houses with a completely missing middle. Now the ugly old Vancouver Specials houses cost $1.5+ and the rest of the pressure has been absorbed by former exurbs like New Westminster and Surrey.
When I was a student at UBC I lived in a large house in Point Grey that had been divided into 4 separate units that had a total of 17 people living there, all students, with at least 5 in basement rooms without windows (probably illegal?). If it were legal to build multifamily housing in a desireable area next to a giant university, maybe renting a room would be cheaper.
Anyway, I think that your comment speaks to the psychology of the left-NIMBY belief better than what Noah wrote in his article. I think what really happens is that 3-4 things happen at the same time in a city with housing supply restrictions.
1. Demand increases, either due to many new arrivals to the city, income growth or changing demographics (e.g. more single people living alone, demanding more housing). Most of the time, it's a combination of all three.
2. Housing prices increase.
3. As housing prices rise, high income people often move into traditionally lower-income areas.
4. Some new housing is built, usually in the form of highly visible apartment towers in the limited locations where they are allowed.
The average citizen can observes (2)-(4) but is often not able to see (1). Therefore they paradoxically blame the negative effects of (2) and (3) on the new housing itself, rather than the underlying problem (increased demand with limited supply).
Well, some of that certainly drove demand, but it was really Hong Kongers who wanted to get out of Hong Kong that drove the biggest demand. I worked in real estate in the early to mid nineties in Vancouver. Every year of the 90's something like 4 billion dollars in investment from Hong Kong specifically (in addition to other investments from people who lived in Vancouver, people who lived elsewhere - like Russia - etc.) would pour in, for 10 years straight. You can't tell me $40 billion doesn't make a dent in problem. It was the MAIN problem for Vancouver's (that city specifically) housing unaffordability issues.
Oh, I wasn't saying it isn't a market. I was saying it isn't a "strict" market. So if the people in Vancouver are looking for a house they look for certain things, if it's not them that's looking (and instead it's people from Hong Kong or anywhere else) then the market isn't following the local trends, it's following the trends from/for elsewhere. Also it's following drug money, etc. So it's not a logical, "strict" market that follows the simple principle of the "market will bear what the market wants," it's following a much more convoluted path and really it's multiple markets because, of course, the people who do live and work in Vancouver want one thing and the people who live elsewhere want other things.
This just goes to show that non-owner-occupier housing purchases are pernicious and should be fiercely regulated. That is: if you want to decrease home and apartment prices, and increase access and availability, build more housing across the board and disincentivize real estate investors and non-owner-occupiers by hiking up taxes and fees on them specifically.
Got to consider two exceptions, and one further induction effect;
1. Sometimes, the swanky new build ends up as second homes, airbnbs, buy to lets, or even buy-to-hold-empty (often foreign buyers wanting a bolthole). And sometimes the developer spends a ton of money on marketing the new builds to oursiders, generating new demand in the area. These dont help the locals wanting a place to live. Thinking of eg cornwall and london, in the uk, as examples of these factors.
2. What was on the site beforehand, and what were the alternative uses? If the answers involve affordableish housing then yes the swanky new stuff is stiffing the locals who just eant a place to live.
3. Because swanky new developments do induce some demand from higher income groups, they support the influx of related retail, leisure, services, employment. Which makes them more of a target for further swanky new developments. Developers keen to grab bits of older housing stock, spare land, and public spaces. More pressure on the modes of land use that were supporting the locals who have been there for decades. More traffic and poorer air quality for the incumbents too. Bit of a feedback loop. Examples abound across london.
Outside of these caveats i'd agree that development can be positive for local communities eg when more housing means more demand for retail and leisure and means that the village or town can support a few more shops, bars, eateries, and leisure facilities.
This is a fine post but one of the difficulties in assessing the thesis is that the lag time between building and downward rent pressure can be on the order of years. In our area of Bethesda, MD , building of new dwelling units (90% or more are apartments) has been ongoing for the past dozen years. From our balcony, we have views of four building cranes for new apartment construction. It takes 18 - 24 months from groundbreaking (in all cases these buildings have required demolition of older buildings that in some cases was older housing) to completion.
On our street there are over a dozen four story apartment buildings constructed in the early 1950s (I'm not sure about the total occupancy) that fall in the "moderate rent" category. These are all slated for demolition with high rise units to be built, but this will be a 13 year process so we can't know what the impact on rents will be for some time.
Our county does have a regulation requiring a certain number of "affordable" units to be part of new construction . This can also ameliorate rent prices. I'm in general agreement with the points Noah made in his post but don't think the evidence, at least in the experience of our area, is totally rock solid.
>This is a fine post but one of the difficulties in assessing the thesis is that the lag time between building and downward rent pressure can be on the order of years<
All the more reason to get started on housing abundance as soon as possible.
England is the perfect counter to those saying if we force people to build sub-market rate, but don’t expand the significantly stock in area with high demand. After several years the properties and up at market rate, which has only continued to go up. This holds even for public housing due to ‘right to buy’
There are cities that build a lot where rents stay cheap.
There are cities that don't built a lot where rents skyrocket.
There are a few superstar cities that build a lot and yet get more expensive anyways because their job market is so hot that they are having trouble keeping up. This is legitimately a problem, but it's a much better problem to have than having your key local industry collapse, like what happened to Detroit.
There is literally no such thing as a city that's cheap but doesn't build a lot. _Even Detroit_ actually makes it relatively easy to build (tearing down abandoned units to do new construction), and that combined with the cheap underlying land makes housing very cheap.
Actually I thought Noah Smith's article was interesting and informative. I am going to read it again later today.
But I thought and still think the issue is more complex than as presented.
Where I live we have zoning. Some seem to think they should have some control over what is in their back yard. I am one of them.
I live in a quasi-rural area and we want to keep it that way. But the demographics are changing and the prior prevailing opinion may change. One has to accept that. Sometimes what you do not want turns out later to be something you would not want to part with.
A discussion board should not be set up so that dissenting opinions are discouraged. Generally we benefit from discussion. Cause and effect are always difficult to deal with.
I think that part of the issue is that the USA makes it so easy to anonymously park one’s money in real estate, so, at least from what I understand to occur in NYC, despite luxury apartments being built and bought, they languish empty because the wealthy have purchased them just as an item to hold like a piece of art until it appreciates in value, and maybe occasionally use in lieu of hotel, but otherwise just keep off the market. New luxury housing then does not cause the rents to rise, but there are perverse incentives to build more luxury housing than needed which, because city land use is inevitably a zero-sum game, reduces supply of affordable housing.
