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Why California Cities Are Becoming Unlivable – Article by Andrew Berryhill

Why California Cities Are Becoming Unlivable – Article by Andrew Berryhill

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Andrew Berryhill
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California has the highest poverty rate in the U.S. and is rated dead last in quality of life.

In July, the mayor of San Francisco frankly stated that poverty in the city is so bad, that “there is more feces on the sidewalks than I’ve ever seen.” And it’s not just her – the local NBC investigative unit found a “dangerous mix of drug needles, garbage, and feces throughout downtown San Francisco.”

While such conditions are thankfully not widespread, California still has the highest rate of poverty of any state when factoring in living costs and is rated dead last for quality of life. It’s no wonder that from 2007 to 2016, California lost a million residents on net to domestic migration.

This plight may appear counterintuitive since California’s economy is booming. If the state were an independent country, its economy would rank as the 5th largest in the world. However, a high GDP does not necessarily entail socioeconomic wellbeing.

So, what’s the main problem ailing California and creating such a high cost of living?

Housing Costs

How bad are housing costs? The median price of a home in California is over $600,000 (compared with $300,000 nationally) and a recent study found that:

“Across California, more than 4 in 10 households had unaffordable housing costs, exceeding 30 percent of household income, in 2015. More than 1 in 5 households statewide faced severe housing cost burdens, spending more than half of their income toward housing expenses.”

Housing costs are so high that in San Francisco and San Mateo counties the government considers a household of four making $105,350 as “low income”.

And it’s not just low and middle-income families that are suffering – even many “elite” technology workers can barely make ends meet. Lucrative six-figure salaries don’t go far when you live in the most expensive housing markets in America while also paying some of the highest taxes.

You can save money by living in the suburbs, but multi-hour commutes in soul-crushing traffic may await. Is such an arrangement worth it? Many have said “no” and moved to other states. While their new jobs elsewhere might pay less, other benefits more than make up for it.

But why is the housing situation in California so terrible?

It’s easy to simply say “supply and demand” – so many people have moved to cities that housing construction can’t keep up, causing real estate prices and rents to skyrocket.

However, this invites an important question: why can’t residential developers build fast enough?

Regulations

Regulations play an especially large role in the San Francisco Bay Area, which shockingly includes 15 of the 30 cities with the highest rents in the country. One article explains these struggles well:

For new housing developments in San Francisco, there’s a preliminary review, which takes six months.

Then there are also chances for your neighbors to appeal your permit on either an entitlement or environmental basis. The city also requires extensive public notice of proposed projects even if they already meet neighborhood plans, which have taken several years of deliberation to produce. Neighbors can appeal your project for something as insignificant as the shade of paint. . .

If those fail, neighborhood groups can also file a CEQA or environmental lawsuit under California state law, challenging the environment impact of the project. . .

Then if that fails, opponents can put a development directly on a citywide ballot with enough signatures. . . That’s what happened with the controversial 8 Washington luxury condo project last November even though it had already gone through eight years of deliberation.

These barriers add unpredictable costs and years of delays for every developer, which are ultimately passed onto buyers and renters. It also means that developers have problems attracting capital financing in weaker economic years because of the political uncertainty around getting a project passed.”

Why aren’t politicians working to fix this? Self-preservation. Here’s the unfortunate reality:

“The reason the San Francisco city government won’t fix things that seem obvious . . . is because it fears a backlash from the hundreds of neighborhood associations that blanket the city and can reliably turn people out to the polls.”

Community Sentiment

This cultural opposition to development is not a modern phenomenon:

“San Francisco’s orientation towards growth control has 50 years of history behind it and more than 80 percent of the city’s housing stock is either owner-occupied or rent controlled. The city’s height limits, its rent control and its formidable permitting process are all products of tenant, environmental and preservationist movements that have arisen and fallen over decades.”

Development proposals have been shot down for reasons ranging from burrowing owl protection to complaints that the size of new residential buildings will block sunshine and thereby “devalue human life”.

The power of this “Not In My Back Yard” (NIMBY) movement has been considerable, but counter-movements are growing. When one homeowner recently complained in a Berkeley city council meeting that a proposed residential building would block sunshine for her zucchini garden, one young woman angrily responded: “You’re talking about zucchinis? Really? Because I’m struggling to pay rent.” Young workers facing unaffordable rents are increasingly fed up with petty opposition to more affordable housing.

However, Californian cities still seem more preoccupied with banning straws, cocktail swords, scooters, delivery robots, and workplace cafeterias.Even when politicians try to help, they frequently ignore the root causes of the issue. For example, California Representative Kamala Harris recently proposed a bill called the “Rent Relief Act” that would provide a tax credit for people spending over 30 percent of their income on rent.

