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Steve Taber
What's Really Driving Housing Unaffordability
There's a lot that is misleading or simply wrong in the April 13 article “Paradigm Shift: Rethinking Housing Affordability”. (There's a lot to like, too.)
For example, the article states that “the reason (that high-rise public housing projects proved unlivable) was simple: Successive administrations and Congress failed to provide sufficient funding for adequate management and ongoing maintenance and operations.”
This is thoroughly refuted by scholarly study, initially by Jane Jacobs and then by architecture Professors Russ Ellis and Clare Cooper Marcus at UC Berkeley. That research found that high-rise housing occupants are mentally disconnected from the street by vertical distance, so that crime can spread, unchecked by a cohesive community keeping an eye on its neighborhood. In rough terms, once housing exceeds three stories, it starts to lose social cohesion and lapse into social pathologies. This was truly pioneering research; as Californians, we should be proud of it and pay it special heed.
For another example, “for-profit investors will never build affordable housing without some type of financial subsidy”. This is self-evident, but it misses the point. Obstacles to housing development (local opposition, CEQA, etc.) restrict housing development at all income levels, top to bottom. However, when consumers in the top tier of the market cant find enough housing to meet their demand, they don't become homeless, they just move down a tier in the market, pushing the consumers below them down another tier. All this drives gentrification as it ripples down through the market, until it reaches the bottom tier, where people get priced out of the market and end up homeless. Note that the shortage of affordable housing in this scenario is caused by a shortage of high-end housing. In other words, the factor driving unaffordability is overall supply, not simply the supply of affordable housing. All housing supply, from luxury to affordable, mitigates the forces that drive gentrification and unaffordablity.
Around 1970, there was plenty of affordable housing in the Bay Area, without government intervention or subsidies. There was a vacancy rate in the ballpark of 5% (an indicator of a healthy housing market). With renters having a choice of housing, landlords lacked pricing power, so the market naturally reached balance, with landlords at the bottom of the market forced to compete on rents to attract tenants. (In my personal case, in 1970, I shared a comfortable, clean, market-rate studio apartment in downtown Oakland with 2 other gentlemen, splitting the $60/month rent three ways.)
To be clear, I am in favor of building affordable housing. But the Bay Area economy, the strongest, most diverse, and most innovation-based regional economy in the world, creates high-paying jobs at an astonishing pace. We also need to serve the demand for housing that this growth generates, if we are to avoid continuing to squeeze people out of the bottom of the market.
For a third example, the article states that “supply-side economics simply does not work”. The article bemoans the greed of the wealthy and the profit-motivated. Hear, hear! But the American economy derives its vigor from providing wide-open opportunities for people to maximize their personal profit. This has failed to deliver enough housing in the Bay Area not because the laws of supply and demand (that seem to work everywhere else) have been suspended here. Rather, it is because we have thrown too many obstacles in the path of greedy developers. This has reduced their profits, increased their risk, and thereby reduced their motivations and their output. This has left us with inadequate housing supply, rising rents, and increasing homelessness.
I agree that supply-side economics do not work to reduce income inequality (the “reverse Kuznets curve”). But it definitely works to improve supply. Remember the Reagan-era building boom, with lots of vacant apartments and “see-through” office buildings? If we can make housing development straightforward and profitable, we can be very confident that profit-driven developers will be greedy enough to jump at the opportunity to get rich. More supply, whether luxury, affordable, or in between, is the only solution to a housing shortage. As the economists tell us, the answer to high prices is high prices. The public sector is quite adept at regulating economic activity, but the profit-motivated private sector has proven best at conducting it.
Finally, it is not necessary, and most certainly not desirable, to deprive local governments of the right to zone development as the means to increase housing supply. A good example of this is the City of Berkeley. The City Council in the 1960s was dominated by Republicans. (No kidding - In 1967, Berkeley re-elected its Republican Mayor by a 3 to 1 margin.) They zoned all of south Berkeley for multi-family. The result was atrocious; developers tore down beautiful old craftsman houses to throw up ticky-tacky stucco walkups. When the balance of power shifted to the Democrats shortly thereafter, the council moved to protect Berkeley's architecture heritage. This has been a triumph of public policy: preserving the city's architecture heritage.
But Berkeley has accomplished this while also building a lot of housing, directing it to places near transit, in walkable neighborhoods, and where density does not do violence to the neighborhood. There are plenty of places in the Bay Area like this; we can readily solve our housing shortage without sacrificing what makes the Bay Area so beautiful and livable.
Here again, credit goes to the UC Berkeley, where City and Regional Planning Professor Allan Jacobs pioneered a new science of city planning (at the time, in San Francisco) which preserved a city's architectural and urban character while accommodating profit-driven, high-density development.
So, let's make peace with greed, put it in a short leash, and let the entrepreneurial spirit which is so strong and healthy in the Bay Area put our housing crisis behind us.
Steve Taber
About me: I am a renewable energy entrepreneur, educated at Princeton and UC Berkeley, where I had the great privilege to learn from the professors mentioned above.