Thursday, September 23, 2021

Hope for California -- housing edition

 California has at last passed the first laws overturning some residential zoning restrictions. WSJ coverage here.  

From the California YIMBY press release, 

“The end of exclusionary, single-unit zoning in California is a historic moment -- we’ve taken a huge step toward making California a more affordable, equitable, and inclusive state.”

...SB 9 ... makes it legal to build duplexes on lots zoned for one house statewide; the law also allows property owners to split their lots into two separate parcels. ...SB 10 ... makes it easier for cities to approve zoning changes for small apartments in neighborhoods currently zoned for single houses.

OK, from WSJ, not yet Libertarian Nirvana, 

The law has provisions to prevent the displacement of renters and protect homes in historic districts and fire-prone areas.

And why just two? If you want density how about apartments? But sometimes silence is golden: 

Affordable housing advocates also criticized the legislation for not containing provisions that mandate any new homes that are built be affordable.

OK, this is only a small step. California has a huge set of laws and regulations in the way of sensible housing and driving up prices. (Lee Ohanian has a great summary here). But it is noteworthy because California is a one-party progressive state. One expects more and more limitations, with the "affordability crisis" addressed by demands for "affordable" housing, i.e. tiny amounts of absurdly overpriced government-provided houses, or mandates imposed on the few developments allowed to proceed, and then handed out to people on long waiting lists, not young people who want to move to good jobs.   The idea that the way to bring down housing costs is simply to... allow people to build houses, and sell them, is remarkable here. Emphasis on allow, a new concept to the progressive narrative here in California. Not "we," the government,  or "I" the governor "will build housing," but we will allow people including people organized into businesses known as "corporations" and "developers" to build housing. That is truly a major conceptual leap.

This event offers a ray of hope for reform of this dysfunctional state. (I'm in a look for the ray of hope mood this morning.) In a one-party state, issues are discussed within the Party, and coalitions form. It is possible for common sense to prevail. Issues do not have to be infected with poisonous partisanship. Within the party, you can talk about housing rules without breathing the word "Trump."  

For example, one of the organizations behind this is the California YIMBY (yes in my backyard) group. They don't state a political affiliation, but basically everyone in urban California is a Democrat, if you want to get anywhere you have to appeal to that sensibility, they use words like "affordable" "equitable" and "inclusive" a lot, and their splash page says "vote no no the recall" to stop this "assault on our Democracy." They don't sound too Republican to me. Well, great. If they were they would get nowhere. 

Meanwhile, where are California Republicans? The party of property rights, individual liberties? Screaming "This is not enough! It's my property I can build what I damn well want on it, and sell it to whoever I want to at whatever price we agree on," right? Nope. They're against it. 

(To their credit they are loudly clamoring for reform to California's environmental quality act, which is primarily misused to stop development anytime anywhere, doing little to help the environment and a lot to increase emissions as people have to drive a long way rather than live near work.) 

Meanwhile, San Franciso is building "tiny houses" for homeless on parking lots, because it is cheaper than the tent spaces. 



This complements a policy that brings "homelessness funding to about $800 million for each of the next two years,"  or $330,000 per homeless person per the New Yorker (a really good article) back when the budget has half that large. "officials are considering buying more properties for homeless housing, placing people in vacant apartments around the city, and opening a safe RV site for 150 vehicles." The word "incentives" is still lost on SF. 

Back when anybody wanted to work in SF, those tiny houses could probably have rented for $5,000 a month to tech workers. 

The local nextdoor exploded with the usual outrage of cognitive dissonance. We must stop this!  We must protect our property values! Yet simultaneously,  Do something about the "affordability crisis?" Higher property values and.. lower property values coexist in the same mind, along with keep people out and let's have more diversity, don't allow houses near work but save the climate. Ray of hope, one or two commenters, all loyal progressives (I presume, after all they live here), get the point: 


(Note, yes, I don't want an apartment building next to my house either. The right way to solve this is a functioning market in air rights. If you don't want an apartment building next to your house, buy an easement. Not happening soon, but I know the "you don't want an apartment next to your house" argument is coming in the comments.