Harris’ proposal only addresses symptoms of an underlying disease and would almost certainly be counterproductive. It doesn’t encourage more housing construction, which is the only real solution.

Until sweeping housing reform to enable residential development is passed at the state and local levels, Californians will keep fleeing to Texas, Nevada, and Arizona. I don’t blame them.

Andrew Berryhill is an Alcuin Fellow at Intellectual Takeout and a rising senior at Hillsdale College majoring in economics. Andrew has interned on Capitol Hill and was a research fellow for Hillsdale’s economics department. In his spare time, he enjoys practicing the violin and playing golf.

This post (“Why California Cities Are Becoming Unlivable“) was originally published on Intellectual Takeout by Andrew Berryhill.

Laissez-Faire in Tokyo Land Use – Article by Alex Tabarrok

Laissez-Faire in Tokyo Land Use – Article by Alex Tabarrok

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The New Renaissance HatAlex Tabarrok
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Tokyo, Japan’s capital city, has a growing population of over 13 million people but house prices have hardly increased in twenty years. Why? Tokyo has a laissez-faire approach to land use that allows lots of building subject to only a few general regulations set nationally. Robin Harding at the FT has a very important piece on the Tokyo system:

Here is a startling fact: in 2014 there were 142,417 housing starts in the city of Tokyo (population 13.3m, no empty land), more than the 83,657 housing permits issued in the state of California (population 38.7m), or the 137,010 houses started in the entire country of England (population 54.3m).

Tokyo’s steady construction is linked to a still more startling fact. In contrast to the enormous house price booms that have distorted western cities — setting young against old, redistributing wealth to the already wealthy, and denying others the chance to move to where the good jobs are — the cost of property in Japan’s capital has hardly budged.

This is not the result of a falling population. Japan has experienced the same “return to the city” wave as other nations.House_Prices_2

How is this possible? First Japan has a history of strong property rights in land:

Subject to the zoning rules, the rights of landowners are strong. In fact, Japan’s constitution declares that “the right to own or to hold property is inviolable”. A private developer cannot make you sell land; a local government cannot stop you using it. If you want to build a mock-Gothic castle faced in pink seashells, that is your business.

But this alone cannot explain everything because there was a huge property price-boom in Japan circa 1986 to 1991. In fact, it was in dealing with the collapse of that boom that Japan cleaned up its system, reducing regulation and speeding the permit approval process.

…in the 1990s, the government relaxed development rules, culminating in the Urban Renaissance Law of 2002, which made it easier to rezone land. Office sites were repurposed for new housing. “To help the economy recover from the bubble, the country eased regulation on urban development,” says Ichikawa. “If it hadn’t been for the bubble, Tokyo would be in the same situation as London or San Francisco.”

Hallways and public areas were excluded from the calculated size of apartment buildings, letting them grow much higher within existing zoning, while a proposal now under debate would allow owners to rebuild bigger if they knock down blocks built to old earthquake standards.

Rising housing prices are not an inevitable consequence of growth and fixed land supply–high and rising housing prices are the result of policy choices to restrict land development.

The policy choices were made–they can be unmade.

tokyo-japanThis post first appeared at Marginal Revolution.

Alex Tabarrok is a professor of economics at George Mason University. He blogs at Marginal Revolution with Tyler Cowen.

Shut Out: How Land-Use Regulations Hurt the Poor – Article by Sanford Ikeda

Shut Out: How Land-Use Regulations Hurt the Poor – Article by Sanford Ikeda

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The New Renaissance Hat
Sanford Ikeda
February 28, 2015
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People sometimes support regulations, often with the best of intentions, but these wind up creating outcomes they don’t like. Land-use regulations are a prime example.

My colleague Emily Washington and I are reviewing the literature on how land-use regulations disproportionately raise the cost of real estate for the poor. I’d like to share a few of our findings with you.

Zoning

One kind of regulation that was actually intended to harm the poor, and especially poor minorities, was zoning. The ostensible reason for zoning was to address unhealthy conditions in cities by functionally separating land uses, which is called “exclusionary zoning.” But prior to passage of the Civil Rights Act of 1968, some municipalities had race-based exclusionary land-use regulations. Early in the 20th century, several California cities masked their racist intent by specifically excluding laundry businesses, predominantly Chinese owned, from certain areas of the cities.