This is one of those things that has a kernel of truth in it, but is massively overstated. Like yes, there are certain very narrow areas in the US where Russian oligarchs (not really them right now because of sanctions, but in the popular imagination) buy real estate as something between an investment and an insurance policy. But this market is tiny, it's basically a few blocks of 57th street and some UES townhouses in Manhattan, waterfront real estate in Miami, and some houses in Beverly hills (also mansions in parts of London). And of course this makes sense, because these are *terrible* investments. Unlike a Picasso or a pile of gold bars in some Swiss bank vault, a condo comes with an obligation to pay real estate taxes, to perform maintenance to preserve value, to pay condo fees for the doormen and porters and dog groomers that staff the luxury building's multi-story amenity suite. And those are some of the hardest taxes in the world to avoid--if you don't pay them the local government can simply seize the apartment because the apartment can't move and who owns is essentially determined by some entries in a ledger down at city hall. (As an aside, if you just want to park your money in real estate you're not using that's not going to raise eyebrows, you're much better off buying a strip mall in Phoenix than a condo on Central Park South--it's cashflow positive and no one cares too much about who owns it.)
I'd really suggest that anyone who thinks this is a big issue go to some open houses of "normal" luxury developments--think two million dollar apartments in Brooklyn instead of hundred million dollar penthouses overlooking Central Park, after all there are far more of the former than the latter. Who you will meet there is a bunch of young families with high paid jobs (lawyers, bankers, etc.), not anonymous men in suits with a buyer on the phone from Moscow. And if you come back a year later and walk by at 9pm on a Tuesday you'll see most of the living rooms have their lights on and there's like nine Seamless delivery drivers hanging out in the lobby waiting for the many very real residents to come downstairs and collect their dinners.
It's also worth noting that the idea that people can just anonymously buy large amounts of real estate from overseas without anyone ever finding out is outdated. This was a extremely well remarked upon issue and there have been a lot of legal changes in the last few years to address it: https://www.nytimes.com/2022/08/28/opinion/ukraine-oligarch-cleveland-real-estate.html
Foreign demand has a very real impact in places like London, NY and Miami, and it isn’t just Russians.
And where there are foreigners interested there are usually also domestic tycoons and celebrities buying places. Your argument that foreigners buying in only certain neighborhoods wouldn’t put up prices elsewhere, essentially means that building in only certain neighborhoods should not reduce prices and elsewhere (contradicting the argument in this piece).
The reality is that marginal demand and marginal supply changes do have an impact on prices.
It is late at night and I barely have the concentration to post this, plus I didn't thoroughly read the article yet, but... this is one of the very, very rare occasions where I differ from Mr. Smith and actually seem to see his easy faults while describing the arguments in place. So I will surely have to come round again and correct myself.... or not.
I've been personally running from gentrification forces for almost three decades now, on a "free market" country (Chile) where certain kinds of growth do get impulses at certain phases in time and so have experienced some of these arguments in the flesh.
So, when Noah says " If you’re a working-class person, and you see a big new shiny glass apartment tower going up a block away, it makes perfect sense to be afraid that rents are about to rise.".
And yes, that is part of the gentrification equation. Not the main cause yes, but part, because higher income renters are not going to live in the neighborhood as it is/was. Firstly renovations galore start, and a shift in priorities cascades; new flashy small shops appear, little cafes then followed by restaurants and tipping points are reached when existing apartment buildings get a % of new owners enough to change the communal policies.
So it is not just umbrellas opening to the coming rain, but a whole other moving factors at play. Like the sense of security and thus having 24 hours guards in some streets do improve their attractiveness (in fact becoming causal then). Plus existing characteristics come into value as well like closeness with transport (metro), to city services and soon that 15 minutes city concept, or even 30 or 45 mins if you move on bike (like myself), become main causes that promote gentrification and hence rises on rent faster there than in other places of the same metropolis.
The question is if those are real existing demand swings are promoted, incentivized ones. Precisely there is where the free-market becomes conducted and steered by partial actors, usually those with the loudest voice. Nimbys or Yimbys may alter the demand and supply too. Marketing and power moves being the not-so-hidden variables both (S & D) actually include in their completer formulation.
Reading further got me again having a revisionist angle on this article, but in fairness to its theoretical coherence (as usual for Noah) I will leave this here for now.
I’m a big fan of most of your articles but I think this article is attacking a straw man. No one (or at least no one smart) is saying that luxury apartments cause rent to go up. The argument misses the fact that high end real estate and low end real estate exist in separate markets. They’re not substitute goods except at the margins
The argument is that if you could increase supply in either the low-cost or high-cost housing, you would lower the market price in that market. Adding luxury housing makes luxury housing a little more affordable, but does not affect low end housing — and does not increase the quantity of housing units exchanged in the low end market.
What do you think the impact would be of building below-market housing?
"No one (or at least no one smart) is saying that luxury apartments cause rent to go up" <-- The authors explicitly say this in the text that I quoted!! Also, this is a VERY common argument on the activist left.
"Adding luxury housing makes luxury housing a little more affordable, but does not affect low end housing — and does not increase the quantity of housing units exchanged in the low end market." <-- The many papers I cited in this article *directly address* this proposition.
You cited several papers, some of which showed a very moderate effect in lowering the price of low-end homes when new luxury homes were built and some which disagreed.
Again, your trickle down theory holds water, the question is as always one of opportunity costs.
What is the opportunity cost of building affordable homes (I.e government subsidized homes) instead of building market rate homes? Which would have a greater impact on the affordable housing market?
“Adding luxury housing makes luxury housing a little more affordable, but does not affect low end housing — and does not increase the quantity of housing units exchanged in the low end market.”
First, I’m baffled by how you could read this article and make such an authoritative claim when Noah cites a half-dozen economic papers clearly debunking this empirically.
Second, I have a very simple question. Assuming you are correct that the supply of housing remains constant at the low end section of the market--what happens why demand decreases because those who can afford higher end housing no longer compete?
There is not some separate housing market called “low end.” It is a spectrum, and if the high end of the market becomes cheaper, the middle part will also become cheaper, and demand pressure will be alleviated on the low end--making it cheaper too.
In the extreme case, a sort of reductio ad absurdum, imagine that 100 million “luxury” and “high end” apartments are built in the United States. This is around 1/3 of the total population, and around equal to the total number of households. Are you really under the impression that this will not reduce the costs of housing for the low-end of the market?
Obviously, while the market is stratified, it is not--despite your claim--two separate markets.
The high end rarely becomes cheaper with more supply - its price increases merely slow from what the pace would have been without the new construction.
I’ve lived/worked in London, Hong Kong, NY, California. Outside of Covid and temporary recessions (GFC), the high end prices have moved higher over the years, as have the low end prices, and the low end renters have been evicted and pushed further out.
