How does new housing affect local prices and displacement?

From HousingWiki

This article gathers a discussion about this key housing topic, on Twitter, mainly March 5-7 2018, adding in some referenced material and followups.  This is one of the most fundamental and contentious issue in housing debates -- we sometimes call it the 'ur-question' of housing. 

 

historic Kenny (McCormick)'s House in SoDoSoPa district, South Park, S19E03
MattBruenig-5-Mar-1226pm.jpg

Twitter conversation

The question

As a starting point Matt Bruenig (lawyer, blogger, founder of People's Policy Project) commented that he / 3P has a paper coming out soon about how to address housing affordability.  Bay Area YIMBY Tommaso Sciortino then asked Matt if had any thoughts on California's proposed Transit Zoning Bill, #SB827, and then shared a recent Vox story about it. Bruenig replied: 

MattBruenig-5-Mar-1226pm.jpg
 

Dragonfly On Deck (@idothethinking "Darryl, in Berkeley") commented:
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what evidence or explanations are there?

Jones 2016, "Transit-oriented development and gentrification in Vancouver"

a reply from Owen Pickford, a contributor to The Urbanist (Seattle):
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the paper Pickford references is: Jones, C. E. and Ley, D. (2016), "Transit-oriented development and gentrification along Metro Vancouver's low-income SkyTrain corridor." See References below.  

"Abstract:
We examine the incipient gentrification of a low-income corridor that follows the alignment of the SkyTrain rapid transit route through Vancouver and its suburbs. The corridor contains concentrations of aging, private, low-rise apartments built through welfare state programs 40–50 years ago that have become the affordable homes of poorer residents, including recent refugees and immigrants. Focus groups in suburban Burnaby confirm that these neighbourhoods are highly valued by residents, because they are close to family services and SkyTrain stations. But transit proximity is also bringing transformation through a regional sustainability policy of transit-oriented development (TOD), permitting the construction of high-density condominium towers around stations. In Burnaby redevelopment is being accelerated by the upzoning policy of the NDP-led municipal council, removing planning protection from the apartments. The council argues that in light of cost downloading by senior government there is no alternative to such gentrification. Comparable affordable housing stock from the welfare state era is under threat across Canada as subsidies expire and the fabric ages; with local variations this Burnaby story is a national story. The paper contributes to critical assessment of TOD and state-aided gentrification, demonstrating how environmental aspirations can exclude social justice from the policy register." '

enter Brian Hanlon, Executive Director of California YIMBY:

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@MarketUrbanism then picked up and commented on Brian Hanlon's tweet:

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Been et al 2017, "Supply Skepticism"

enter David Schleicher, Professor at Yale Law School, responding to Market Urbanism:

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paper cited:
Been, Vicki, Ingrid Gould Ellen, and Katherine O’Regan. “Supply Skepticism: Housing Supply and Affordability.” Draft, 26 Oct 2017. http://www.law.nyu.edu/sites/default/files/Been%20Ellen%20O%27Regan%20supply_affordability_Oct%2026%20revision.pdf.

"This paper is meant to bridge the divide between the arguments made by supply skeptics and what research has shown about housing supply and its effect on affordability. In the following section, we address each of the key arguments that increasing supply does not improve affordability. Many of the arguments are plausible, and we take them seriously, but we ultimately conclude, from both theory and empirical evidence, that adding new homes moderates price increases and therefore makes housing more affordable to low and moderate income families."

"We analyze four of the most frequently voiced arguments below, drawing on both basic economic theory and empirical evidence.

A. Housing is Bundled with Land, but Still is Ruled by the Laws of Supply and Demand
B. Housing is Heterogeneous, but Adding Supply in One Market Will Affect Prices in Another
C. Easing price pressure through additional supply may attract some demand–but not enough to completely offset the supply increase.
D. Adding Supply May Raise Neighborhood Rents in Some Cases, But Neither Theory Nor Empirical Evidence Suggest that Will be The Norm.  

