It's really a super obvious idea. The cost of any new building in a major city is almost entirely location. A $3,000/month studio in Brooklyn would go for $500 outside of a rural city -- so why would a developer purposely build shitty housing when the rental price wouldn't be appreciably lower?
Not to mention the lack of luxury housing isn't going to convince Mr. Yuppie to move out of NYC. He's just going to jack up the price of a semi-dilapitated brownstone (or turn a faux-victorian into a hacker house in SF).
>so why would a developer purposely build shitty housing when the rental price wouldn't be appreciably lower?
Because it'd be a lot cheaper to build and you could charge the same rent?
I'm not really sure what your point is here. If the cost of renting was completely location based and not quality based, developers would construct the cheapest housing possible in the most desirable locations - they wouldn't be building luxury housing.
The idea that building high-income housing makes rents rise is pretty obviously bunk, but the idea that building high-income housing "helps affordability" is not as clear cut. Is it good to increase supply? Yes, of course. But on the other hand, this article fails to mention three phenomena plaguing cities like London, San Francisco, and Vancouver:
1. Speculators. There's been a huge uptick in people from other locales - even internationally - buying or building housing units as investments and literally leaving them empty, expecting them to appreciate in value. These units are effectively not part of the housing stock and don't help with the supply problem.
2. Vacation Homes. As wealth inequality has become more dramatic, the wealthy have more income to spend on vacation homes. In cities like Portland, Maine, Manhattan and San Francisco, many high-end condo buyers are buying these units as vacation destinations that they'll only occupy for a tiny part of the year. These too are not being truly added to the housing supply.
3. Airbnb/Short Term Rentals. I don't want to single out Airbnb here, but it's known to real estate agents and investors that you can make way more money with an Airbnb rental than a long-term rental. (Where I live it's about 5x difference in annual income.) Many new housing units are being eaten by people who use them to operate short-term rentals, which they have an enormous economic incentive to do. These units too are not being added to the long-term housing supply.
Where I live it's about 5x difference
in annual income.
Is that 5x in total income over the year, or 5x in rent charged? Shorterm rentals have various costs that long-term renting doesn't have, like cleaning, higher repair costs, lack of occupation during off-peak season etc.
Increasing the number of units does not increase demand for speculators, vacation homes or airbnb. Those should be addressed, but in a totally seperate conversation from whether to build more units or not.
Wait a second. You can't end your article with "This myth is busted: building more high end housing doesn’t make housing less affordable" and then have the title "Why building more high income housing helps affordability." Because you have busted one myth, doesn't mean you have proved the opposite.
After ww2, there was a housing shortage in most European countries because people were moving from rural areas to cities. I don't think the shortages were solved until governments stepped in and built price-controlled rental apartments on a massive scale.
>After ww2, there was a housing shortage in most European countries because people were moving from rural areas to cities. I don't think the shortages were solved until governments stepped in and built price-controlled rental apartments on a massive scale.
The idea is that what did the trick was not the "price-controlled rental apartments" but the "built (...) on a massive scale"
I'm interested in hearing a discussion on this. It seems reasonable, but it also seems like it could be missing what's going on (is the new housing market-rate or above market-rate?) or missing other driving mechanisms ("investment" properties that then go empty?)
But it does name a mechanism that seems reasonable for driving rents down as new high-end housing gets built; although the mechanism sounds suspiciously like "trickle down".
Edit: I am in no way associated with the authors or site or any of; it came across my feed and I found it interesting.
There may be some factors that work against his conclusion. Higher end new properties might be built with less space efficiency than new middle or lower end properties. So if you bulldoze a block of low rise apartments and build a couple massive single family homes, you are making housing prices worse overall.
But I don't see much indication of that actually happening in high cost of living cities like SF, NYC, DC. If anything, new "high end" apartment buildings have very small units compared to older stock.
It's also not always true over a small area of an entire housing market. If you bulldozed the poor areas of DC and rebuilt with dense luxury properties, the average rent in the city would go up, but the prices in the suburbs would fall.
My experiences match this article very well. I live in the cheapest building in my neighborhood, probably 300-400 dollars below "market." But my unit was build in the 1960's as a luxury unit. It's huge, has large walk in closets, and has a "butler door." People who lived there originally were expected to have help. And now it is the shittiest building in the area.
