Economists & Advocates

Economists have value systems, just like other people. To the economist, the affordability of housing and its price is relative to the cost of production, not the ability of people to buy or rent. The economist also knows that housing is essential, however, when the cost of production exceeds a household’s income capacity for acquisition or rent by over 50%, the value system of the housing rights advocate is activated.

Interventions

Demands for public intervention by the economist or housing rights advocate occurs in the political economy. The result is a range of subsidies or incentives for people seeking housing and the corporate producers offering to build housing. Economists have long lists of variables affecting a household’s capacity for mobility on a spectrum ranging from a positive transition to “rent burdens” and homelessness. The failure to intervene in some markets leads to displacement relative to the reduction of diversity in income. In both high-cost and lower-cost areas, these failures become most evident during extreme disruptions threatening life and well-being observed as refugees around the world. The typical refugee crisis is stimulated by violent conflict, however, the refugees in the United States go unnoticed for the lack of direct threats to life, and are wrongly characterized as individual human failures and certainly not as victims of the soft violence inherent to capitalism.

The experience of both economists and housing rights advocates intersect in the selection of interventions. The economist uses sophisticated formulas based on whether units are valued below or above construction costs over specific evaluation periods. The national economist concludes this analysis with a description of a healthy and affordable housing market in the nation as a whole. The housing rights advocate within smaller regional markets points to downward pressure on wages and the costs of household displacement. These are difficult social costs to measure because the impact is in neighborhoods and displacement cycle data is decennial. In tight markets, weak wage growth and displacement costs can be severe enough to fully separate householders from their homes. The evidence base for this remains largely anecdotal but rises from one tragic number. In New York City, and every year for decades it sits at 40,000 people [? population of Tarawa, the capital city of Kiribati], mostly women with children who are homeless, and as it stays at this number year after year. Only one conclusion is possible –homelessness a production function of urban living.  

New York City’s first homelessness crisis arrived suddenly in the early 1980s and like the voices calling out, the “subprime crisis” warnings were unheeded. When buildings throughout Manhattan known as SROs (single room occupancy) became marketable for more profitable uses, hundreds of people fell into the streets. The burden of that shift fell on the city agencies heavily and its large of WW I and WWII armories became shelters. As the crisis matured, many supportive housing programs formed followed by the construction of low-cost hotels throughout New York’s five boroughs supported in part by city funding for families in short-term distress. The enormity of capital that was in part responsible for causing displacement and homelessness averted a humanitarian crisis but it did not solve the problems of displacement, it absorbed displacement to further urban reinvestment processes.

The Americans

The tragedy of capital and its workings are easy to spot in the eyes of the housing rights advocate. In looking at the issue of housing and community development through their eyes it is easy to see why the literature on democratic socialism has become more and more abundant. Quotes from socialist literature such as the following appear in internet discourse and as widely as Season 5 Episode 5 of “The Americans.”

His labor is therefore not voluntary but coerced; it is forced labor. It is therefore not the satisfaction of a need; it is merely a means to satisfy needs external to it.

Economic and Philosophical Manuscripts of 1844. Karl Marx “Estranged Labour” Source: https://www.marxists.org

Affordability advocates point to the 80+ percent increase in visits to Marxist.org since 2009 (statistics) as an indicator of people searching for answers. They would argue the rising cost of shelter is not only separating families from their homes but from their local economies as well, creating food deserts and deteriorating conditions in services where there should be vibrant neighborhoods. The economist might agree on these facts but would argue the call for political change is not built successfully on distress factors.  The percentage of income for shelter is only a benchmark of affordability. This factor does not define the problem well, only one of its symptoms. The economist’s definition examines the range of construction costs associated with housing and the correct response to affordability would be to build more housing to increase supply while also acknowledging the frustration of housing rights advocates regarding the existence of affordable housing, that is not where people need it or have low-cost access to it or from it for jobs.

Economist says the social cost of new housing cannot be lower than the cost of construction it is because it impinges on gains accrued when the price of housing is significantly above the cost of construction. To the economist, the social costs are those imposed on consumers for which they are not compensated or charged. The housing rights advocate, on the other hand, cannot easily quantify social gains attached to a course of inaction only the action that prevents loss. Numerical values are not readily assigned for food needed but not eaten, child care services not provided, transit unavailable or the costs of displacement from one home to the next and the next or ultimately into institutionalized shelters. Built into the tragedy of capital lies the misfortune and heartbreak of people made invisible.