Also, we don't have to worry too much. The profit-maximizing thing to do is often sensible. On a block of mansions in Palo Alto, the profit-maximizing thing to do is to build a huge mansion, not a crowded 4plex.)


26 comments:

  1. Based on experience in the region of Vancouver, BC, where duplex zoning in older neighbourhoods has promoted the construction of new duplex housing where an "old-timer" single-family dwelling once stood, if the "old-timer" property sells for $1,000,000 as "Lot Value", then each half of the new duplex building sells for $1,000,000 retail, or $2,000,000 for the improved lot. In Calif., if this observation applies, the annual property taxes paid by the new owners will be $40,000 where the annual property taxes would be no more than the 2% of the cost-basis of the "old-timer", typically on the order of $2,000 or less. "Win-win-win", as one might say--"new housing" for the young family or the newly divorced single, "new taxes" for the state and/or the municipality or regional district, and "new wealth" for the owner of the old-timer.

    Much preferrable to a tax on "wealth", or additional tax levies on property or income to fund state-funded "affordable housing". But it doesn't address the "homeless" issue (a downpayment and regular paychecks are required, even for "affordable" housing ownership.)

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  2. The alternative to buying the rights to the air-space above a property, is to buy the property and place a convenant on title limiting the height of any future development, and then selling the property with that convenant on title. The new owner of the property cannot remove the covenant without your agreement. Ergo, the height restriction on that property is now not subject to a zoning bylaw. The convenant can be null if the state government adopts legislation prohibiting enforcement of the convenant, but the possibility of that in the near-term is small.

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  3. California already has too much housing, they just have an even greater overshoot in population. Stop subsidizing population and the problem is solved. Maybe not overnight.

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    1. How is California subsidizing population? The surge is coming because of the robust industry so if you want to effectively curb population, you need to tax businesses until they flee the state. Alas, there goes your revenue stream.

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  4. In regards to your note at the end of your column about a "functioning market in air rights'; there isn't one. Nor is there any realistic hope that such a market will be created for existing single family neighborhoods.

    I have been a libertarian for almost 50 years and I continue to hope that things will get better, but when I read a flippant remark about air rights in response to the very real threat to the established property rights of homeowners with California's elimination of single family zoning I despair. Pie-in-the-sky theories are not helpful in the real world.

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  5. I think I learned from somebody that a desirable place to live, such as California, creates rents over and above competitive wages and land rents. Those additional ents get captured by somebodies through the political process.

    People leaving California on net shows that the maximum of those additional rents have been reached. Thus, no surprise that something was changed at State level. It will never be much however [and the additional land rents are going more to existing property owners -- shades of Proposition 19] as long as there are still political rents.

    The only solution I see to high rents is Climate Change -- let it never rain in California! :-)

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  6. Check out David Henderson's recent column on this same subject: https://www.hoover.org/research/how-make-housing-more-affordable. He explains how the issue isn't lack of land (or, as Jim and Linda Kelley assert here, an "overshoot of population"), but the difficulty inherent in securing building permits. I note that the growth of zoning laws and land-use restrictions throughout California, and the designation of a huge amount of territory as State and Federal parks and forests, have not only (as Henderson points out) raised the median price of California housing dizzyingly above that for the US as a whole since 1970, but have also served to crowd the State's entire population into only about 5% of its land. Those areas where population is "allowed" are indeed way too crowded. But the State itself is far from being overpopulated.

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    1. The major thing California has not noticed is up. You don't need land to build housing. (Sorry, violating my own rules. To allow housing to be built.) You need air. More single-family sprawl is not necessarily the answer. (Unless of course people prefer it when allowed the choice.. )

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    2. All the air in the world isn't going to help you if you are building on sand.

      https://www.latimes.com/california/story/2021-08-31/retrofit-leaning-millennium-tower-san-francisco-halted-sinking

      "A retrofit of the leaning Millennium Tower of San Francisco has been suspended after crews discovered the building was sinking at a faster rate during the construction effort."