And my coworker is talking the other route. He lives in what was literally a crackhouse 10 years ago. Gentrification is much increased when you refused to build new high income property. Those higher income people just bid up low income property.
This is the most banal possible observation: increased supply drives prices down. It is literally econ 101, probably literally first week of econ 101.
There may be wrinkles or complexities. Obviously, in an infill situation, if you tear down existing housing and then build new housing, it's less clear that overall affordability will increase. There may be a backlog of demand that means that as new stock comes onto the market, the affordability increases less than you would imagine.
But is it basically true? Sure. Even if you build new units only for millionaires, that takes the millionaires out of competition for other high end markets, which then makes people who were previously marginal for those units get them, and takes them out of competition for the next tier down, etc.
Consider what would happen if you were a high-income tech worker looking to move to San Francisco.
If there was a nice new apartment available, you might rent it. But if there wasn't, you would have to settle for an older apartment, which puts you into direct competition with poorer people over housing stock.
This is what is happening in San Francisco now -- high-income people are bidding up the prices of older apartments, many of which are pretty crappy, because the supply of new apartments is pretty small. This is how the city ended up with 70-year-old crappy apartments renting for more than $3000 per month.
If San Francisco built lots of new luxury apartments, the rich newcomers would live in them, and leave the older apartments available for the people who can't afford to pay more.
Yeah I think that "trickle-down" with regard to individual income taxes is different than the "trickle-down" of asset-prices due to depreciation and increased supply.
I don't think the author's car comparison is apt here. Cars are not stationary assets. I can have a Denali in suburbia and and Denali in midtown and it's still a Denali. However, a flat above retail in suburbia is probably not at all the same as a flat above retail in midtown.
I agree that the over arching law of supply and demand is still at play. But if I go look anywhere in my city center at prime locations with nice housing built 30 years ago, I don't see that being anywhere near affordable for lower or even middle income families.
In places that have high demand and constrained supply, the impact will not be particularly meaningful.
There's also the problem where housing policy in the US tends to create upward pressure on prices rather than doing something sensible (like trying to be hands off or lower prices).
Trickle-down economics suggested capitalists were somehow benevolent money spreaders instead of selfish, cheap bastards, but as applied to housing there is a sizable segment of affluent Bay Area residents whom will move when new/better options come along. The gotcha is that affluent residents represent such a minuscule fraction of inventory, giant flats can't possibly be false equivocated to building tons of tiny, cheap studios or much more section 8 housing.
OTOH, there is plenty of idle housing inventory (~8%) which could house all of the homeless and the very poor right now.
There is one problem with supply-side solutions to housing affordability: as the rich move in, the poor will be displaced. As temporary as the rise in housing cost may seem to supply-side economic theory, displacement of the poor has ongoing consequences. Their concerns are moved figuratively and physically to the edges of society. We're not talking about cars or soccer balls. We're talking about the very geographic units that are the basis for our representative democracy. From the electoral college to district maps, geography still determines who represents you. Beyond representation, there are other concerns that are very much influenced by geography like schooling and health services.
The rich will be moving in anyway, unless you specifically restrict purchases, and even then, they will hire lawyers to get around them. If I'm a wealthy person looking to move to SF but there are no luxury condos to buy, am I just going to give up? Hell no. I'll buy a crack house that some poor folks are renting, kick them out, and fix the place up. Building the luxury condo means I'll leave the poor folks alone.
The poor don't need to be displaced unless you artificially restrict growth. It's one thing I appreciate about NYC. There's essentially three types of neighborhoods, organized by price:
You can find stupid cheap housing in Queens/Brooklyn/Bronx/Jersey and still be able to take the subway to Manhattan. Why is NYC like this and not SF? Because as the city grows they re-zone neighborhoods (e.g. Downtown Brooklyn and LIC) and expand subway/bus-service further out.
I don't see where you're getting this from, if you're creating new housing units. When rich people move into housing units that previously didn't exist, who's getting displaced exactly? We're not talking about remodeling existing units, we're talking about new supply.
Housing and transportation are closely related. In cities where this has gotten out of hand, the highways are clogged with people who are moving from affordable (for all income levels) housing to incrementally better jobs and back daily (commuting). It would be impossible to talk about creating equitable housing without addressing transportation problems in tandem.
