Market-Based Social Justice: Roll Back Zoning Restrictions on Housing Supply

Source: StatChat blog

Unaffordable housing is a problem for more Virginians today than it was during the 2000s housing bubble. Median rent has increased at three times the rate of incomes since the end of the recession, says Hamilton Lombard with the Demographics Research Group at UVa on the StatChat blog.

Among Virginians earning between $35,000 and $75,000 (the second from bottom income quartile), the share of income they spend on rent above the HUD-recommended limit of 30% reached 41% last year, nearly double pre-recession levels. The share of 18- to 34-year-old adults living with parents  surpassed 45% last year.

In Lombard’s analysis, the problem can be traced to an imbalance in supply and demand. To house its growing population, Virginia needs to build more than 40,000 new homes each year. As can be seen in the chart below, home builders have been erecting around 30,000 a year.

When new homes are built, they tend to be geared to higher-income households because those houses have the highest profit margins. In a properly functioning housing marketplace, however, as housing stock ages, it depreciates in relative value and becomes affordable to households lower in the income spectrum. In a process that economists refer to as “filtering,” aging houses continually replenish the supply of lower-cost dwellings. A higher rate of new home construction accelerates the filtering process. However, writes Lombard:

In Virginia, where fewer new homes are being built, census data shows that many of Virginia’s older homes are not depreciating in relative value as quickly as in past decades (particularly in Northern Virginia), indicating that the filtering process has slowed. This lines up with [the] analysis that found filtering is typically slower in regions with rapid home price increases and low rates of new home construction. Rising home prices and a limited supply of new homes often encourages investors and home buyers to demolish or renovate older homes that might otherwise have become low income housing.

The slowdown in new construction is at the root of Virginia’s affordable housing crisis, which contributes to ancillary problems such as the rise in homelessness and the increase in the number of evictions. If we want to solve these “downstream” problems, we need to address the source. Why has home building slowed down? I would argue that home builders would eagerly meet the demand for new housing if only they could get the required zoning permissions.

For decades it was relatively easy to get permission to build low-density cul-de-sac subdivisions on the urban fringe, but housing preferences have shifted decisively toward walkable urbanism closer to the urban core. Re-developing real estate at higher density in established areas runs into intense neighborhood resistance, which throttles the supply of new housing projects. Meanwhile, zoning policy has all but exterminated affordable-housing options such as boarding houses, single-room-occupancy housing, granny flats, garage apartments, and construction of new trailer parks.

Bacon’s bottom line: Parents, if you want to get your 24-year-old kid out of the house, support the rollback of zoning restrictions! Even if developers want to build luxury condos, they’re still contributing to affordable housing simply by increasing the housing supply. Market-driven development will even advance social justice by easing evictions and homelessness!

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15 responses to “Market-Based Social Justice: Roll Back Zoning Restrictions on Housing Supply

  1. There are two recurring themes from Conservative/free market thinkers on affordable housing these days:

    1. – that government is part of the problem with regulation
    2.- that an unfettered/less fettered free market would do a better job

    so I tried to be fair here but I’m sure others will weigh in if not.

    The problem I have with 1. is that we sorta treat govt as a monolithic entity on regulation as if it does not vary according to region, city or locality.

    That reality – of variation – if the claim is true about regulation – ought to yield at the least a rank list of places that have more affordable housing as a direct result of less regulation and actually identify specific regulations that do have an effect – rather than any/all govt and any/all regulation “suppresses” the availability of affordable housing.

    So I just don’t think the all-encompassing claim has much merit and would be better convinced if there was more specificity as to what kind of regulation AND then examples of where less regulation of that kind – actually did result in more affordable housing.

    So we need that rank list of places that have more affordable housing as a result of less regulation.

    On the second – does a true free-market really provide a range of affordable housing – and if it does – what does that look like? Is it truly a diverse housing stock that provides a full range of affordability?

    What are the real quantifiable evidence metrics of “unaffordability”?