This could be because the high end acts as a sort of Veblen good, but what you are describing is a situation where demand still exceeds supply, only less so than the counterfactual where less building occurs.
Remind me, which ones are you allowed to use the Low Income Housing Tax Credits to build? Which ones allow section 8 vouchers to be used to pay for them?
Is it the condos in the glass towers and $800 HOA fees?
> Remind me, which ones are you allowed to use the Low Income Housing Tax Credits to build
Maybe it's different where you are, but in my part of the country, developers are _required_ to build low-income, or "affordable" housing as part of the deal to build the market-rate housing. They might get tax credits for that, I don't know, but the housing itself is mandated, and it's also only available via lottery, so it really has very little to do with the housing market overall.
> Which ones allow section 8 vouchers to be used to pay for them?
Isn't this just up to the owner of the building or unit?
But generally, do you think that low end housing and subsidized housing are synonymous? They really are not. I live in a place with a lot of students, who tend to occupy the low-end housing and do not qualify for any kind of subsidies. Some of those students prefer to live in the more expensive housing, but they make it affordable by cramming more people in there (like 6 people in a 3 br place kind of thing). No one of that has anything to do with housing vouchers or low income tax credits.
Luxury apartments aren't real because *every* apartment is a luxury apartment. In the last two decades, new apartments and old minimum housing (e.g., stucco shitbox) have all called themselves luxury apartments. It's a meaningless term, since you don't want to be the only landlord not calling your property a luxury apartment.
I like to think about this with the following kind of silly thought experiment: Let's say some local anti-luxury apartment neighbors in a gentrifying neighborhood get a law passed that says any new apartment has to be kind of crappy. You can build as many new condos as you want in Williamsburg (someone please update my 20 year old reference there) as long as the windows are kind of small and there's no central air, the kitchens have to have formica countertops and linoleum floors and the cheapest appliances that Home Depot sells, absolutely no gyms or doormen in these buildings. This would satisfy a bunch of the stated objections of the anti-luxury housing NIMBYs.
wWhat do we think would happen? If a fancy two bedroom in Williamsburg is selling for $1.5m, would these less nice new apartments sell for (1) $500k, the cost of a two bedroom apartment in a less desirable neighborhood where this quality of construction is more common and the likely buyer is a more middle class person or (2) $1.3m to someone who was looking for one of those fancy $1.5m apartments and realizes that they can spend the extra $200k renovating the kitchen before they move in. We don't even have to speculate about this, because we can see what happens when older units hit the market in Williamsburg--they sell at high prices to people who renovate them.
And of course the people who object to the luxury apartments know this, which is why their proposed solution to the problem is never "you should build less fancy apartments," it's "you shouldn't build any apartments at all." The complaints about luxury--an unregulated marketing term that's slapped onto half the bedding at KMart--are entirely bad faith.
Nice post. Bur, I’m perplexed by the DC Multifamily market. There has been incredible multi family construction since 2020, between 11,000 and 12,000 units per year in a market, about 34,000 units, where the population actually declined from by 2.6 percent (about 20,000) between 2020 and 2022. Yet average rents have barely moved and there is still pretty robust construction. I’ll grant that older buildings have probably gotten somewhat cheaper, but this large increase in housing units hasn’t had much effect on rents (particularly in the upper end). There is considerable ProPublica had a recent piece about possible collusion in rent setting, which could be part of the puzzle. https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent
Anyway the situation is much different than my experience in Denver in the early 1970’s. In that period Denver experienced a multi family construction boom partially caused by the government ceded a defunct military base to the city, who then sold it yo developers. These new properties came on line within a few months and rents collapsed. Vacancy rates went so high that several properties were held off the market for while. Rent concessions for one year leases were very common, free first month and last month rent, a free bicycle tossed in or a bottle of wine when rent was paid on time. Nothing approaching this has time around in DC.
Obviously, this isn’t a well specified analysis but I remain confused. It seems to me that the large increase in housing stock combined with a population decline should have had a larger effect on rents.
It appears to me that DC just needs to build more. And I'm not referring to the nonsense of adding a nominal amount of "low income housing" on top of a luxury development, which might be a good solution for the developers and existing homeowners who both want to increase the value of their properties but is harmful to the business prospects of DC.
Excellent, well researched article. Thank you.
Thanks!!
>a large portion of foreign buyers won't use the home/condo as a primary residence, but rather treat it as an investment.<
Given the high level of US property taxes and maintenance costs, it's not likely many foreign buyers will eschew leasing the properties to others. In other words, while billionaires may leave their Manhattan or Miami condos empty, this isn't all that common throughout the US. IOW it's far from clear that the presence of foreign capital reduces housing abundance. Who cares whether one's landlord is based in Kansas City or Kuala Lumpur?
Sound logical though it's still wrong. The capital gain one can earn on an empty property usually outweighs the taxes. And keeping a property empty lowers maintenance costs.
>The capital gain one can earn on an empty property usually outweighs the taxes.<
A capital gain is generated only when the property sold makes a profit. A building owner who, say, keeps an apartment building empty for five years and sells it will, in the vast majority of cases in the United States, makes less money than an owner who has fat rent rolls and then sells it. Sixty months of foregone rent is a big hit! What would the purpose be of leaving so much money on the table be?
Were your conception of property ownership valid, we'd see high and rising apartment vacancy rates in the USA. Which, of course, would be great (rents would come down) for many Americans.
Unfortunately that's very much what we do not see.
It is on record that empty apartments are cheaper for many owners to maintain than having to deal with tenants. Especially when the owners are using the apartments to "park their money".
If suppliers are only permitted to 5% of potential buyers, they are going to sell to those with the greatest willingness to pay
Hmm:
- Luxury construction makes a city more attractive to wealthy people
- With the increased wealth (of some) of the people living in the city, services that cater to that wealth becomes available and/or increases in quality.
- The increased quality and abundance of services makes the city more desirable to other wealthy (though not as wealthy as the people that buy the luxury construction) people.
- Above-average wealthy people are willing and able to pay more for rent to both live in and to lease to provide services.
"Luxury" construction can cause high rents like seeding clouds can cause rain.
>Luxury construction makes a city more attractive to wealthy people<
There's overwhelming evidence that "wealthy people" are primarily attracted by the underlying attributes of a location (access to high-paying jobs, mainly). An absence of luxury buildings does approximately nothing to help poorer residents, for the simple reason that the "wealthy people" you cite are only too happy to buy distressed properties and renovate such properties themselves. They don't need to wait for a developer, and indeed do not do so. Once even very modest numbers of more highly paid people have discovered a neighborhood, amenities (restaurants, shopping, gyms, etc) rapidly multiply. Which makes the neighborhood even more attractive. Rinse and repeat.