Today, of course, explicitly race-based, exclusionary zoning policies are illegal. But some zoning regulations nevertheless price certain demographics out of particular neighborhoods by forbidding multifamily dwellings, which are more affordable to low- or middle-income individuals. When the government artificially separates land uses and forbids building certain kinds of residences in entire districts, it restricts the supply of housing and increases the cost of the land, and the price of housing reflects those restrictions.

Moreover, when cities implement zoning rules that make it difficult to secure permits to build new housing, land that is already developed becomes more valuable because you no longer need a permit. The demand for such developed land is therefore artificially higher, and that again raises its price.

Minimum lot sizes

Other things equal, the larger the lot, the more you’ll pay for it. Regulations that specify minimum lot sizes — that say you can’t build on land smaller than that minimum — increase prices. Regulations that forbid building more units on a given-size lot have the same effect: they restrict supply and make housing more expensive.

People who already live there may only want to preserve their lifestyle. But whether they intend to or not (and many certainly do so intend) the effect of these regulations is to exclude lower-income families. Where do they go? Where they aren’t excluded — usually poorer neighborhoods. But that increases the demand for housing in poorer neighborhoods, where prices will tend to be higher than they would have been.

And it’s not just middle-class families that do this. Very wealthy residents of exclusive neighborhoods and districts also have an incentive to support limits on construction in order to maintain their preferred lifestyle and to keep out the upper-middle-class hoi polloi. Again, the latter then go elsewhere, very often to lower-income neighborhoods — Williamsburg in Brooklyn is a recent example — where they buy more-affordable housing and drive up prices. Those who complain about well-off people moving into poor neighborhoods — a phenomenon known as “gentrification” — may very well have minimum-lot-size and maximum-density regulations to thank.

When government has the authority to restrict building and development, established residents of all income levels will use that power to protect their wealth.

Parking requirements

Another land-use regulation that makes space more expensive is municipal requirements that establish a minimum number of parking spaces per housing unit.

According Donald Shoup’s analysis, parking requirements add significantly to the cost of housing, particularly in areas with high land values. For example, in Los Angeles, parking requirements can add $104,000 to the cost of each apartment. Parking requirements limit consumers’ choices and increase the cost of housing even for those who prefer not to pay for parking.

Developers typically build only the minimum amount of parking required by law, which indicates that those requirements are binding. That is, in a less-regulated environment, developers would devote less land to parking and more land to living space. A greater supply of living space will, other things equal, lower the cost of housing.

Smart-growth regulations

In the 1970s, municipalities enacted new rules that were designed to protect farmland and to preserve green space surrounding rapidly growing cities by forbidding private development in those areas. By the late 1990s, this practice evolved into a land-use strategy called “smart growth.” (Here’s a video I did about smart growth.)  While some of these initiatives may have preserved green space that can be seen, what is harder to see is the resulting supply restriction and higher cost of housing.

Again, the lower the supply of housing, other things equal, the higher real-estate prices will be. Those who now can’t afford to buy will often rent smaller apartments in less-desirable areas, which typically have less influence on the political process. Locally elected officials tend to be more responsive to the interests of current residents who own property, vote, and pay taxes, and less responsive to renters, who are more likely to be transients and nonvoters. That, in turn, makes it easier to implement policies that use regulation to discriminate against people living on low incomes.

Conclusion

Zoning, minimum lot sizes, minimum parking requirements, and smart-growth regulations demonstrably and significantly increase the cost of housing for everyone by raising construction costs and restricting the supply of housing.

The average household in the United States today, rich or poor, spends about a third of its income on housing. But higher home prices hit lower-income households disproportionately hard because a dollar increase in housing expenditure represents a larger percentage of a poorer household’s budget. Indeed, the bottom 20 percent of households spends around 40 percent of income on housing.

In other words, these land-use regulations are unfairly regressive. Relaxing or even removing them would be a step toward achieving greater equity.

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.
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This article was originally published by The Foundation for Economic Education.
The Unplanned Order of Houston, TX – Article by Bradley Doucet

The Unplanned Order of Houston, TX – Article by Bradley Doucet

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Bradley Doucet
May 1, 2013
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“Cities have the capability of providing something for everybody, only because, and only when, they are created by everybody.”
 – Jane Jacobs, The Death and Life of Great American Cities
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I recently had the pleasure of visiting the great American city of Houston, Texas. I was only there for two days, and so only saw a tiny fraction of what there was to see. But I was able to spot some evidence and hear some firsthand accounts of one of the city’s important peculiarities: its lack of zoning laws. With a population of 2.1 million (6 million in the metro area), Houston is the largest city in America without zoning laws—and it gets along just fine without them, thank you very much.