    Seems like there should be metrics – measurable “indicators”.

    Here is an example of one of the more notoriously unaffordable places – loosening regulation :

    “Leasing Begins for New York’s First Micro-Apartments

    Nov. 20, 2015

    New Yorkers are used to living in shoe box apartments. Now, more of them can see what it is like to live in something even smaller. Leasing begins Monday at Carmel Place, the city’s first micro-unit development, a nine-story, modular building at 335 East 27th Street with 55 studios ranging from 260 to 360 square feet.

    The development, previously called My Micro NY, has tapped into a desire common among many singles to live alone. The building includes 14 units designated as affordable, for which some 60,000 people applied, or nearly 4,300 applicants per apartment. The lottery for these units was held earlier this month, and winners will be informed in January. The building is set to open on Feb. 1”

    Clearly NYC is doing something about regulation and allowing the free market to provide more affordable housing – but what is further restricting it such that demand far outstrips supply?

    • NYC is a bit unique and population density is what makes it unique. My last tour in Manhattan had me in the East Village just south of the micro development in Kips Bay (although they might prefer to call it Murray Hill).

      You don’t need a car or a place to park it.
      There are multiple places to eat 24X7X365 within a few hundred feet of your residence.
      There are small grocery markets within a few hundred feet of your residence.
      Once you know what you’re doing you know about the Tuesday night taco special at one place, the day old bagel sale at another, etc
      Mass transit is ubiquitous – you can move around Manhattan easily.
      There are running and bike trails all around the island.

      Hard to imagine too many places in Virginia with the same density and mass transit options.

  2. Just send in the City of Richmond group to build us all new free section 8 housing at $250k a pop.
    Problem solved, it’s “free” and secure housing, in a nice neighborhood with a farmers market that takes EBT, is a right for all! And our kids will all have free college and free healthcare to boot.
    Jobs and free markets are sooooo last century.

  3. Larry raises interesting questions, which I submit have free market answers.

    The example of NYC is a good one. NYC has inadequate housing if prices are any measure, but it has a better ratio of housing to urban life style seekers than most areas, and it offers amenities such as decent public transportation that make it possible for at least well-employed young people to afford the higher cost of housing. New York is a place where the expansion of housing stock is very low, mainly consisting of subdividing existing residential units and converting old commercial spaces to residential. New York still has rent controlled apartments and there’s plenty of debate over whether to get rid of them entirely and let gentrification take its toll. A lot of people would be forced to leave NYC if that happened: a lot of elderly, of poor, of unemployed — talk about “filtering”! Some say the free market solution would devastate the “ethnic character” of the City; others foresee the decline in diversity in racial terms. The politics of further curtailing (let alone abolishing) rent control is fraught! But what it would do is bring down the cost of apartments in the city very quickly for the sort of residents (employed, engaged in city life) that any city wants to attract. The fact that some young people are willing to put up with “micro” apartments to make their life there affordable says a lot about how attractive life in New York City is to them. Only the added costs of raising a family eventually force many of them to leave.

    Richmond is not NYC. In Richmond and its suburbs new housing is still being built. The obstacle is, as Jim says, zoning that mandates 1950s ideas of what is a good neighborhood, and politics that won’t challenge the status quo. Richmond has a long way to go with cross-jurisdictional governmental cooperation and public transit and fiscal health but it has a lot of things going for it, especially its old but walkable housing stock and its employment base. It’s one of those secondary urban centers that young people find so desirable when they can’t afford Northern Virginia or the Research Triangle. Young people can afford to stay in or near Richmond while raising a family. But the City still needs good affordable schools and a better idea of how to sell its strengths and to whom, rather than squander resources on showy, ill-fated convention and sports projects.