Dense housing markets suggest to the economist that supply limits are due to high costs for land and construction. Another view sees high costs in regional suburban markets where land is abundant, that restrictive zoning, fees, review, and approval processes are the principal causes of increased construction costs. Both definitions of the problem seem accurate, leading to the question of how it is possible to produce more housing in both markets when paired for comparison of initiatives in specific regions. Housing markets such as New York City and San Francisco are unique because conditions of demand create a significant divergence between prices and costs. Adaptations in dense markets alter the ratio of height from 1:7 to 1:17 (see Park Avenue.) No such change in ratio occurs in lower-density regions. Dense markets increase rent pressures on low-and-moderate income households, however, safety valve measures such as Rent Stabilization reduce these pressures with triggers tied to inflation and specific capital improvements. These practices slow the problem but do not stop its pace.

While low densities are often associated with upper-income demand for amenities and land these costs appear to have more to do with zoning than the marginal cost of land. Economists admit that data linking zoning to production costs is difficult to develop. The Wharton Land Use Control Survey (1989) has been followed up and subsequent publications under the title of Wharton Residential Land Use Regulation Index (WRLURI) provide added support for this position (Joseph Gyourko). For the housing rights advocate, the regulation connection to high development cost is a plain fact on the heads side of the housing coin but in the game called “heads I win, tails you lose,” the regulatory protector on the tails side (the game).

Paul Davidoff (1946-1985) was one of those housing rights advocates who recognized the cost structures imposed by zoning and other land use regulations mattered a lot. He opened the Suburban Action Institute in the late 1970s and transformed it into the Metropolitan Action Institute in the 1980s. The idea was to conduct research and prepare litigation everywhere in the metro region that would increase access to suburban communities for people with disadvantages by breaking down exclusionary zoning rules. He saw them as unfair, regulatory constructions that refused to understand or plan to serve the needs of people already holding a set of comparative disadvantages. In this sense, the nation’s affordable housing crisis would not exist if advocates for change could exhibit and expose the injustice aimed at young people, minorities, and women, further aggravated by skin color. Effective change requires an attack on the barriers built by human prejudices that continue to remain unchallenged for decades after the passing of leaders like Davidoff.

For the economist, the price of housing across the nation remains close to the physical costs of construction Edward L. Glaeser examines the “plenty of affordable housing in the wrong place” issue as one of the economists who routinely parse housing data with highly refined tools. His lean toward density as a provider of affordability links to data that strongly suggests how zoning, and other land-use controls, are more responsible for high prices and exclusion. The title of his most popular book tells the story people need to hear –  Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier.

Davidoff’s instincts placed the burden for change on the urban planning and architecture community and he criticized its lack of leadership. He brought about changes in the professional planner’s code of ethics accordingly. Davidoff knew that planners and architects have a capacity for envisioning futures that people can share, believe in, and fight to achieve, and yet failed to take a leadership position remains. Turning to litigation and legislation for political social change is the least powerful route without a dedicated political movement backed by professionals that know how to change prejudicial behavior and correct wrongs. Legislation and litigation are rarely dispositive of any question without the strategic use of political action.

The economist takes social and economic change as a matter of professional observation, that all things require a sense of equilibrium to achieve useful observations of human economic behavior. For the economist, the evidence is always suggestive and never fully definitive for changing policy. For the housing rights advocate its more radical forms of resistance to oppression, social injustice is needed. Both actors are sensitive to the outright chaos embedded in the postures of conflict from financial bullying to dirty little wars. Both, on the other hand, are capable of a “facts are friendly” approach to the demands for social change.

Financial Herd Immunity

Billionaire Mike Bloomberg (NYC’s Mayor 2002-2013) is one of those “facts are friendly” leaders. He combined the problems defined by the economist and the housing rights advocate by going directly at zoning and in a big way. In reviewing his options for a housing strategy he looked at the Federal Budget and reportedly said, ah bupkis, and then examined the steady boom in NYC’S residential real estate market and went all in on the “inclusionary zone” idea already well advocated by the city’s nonprofit housing advocates. In this New York City model, “if you give a little” in this case square feet of floor area, you could, “get a little” in almost affordable housing. It would prove to be the displacement force of his era. Even with the 2008 Recession in its headlights, NYC’s housing market rebounded dramatically and the price regardless of the impact of the Great Recession would continue the agony of homelessness.

