Affordable Housing for All?
Among the vast collection of data in the Vital Signs section of the Metropolitan Transportation Commission website, is a chart showing the number and percentage of low-income Bay Area residents at risk of experiencing housing displacement 1990-2015. This is an abbreviated version of the chart:
Note the steady increase in the percentage of residents at risk, until 2015. Although the decline in 2015 could be attributed to increase in housing supply, the more likely story is out-migration of low-income residents. High-income earners move in and low-income residents move out.
Can We Trust YIMBY Basic Economics?
The foundation of YIMBYism is said to be basic economics: increase supply by saying Yes in My Back Yard and housing prices will drop. Unfortunately, life is not that simple.
Economics is generally regarded as a social science, although some critics of the field argue that economics falls short of the definition of a science for a number of reasons, including a lack of testable hypotheses, lack of consensus and inherent political overtones. Investopedia, Is Economics a Science, 08/30/18
Here are some possible examples of the above applied to YIMBYism:
* Lack of testable hypothesis. A Forbes article discussing a Federal Reserve Bank study says, “Researchers at the Fed found there were no ‘direct estimates of the rent elasticity with respect to new housing supply in the literature.’ No one knows how much housing you'd have to add to have any significant impact on costs.”
* Lack of consensus. The YIMBY battle cry is affordable, accessible housing for everyone. Old-time residents displaced by gentrification arising from new housing construction no doubt question the sincerity of that logic. So should middle class and upper middle class young families looking for homes. In Gentrification and Housing Affordability, The Antiplanner says, “Cities can require developers to dedicate a certain number of their new units to low-income renters, but that just forces developers to raise the price of the rest of the units they build, reducing overall housing affordability.”
* Inherent political overtones. When referring to the economics of housing supply and demand, “political overtones” is a colossal understatement. Affordable or inclusionary housing are today’s polite words for subsidized housing that is loaded with government (political) regulations and mandates.
Distortions of Political Economics
Of these three condemnations of economics trying to pass for a science, the most relevant to YIMBYism and the housing shortage is the third one.
* Building costs, especially in areas dominated by progressives such as California, are high largely due to political considerations. Urban boundaries that result in limited and expensive land, requirements for numerous building permits, prevailing wage rates for construction workers, environmental regulations, developer fees, affordable housing quotas all need to be covered in one way or another.
* High costs necessitate government (political) incentives like tax breaks and free or cheap land for private builders to build. And they necessitate government owning plenty of land to use as bargaining chips or upon which to build government-owned, taxpayer subsidized housing.
* In many instances, the only way developers can access land upon which to build is by agreeing to absorb the cost of a certain number of below-market units – covered by high-priced market-rate units.
* Even in an imaginary world devoid of political variables, supply and demand never achieve the permanent balance YIMBYs and bureaucrats envision: housing supply goes up, prices go down, demand goes up as more people take advantage of the lower prices, prices goes up, and so forth. The cycle continues until crowding acts as a natural finale.
Repeat Anything Often Enough and It Becomes Truth
Given the laundry list of politically-generated market distortions, it would seem unlikely that simply increasing supply will bring housing costs down. Especially dubious is the strategy expressed in a recent appeal by California YIMBY.
“There are no simple solutions to the housing crisis. But we are determined to build a grassroots movement to fix it, one bill at a time … Add your name to support affordable, accessible housing for all and work together as neighbors to create change through pro-housing legislation.”
Sounds like a lot of mandates coming our way, in spite of the fact that the incessant mandates already produced by the California legislature as well as by regional bureaucrats have not made any visible dent in the affordability of housing. As the Federal Reserve report mentioned above says, “No one knows how much housing you'd have to add to have any significant impact on costs.”