You sound as if you've never actually taken a stroll through a gentrifying neighborhood.
That the wealthy people may or may not live in constructions in less salubrious areas does not mean that they don't willingly buy them for a lot of money.
And you should be careful not to sound like a sock puppet for a major developer.
Big fan of getting these types of posts every 9 months or so with updated research links ;)
Very simple truth: if “luxury apartments” aren’t built than the rich will simply compete for and live the “affordable apartments”
Usually both happens when there is a trend in place of more business hiring plus price appreciation, but gentrification of affordable neighborhoods happens a little slower when yuppie towers are built.
"Gentrification" can be entirely summarized by this single image: https://www.economicshelp.org/wp-content/uploads/2009/09/long-term-supply-increases.png.webp
If demand increases but supply does not, price increases (gentrification). If you build yuppy towers, supply also increases, and if you build enough, price either remains the same or falls. Unfortunately, it is very hard for supply to meet demand in housing. It's a lot easier for 50,000 people to move to a new city than to build 50,000 new housing units at the same time for them. Nonetheless, it is critical we do build those units. Because if we don't, the demand is still there, price (rent) increases, and you get gentrification. There is no other way around it. Simple Economics 101 I wish every America understand.
The article is excellent. I find that it doesn't mention one other effect that people often ignore. I live in the Cambridge/Somerville area of MA where there is huge demand for upscale housing by people moving to the area to work mainly, but not only, in the pharmaceutical industry. In Cambridge and to a lesser extent (so far) Somerville there is also a huge NIMBY population who attempt to block all new market rate housing exactly as described in the article. Obviously, that doesn't reduce the demand, so what do people looking for housing do? They do the rational next best thing which is to buy modest housing, which in Somerville at least is still relatively plentiful, and put a couple of hundred thousand dollars into fixing them up to the standards that they desire. After a few dozen of these around places like Union and Davis Squares, you end up with neighborhoods that formerly had Fords and Toyotas out front to Audis, Lexus and BMWs.
The upshot is that these new neighborhoods are now unaffordable by most people's standards exactly like housing NIMBYs would have been trying to prevent. One can imagine that if "luxury" housing had been allowed how much less demand would have been put on the existing stock.
Right. NIMBYism doesn't merely fail to prevent gentrification and displacement. It intensifies and worsens the situation.
Gentrification of an area is a normal urban process. What is bad about what is happening today is you thinking that huge towers of small boxes is a good solution.
More housing isn't just a good solution. It's the only solution.
Constructing vertical slums is not a solution to anything.
OK, you've told us what you don't want. How, other than high density building, would you propose solving the housing problem that is largely an urban housing problem? After all, there's only so much land.
Really good. But:
1. People are selfish
2. How do we incentivize the NIMBYs to change?
As in - what’s in it for them?
>How do we incentivize the NIMBYs to change? As in - what’s in it for them?<
YIMBYism has to up its game in terms of political communication to address this very issue. I believe the recent failure in NY State amply shows this. A few suggestions:
1) Don't use the word "density." EVER. Talk about housing abundance. Talk about being able to walk to a nice coffee shop or a Trader Joe's. Talk about stuff that comfortable professional people enjoy.
2) Talk about property rights. Mention the Long Island family sitting on a large lot who might have a $600K windfall just waiting to fall into their bank account—if the law allowed them to sell a piece of their land.
3) Talk about how building high quality multi-unit dwellings preserves more of our beautiful country for fishing, hunting (yes, hunting, with guns and everything!) and outdoor recreation. IIRC this tactic was successfully used recently in Montana. Notice no mention of "density" is required.
4) Talk about making it possible for your daughter's teacher or the cop who arrests bad guys NOT to have to endure a 60 mile commute.
5) Talk about preventing your grandchildren from having to move 900 miles away.
6) Talk about how a single mom raising a kid on a waitress salary while she tries to earn a degree might—if we have housing abundance—be able to rent a decent apartment for her and her child that doesn't cost 190% of her wages.
7) Talk about a contractor—a burly fellow with a working class accent who probably voted for Trump—was all set to begin construction on new homes when a NIMBY lawsuit forced him to cancel at the last minute (and lay off eight workers).
Some people are just selfish pricks. You can't convince *everybody*. But my sense is most folks are more reasonable than we might give them credit for. And in any event you thankfully don't have to convince everybody.
It's early days yet. Housing abundance advocates need to sharpen their game. But I believe they'll do so. And in the fullness of time I'm personally optimistic they'll win (you just have to be realistic about how long this is going to take: it's not an overnight project).
I liked this approach in Lexington MA
https://www.bostonglobe.com/2023/04/13/business/with-high-costs-little-new-housing-lexington-becomes-first-town-meet-ambitious-new-zoning-law/
“Folks have realized that there’s nowhere in Lexington for their kids to live if they want to move back after college,” said Planning Board chair Bob Peters. “And we also have residents who have hit retirement age and want to downsize, but can’t find anywhere in town to do that. The answer we have in front of us is to build more multifamily housing.”
Matt Yglesias actually commented on Lexington's approach the last couple of days. His take, which I can't specifically refute or accept, is that the large well-off Asian community in Lexington is a large part of the difference in approach.
that's where I got the article from... I am not sure I take the Asian consideration too seriously though. I simply don't know enough to say.
Quadruply up vote.
And don't tell people who like living in their neighborhood that they're racists. Even if you think it's true, it won't help your cause.
I mainly focus on the "abundance agenda" for lower-info uncommitted voters, property rights and "making normal neighborhoods legal again" (look up the article by Daniel Herriges from Strong Towns) for more right-leaning or nostalgic voters, and the "jobs/housing balance" / musical-chairs concept with left-NIMBYs. (And I've had serious conversations with my State Senator and one of my County Supervisors about trying to impose some kind of formal linkage where building departments can't approve offices w/o citing the linked housing, whether in their own jurisdiction or some other where they cut a deal to transfer benefit payments in exchange for having the linkage, with a mechanism fo bonuses/penalties depending on transit adjacency, distance, etc.)
Cosign about Daniel Herriges. He's probably the best writer on housing going today.
His Two Rules are straightforward (taken from https://www.strongtowns.org/journal/2020/3/4/two-simple-rules-for-healthy-neighborhood-change ):
1. No neighborhood can be exempt from change.
2. No neighborhood should experience sudden, radical change.
All of the above, but add city revenues from taxing all these nice new rich folks.
And don't tell them that they are racists for opposing housing abundance (and more commercial development)
Sometimes I've been blunt and say if we don't have places for the currently homeless to live then they will just camp anywhere they want. The people are already here so you can choose to let in neighbors who can afford higher rent or those who can't.