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enter Michael Lens, Assistant Professor of Urban Planning, UCLA:

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Guerrieri 2010, "Endogenous Gentrification"

Tony Damiano (PhD student, University of Minnesota) suggested a paper in response to the question:

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paper cited:
Guerrieri, Veronica, Daniel Hartley, Erik Hurst (2010). "Endogenous Gentrification and Housing Price Dynamics." NBER Working Paper No. 16237 Issued in July 2010, Revised in October 2012. (DOI): 10.3386/w16237. http://www.nber.org/papers/w16237.

Abstract:
In this paper, we begin by documenting substantial variation in house price growth across neighborhoods within a city during city wide housing price booms. We then present a model which links house price movements across neighborhoods within a city and the gentrification of those neighborhoods in response to a city wide housing demand shock. A key ingredient in our model is a positive neighborhood externality: individuals like to live next to richer neighbors. This generates an equilibrium where households segregate based upon their income. In response to a city wide demand shock, higher income residents will choose to expand their housing by migrating into the poorer neighborhoods that directly abut the initial richer neighborhoods. The in-migration of the richer residents into these border neighborhoods will bid up prices in those neighborhoods causing the original poorer residents to migrate out. We refer to this process as "endogenous gentrification". Using a variety of data sets and using Bartik variation across cities to identify city level housing demand shocks, we find strong empirical support for the model's predictions.

conversation continues the next morning. There's no rest for the wicked or the wonks!

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CA Legislative Analysts Office, SF city economist, UC Urban Displacement Project

Tim McCormick, editor of YIMBYwiki:

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(referencing|this earlier conversation:)

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The three studies cited:

1. City and County of San Francisco, City Office of the Controller – Office of Economic Analysis. "Potential Effects of Limiting Market-Rate Housing in the Mission." September 10, 2015. http://sfcontroller.org/sites/default/files/FileCenter/Documents/6742-mission_moratorium_final.pdf

2. Legislative Analysts Office [California]. "Perspectives on Helping Low-Income Californians Afford Housing." February 9, 2016. [http://www.lao.ca.gov/Publications/Report/3345 http://www.lao.ca.gov/Publications/Report/3345.

3. Zuk, Miriam, and Karen Chapple. "Housing Production, Filtering and Displacement: Untangling the Relationships." Institute for Governmental Studies (University of California) Research Brief, May 2016.

A few days later, YIMBYwiki noted a recent blog post from UC Berkeley Urban Displacement Project that references the third item above and its claim about effects on local price. (more precisely, on the percentage of low-incoming households found to be rent-burdened):

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from blog post: "While we need more housing at all levels, we have to acknowledge that building more market-rate housing may not immediately improve affordability for low-income tenants: in our research on the effects of housing production on displacement and housing burden, we found that new market-rate production actually led to higher rates of housing burden for low-income tenants. And that is even when median rents went down – meaning we need to be paying specific attention to rents at all ends of the spectrum and not just the middle."

from research brief itself: Zuk & Chapple, May 2016: "We examined the relationship between market-rate housing construction, rents, and housing cost burden (Table 1). Initial results indicate a filtering effect for units produced in the 1990s on median rents in 2013. Yet market-rate development in the 2000s is associated with higher rents, which could be expected as areas with higher rents are more lucrative places for developers to build housing. Furthermore, development in both the 1990s and 2000s is positively associated with housing cost burden for low-income households."

Referring to figure 1:

UCBDisplacement-housing-cost-burden-chart.jpg
 

We have had difficulty interpreting the meaning and significance of the data on this chart, and are hoping to get further explanation from UCBDisplacement or others about it.

 

 

now back to March 5th conversation:

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referencing this conversation:

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Diamond, Rebecca, Tim McQuade, & Franklin Qian. “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco.” NBER working paper, October 11, 2017. http://conference.nber.org/confer//2017/PEf17/Diamond_McQuade_Qian.pdf.