In the Zone

If there’s one thing that seems certain in this world besides death and taxes, it’s that cities have zoning laws. These laws determine what kinds and sizes of homes and commercial buildings can be built where, the densities of neighbourhoods, the outward appearances of structures, and so on. But as much as we have come to take these minute regulations of city life for granted, it wasn’t always so. According to Samuel R. Staley, who teaches graduate and undergraduate courses in urban planning, regulation, and urban economics at Florida State University in Tallahassee, “Before the twentieth century land-use and housing disputes were largely dealt with through courts using the common-law principle of nuisance.” If a smelly pig farm set up shop in a residential area, for instance, residents could go to court and either be compensated for the harm caused by the noxious fumes or get the pig farmer to cease operations or move elsewhere.

As Staley explains, that all changed with the ascendancy of the Progressive movement in the early years of the last century. Progressives argued that the common-law approach to nuisance was too expensive, time-consuming, and complicated, making it a difficult avenue for the less fortunate members of society to use. Zoning would be more efficient and fair, they claimed. Yet whatever the good intentions behind it, its effect, writes Staley, “was to fully politicize land-use decisions,” often in favour of the politically powerful.

Houstonians, unique among the residents of large American cities, rejected zoning in popular referendums on three separate occasions: in 1948, in 1962, and again in 1993. Despite pleas before the 1993 vote from the Houston Homeowner’s Association about the need “to stop the cancerous erosion of the quality of life in many of our neighborhoods,” the city’s registered voters did not seem overly concerned about their quality of life, as few of them even bothered to come out for the vote.

How Can People Live This Way?

So, does chaos reign in The Big Heart (a nickname earned when Houstonians pitched in to help many tens of thousands of refugees from New Orleans in the aftermath of Hurricane Katrina)? Hardly. There were no slaughterhouses or pulp and paper mills in the residential neighbourhood I was staying in. There was a charming Mexican restaurant, though, with parking for maybe twenty vehicles, a small bridge crossing a little creek, and an expansive patio bordered by tall shade trees.

CB Richard Ellis, a big property company, explains how the city manages to avoid “a disjointed landscape where oil derricks sit next to mansions and auto salvage yards abut churches” without recourse to zoning laws: “What is unique about Houston is that the separation of land uses is impelled by economic forces rather than mandatory zoning. While it is theoretically possible for a petrochemical refinery to locate next to a housing development, it is unlikely that profit-maximizing real-estate developers will allow this to happen.” The spontaneous order of the market encourages charming restaurants in among private homes, but discourages incompatible uses. As author James D. Saltzman has written, “heavy industry voluntarily locates on large tracts near rail lines or highways; apartments and stores seek thoroughfares; gas stations vie for busy intersections.”

It is not the case, however, that Houston is completely bereft of regulation. Developers commonly employ private covenants and deed restrictions to limit the uses of land in a given development. These can keep businesses or apartments out of the neighborhood, or even stipulate lawn care and acceptable house paint colours. But importantly, as Saltzman points out, “However detailed, deed restrictions contain rules voluntarily accepted by home buyers, unlike the edicts issued to property owners by a zoning commission.”

In addition to these voluntary restrictions, though, there are also some land-use ordinances regulating things like trailer parks, rendering plants, and commercial landscaping. And in fact, these city regulations have not all had positive effects, either. Michael Lewyn, associate professor at the Touro Law Center, points out that rules regarding minimum lot sizes for single-family homes, minimum street widths, and mandatory parking space requirements for both residential and commercial buildings have made Houston less dense than it would have been if its development had been left entirely to market forces. This means the sprawling city is more dependent on cars and less pedestrian friendly than it could be.

Reaping the Benefits

Despite such laws, however, Houston still regulates land use to a significantly lesser degree than other cities. The payoff, in addition to a welcome, convenient, eclectic mix of uses, is more affordable housing. As prices were soaring across the country in the inflation-fueled housing bubble a few years back, they remained relatively stable in Houston. And not having soared, they did not plummet when that bubble inevitably burst. According to Federal Reserve Bank of Dallas senior economist Bill Gilmer, lack of zoning deserves a lot of the credit.

As Jane Jacobs wrote about in her classic 1961 work, The Death and Life of Great American Cities, city planners often behave as if the rest of us who live in a city had no plans of our own. In Houston, more than in most cities, people can pursue their own plans. Rather than leading to chaos, this leads to a more spontaneous, more organic kind of order. If residents of other cities could move away from imposed, top-down order, we too could be freer to pursue more of our own plans without the hassle and added cost of zoning laws.

Bradley Doucet is Le Quebecois Libré‘s English Editor. A writer living in Montreal, he has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness.