
The Grim Math of the Working-Class Housing Crisis - gkuan
http://www.theatlanticcities.com/housing/2013/10/grim-math-working-class-housing-crisis/7321/
======
lkrubner
Consider this sentence:

"That inability is mushrooming, driven by increasing rents across much of the
country and wages that aren’t going anywhere."

One has to wonder: where is the money coming from that drives up these rents,
if wages are stagnant? The issue is supply and demand.

Why has supply decreased? Part of the answer is the housing bust, which
followed the housing boom (irrational exuberance was counter balanced by
irrational pessimism):

[http://www.calculatedriskblog.com/2013/09/ny-times-on-
shorta...](http://www.calculatedriskblog.com/2013/09/ny-times-on-shortage-of-
buildable-lots.html)

As it says there:

"The latest land rush is in full swing, as developers realize that they have
failed to feed the zoning, permitting and mapping pipeline, which can take
months or years to turn raw fields into buildable lots."

The other side of the supply and demand issue is the increase of foreign
demand. Some of the money comes in the form of foreign money that speculates
in the American real estate:

[http://www.nytimes.com/2011/07/07/nyregion/more-
apartments-a...](http://www.nytimes.com/2011/07/07/nyregion/more-apartments-
are-empty-yet-rented-or-owned-census-finds.html?pagewanted=all)

As it says there:

"But some Manhattan neighborhoods are assuming that vacant feeling the year
round, because the people who own or rent apartments there actually live
somewhere else most of the time. "

A combination of housing bust and foreign speculation in USA real estate leads
to a situation where rents go up even when wages are stagnant or falling.

\-----------

A possible explanation of the international forces at work is offered here:

[http://krugman.blogs.nytimes.com/2013/09/26/trade-and-
secula...](http://krugman.blogs.nytimes.com/2013/09/26/trade-and-secular-
stagnation/)

This was interesting to me:

"So the causation could run the other way, with deregulation and rising
leverage pulling in foreign capital, keeping the dollar overvalued, and
producing persistent deficits."

~~~
akgerber
Much of the demand increase is domestic: as crime and pollution have decreased
in American cities, and the downsides of auto-oriented suburbs have made them
unappealing to many, there are a lot more Americans looking to move into urban
housing, and to stay in it beyond their 20s.

New York City is one of the safest big cities, has very high wages, and very
slow production of new housing due to a lack of buildable land and zoning that
makes it difficult to replace small buildings with larger ones in many areas.
These factors lead to very high demand with little new supply to meet it.

~~~
lkrubner
This does not describe an increase in demand:

"as crime and pollution have decreased in American cities, and the downsides
of auto-oriented suburbs have made them unappealing to many, there are a lot
more Americans looking to move into urban housing"

You describe a change in preferences, from one form of housing to another form
of housing. All other things being equal, this does not lead to an increase in
demand. If 1 person moves from the suburbs to the cities then there is 1 more
person demanding urban housing and 1 less person demanding suburban housing.
Total demand does not increase in this scenario.

~~~
gaadd33
But I don't think people are arguing that total demand has skyrocketed, as I'm
sure there are plenty of cheap and affordable houses in places such as Flint
and other rust belt cities. The problem is the locations with jobs have seen
an increase in demand without an increase in supply and those same locations
are the ones that are attractive to foreign investors and immigrants. So you
end up with all the demand in a few concentrated areas vs spread equally
around the country.

~~~
lkrubner
You write:

"But I don't think people are arguing that total demand has skyrocketed"

and yet you can see that I am responding to a comment that starts with these
words:

"Much of the demand increase is domestic"

~~~
gaadd33
As you said that total domestic demand hasn't increased as it was just a
change in preference, I was implying that no one is arguing that the total
demand for housing in the United States has suddenly skyrocketed. The change
in preference, as you called it, creates demand in specific areas of the US
while creating a surplus in many other areas. I believe the impact of foreign
investors has only increased the localized demand however they probably
haven't done much to increase the overall demand for housing in the country.

------
fennecfoxen
"New York mayoral candidate Bill de Blasio has made affordable housing a
centerpiece of his campaign. If polls are any indication, he will soon have
the chance to put his money where his mouth is."

... no... he's really going to put _other peoples '_ money where his mouth is.
taxpayers' money. landlords' money. developers' money. Rent Control 2.0, here
we come! It worked so well the last time. :P

The socialists will probably mod me down for this, obviously.

~~~
hudibras
Just in case anybody is interested in what de Blasio actually is proposing:
[http://www.billdeblasio.com/issues/affordable-
housing](http://www.billdeblasio.com/issues/affordable-housing)

Pretty shocking stuff, I know.

~~~
fennecfoxen
I assume your shock is for rhetorical purposes only.

Anyway. There's plenty of feelgood language with destructive consequences on
the backend. But I'll point out a lovely bit: "Bring Basements and Granny
Flats into the Legal System

There are thousands of unsanctioned housing units across the city in basements
and above garages — but the city doesn’t recognize them. That deprives tenants
of legal protections, and prevents landlords from making the kinds of upgrades
that would ensure the health and safety of families living in them. Bill de
Blasio will end the practice of pretending these homes and their families
don’t exist. As mayor, he will bring them into the regulated housing system,
ensure they meet legal standards for safety, and work to bring them under
rent-regulation, so their tenants will have the same basic protections as New
Yorkers in traditional apartments."

Yes. Protections like "gee, if I rent out my basement to someone, it sounds
like there will be a bunch of extra regulatory requirements. I'll need to be
careful or my tenants might take me to Housing Court and get a free legal
advocate like deBlasio proposes in another section, and get me on some
technicality, and then I won't be able to evict them. Maybe I'll reconsider
whether to bother at all."

And he's right! That's exactly the same sort of awesome protection that
existing rent control already provides!

------
zinssmeister
Part of me wonders if this is a temporary problem that got triggered by urban
environments becoming extremely trendy in the last decade or so. Either way,
we are not only losing a solid worker class, but also some of the skilled
labor force because of it (especially here in SF).

