Friday, February 1, 2019

Gentrification is A Land Use Problem

A growing concern on the left and especially among minority groups is demographic displacement, in certain cities and neighborhoods, caused by rising house costs associated with the influx of middle and upper-class, mostly white, young professionals. Due to economic illiteracy, the white yuppies and hipsters are blamed for rent hikes that make living in an area unaffordable for mainly poor minority tenants when, in fact, there is a third variable called land use policy (e.g. zoning ordinances, urban planning, property taxes) that has a much bigger impact on their rent. However, the left tends to frame this as a racial/cultural issue, which makes it simpler to talk about, but steers the conversation clear of any plausible solutions. Take for instance this gem that was featured on a liberal HBO show.

It’s basically when, for me, it’s a lot of white people come move into the hood and kick everybody out that’s there. I’ve been a witness of it since I was a small jitterbug so I mean now that I’m grown up and I’m seeing it, I understand it a little more,” he said during the interview with Maher, according to the news outlet.

Or how about these bozos, who protested an Austin, TX restaurant for moving into a building that was formerly occupied by a Mexican-American owned tire shop and using Spanish words to advertise their merchandise.

Activists with Defend our Hoodz — Defiende el Barrio on Friday announced via Facebook of their plans to protest outside Lou's Bodega on 1900 E. Cesar Chavez St. Since its recent opening by a pair of high-profile developers, the development has been widely lambasted by East Austin residents already anxiety-raddled over the brisk pace of gentrification that's resulted in soaring property values and residents' displacement.

The growth of commerce and population density will always raise land values; in this sense, gentrification is inevitable wherever new development occurs on relatively cheap land. Like any other market, higher demand raises the cost of housing, but since real property is fixed in supply to certain locations, unlike cars or smartphones, the market can only reach an equilibrium by lowering demand, which in the current case means raising rents. But the housing market does not have to be a zero-sum game. Removing artificial restrictions on the supply of housing can make it more affordable for low income minority renters. Zoning ordinances, such as those which restrict new development to single family housing, excluding group homes and multifamily complexes, require a minimum number of off street parking spaces, reducing space for potential residential units, restrict residential conversion, prohibiting the conversion of former office space into residential property, combined with lengthy permitting processes for new construction artificially inflate property values and rents in dense urban areas. Ordinances that dictate the minimum size of units, such as those in Oakland also drive up the cost of housing. In a white paper on housing development, the Obama admin noted that gentrification and other problems associated with surging housing costs are, for the most part, caused by local land use restrictions.

When new housing development is limited region-wide, and particularly precluded in neighborhoods with political capital to implement even stricter local barriers, the new housing that does get built tends to be disproportionally concentrated in low-income communities of color, causing displacement and concerns of gentrification in those neighborhoods. Rising rents region-wide can exacerbate that displacement.

The Obama Admin's Housing Development Toolkit drew from previous research on housing development, land use restrictions, and the widening gap between construction costs and new home prices. Previous research has concluded that for most U.S. regions, the price of new homes is only marginally greater than the construction costs. The exceptions are major cities, particularly in coastal regions, such as Los Angeles San Francisco, New York and Boston.

Researchers have also documented a sharp increase in the gap between home prices and construction costs, with stringent housing regulations now driving cost increases previously shaped by construction costs and quality improvements. Localized studies have supported these national conclusions – documenting sharp increases in zoning and other land use restrictions in metropolitan Boston, New York City, Los Angeles, and San Francisco.

The effect that increased zoning restrictions place on housing costs is best illustrated by these examples. For instance, in 1960 Los Angeles was zoned to accommodate 10 million residents when it only had a population of 2.5 million people. Today, the city is only zoned to only accommodate 4.3 million people with a much larger population of about 4 million people. Of course, the same problem has transpired accross the California coast.

Emerging research has shown that in areas with high-cost housing such as California, zoning and other land-use controls contribute significantly to recent sharp cost increases, reflecting the increasing difficulty of obtaining regulatory approval for building new homes.

Most importantly, cities and states experiencing 'gentrification' should, along with reducing zoning restrictions, shift property taxes from building values onto location values. This would further incent new construction and improvements to existing residential properties, while simultaneously discouraging real-estate speculation and recapturing the value that new amenities and businesses add to rental and selling prices. This would ultimately generate more tax revenue that could be wisely spent improving public transit, reducing traffic congestion and the demand for more parking spaces, which is a win/win for the environment.

The left can either choose to whine about gentrification and stay in a state of perpetual victim-hood or take meaningful action by reforming their obtuse zoning regulations and property taxes instead of protesting people for following the incentives their own governments create or asking for more rent control and subsidized housing, which only creates a housing shortage by forcing prospective tenants into a queque for affordable units. Gentrification could, and should, become a bipartisan issue, but the left would have to abandon their race baiting tactics and stick to hard economic analysis for that to occur.

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