It's language that is appalling in progressive circles (and, to be VERY CLEAR, is antithetical to my personal values) but it definitely targets a certain audience. Persuading people who hold different values (i.e., selfish pricks) often isn't pretty.
"2) Talk about property rights. Mention the Long Island family sitting on a large lot who might have a $600K windfall just waiting to fall into their bank account—if the law allowed them to sell a piece of their land."
If perceived as contrary to other external interests (such as an increase in traffic, crime, or hipsters), this argument really only succeeds against libertarians. And I mean *actual* libertarians, not libertarian-leaning conservatives. And it also requires them to look past the fairly clear disingenuousness of the argument, when compared to all of the other regulations coming down from central-planning Utopians.
Before arguing that one should be able to sell your 1/4 acre in a subdivision to a developer to build a 50 story condo, how about re-stating for the record that you're still allowed to use gas appliances.
I seriously doubt the appeal of a potential windfall would be as weak as you seem to think. People need cash. Especially when they no longer work. Under the status quo, many older homeowners have to move or take on debt to access equity. I'm not suggesting the number of homeowners moved by this argument is vast. But I doubt it's zero, either.
And in any event there are multiple pro YIMBY arguments that can be cited. No doubt there others I haven't thought of. No single argument need carry the day.
The financial windfall argument has helped me sell people on ADUs but I haven't had great luck with it otherwise.
Good point, wait until people are in dire financial straits to convince them to do something they wouldn't do otherwise.
Many people would do this today. But the law prevents them from doing so.
I guess you're happy to find them desperate enough to be willing to be used.
Talk about how much money developers can make selling developments with sub-standard construction to people desperate for accommodation while providing no additional infrastructure or services to deal with the increasing density. [No matter, I'm sure we can setup a plan for people to book time in a local park for their kids to play.]
People are "desperate for accommodation" precisely because so many locations suffer from housing scarcity. It would be irrational for any person to settle for substandard housing in a market where providers of housing have to compete for one's business.
Are so you unware of the shift of vast amounts of wealth in the US, and other OECD countries, away from the middle and upper classes to the very rich that you believe developers can "solve" a housing crisis that the developers themselves intentionally created?
Housing scarcity is primarily enabled by politicians who court the votes of homeowners who greatly value the stasis subsidy they derive from NIMBYism. We saw an example of this last week in New York State. This had virtually nothing to do with developers, many of whom support housing deregulation.
(To be sure, some developers—those who are entrenched, those who know how to work the system, those who do well out of the status quo—oppose deregulating the housing market. They don't want the competition!)
House scarcity is cause by many factors. Choosing to blame it on left-wing hippies that don't what to see their neighbourhood destroyed is an easy, if misplaced, target. Follow the money - the only winners in a housing crisis are developers (and the politicians to whom they donate.)
Talk about how:
1. much money a developer can make with sub-standard construction.
2. much extra street parking there'll be when another 1,000 people move in
3. the local overcrowded schools will manage with additional students
4. the local hospital will continue to provide health services when it is currently stretched to the limit.
5. much extra open space per person we'll all get to enjoy when there's barely any now
I don’t think we can incentivize NIMBYs to change. The best we can do is educate people on why YIMBY is good & encourage them to vote. YIMBY is already popular! ~60% of people support it when asked if they support basic YIMBY beliefs.
In Austin, many of of the council members are YIMBY and many of the need are especially pro YIMBY.
You mean people are assigned NIMBY at birth?
The way to win is to find those NIMBYs who are open to persuasion and work your way through the rest of the population as best they can.
No, people are not assigned NIMBY at birth. However, NIMBY ideology is usually rooted in preserving their own self-interest. For example, a NIMBY homeowner is a NIMBY because he would rather his neighborhood not change. He doesn't care about your arguments about affordable housing or walkability because all he wants is for his neighborhood not to change. He likes his Prop 13 tax rates, he likes his single-family home neighborhood, and he doesn't want towers. It's pretty much impossible to convince these people, since you would have to convince them to go against their own self-interest. They will simply dig in their heels.
Instead, I would recommend try to leverage the massive support YIMBY already has among the people. In some cases, when polled about basic YIMBY ideas, 60% of people, usually more, support them. Local elections already have few voters as it is, so getting out the YIMBY vote is critical to winning power. For example, most local elections only have 10-15% voter turnout, compared to 50% during election years. I think it is a better use of time & resources to organize the YIMBY support there already is in the people, rather than try to break down entrenched interests.
I'll stick with the second sentence of my comment.
Maybe they'd like their adult children and grandchildren to live closer? Not in the exurbs or the sunbelt. And the same for their friends. Some of whom might also move to be closer to their own kids.
I once heard a pretty convincing NIMBY argument in Mountain View. Don’t ban housing, ban (and tax) offices. I thought this was a good example of fighting the rain instead of fighting umbrellas. You can’t ban offices anymore with working from home, but NIMBYs are creative, I’m sure they can figure something out. The only problem is if you prevent the rain too well you get crop failure, but that’s a problem for another day.
Loved this. It's a problem in the UK as well.
Boy is it ever. The US situation is dire in much of the country, but at least we have the safety valves of places like Charlotte, Tampa, Houston and so on (not that the Sunbelt is immune to NIMBYism these days, it isn't—but it's not yet near California crisis levels).
Interesting - could distressed cities in the northeast (Hull, Sunderland, Newcastle, etc) become safety values with the right public policy? England also has the problem of generally being against building up, even if it is more dense than the US.
Good point, of course, cheap(er) housing exists because people that live there do nothing.
But why do they all have to be so humid?
Phoenix, Tucson, Las Vegas, El Paso, SLC, Albuquerque
Whine... why do they have to be so hot?
Detroit, Cleveland, Pittsburgh, Chicago, St. Louis, Milwaukee, Buffalo ... all areas both cold and depopulating.
Whine... must they be so cold and dreary?
So I don't think you know that housing is not a strictly market based enterprise. Its "strict market" is interfered with on numerous levels. First, is incentives to builders, there's the cheating of the contractors (best exemplified by Trump who would not pay his contractors and then also sue them out of business), then there are buyers who buy for investment and never live there (including many billions of dollars of drug or other illegal profit money), last but not least are corporate investments, also involving billions of dollars.
So new construction was NEVER a strict market and still isn't and therefore doesn't follow strict market principles, even in the aggregate. Look at someplace like Vancouver, where market rents and housing prices increased exponentially (and far above affordability) when literally tens of thousands of new units went up (one single development was about 50,000 new condos in 1990, something like 1/2 of which stood empty until last year) bought mostly by investors from Hong Kong who were creating a bolt hole for themselves should Hong Kong ever get really awful (like it is now under Xi Jinping). The market for this housing was never Vancouver itself but really it was Hong Kong with Hong Kong prices and layouts and other concerns (like light and density).
