The past several decades in the history of municipal law have seen an ever-tightening noose settle over the neck of housing growth. We are in the midst of a crisis of our own making. The cost of living in areas with high levels of opportunity has skyrocketed, which has made those opportunities unattainable to those outside of the elite. The supply of housing per person is dangerously low in these opportunity zones. With insufficient supply available, prices have nowhere to go but up. Restrictive zoning needs to be scaled back across bot the East and the West coasts in particular or this pain will just keep growing for middle class families.
Before we go further, though, it may be helpful to take a look at how we got here. The conclusion of World War II coincided with an economic boom in the US as GIs returned home from the war. The boom echoed into families as the returning heroes got to work making the next generation. With the explosion in families came an explosion in housing as these people all needed somewhere to live. Government programs to encourage home ownership were erected because it was believed that owning homes would make for better, more engaged, citizens. As a result, an unusually large portion of American savings is in their homes and people owning homes has motivated them to protect their investment by preventing supply shocks in the form of developments.
Although this is likely where much of the anti-development sentiment started, you will not hear those arguments in community meetings or letters to the editor that vociferously protest the very idea of progress. The word affordability gets bandied about rather frequently and many apply it to both rent and property taxes. Rather than accept the idea that more supply is needed to satisfy growing demand for housing, they argue that rent control should be used to combat rising prices. Another frequent protest is that of development changing the ‘character’ of a neighborhood, especially as it brings more traffic. Straining infrastructure and changing environment creates tension between the old and the new.
The truth of the matter is that places inevitably change because people change and populations change. Neighborhoods are not static, nor should they be. Communities evolve over time and the needs of those communities change with them over time. The real driver of the antipathy to development is not a change in character, though. As with so many things, it is about money. More opportunity in or near a community brings more people that want to live there, which in turn drives up prices for housing. Developers and real estate investors see that and try to build more housing, which, if done quickly enough, relieves pricing pressures. The thing that scares current members of the community is often that the segment investors frequently seek to fill first is the high end. Margins are always higher at the top end of the market, so investors will first compete there. What most people don’t see, because it is not immediately obvious, is that dense developments with high rent built nearby relieve the pricing pressures on less expensive housing. Without those additional developments, high-income residents would instead choose to live in the next available option, which middle-income residents would otherwise be occupying. Middle-income residents occupy the next lower rung of housing and so on down the line until the most disadvantaged residents are pushed out completely or even become homeless.
Meanwhile, rent control only benefits those lucky enough to receive an affordable housing unit and does nothing to abate the underlying problem. The number of people that want to live in a rent-controlled community at the price set by rent control is larger than the number of available units by definition; if it was not, the market would clear at that price or lower. Instead of creating a place where everyone who wants to live there can, you are forcing everyone to participate in a lottery where the prize is affordable housing and all the losers have to live somewhere else. Additionally, rent control disincentivizes all housing improvements within units. As long as the unit is livable, the landlord will be getting the same rent regardless of how nice it is.
In much the same way, an inescapable result for a community of growing desirability is rising land values. This is the one aspect of gentrification (the change in a community from lower income to higher income) that is not helped, and in fact may be exacerbated, by increasing density and development. Oftentimes, this means higher property taxes for long-time residents and legacy commercial properties. The casualty of a better neighborhood for everyone is an old way of life for long-time residents. The upside is that if property taxes are reflective of the underlying value of the property and those property taxes have risen so high as to become unaffordable for long-time owners, they will have made enough from the appreciation of their investment in their home or business that they will have done very well for themselves. Sales of those properties will net life-changing amounts of money. Perhaps they will have to reside in a smaller unit, but with higher density comes more amenities, which will hopefully help cushion the blow. The community, meanwhile, benefits from a more efficient use of a scarce resource (land) and housing stays more affordable for everyone.
This does not call for a completely unregulated market either, though. The market is not infallible; sometimes incentives are not aligned with societal goals. For example, public amenities that may benefit a community than private ownership and development suffer from the ‘free rider’ problem (This is when many benefit from something, but they can still use it even if they do not pay for it.) Parks and public transit improve quality of life and make it easier for diverse, mixed income communities to live happily even in extreme density. Without an over-arching plan, cities may sprawl or construction bubbles can create homogenous concrete jungles separated only by parking lots. Green space and robust infrastructure, by contrast, create livable communities with proven lower levels of stress that are set up for equitable growth.
Sometimes this approach is not politically feasible on its own, though. Resident owners who are firmly entrenched and able to bring community support to bear may have the power to prevent further development and fortify their own presence. In those situations, it may be best to set ceilings on growth for property taxes on elderly and long-time community members to ease the transition to progress. Other times, developers may need some encouragement to include middle-income residents in their long-term plans instead of just building luxury condo building after luxury condo building. In such a scenario, it may be a game of chicken to see who can last the longest before conceding that they have overbuilt at the high end and need to offer lower rents. Assessing value based on asked-for rent rather than actual income could cure this problem very quickly; nobody wants to pay enormous amounts of taxes on empty units that are asking too much for rent.
I will conclude by saying that every community is different and each must be approached in its own way. New York struggles with development because of overuse of landmarking while the Bay Area has a thicket of zoning regulation so tight you need a machete to build a mailbox; development of large-scale housing projects is all but impossible.
Perhaps the best illustration would be to give concrete examples of success and failure of housing markets. For the example of a failure, let’s look at the Bay Area. After enormous economic growth came in the form of the tech sector, people came in droves looking for good jobs. As the population swelled, the housing stock began to creak under its weight and real estate investors came to build. People who already lived there balked at rising property taxes and insufficient infrastructure, so instead of building better infrastructure and increasing density they started shutting out the possibility of development and put a moratorium on raising property taxes based on value. Now, the Bay Area suffers from the most unaffordable (using as a barometer the cost of housing as a percentage of median income) housing market in the country despite having some of the highest incomes. Service industry workers up through middle income folks like teachers are forced to make astronomically long commutes to work. Even highly paid workers must dedicate a significant portion of their income to housing. Contrast that with Chicago, a city that has more parks, better public transportation, and a larger population. Despite its much higher density, Chicago has some of the most affordable housing in the country. What gives? Chicago’s zoning has historically been fairly liberal (although we must be careful as we have seen some down-zoning recently), which has kept supply sufficient for demand. Units have also been upgraded frequently to compete in a crowded market. If coastal cities were able to learn from this, opportunities could be more widespread, the economy would be more dynamic, and income would naturally become less unevenly distributed.