    The problem with the free market approach, it seems to me, is that it requires abundant housing, which drives down market prices, in that order. Builders must take the risk of figuring first what the market wants to buy. Regulation on the other hand creates false scarcity and higher prices; but it also provides clarity to builders, telling them exactly what they have to do to build; only within those constraints can they decide what building will make a profit. It’s no wonder that the result is overbuilt McMansions in the ‘burbs, or farm-ets even further out. McMansions sell, and the profit is handsome! Contrast that with what was built in Richmond between 1890 and 1930: we call the result the Fan and Museum Districts. In other cities those might be called, generically, the Streetcar Suburbs. No builder could reproduce those today under current zoning and building code requirements. Those areas of Richmond were not built for the poor, or for ethnic minorities, or the unemployed; but for many decades during and after the Depression the former grand homes of lower Grace Street supplied the flophouses that the times demanded. And today many of them have been improved, not by regulation but by gentrification, and the high cost of continuing to remain in one of those gentrifying neighborhoods without rent control.

    Gentrification does not immediately result in lower housing prices, but it attracts capital to that task, and demonstrates what people want more of. They do not all want McMansions or farm-ets; but that is all the builders are providing. Ask why. That is my answer, Larry.

  4. Yes – this is a description on a wider scale of what we perceive to be but what I am asking is this. For these regulations – are they the same everywhere or is there some variation with different cities – and would data collected actually demonstrate that the less regulated among those cities actually does result in more affordable housing?

    In other words – instead of more or less assuming cause and effect due to all cities having identical regulations – is it possible that some cities have different kinds of regulation and some cities actually do have more/better affordable housing because they actually do have less restrictive regulation?

    See what we do here quite a bit is we cite a problem then we claim correlation with some factors and then pronounce it proven.

    I would be better convinced if we actually could better demonstrate the relationship between specific regulations that do vary between cities and their impact and effect….. and include the other effects that is claimed to cause opposition – like traffic congestion or higher taxes, etc.

    I just tend to think we use really broad brush strokes on these things that seem “logical” and even persuasive but just saying, in effect, that generic restrictive regulation enumerated as “etc” is bad and the free market will fix it – is not really useful insight. That’s my story and I’m sticking to it!

  5. Every metro area needs a supply of affordable housing. I mean that in a generic sense and not as a term of art as is used in a number of zoning ordinances. Seek rezoning for a multi-family project in Fairfax County and you will need to provide 12% affordable housing. 20% if you are located in Tysons.

    A couple of years ago, I served on a special subcommittee that was looking into repurposing older office buildings and strip malls. This makes sense to me.

    But in neither situation can you ignore planning and zoning requirements. There is a public interest in neighborhoods retaining their character. There is a public interest in requiring each use to park itself. There is a need for affordable housing to have access to transit (here generally bus service that runs beyond the am and pm peaks). There needs to be some access to local shopping, sidewalks or trails and open space. Like most things in live, affordable housing needs balance.

    • Plus you do not design build homes and neighborhoods to become obsolete and to lose their value over time, draining the wealth therein paid for and built up over time by owners and communities. Nor do you allow new building elsewhere to intentionally hollow out older communities, destroying other peoples (neighbors) value and livelihood. That is grossly immoral. It harms everyone, evil doers and innocents alike, indeed whole communities and regions and groups of people. Filtering is a bogus concept only an academic without experience in the real world could invent.

      • Here let me pick up an earlier comment made in Grousing on a Grey and Wet Friday. That comment concerned how a few land speculators might gain undue control of land use decisions to the detriment of the public interests. And also how just the reverse might occur, where land speculators play a valuable roll in facilitating very good zoning decisions. And can play key rolls in facilitating excellent development for long term values in a wide variety of different and important ways.

        Here I will not use land speculation in Tyson’s Corner as an example, although it is worthy of study, given its roll in how the process unfolded.