Vancouver is a actually the perfect illustration of NIMBYs not allowing housing supply to match demand. Yes, some towers have gone up in downtown and Yaletown and so on....but outside of the central core the city remains zoned almost exclusively for single family housing. Metro Vancouver has had massive economic and population growth over the last generation, fueled by tech and yes, immigration (of all income levels). But outside of downtown and a few waterfront areas the city turns immediately into SFH, with 40+ storey towers blocks from ordinary houses with a completely missing middle. Now the ugly old Vancouver Specials houses cost $1.5+ and the rest of the pressure has been absorbed by former exurbs like New Westminster and Surrey.
When I was a student at UBC I lived in a large house in Point Grey that had been divided into 4 separate units that had a total of 17 people living there, all students, with at least 5 in basement rooms without windows (probably illegal?). If it were legal to build multifamily housing in a desireable area next to a giant university, maybe renting a room would be cheaper.
Anyway, I think that your comment speaks to the psychology of the left-NIMBY belief better than what Noah wrote in his article. I think what really happens is that 3-4 things happen at the same time in a city with housing supply restrictions.
1. Demand increases, either due to many new arrivals to the city, income growth or changing demographics (e.g. more single people living alone, demanding more housing). Most of the time, it's a combination of all three.
2. Housing prices increase.
3. As housing prices rise, high income people often move into traditionally lower-income areas.
4. Some new housing is built, usually in the form of highly visible apartment towers in the limited locations where they are allowed.
The average citizen can observes (2)-(4) but is often not able to see (1). Therefore they paradoxically blame the negative effects of (2) and (3) on the new housing itself, rather than the underlying problem (increased demand with limited supply).
Well, some of that certainly drove demand, but it was really Hong Kongers who wanted to get out of Hong Kong that drove the biggest demand. I worked in real estate in the early to mid nineties in Vancouver. Every year of the 90's something like 4 billion dollars in investment from Hong Kong specifically (in addition to other investments from people who lived in Vancouver, people who lived elsewhere - like Russia - etc.) would pour in, for 10 years straight. You can't tell me $40 billion doesn't make a dent in problem. It was the MAIN problem for Vancouver's (that city specifically) housing unaffordability issues.
I’m not sure how any of that makes it not a market. Do people from Hong Kong stop looking for bolt holes if you stop building apartments?
Oh, I wasn't saying it isn't a market. I was saying it isn't a "strict" market. So if the people in Vancouver are looking for a house they look for certain things, if it's not them that's looking (and instead it's people from Hong Kong or anywhere else) then the market isn't following the local trends, it's following the trends from/for elsewhere. Also it's following drug money, etc. So it's not a logical, "strict" market that follows the simple principle of the "market will bear what the market wants," it's following a much more convoluted path and really it's multiple markets because, of course, the people who do live and work in Vancouver want one thing and the people who live elsewhere want other things.
This just goes to show that non-owner-occupier housing purchases are pernicious and should be fiercely regulated. That is: if you want to decrease home and apartment prices, and increase access and availability, build more housing across the board and disincentivize real estate investors and non-owner-occupiers by hiking up taxes and fees on them specifically.
Interesting piece.
I'd agree as a general case.
Got to consider two exceptions, and one further induction effect;
1. Sometimes, the swanky new build ends up as second homes, airbnbs, buy to lets, or even buy-to-hold-empty (often foreign buyers wanting a bolthole). And sometimes the developer spends a ton of money on marketing the new builds to oursiders, generating new demand in the area. These dont help the locals wanting a place to live. Thinking of eg cornwall and london, in the uk, as examples of these factors.
2. What was on the site beforehand, and what were the alternative uses? If the answers involve affordableish housing then yes the swanky new stuff is stiffing the locals who just eant a place to live.
3. Because swanky new developments do induce some demand from higher income groups, they support the influx of related retail, leisure, services, employment. Which makes them more of a target for further swanky new developments. Developers keen to grab bits of older housing stock, spare land, and public spaces. More pressure on the modes of land use that were supporting the locals who have been there for decades. More traffic and poorer air quality for the incumbents too. Bit of a feedback loop. Examples abound across london.
Outside of these caveats i'd agree that development can be positive for local communities eg when more housing means more demand for retail and leisure and means that the village or town can support a few more shops, bars, eateries, and leisure facilities.
I would say simply,
1. Moralizing about appropriate types of demand is silly.
2. Moralizing about appropriate methods for building supply is just NIMBYism.
3. Intentional divestment from communities has a terrible legacy and we’d be better off not attempting to repeat it.
This is a fine post but one of the difficulties in assessing the thesis is that the lag time between building and downward rent pressure can be on the order of years. In our area of Bethesda, MD , building of new dwelling units (90% or more are apartments) has been ongoing for the past dozen years. From our balcony, we have views of four building cranes for new apartment construction. It takes 18 - 24 months from groundbreaking (in all cases these buildings have required demolition of older buildings that in some cases was older housing) to completion.
On our street there are over a dozen four story apartment buildings constructed in the early 1950s (I'm not sure about the total occupancy) that fall in the "moderate rent" category. These are all slated for demolition with high rise units to be built, but this will be a 13 year process so we can't know what the impact on rents will be for some time.
Our county does have a regulation requiring a certain number of "affordable" units to be part of new construction . This can also ameliorate rent prices. I'm in general agreement with the points Noah made in his post but don't think the evidence, at least in the experience of our area, is totally rock solid.
>This is a fine post but one of the difficulties in assessing the thesis is that the lag time between building and downward rent pressure can be on the order of years<
All the more reason to get started on housing abundance as soon as possible.
Yep, we've got to hurry. Organised crime is running out of places to park their money.
We should take action as quickly as possible because housing scarcity is causing mystery for millions of people.
The only mystery is why you think a developer would want to build lots of cheap accommodation.
The real mystery is why you think I think that.
The usual rule is that messes we took a lot of time to get into take a lot of time to get out of.
England is the perfect counter to those saying if we force people to build sub-market rate, but don’t expand the significantly stock in area with high demand. After several years the properties and up at market rate, which has only continued to go up. This holds even for public housing due to ‘right to buy’
One graph that should be included in this kind of review: https://twitter.com/JeremiahDJohns/status/1615352365040766976
There are cities that build a lot where rents stay cheap.
There are cities that don't built a lot where rents skyrocket.
There are a few superstar cities that build a lot and yet get more expensive anyways because their job market is so hot that they are having trouble keeping up. This is legitimately a problem, but it's a much better problem to have than having your key local industry collapse, like what happened to Detroit.