"Abstract:
In this paper, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants, landlords, and the rental market as a whole. Leveraging new micro data which tracks an individual’s migration over time, we find that rent control increased the probability a renter stayed at their address by close to 20 percent. At the same time, we find that landlords whose properties were exogenously covered by rent control reduced their supply of available rental housing by 15%, by either converting to condos/TICs, selling to owner occupied, or redeveloping buildings. This led to a city-wide rent increase of 7% and caused $5 billion of welfare losses to all renters. We develop a dynamic, structural model of neighborhood choice to evaluate the welfare impacts of our reduced form effects. We find that rent control offered large benefits to impacted tenants during the 1995-2012 period, averaging between $2300 and $6600 per person each year, with aggregate benefits totaling over $390 million annually. The substantial welfare losses due to decreased housing supply could be mitigated if insurance against large rent increases was provided as a form of government social insurance, instead of a regulated mandate on landlords."

 

Rick Jacobus: Principal at Street Level Advisors; Strategy and innovation consultant focused on equitable urban development (Oakland, CA):

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welcome Dan Immergluck, Professor at Urban Studies Institute, Georgia State University (Atlanta)

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Now back to March 5-7 conversation:

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later on, professor mentioned by Market Urbanism picks up the thread:
hello to Lisa Schweitzer, Urbanist and Professor of Urban Planning at University of Southern California (Los Angeles).

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Moos et al [2018], Planning for Mixed Use: Affordable for Whom?

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Citation:
Markus Moos, Tara Vinodrai, Nick Revington & Michael Seasons (2018) Planning for Mixed Use: Affordable for Whom?, Journal of the American Planning Association, 84:1, 7-20, DOI: 10.1080/01944363.2017.1406315

Abstract:
Problem, research strategy, and findings:
Mixed-use zoning is widely advocated to increase density; promote active transportation; encourage economic development; and create lively, diverse neighborhoods. We know little, however, about whether mixed-use developments affect housing affordability. We question the impact of mixed-use zoning on housing affordability in Toronto (Canada) between 1991 and 2006 in the face of waning government support for affordable housing and increasing income inequality due to the occupational restructuring accompanying a shift to a knowledge-based economy. We find that housing in mixed-use zones remained less affordable than housing in the rest of the city and in the metropolitan region. High-income service occupations experienced improved affordability while lower wage service, trade, and manufacturing occupations experienced stagnant or worsening affordability. Housing in mixed-use zones is increasingly affordable only to workers already able to pay higher housing costs. Our findings are limited to Canada's largest city but have lessons for large North American cities with similar urban economies and housing markets.

Takeaway for practice:
Mixed-use developments may reduce housing affordability in core areas and inadvertently reinforce the sociospatial inequality resulting from occupational polarization unless supported by appropriate affordable housing policies. Planners should consider a range of policy measures to offset the unintentional outcomes of mixed-use developments and ensure affordability within mixed-use zones: inclusionary zoning, density bonuses linked to affordable housing, affordable housing trusts, and other relevant methods.

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Kaplow, Louis, and Steven Shavell (2006). Fairness versus Welfare.

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What is to be done?

Rent Insurance (Diamond et al)

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Diamond, Rebecca, Tim McQuade, & Franklin Qian. “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco.” NBER working paper, October 11, 2017. http://conference.nber.org/confer//2017/PEf17/Diamond_McQuade_Qian.pdf.

The substantial welfare losses due to decreased housing supply could be mitigated if insurance against large rent increases was provided as a form of government social insurance, instead of a regulated mandate on landlords."

 

Link production and protections

from UC Urban Displacement Project blog [Cash 2018]:

"Yes, and. Yes, we need to produce more market-rate housing, but we also need to contemplate and address displacement in how that housing gets built. Some ideas:

 

  • Link production + protections: Production happens in profitable places, meaning in places where rents are projected to rise. Let’s make sure tenants are protected from rising rents and are able to stay in these neighborhoods while new housing is being produced. For example, tiered density bonuses could be provided based on whether or not a jurisdiction has tenant protections in place.