      "A problem for Millennium Tower, some structural engineers have said, is that its foundation reaches only to a layer of sand, just above a layer of clay, instead of farther down into bedrock."

      "Such a construction practice was common in this part of San Francisco, where the bedrock is quite deep underneath thick layers of soft soil, sand and clay — but that was for buildings that were much shorter and lighter than Millennium Tower."

      "In October, the homeowners association, Millennium Tower Assn., announced plans for the engineered retrofit of Millennium Tower to prevent any significant future settlement of the skyscraper. The plan involved installing 52 concrete piles — or columns — that would anchor the building to bedrock, 250 feet below ground."

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    3. We are limited to 1-2 stories by law. 5 stories is 5 times as much. And if engineering forbids two stories, you don't need laws against it. Simple logic, please.

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    4. Does the land developer listen to the economist saying maximize your profit or the engineer saying what your doing isn't safe?

      Look, I get it. There is a lot of NIMBY written into zoning and building restrictions. All that I am saying is that the issue is a bit more complex than that.

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    5. John,

      And speaking of engineering - in control systems you need three levels of control - position, integral, and derivative to create a stable system.

      The same applies to macroeconomics - you need three goods to create a stable economic system - money, bonds, and equity. Without equity, money and bonds tend to become risk assets via devaluation, inflation, or default. That applies to both the private AND the public sector.

      And so if the "developers" of macroeconomic policy were smart, they would start listening to engineers interested in long term economic stability instead of repeated boom / bust cycles.

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    6. "And speaking of engineering - in control systems you need three levels of control - position, integral, and derivative to create a stable system."

      Not true, FRestly. Stability depends on the placement of the roots of the system's characteristic equation. An open-loop system can be stable, where a "controlled" system that incorporates a feed-back loop imposed on a stable open-loop system is unstable. Details matter more than the generic controller's use of P.I.D elements.

      The engineering that John refers to is structural engineering. The stability is the physical stability of the building on its foundations on the ground it is built upon. Sand is perfectly fine as base upon which to build a structure, but details matter.

      The engineering control systems you refer to are used in mechanical, electrical and chemical engineering disciplines, not structural engineering.

      "Position, integral, and derivative" alludes to "P.I.D.--proportional, integral, and derivative" controllers operating on a feed-back loop error signal. The controller output feeds into the plant system to maintain conformance to a set-point input signal. This is the regulator function.

      The purpose of a P.I.D. controller is the automatic control of the controlled plant to produce the desired output, whether that is conditioned space in a high-rise office building, or the launch of an ICBM. It has limited applicability to systems and the control of systems.

      The economic system doesn't run on that principle.

      Engineers have nothing to say about economic stability. It's a field that is entirely foreign to them.

      If there is an analog between an engineering system and the economy, it is MIMO -- multiple input, multiple output -- with stochastic elements, uncontrollable elements, and unobservable elements, and inherently highly non-linear behaviour.

      There is no engineering control theory that would allow such a system to be controlled automatically.

      "And so if the "developers" of macroeconomic policy were smart, they would start listening to engineers interested in long term economic stability instead of repeated boom / bust cycles." -- on a lark, perhaps, but not to be taken seriously.


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    7. OEE,

      You relayed this tiny bit of advice to me:

      "If the basic example fails, as it has done, the projector puts up ever more intricate versions of the same basic idea in hopes of persuading the sceptical audience."

      And so I will say to you, you are not the target audience of my original query. I addressed my comment to John Cochrane, not you. You will know you are the target audience when I address you.

      But since you have decided to interject, I asked John this simple question:

      "Does the land developer listen to the economist saying maximize your profit or the engineer saying what your doing isn't safe?"

      You reply tells me all I need to know:

      "Engineers have nothing to say about economic stability. It's a field that is entirely foreign to them."

      Which tells me all I need to know.

      The answer is the developer should listen to both the engineer concerned about stability and safety and the economist concerned about profit margins.