There is literally no such thing as a city that's cheap but doesn't build a lot. _Even Detroit_ actually makes it relatively easy to build (tearing down abandoned units to do new construction), and that combined with the cheap underlying land makes housing very cheap.
Actually I thought Noah Smith's article was interesting and informative. I am going to read it again later today.
But I thought and still think the issue is more complex than as presented.
Where I live we have zoning. Some seem to think they should have some control over what is in their back yard. I am one of them.
I live in a quasi-rural area and we want to keep it that way. But the demographics are changing and the prior prevailing opinion may change. One has to accept that. Sometimes what you do not want turns out later to be something you would not want to part with.
A discussion board should not be set up so that dissenting opinions are discouraged. Generally we benefit from discussion. Cause and effect are always difficult to deal with.
I think that part of the issue is that the USA makes it so easy to anonymously park one’s money in real estate, so, at least from what I understand to occur in NYC, despite luxury apartments being built and bought, they languish empty because the wealthy have purchased them just as an item to hold like a piece of art until it appreciates in value, and maybe occasionally use in lieu of hotel, but otherwise just keep off the market. New luxury housing then does not cause the rents to rise, but there are perverse incentives to build more luxury housing than needed which, because city land use is inevitably a zero-sum game, reduces supply of affordable housing.
This is one of those things that has a kernel of truth in it, but is massively overstated. Like yes, there are certain very narrow areas in the US where Russian oligarchs (not really them right now because of sanctions, but in the popular imagination) buy real estate as something between an investment and an insurance policy. But this market is tiny, it's basically a few blocks of 57th street and some UES townhouses in Manhattan, waterfront real estate in Miami, and some houses in Beverly hills (also mansions in parts of London). And of course this makes sense, because these are *terrible* investments. Unlike a Picasso or a pile of gold bars in some Swiss bank vault, a condo comes with an obligation to pay real estate taxes, to perform maintenance to preserve value, to pay condo fees for the doormen and porters and dog groomers that staff the luxury building's multi-story amenity suite. And those are some of the hardest taxes in the world to avoid--if you don't pay them the local government can simply seize the apartment because the apartment can't move and who owns is essentially determined by some entries in a ledger down at city hall. (As an aside, if you just want to park your money in real estate you're not using that's not going to raise eyebrows, you're much better off buying a strip mall in Phoenix than a condo on Central Park South--it's cashflow positive and no one cares too much about who owns it.)
I'd really suggest that anyone who thinks this is a big issue go to some open houses of "normal" luxury developments--think two million dollar apartments in Brooklyn instead of hundred million dollar penthouses overlooking Central Park, after all there are far more of the former than the latter. Who you will meet there is a bunch of young families with high paid jobs (lawyers, bankers, etc.), not anonymous men in suits with a buyer on the phone from Moscow. And if you come back a year later and walk by at 9pm on a Tuesday you'll see most of the living rooms have their lights on and there's like nine Seamless delivery drivers hanging out in the lobby waiting for the many very real residents to come downstairs and collect their dinners.
It's also worth noting that the idea that people can just anonymously buy large amounts of real estate from overseas without anyone ever finding out is outdated. This was a extremely well remarked upon issue and there have been a lot of legal changes in the last few years to address it: https://www.nytimes.com/2022/08/28/opinion/ukraine-oligarch-cleveland-real-estate.html
Foreign demand has a very real impact in places like London, NY and Miami, and it isn’t just Russians.
And where there are foreigners interested there are usually also domestic tycoons and celebrities buying places. Your argument that foreigners buying in only certain neighborhoods wouldn’t put up prices elsewhere, essentially means that building in only certain neighborhoods should not reduce prices and elsewhere (contradicting the argument in this piece).
The reality is that marginal demand and marginal supply changes do have an impact on prices.
On the west coast of North America aren't the archetypical "foreign oligarch" buyers of prime real estate usually Chinese rather than Russian?
It’s not hard in NY to hide behind an LLC to buy property
It is late at night and I barely have the concentration to post this, plus I didn't thoroughly read the article yet, but... this is one of the very, very rare occasions where I differ from Mr. Smith and actually seem to see his easy faults while describing the arguments in place. So I will surely have to come round again and correct myself.... or not.
I've been personally running from gentrification forces for almost three decades now, on a "free market" country (Chile) where certain kinds of growth do get impulses at certain phases in time and so have experienced some of these arguments in the flesh.
So, when Noah says " If you’re a working-class person, and you see a big new shiny glass apartment tower going up a block away, it makes perfect sense to be afraid that rents are about to rise.".
And yes, that is part of the gentrification equation. Not the main cause yes, but part, because higher income renters are not going to live in the neighborhood as it is/was. Firstly renovations galore start, and a shift in priorities cascades; new flashy small shops appear, little cafes then followed by restaurants and tipping points are reached when existing apartment buildings get a % of new owners enough to change the communal policies.
So it is not just umbrellas opening to the coming rain, but a whole other moving factors at play. Like the sense of security and thus having 24 hours guards in some streets do improve their attractiveness (in fact becoming causal then). Plus existing characteristics come into value as well like closeness with transport (metro), to city services and soon that 15 minutes city concept, or even 30 or 45 mins if you move on bike (like myself), become main causes that promote gentrification and hence rises on rent faster there than in other places of the same metropolis.
The question is if those are real existing demand swings are promoted, incentivized ones. Precisely there is where the free-market becomes conducted and steered by partial actors, usually those with the loudest voice. Nimbys or Yimbys may alter the demand and supply too. Marketing and power moves being the not-so-hidden variables both (S & D) actually include in their completer formulation.
Reading further got me again having a revisionist angle on this article, but in fairness to its theoretical coherence (as usual for Noah) I will leave this here for now.
Edit; including the morning after "translation".
I’m a big fan of most of your articles but I think this article is attacking a straw man. No one (or at least no one smart) is saying that luxury apartments cause rent to go up. The argument misses the fact that high end real estate and low end real estate exist in separate markets. They’re not substitute goods except at the margins
The argument is that if you could increase supply in either the low-cost or high-cost housing, you would lower the market price in that market. Adding luxury housing makes luxury housing a little more affordable, but does not affect low end housing — and does not increase the quantity of housing units exchanged in the low end market.
What do you think the impact would be of building below-market housing?
"No one (or at least no one smart) is saying that luxury apartments cause rent to go up" <-- The authors explicitly say this in the text that I quoted!! Also, this is a VERY common argument on the activist left.
"Adding luxury housing makes luxury housing a little more affordable, but does not affect low end housing — and does not increase the quantity of housing units exchanged in the low end market." <-- The many papers I cited in this article *directly address* this proposition.