Require inclusionary housing without hindering development

also from UC Urban Displacement Project blog [Cash 2018]:

  • Require affordability without hindering development: Inclusionary housing has come a long way and new tools are available to help jurisdictions determine where developers can make the addition of below market rate units still pencil.

Ensure no net loss of affordable units around new development

also from UC Urban Displacement Project blog [Cash 2018]:

  • Ensure that there is no net loss of affordable units in the vicinity of new development: Take language from AB 2222 or Los Angeles’ Measure JJJ to ensure that more affordable units are being built than lost and guarantee existing tenants have the right to return if their units are redeveloped.

Fair housing and attention to local history

from UC Urban Displacement Project blog [Cash 2018]:

 

  • Facilitate inclusive and diverse communities via fair housing and attention to local context/history.

Suggestions from [Moos 2018]: inclusionary, density bonuses, housing trusts

Suggestions from [Moos 2018] paper noted above by Lisa Schweitzer:

Citation:
Markus Moos, Tara Vinodrai, Nick Revington & Michael Seasons (2018) Planning for Mixed Use: Affordable for Whom?, Journal of the American Planning Association, 84:1, 7-20, DOI: 10.1080/01944363.2017.1406315.

Takeaway for practice:
Mixed-use developments may reduce housing affordability in core areas and inadvertently reinforce the sociospatial inequality resulting from occupational polarization unless supported by appropriate affordable housing policies. Planners should consider a range of policy measures to offset the unintentional outcomes of mixed-use developments and ensure affordability within mixed-use zones: inclusionary zoning, density bonuses linked to affordable housing, affordable housing trusts, and other relevant methods.

Upzone very broadly

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Home value insurance

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TILTs - Tax Increment Local Transfers

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that citation is to:
Schleicher, David, The City as a Law and Economic Subject (September 11, 2009). George Mason Law & Economics Research Paper No. 09-47; University of Illinois Law Review, Volume 2010, No. 5, pp. 1507-1564. Available at SSRN: https://ssrn.com/abstract=1471555.

I think he actually meant to cite this one: Schleicher, David. City Unplanning (January 23, 2012). Yale Law Journal, Vol. 122, No. 7, pp. 1670-1737, May 2013; George Mason Law & Economics Research Paper No. 12-26. Available at SSRN: https://ssrn.com/abstract=1990353. or http://dx.doi.org/10.2139/ssrn.1990353.

from Abstract
GThe Article concludes by considering several forms of legislative process reform that mimic procedural changes Congress adopted in order to pass international trade treaties."

 

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Create "a better society-wide system for dealing with high housing costs"

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suggestion for a regular #HousingTwitter / #HousingBowl expert forum

a project is suggested:

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How this article was made

Twitter conversations like the one presented here are often multiple, interwoven and branching, so it takes some interpretation to turn it into a single 'thread' with a beginning and end. (what is sometimes called 'Storyify'-ing, after the former product which did this).

There are various predecessor and 'side' conversations we might have included. Each tweet presented in this article does, however, link to its original on Twitter (the tweet data+time is a link to it), so you can use Twitter to explore what other interactions have occurred around it.

Tweets are incorporated into this YIMBYwiki article using MediaWiki's Widgets extension and a twitter-displaying widget. This pulls in the tweet content. To include a tweet, you get it's tweet ID (number code in the URL for it) and, editing the article page in Source view, add it like this: 

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or with this option added to excluded conversation (i.e. tweet that this tweet was replying to, if any). 

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Editing a YIMBYwiki page that include tweets is a bit tricky: the tweets don't show up in normal visual editing view, they have to be handled in Source view, where they appear as above. So far, we find the easiest way to edit pages is, is to view the page in another window, find the ID of the tweet nearest where you want to edit; then in the Edit window, in Source view for the last 4 digits of that ID, to locate where you need to do your edits.

 

References

Works Cited 

 

Bibliography

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