        A fine novel also could be written about how land speculators assembled various prime parcels, up and down the Courthouse to Ballston Corridor. The ones I knew were enormously skilled, patient, smart and took enormous risks. They were high stakes gamblers in the finest sense of the word, had a keen sense of how best to create real value and control risk. I admired those I knew, and I valued their work, and how they handled highly complicated puzzles and transactions that were full of risk. On both the strategic and tactical level, there were several major, and many minor, ups and downs. Fortunes could be lost or gained, and they were. It was not a game for sissies or the faint of heart. The great contribution these people played was puzzling together the parcels, making much out of many, aggregating ever more value and use, so that wonderful parcels of land with full potential were primed and set up for development when the planning was complete and the market ready, or at least judged to be ready by developers and lenders, prime for development at acceptable risk.

        Sometimes developers who arrived on the scene made right judgements, and sometimes not, but the fact that most often speculators got there first and assembled many small parcels into larger highly effective ones, from often small residential subdivision lots that had otherwise been scattered, ownership and location wise, this highly skilled assemblage brought great advantage to the entire process. And, what both greatly facilitated the process and also made it devilishly hard too do, amid much competition, was the fact that the Courthouse to Ballston sector plans were created in such an unusually open, honest, intelligent and collaborative way, under great pressure, given the fact that the old downtown was quite literally dying around those who were trying to stitch it back together into a workable, new, and what turned out to be revolutionary whole, something never quite done that way before. I seemed a miracle to me.

        For example, land speculation is by its nature a highly secretively business. Knowledge, getting it and keeping it to oneself, gaining the jump on competitors, is often extremely hard to gather together, figure out, interpret and and act on effectively, but it is also the secret of success.

        In Arlington’s new downtown to be, putting it all altogether, gaining the position and power to control the many possible assemblages was often an exquisite game of chess – bluff, move, counter move, bluff again, with shifting alliances, joint ventures, buy ins, buy outs, options here, purchases there, each with whole varieties of different kinds of sellers, buyers and financiers, with different objectives and interests, all typically holding their real intentions very close to the vest, it was an endless game.

        But what a success it was. This was thanks in part to many different players in many different rolls, not least the land speculators. I cannot think of a single joint effort of major importance to a community and to a region than how the land for Arlington’s new downtown was put together, and how it was put to use, so efficiently and effectively with such beneficial results than what was accomplished in planning, assembling and building that corridor from atop the hill behind Rossyln all the way west to Glebe Road, in Arlington County, just before Falls Church.

        Next I will discuss a different set of circumstances involving land speculation, and its possible consequences on the public interests.

  6. And I pretty much agree with TMT – and that’s why it’s important to identify WHICH specific restrictions as well as what would be gained comparatively across the different restrictions – as well as the impacts – just as would be done in any proposal.

    It does not have to be a zero-sum game with winners and losers – and more important than that – is the elemental argument that we can choose to do the things that incentivize private-sector development – as opposed to essentially rely on the government to fund affordable housing like the 250K units in Richmond.

    On the gentrification issue – as TMT points out – there are a fair number of places that are not converting existing housing – gentrification but instead redeveloping places that were never integral establish neighborhoods to start with. That’s where the type of zoning needs to be granular so that it does incentivize places that would benefit from re-development and not gentrify places already developed and established.

    I’m just not buying the overall idea that any/all restrictions need to be all done away with and let the free market “work” because the free market goals are to make money and do so regardless of “externalities” and/or impacts to existing property owners. This is why it is so important for the developer to meet with the existing owners and work with them to come up with proposals they can not only live with but actually might see it as a benefit to both affordability and existing owners.

    I just don’t think the unfettered or even regulated free market really works to improve the lot of others – but more themselves sometimes at the expense of others.

    Finally, it’s totally unrealistic for anyone to oppose development in general because it will ADD to the existing traffic. That’s a recipe for higher taxes when the govt takes more and more responsibility for itself providing “affordable” housing… and using the power of government to do it.

    • I’m just not buying the overall idea that any/all restrictions need to be all done away with and let the free market “work”

      Who on this blog has espoused the idea of doing way with all restrictions? This is classic misdirection.

      I make the argument that zoning regulations are causing the shortages of affordable housing, so you leap to the conclusion that I want to get rid of them all. While I do favor a rollback of the most pernicious regulations, I have never suggested getting rid of all of them.