The issue is that most urbanites like rich people, like poor people, but hate middle income people.
There are a few cultural reasons for this. The result is that new construction is inevitably high end, with some units set aside for low income, or public housing.
Middle income people aren't seen as deserving to live downtown.
> Middle income people aren't seen as deserving to live downtown.
I don't think we have to assume that. Might just be that rich people need poor people in close physical proximity (as nannies, cleaners, dog-walkers, gardeners etc) but don't have any corresponding need for middle-income people.
Eh. Building high income housing on a vacant lot might help bring down housing prices overall, but what you usually see is dense small units getting demolished so less dense but more expensive units can go up.
I'm not seeing this. The old and extremely shitty apartments around me aren't too much smaller by square foot, and have a fraction of the height - everything new is at least four floors of apartments, compared with the two of all the older construction.
This is certainly plausible, but cities need to worry about now, as well as 20 years down the road. Many of the places with the most cost problems will have a constant influx of people to keep prices high. The market isn't always a panacea.
You do not solve the housing problem by equating it to some simple economic principles.
If you build, you also have an effect on the area around it. People that do not already live in skyscrapers do not want to live next to skyscrapers.
Gentrification is a real effect.
Apart from that you are probably even reducing supply:
High income housing usually means way too big apartments. It is also often actually an unused investment object and not used for housing.
[+] [-] ng12|9 years ago|reply
Not to mention the lack of luxury housing isn't going to convince Mr. Yuppie to move out of NYC. He's just going to jack up the price of a semi-dilapitated brownstone (or turn a faux-victorian into a hacker house in SF).
[+] [-] jonbarker|9 years ago|reply
[+] [-] nck4222|9 years ago|reply
Because it'd be a lot cheaper to build and you could charge the same rent?
I'm not really sure what your point is here. If the cost of renting was completely location based and not quality based, developers would construct the cheapest housing possible in the most desirable locations - they wouldn't be building luxury housing.
[+] [-] gooserock|9 years ago|reply
1. Speculators. There's been a huge uptick in people from other locales - even internationally - buying or building housing units as investments and literally leaving them empty, expecting them to appreciate in value. These units are effectively not part of the housing stock and don't help with the supply problem.
2. Vacation Homes. As wealth inequality has become more dramatic, the wealthy have more income to spend on vacation homes. In cities like Portland, Maine, Manhattan and San Francisco, many high-end condo buyers are buying these units as vacation destinations that they'll only occupy for a tiny part of the year. These too are not being truly added to the housing supply.
3. Airbnb/Short Term Rentals. I don't want to single out Airbnb here, but it's known to real estate agents and investors that you can make way more money with an Airbnb rental than a long-term rental. (Where I live it's about 5x difference in annual income.) Many new housing units are being eaten by people who use them to operate short-term rentals, which they have an enormous economic incentive to do. These units too are not being added to the long-term housing supply.
[+] [-] mafribe|9 years ago|reply
[+] [-] wtvanhest|9 years ago|reply
[+] [-] bjourne|9 years ago|reply
After ww2, there was a housing shortage in most European countries because people were moving from rural areas to cities. I don't think the shortages were solved until governments stepped in and built price-controlled rental apartments on a massive scale.
[+] [-] bye_world_4321|9 years ago|reply
The idea is that what did the trick was not the "price-controlled rental apartments" but the "built (...) on a massive scale"
[+] [-] dang|9 years ago|reply
[+] [-] RangerScience|9 years ago|reply
But it does name a mechanism that seems reasonable for driving rents down as new high-end housing gets built; although the mechanism sounds suspiciously like "trickle down".
Edit: I am in no way associated with the authors or site or any of; it came across my feed and I found it interesting.
[+] [-] rhino369|9 years ago|reply
But I don't see much indication of that actually happening in high cost of living cities like SF, NYC, DC. If anything, new "high end" apartment buildings have very small units compared to older stock.
It's also not always true over a small area of an entire housing market. If you bulldozed the poor areas of DC and rebuilt with dense luxury properties, the average rent in the city would go up, but the prices in the suburbs would fall.
My experiences match this article very well. I live in the cheapest building in my neighborhood, probably 300-400 dollars below "market." But my unit was build in the 1960's as a luxury unit. It's huge, has large walk in closets, and has a "butler door." People who lived there originally were expected to have help. And now it is the shittiest building in the area.