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  7. As of 2020, California's population growth has gone negative.

    https://fred.stlouisfed.org/series/CAPOP#0

    Care to explain where all this demand for new housing is coming from?

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    1. People want to move from where they live to where the jobs are

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    2. Of those looking for good jobs, not a sufficient number can find a home at a price they would like to pay in California. Hence, they move to Arizona, or wherever.

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  8. This post seems to be surprised that Democrats were in favor of YIMBY reform whereas Republicans were against it. As somebody who is a supporter of the YIMBY movement and has been following the YIMBY vs. NIMBY debates on Twitter for awhile, I was not surprised at all that this is how it turned out to be. My observations from Twitter are that YIMBY is, in fact, popular among many activists on the left (with some notable exceptions), while being very unpopular among activists on the right (with depressingly few exceptions). I do not claim to know the views of the less politically active people on the right and the left, since those people are mostly not on Twitter, but the association between YIMBY and the left, and NIMBY and the right among the activist types on Twitter is extremely strong.

    The reasons for this seem to be clearly discernible from the justifications that each side gives for their views. Many (albeit not all) activists on the left like YIMBY because it (1) favors renters over property owners (2) favors lower income people (3) favors racial minorities (4) favors younger people (5) favors diversity (6) favors the development of more "hip" urbanized neighborhoods (7) wants to make American metropolitan areas more "European" (more walkable higher-density development). Similarly, activists on the right are almost universally against YIMBY ideas due to (1) wanting to protect property values over everything else (2) being suspicious of lower income people (3) baby boomers who have paid off their mortgages being overrepresented among activists on the right (4) dislike of urbanization (5) belief that car-centric suburban development is intrinsically good, whereas dense development somehow goes against American values.

    Interestingly, many NIMBY activists on the right seem to see YIMBY ideas as being indistinguishable from left-wing ideas about redistribution of wealth, simply because it is something meant to help people lower on the income scale while lowering the property values of wealthier property owners. The fact that this is a deregulatory free market idea does not seem to matter much to these types.

    Ultimately, it is clear that in the United States today, free market policies are not automatically accepted by the right or rejected by the left. Instead, each side looks at policies based on which demographic groups they want to be centered and which side of the general culture war they are on. This has led to a situation where the fact that YIMBY is a free market policy is not as important to the right as the fact that it fits into what they perceive as a left-wing worldview that they don't like.

    Anyway, I predict that there will be more YIMBY bills passed in Democratic areas of the country, but hardly any in the Republican areas.

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    1. Thanks for the thoughtful comments. However, the YIMBY movement does contradict the usual characterization that the left favors government solutions -- more government provided housing, not simply to allow private developers to build more housing. It also contradicts the usual characterization that the left favors policies in the name of helping poor people and minorities, but that actually end up hurting them. If the left is moving towards allow and effective as hallmarks of policy, all the better. Free market libertarians are, indeed, popular nowhere.

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    2. In some corners of the left, there is indeed dislike of "real estate developers" who "make a profit" when they get to build more. Interestingly, this rhetoric has now been gladly adopted by some parts of the right, who oppose YIMBY ideas primarily for culture war reasons, but are willing to throw any argument at it that they think will stick, including the one about the "evil developers."

      As an example, here is an article in the Daily Wire (an unambiguously conservative website) that claims that YIMBY policies are bad for "suburban voters — as well as minorities who fear that increased density amounts to gentrifying their neighborhoods to enrich developers."

      https://www.dailywire.com/news/days-after-recall-vote-newsom-abolishes-suburbs-in-california

      Everything else in the article is written from a typical conservative culture war perspective (apartments bad, public transit bad, cities bad, suburbia good, cars good, big lawns good, more parking spots good), but they are still willing to throw the "evil developers" argument in there.

      The article also has this "pearl of wisdom" in it, which just shows how the right wing culture war is more important to the author than any kind of free market principles:

      "Under California’s new law, towns cannot require homes to have a driveway that can fit more than one car, a policy designed to push people to use mass transit — though it is unclear how the typical American with children could do common activities, like taking a trip to Costco with their kids, using mass transit."