His background in the production of econometric data for sale on the “Bloomberg Terminal” put him among the 1% wealthiest. (see Writer’s List and Timeline). In becoming mayor, he took a special interest in housing, but rather than turn to the city’s housing agency for answers, he moved to produce significant reforms aimed at housing production through the Department of City Planning. In this agency, he could produce incentives for private development and expose the facts of housing production cost, leading to a ten-year battle for his Inclusionary Housing program that would become mandatory for the entire city built on the proof of its success.

At the end of the Mayor’s third term his administration could take credit for 175,000 new and rehabilitated housing units, the pace of which has not lessened in the administration of Mayor De Blasio. (2014, 2020, and a possible third term) His administration of the Housing New York (HNY) plan claims 109,766 affordable homes financed since its inception in 2014 through June 2018. The prospect of a floor area addition within strict design parameters for new housing through zoning created ways include 20 percent or more units of a project for modest income households. This factor alone outweighed the constraint of production costs as the supply of new and rehabilitated housing amounted to over one million units of housing over the first two decades of the 21st century. (Assuming 20%= 380,000 units, then 100% is well over 1 million.)

New York City’s housing history from 2000-2020 should tell all observers that balance can be achieved in the eyes of the economist. In the vision of the housing rights advocate serious affordability questions remain. In this plan, 80% of the housing is unaffordable to a couple with two kids if they earn less than $85,000 [? cost of Porsche 911] a year when affordability is measured by 30 to 35 percent of income used for housing. The number of households below that threshold (such as two rookie cops in 2018) will either gain the skills to compete for these incomes or stand quietly in the line leading to the day-to-day battle against the deterioration of their shelter, routine harassment, and the specter of displacement and the threat of homelessness.

Policies that reduce production costs do well with zoning reform incentives. LEED/SEED environmental incentives lower operating costs as do tax reductions. The direct production of deeply subsidized housing occurs using those tools and substantially reducing (or eliminating) the cost of money. This is useful for two reasons.  It sustains an in-house knowledge base of production costs and it serves the city’s most vulnerable populations with hope. Building small numbers of heavily subsidized housing units has a trivial impact on average housing prices but it is a win-win for all cities with large and flexible capital budgets.

Cities are Within Cities

New York also has a “city within the city” managed by the New York City Housing Authority (NYCHA). The deterioration of 175,000 apartments in this arena for a very low-income and aging population is a growing concern. NYCHA’s situation is emblematic of a national predicament. The nation’s legacy of social housing has become a kind of “trap” based on race, poverty, and destinies defined by zip code.

The movement toward a reform zoning regime in high-cost areas facing greater stress in their capital budgets in suburban areas faces consequences on two fronts. The first is knowing full well that the deterioration of the older single-family stock and supportive infrastructure is ongoing and likely to absorb displaced households from their core cities as prices/rents fall. The second front is to make zoning changes politically feasible through initiatives such as mass transit-based high-density housing development. Other forms of compensation regarding the reduction in housing prices due to this change in low-density areas are therefore likely, but less palatable.

The NYU Furman Center is an excellent source of independent, evidence-based analysis of housing and its affordability. Furman serves the core data analysts as well as the ordinary concerned citizen of New York City with training that helps Hithe housing rights activist drill down to neighborhoods of specific concern for information. Well-reasoned articles on issues such as the effect of higher income in migration of residents on displacement in specific areas are plentiful at the Furman Center.

The rise of 19th-century macro- and. micro-economics from economists such as John Maynard Keynes describes how the demand for housing creates housing from double-wide to mountainside. Others such as Jean Baptist Say describe how the supply of housing creates its own demand. These worldviews involve decades of public policy. Both are being severely altered by the idea that differences in degree matter greatest in the small things that alter human life or all life negatively. It remains impossible to argue one of those small things is the single-family house.

The interest in growth as the prime problem solving resouce persists in degrade the environment and has a tendency to destroy natural beauty. This is where the numbers lie despite their accuracy. Affordability is becoming a far greater function of locations liked to the energy function of “buildings” among all the other buildings needed to meet needsAttendance to community needs will require a radically altered view of growth. We live in cities yet have only the vaguest idea of what they are now or must become for generations to come. 

The next post in this series (GND) will of necessity look at housing within its larger systems and within which our homes will be rethought. The Green New Deal (GND) is a comprehensive idea to counter the worst ideas under the heading of “climate denial.” A draft is here as a Google Document outlining the creation of a select committee. An excellent summary of its content and potential is from the Haas Energy Institute (here).