~~~
aliston
I think you're definitely on to something here. If you look at housing starts
in the US over the past year, they're way up, but they're also predominantly
multi-family. This generation has delayed forming families, but at some point
probably will ultimately settle down, get married, have kids... the 1 BR in
SOMA isn't going to cut it at that point and there will be a flight back to
the suburbs.

~~~
lsc
>This generation has delayed forming families, but at some point probably will
ultimately settle down, get married, have kids

Statistically speaking, wealthy people tend to have fewer children, and have
those children later in life. I believe this was true for the previous
generation, too.

>the 1 BR in SOMA isn't going to cut it at that point and there will be a
flight back to the suburbs.

Yeah, but a 2 BR would work just fine, especially if you only have one kid.
And 3 BR apartments are not unheard of. (and the cultural changes required to
expect kids to share a bedroom are not impossible.)

I think that the deciding factor here is perceived safety, followed by quality
of schools. As cities are gentrifying, people seem to be thinking of them as
safer. And a wealthy population (especially a wealthy population that recently
moved in, and here in California, is therefore paying full freight property
taxes) makes for a bunch of money to throw at those problems.

If cities start being perceived as safer than suburbia? That could push
parents out of suburbia and into cities. That's how they got to suburbia in
the first place, right? And it's a self-reinforcing cycle; gentrification
means more taxes, more resources for law-enforcement, (and conversely, less of
those things in the suburbs, if the wealthy folks in the suburbs are moving
into the cities.)

------
mathattack
One problem is the very policies supporting cheap housing (rent control for
example) make it much less profitable for people to invest in medium income
housing.

~~~
joe_the_user
Some of the policies.

Allowing high rise construction in Silicon Valley seems like a policy that
could increase investment and affordable housing.

~~~
mathattack
Yes. Increasing the housing stock, and creating opportunities for people to
make money servicing the middle class helps.

------
patrickg_zill
This might explain NYC a bit, given the large number of bankers and banking
firms there - 5.2 times more than the average, is their pay:

[http://www.zerohedge.com/news/2013-10-22/chart-day-
average-n...](http://www.zerohedge.com/news/2013-10-22/chart-day-average-new-
york-banker-makes-52-more-average-mere-mortal)

~~~
gaadd33
Is average really a good metric there or are they only including people in
investment banking/trading/similar positions? Otherwise its pretty meaningless
number given some of the top people make $10M+ and I don't think the back
office/cleaning crew/security staff positions pay much of (if any) a premium
compared to non financial firm positions.

------
derekp7
What would happen if one of these cities passed a law that apartment rents
would have to be adjust for income level? So lower income people would get a
break, and higher income would have to pay more? Would that be effective, and
would it be legal?

Or, the city could have a housing subsidy tax that is progressive based on
income.

~~~
fennecfoxen
So you're saying that landlords subsidize their low-income tenants' rent?
That's totally going to be an awesome way to encourage people to build new
housing and go into the landlording business! ... except not.

The destructive legacy of the War Emergency Tenant Protection Act (NYC's rent
control law - the 'war' in question is WWII) is well-known and well-documented
(and equally well ignored by people who think that it _should_ work because
they want the world to work that way). It's half the reason why the rent is
too damn high - because no one builds apartments anymore except crazy luxury
apartments. There's no money in it. Heck, landlords have abandoned hundreds of
thousands of apartments over the decades because of rent control. The city
took them over, and, at one point, realized it owned 70% of Harlem.

Clearly more of the same is the only answer. :P

\----

Postscript. When people ignore a consensus among climate scientists about
global warming, we mock them. When people ignore a consensus among economists
about the destructiveness of rent control (cf. the Whaples "where is there
consensus?" surveys of economists), we elect them instead. Meh.

~~~
derekp7
Well the way I was thinking was that the higher-income tenants would subsidise
the lower-income ones -- but within a certain range (i.e., no more than 10%
higher for the high-income ones, and 10% lower for the low income ones --
adjust as necessary). This could be implemented via something like a sales
tax, but would apply to the monthly rent, and would be progressive based on
the tenant's income (above a certain income level, tenants would pay more, and
below a certain level tenants would receive a subsidy). The apartment owners
would still get the same overall income though.

This should only have the effect of driving higher earners out of the city,
which would then cause the desired effect of lowering property values, and
therefore lowering rent overall.

~~~
nimble
This idea reminds me of the ones I used to get from my boss for how we should
change the software system I was building for him when it wasn't working the
way he expected. His solutions would (usually) fix the immediate problem he
was seeing, but in a completely ad hoc way that would usually introduce
numerous other problems.