And my coworker is talking the other route. He lives in what was literally a crackhouse 10 years ago. Gentrification is much increased when you refused to build new high income property. Those higher income people just bid up low income property.
I'd be shocked if the author was wrong.
[+] [-] aetherson|9 years ago|reply
There may be wrinkles or complexities. Obviously, in an infill situation, if you tear down existing housing and then build new housing, it's less clear that overall affordability will increase. There may be a backlog of demand that means that as new stock comes onto the market, the affordability increases less than you would imagine.
But is it basically true? Sure. Even if you build new units only for millionaires, that takes the millionaires out of competition for other high end markets, which then makes people who were previously marginal for those units get them, and takes them out of competition for the next tier down, etc.
[+] [-] twblalock|9 years ago|reply
If there was a nice new apartment available, you might rent it. But if there wasn't, you would have to settle for an older apartment, which puts you into direct competition with poorer people over housing stock.
This is what is happening in San Francisco now -- high-income people are bidding up the prices of older apartments, many of which are pretty crappy, because the supply of new apartments is pretty small. This is how the city ended up with 70-year-old crappy apartments renting for more than $3000 per month.
If San Francisco built lots of new luxury apartments, the rich newcomers would live in them, and leave the older apartments available for the people who can't afford to pay more.
[+] [-] zebrafish|9 years ago|reply
I don't think the author's car comparison is apt here. Cars are not stationary assets. I can have a Denali in suburbia and and Denali in midtown and it's still a Denali. However, a flat above retail in suburbia is probably not at all the same as a flat above retail in midtown.
I agree that the over arching law of supply and demand is still at play. But if I go look anywhere in my city center at prime locations with nice housing built 30 years ago, I don't see that being anywhere near affordable for lower or even middle income families.
[+] [-] maxerickson|9 years ago|reply
In places that have high demand and constrained supply, the impact will not be particularly meaningful.
There's also the problem where housing policy in the US tends to create upward pressure on prices rather than doing something sensible (like trying to be hands off or lower prices).
[+] [-] burntrelish1273|9 years ago|reply
OTOH, there is plenty of idle housing inventory (~8%) which could house all of the homeless and the very poor right now.
[+] [-] psoots|9 years ago|reply
[+] [-] hx87|9 years ago|reply
[+] [-] ng12|9 years ago|reply
1. Cool neighborhoods 2. Convenient neighborhoods 3. Cheap neighborhoods
You can find stupid cheap housing in Queens/Brooklyn/Bronx/Jersey and still be able to take the subway to Manhattan. Why is NYC like this and not SF? Because as the city grows they re-zone neighborhoods (e.g. Downtown Brooklyn and LIC) and expand subway/bus-service further out.
[+] [-] jimmywanger|9 years ago|reply
I don't see where you're getting this from, if you're creating new housing units. When rich people move into housing units that previously didn't exist, who's getting displaced exactly? We're not talking about remodeling existing units, we're talking about new supply.
[+] [-] jonbarker|9 years ago|reply
[+] [-] wmil|9 years ago|reply
There are a few cultural reasons for this. The result is that new construction is inevitably high end, with some units set aside for low income, or public housing.
Middle income people aren't seen as deserving to live downtown.
[+] [-] mrec|9 years ago|reply
I don't think we have to assume that. Might just be that rich people need poor people in close physical proximity (as nannies, cleaners, dog-walkers, gardeners etc) but don't have any corresponding need for middle-income people.
[+] [-] eridius|9 years ago|reply
[+] [-] bandrami|9 years ago|reply
[+] [-] RangerScience|9 years ago|reply
Where are you seeing this?
[+] [-] pnutjam|9 years ago|reply
[+] [-] legulere|9 years ago|reply
If you build, you also have an effect on the area around it. People that do not already live in skyscrapers do not want to live next to skyscrapers.
Gentrification is a real effect.
Apart from that you are probably even reducing supply: High income housing usually means way too big apartments. It is also often actually an unused investment object and not used for housing.
Case in point: Manhattan has a lower inhabitants/km² than Eixample: https://en.wikipedia.org/wiki/Eixample
[+] [-] ng12|9 years ago|reply