      • The biggest zoning restriction is allowing developers to build anywhere thereby not forcing dense development. Density drives functional human settlement patterns. It also drives employment as companies can be assured of an adequate supply of employees.

        • Virginia law requires a party receiving increased density to make/negotiate proffers in cash or in-kind that ameliorate the impact the new development causes on public facilities. That law was passed in lieu of mandatory impact fees.

          When adequate proffers are not obtained, the rest of the community suffers a decline in their quality of life and higher taxes to supplement the inadequate public facilities.

          Local governments can also impose development conditions consistent with the applicable Comp Plan, zoning ordinance and other applicable laws. For example, an institutional use in a residential neighborhood is often required to plant vegetation to provide screening. Most new re-zonings require the applicant to store some volume of storm water on site. Etc.

          This seems very reasonable to me. Development, be it dense or scattered, imposes costs on society. It’s not unreasonable to require the developer/builder to address those costs and burdens. And if they did on a regular basis, there would be much less opposition to development, dense or scattered.

          As far as the location match between jobs and residents is concerned, I’d like to see the data. How many people walk to work in Reston or Tysons?

        • I agree with Don and TooManyTaxes. I use to disagree with TMT’s comment, but have since come around this point of view in this particular case and many others as well. All this stuff is coming to an important inflection point should Amazon HQ2 decide to move into Crystal City and Potomac Yard, which most everyone assumes now.

          Should this happen, it will present a hundred year opportunity. One that Northern Virginia, all of Northern Virginia, each and every part of it, cannot afford not to take full advantage all. Surely this is the time to try to find new ways to think about and implement regional zoning and land use laws in N. Va. to fix existing problems and set up new ways get all of Northern Virginia’s parts working together for mutual advantage, a place whose many parts can then at last can be put together to make a far bigger and more dynamic whole. If that be accomplished, then Northern Virginia’s future will for sure be a spectacular one indeed.

          Given the performance standards that some highly capable people in Richmond have shown to date, these possibilities seem brighter, and more possible, than ever.

  7. actually here are the words:

    ” Parents, if you want to get your 24-year-old kid out of the house, support the rollback of zoning restrictions! Even if developers want to build luxury condos, they’re still contributing to affordable housing simply by increasing the housing supply. Market-driven development will even advance social justice by easing evictions and homelessness!”

    this is not “misdirection” it’s very broad-brushed in the absence of specifics and showing places with less restrictions that actually does yield more affordable housing…

    so you say “pernicious” … geezy peezy …. got a specifics? if you really don’t do specifics and supply evidence to back it up – then basically ou ARE implying any/all … what else is one to presume ?

    I’m the first one to admit that government taxing people to then pay for affordable housing is the worst of all worlds – but the argument you give as an alternative – when there are no specifics and no real evidence – is actually worse.

    There is no way that you’ll sell the idea to folks like TMT – albeit Conservatives and Liberals alike to “unleash” the free market carte blanch to “fix” this issue.

    When I actually see a articulation of “pernicious” along with which ones that actually have been loosened – with metrics that show good results – then this actually is an “any/all” argument that actually does not convince any but the stalwart “free market” folks.

    Make a cogent and convincing argument rather than just parrot beliefs!

  8. I don’t live in NoVa nor Richmond but I’m a frequent enough visitor to both places to observe there are great swaths of land that is ripe for redevelopment, some of it “blight” that I’m quite sure the governments would just love to see developed into affordable housing rather than continue to deteriorate and fester.

    It’s not zoning restrictions that are the problem. It’s the LOCATION and surrounding properties that make such land not near as desirable as say gentrification so is it the government that is really suppressing the free market by onerous zoning or is the free market CHOOSING what it wants to develop based on factors other than zoning?

    That’s why it’s helpful to know WHICH zoning restrictions are the problem rather than just broadly implying that it’s any/all without actually specifying.

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