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  9. Although I don't live in California, I'm cautiously optimistic about the effects of this regulatory change---perhaps as a stake-driving measure that leads to more reforms.
    John, a few months ago you posted a link to this fantastic map of San Francisco that some researcher had done that showed how something like 2/3 of the structures in the city violated current zoning/planning regulations. This is an uphill climb.

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  10. Let's assume that these new laws actually result in additional housing. Additional housing will in turn cause needs for additional power supply, additional water supply, additional wastewater and solid waste handling, expanded roads requirement -- even before we start to think about requirements for parks, schools, shopping, churches. (Oops! California -- forget the last).

    California has thickets of existing laws & regulations about all of those requirements, and also has a dismal record of not building needed water supply increments, power plants, roads, etc. While my inner libertarian shouts "Let my people go", my inner realist recognizes that infrastructure is an essential shared obligation.

    How to provide the infrastructure to support individual choice in a totally dysfunctional One-Party State like California? The Ruling Class can't even manage straightforward efforts like forest management, which non-literate Indians were handling quite satisfactorily before the Spaniards arrived.

    As a side comment, I have been very impressed with the livability of modern Chinese cities. Supermarkets, parks, pedestrian malls, schools, restaurants, clean efficient mass transit -- all within walking distance. The downside is that everyone has to live in 30-story apartment blocks. And this high density works in China only because of their strong cultural attachment to not losing face by doing anything which would inconvenience the neighbors -- and a very low official tolerance for the kind of dysfunctional public behaviors which Californian officials seem to encourage.

    I suspect that California's administrative incompetence and cultural decline will swamp whatever good effects these new laws are intended to have.

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  11. There's no hope for California or any other state that thinks that banning single-family zoning will make housing more affordable. Housing is unaffordable because urban-growth boundaries have put almost 95 percent of the state off limits to development. Higher densities not only won't help, higher density urban areas are less affordable. Does Hong Kong look affordable to you? Manhattan? The most affordable places in America are mainly low in density and all but Houston have single-family zoning.

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  12. I suppose I am a NIMBY. Seems like the State is taking away something I paid for if my R1 lot is suddenly converted into an R2 lot. Isn't the zoning of a lot part of what gets purchased when the house is bought?

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    1. So should taxis be forever a monopoly because people paid for taxi medallions? Should government enforced monopolies last forever because you bought the business thinking the gravy would go on forever? Should tariffs never be removed because you bought the business with tariff protection?

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  13. Interesting question. Humor me. If I buy into a development with a very specific set of HOA policies, this is (in theory) an arm's length economic transaction between willing participants. The two parties with the most knowledge of their respective desires execute a contract. I agree with the seller to limit my future options via a deed restriction in return for getting something I value. I can think of dozens of examples of perfectly logical, non-discriminatory, deed restrictions. One of them is your “buy an easement” argument above. If I read SB 9 correctly, it would overrule a deed restriction I bought from my neighbors limiting what they could do with their property.
    In the case of government created or maintained monopolies, regardless of the intentions of the original rules and regulations, the incentives eventually led to capture by the regulated (thanks George). And tariffs may start out with good intentions, "fairness" arguments come to mind, but you don't have to be a cynic to see that actual tariffs are probably crafted to the benefit of some businesses who own a congress critter or two. I am having a hard time seeing where single-family zoning is like a government created monopoly. I am rereading Knowledge and Decisions (yes he deserves the Nobel) and keep thinking that one-size fits all state decrees are seldom the best answer for local problems.
    Ironically, I live in Sausalito in a single-family home that was built in 1994 (not by me) on a lot zoned duplex. Since then, Sausalito has effectively outlawed building single homes on duplex lots and is legalizing all the previously illegal third units to meet federal affordable housing/density requirements. Of course, the regulations that prevent building residential units in the lands next to the bay will not be relaxed.

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