You cited several papers, some of which showed a very moderate effect in lowering the price of low-end homes when new luxury homes were built and some which disagreed.
Again, your trickle down theory holds water, the question is as always one of opportunity costs.
What is the opportunity cost of building affordable homes (I.e government subsidized homes) instead of building market rate homes? Which would have a greater impact on the affordable housing market?
“Adding luxury housing makes luxury housing a little more affordable, but does not affect low end housing — and does not increase the quantity of housing units exchanged in the low end market.”
First, I’m baffled by how you could read this article and make such an authoritative claim when Noah cites a half-dozen economic papers clearly debunking this empirically.
Second, I have a very simple question. Assuming you are correct that the supply of housing remains constant at the low end section of the market--what happens why demand decreases because those who can afford higher end housing no longer compete?
There is not some separate housing market called “low end.” It is a spectrum, and if the high end of the market becomes cheaper, the middle part will also become cheaper, and demand pressure will be alleviated on the low end--making it cheaper too.
In the extreme case, a sort of reductio ad absurdum, imagine that 100 million “luxury” and “high end” apartments are built in the United States. This is around 1/3 of the total population, and around equal to the total number of households. Are you really under the impression that this will not reduce the costs of housing for the low-end of the market?
Obviously, while the market is stratified, it is not--despite your claim--two separate markets.
The high end rarely becomes cheaper with more supply - its price increases merely slow from what the pace would have been without the new construction.
I’ve lived/worked in London, Hong Kong, NY, California. Outside of Covid and temporary recessions (GFC), the high end prices have moved higher over the years, as have the low end prices, and the low end renters have been evicted and pushed further out.
Yes but this is because demand has grown faster than supply.
This could be because the high end acts as a sort of Veblen good, but what you are describing is a situation where demand still exceeds supply, only less so than the counterfactual where less building occurs.
Build enough more, and prices will decrease.
Yes, but also Say’s law is a foundation of Keynesian economics.
I think the word "luxury" is doing a heckuva lot of work in this criticism. It's a marketing term!
No difference between low end and high end, huh?
Remind me, which ones are you allowed to use the Low Income Housing Tax Credits to build? Which ones allow section 8 vouchers to be used to pay for them?
Is it the condos in the glass towers and $800 HOA fees?
> Remind me, which ones are you allowed to use the Low Income Housing Tax Credits to build
Maybe it's different where you are, but in my part of the country, developers are _required_ to build low-income, or "affordable" housing as part of the deal to build the market-rate housing. They might get tax credits for that, I don't know, but the housing itself is mandated, and it's also only available via lottery, so it really has very little to do with the housing market overall.
> Which ones allow section 8 vouchers to be used to pay for them?
Isn't this just up to the owner of the building or unit?
But generally, do you think that low end housing and subsidized housing are synonymous? They really are not. I live in a place with a lot of students, who tend to occupy the low-end housing and do not qualify for any kind of subsidies. Some of those students prefer to live in the more expensive housing, but they make it affordable by cramming more people in there (like 6 people in a 3 br place kind of thing). No one of that has anything to do with housing vouchers or low income tax credits.
Luxury apartments aren't real. They don't cost more because they're high-end, they're just relatively more attractive because they're new.
(The construction and land costs haven't been paid off yet but that's not the renter's problem, so it's not why they're paying more.)
Luxury apartments aren't real because *every* apartment is a luxury apartment. In the last two decades, new apartments and old minimum housing (e.g., stucco shitbox) have all called themselves luxury apartments. It's a meaningless term, since you don't want to be the only landlord not calling your property a luxury apartment.
Why do you think that?
I like to think about this with the following kind of silly thought experiment: Let's say some local anti-luxury apartment neighbors in a gentrifying neighborhood get a law passed that says any new apartment has to be kind of crappy. You can build as many new condos as you want in Williamsburg (someone please update my 20 year old reference there) as long as the windows are kind of small and there's no central air, the kitchens have to have formica countertops and linoleum floors and the cheapest appliances that Home Depot sells, absolutely no gyms or doormen in these buildings. This would satisfy a bunch of the stated objections of the anti-luxury housing NIMBYs.
wWhat do we think would happen? If a fancy two bedroom in Williamsburg is selling for $1.5m, would these less nice new apartments sell for (1) $500k, the cost of a two bedroom apartment in a less desirable neighborhood where this quality of construction is more common and the likely buyer is a more middle class person or (2) $1.3m to someone who was looking for one of those fancy $1.5m apartments and realizes that they can spend the extra $200k renovating the kitchen before they move in. We don't even have to speculate about this, because we can see what happens when older units hit the market in Williamsburg--they sell at high prices to people who renovate them.
And of course the people who object to the luxury apartments know this, which is why their proposed solution to the problem is never "you should build less fancy apartments," it's "you shouldn't build any apartments at all." The complaints about luxury--an unregulated marketing term that's slapped onto half the bedding at KMart--are entirely bad faith.
Nice post. Bur, I’m perplexed by the DC Multifamily market. There has been incredible multi family construction since 2020, between 11,000 and 12,000 units per year in a market, about 34,000 units, where the population actually declined from by 2.6 percent (about 20,000) between 2020 and 2022. Yet average rents have barely moved and there is still pretty robust construction. I’ll grant that older buildings have probably gotten somewhat cheaper, but this large increase in housing units hasn’t had much effect on rents (particularly in the upper end). There is considerable ProPublica had a recent piece about possible collusion in rent setting, which could be part of the puzzle. https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent
Anyway the situation is much different than my experience in Denver in the early 1970’s. In that period Denver experienced a multi family construction boom partially caused by the government ceded a defunct military base to the city, who then sold it yo developers. These new properties came on line within a few months and rents collapsed. Vacancy rates went so high that several properties were held off the market for while. Rent concessions for one year leases were very common, free first month and last month rent, a free bicycle tossed in or a bottle of wine when rent was paid on time. Nothing approaching this has time around in DC.
Obviously, this isn’t a well specified analysis but I remain confused. It seems to me that the large increase in housing stock combined with a population decline should have had a larger effect on rents.
Thanks for you time
Jack
I also live in DC and share your view.
It appears to me that DC just needs to build more. And I'm not referring to the nonsense of adding a nominal amount of "low income housing" on top of a luxury development, which might be a good solution for the developers and existing homeowners who both want to increase the value of their properties but is harmful to the business prospects of DC.
Here is Noah's March 3 post which I imagine you have already seen: https://open.substack.com/pub/noahpinion/p/everything-you-think-you-know-about?r=g2dce&utm_campaign=post&utm_medium=web
Yes, I thought Noah’s post, as usual, was right on point.