The Land Use Report of the President

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The Economic Report of the President contains an important analysis of local land use policies in a section titled “Constraints on Housing Supply:”

Supply constraints provide a structural challenge in the housing market, particularly in high-mobility, economically vibrant cities. When housing supply is constrained, it has less room to expand when demand increases, leading to higher prices and lower affordability. Limits on new construction can, in turn, impede growth in local labor markets and restrain aggregate output growth. Some constraints on the supply of housing come from geography, while others are man-made. Constraints due to land-use regulations, such as minimum lot size requirements, height restrictions, and ordinances prohibiting multifamily housing, fall into the man-made category and thus could be amended to support more inclusive growth. While these regulations can sometimes serve legitimate purposes such as the protection of human health and safety and the prevention of environmental degradation, land-use regulations can also be used to protect vested interests in housing markets.

Gyourko and Molloy (2015) argue that supply constraints have worsened in recent decades, in large part due to more restrictive land-use regulations. House prices have risen faster than construction costs in real terms, providing indirect evidence that land-use regulations are pushing up the price of land.

According to Gyourko and Molloy (2015), between 2010 and 2013, real house prices were 55 percent above real construction costs, compared with an average gap of 39 percent during the 1990s. Several other studies note that land-use regulations have been increasing since roughly 1970, driving much of the real house appreciation that has occurred over this time (Glaeser, Gyourko, and Saks 2005; Glaeser and Ward 2009; Been et al. 2014). This pattern is noteworthy because of the positive correlation between cities’ housing affordability and the strictness of their land use regulations, as measured by the Wharton Residential Land Use Regulation Index (Gyourko et al. 2008). Cities to the lower right of the figure which include Boston and San Francisco, have stringent land-use regulations and low affordability. Cities at the upper left, which include St. Louis and Cleveland, have low regulation and high affordability. Supply constraints by themselves do not make cities low in affordability. Rather, the less responsive housing supply that results from regulation prevents these cities, which often happen to be desirable migration destinations for workers looking for higher-paying jobs, from accommodating a rise in housing demand.

In addition to housing affordability, these regulations have a range of impacts on the economy, more broadly. Reduced housing affordability—whether as an ancillary result of regulation or by design—prevents individuals from moving to high productivity areas. Indeed, empirical evidence from Molloy, Smith, and Wozniak (2012) indicates that migration across all distances in the United States has been in decline since the middle of the 1980s. This decreased labor market mobility has important implications for intergenerational economic mobility (Chetty et al. 2014) and also was estimated in recent research to have held back current GDP by almost 10 percent (Hsieh and Moretti 2015).

Land-use regulations may also make it more difficult for the housing market to accommodate shifts in preferences due to changing demographics, such as increased demand for modifications of existing structures due to aging and increased demand for multifamily housing due to higher levels of urbanization (Goodman et al. 2015). A number of Administration initiatives, ranging from the Multifamily Risk-Sharing Mortgage program to the Affirmatively Furthering Fair Housing rule, try to facilitate the ability of housing supply to respond to housing demand. Ensuring that zoning and other constraints do not prevent housing supply from growing in high productivity areas will be an important objective of Federal as well as State and local policymakers. (87-89, figures omitted and emphasis added)

It is important in itself that the Executive Branch of the federal government has acknowledged the outsized role that local land use policies play in the economy. But the policies that the Obama Administration has implemented don’t go very far in addressing the problems caused by myopic land use policies that favor vested interests. The federal government can be far more aggressive in rewarding local land use policies that support equitable housing and economic development goals. It can also punish local land use policies that hinder those goals.

Edward Glaeser and Joseph Gyourko get much of the credit for demonstrating the effect that local land use policies have on federal housing policy. Now that the President is listening to them, we need Congress to pay attention too. This could be one of those rare policy areas where Democrats and  Republicans can find common ground.

California Dreamin’ of Affordable Housing

Architecturist

Just A Dream for Many

Yesterday, I blogged about the affordable housing crisis in New York City. Today, I look at a report from the Center on Budget and Policy Priorities, How Housing Vouchers Can Help Address California’s Rental Crisis. It opens,

California’s severe shortage of affordable housing has hit low-income renters particularly hard. Nearly 1.6 million low-income California renter households paid more than half of their income for housing in 2013, and this number has risen 28 percent since 2007. While the shortage is most severe on California’s coast, many families throughout California struggle to pay the rent. A multifaceted approach with roles for local, state, and federal governments is needed to address the severe affordable housing shortage, but the federal Housing Choice Voucher program can play an outsized role.

California’s high housing costs stretch struggling families’ budgets, deepening poverty and hardship and exacerbating a host of other problems. For example, 23 percent of Californians are poor, according to Census measures that take housing costs into account, well above the poverty rate of 16 percent under the official poverty measure. California has 14 percent of the nation’s renter households but nearly 30 percent of the overcrowded renters. And California has one-fifth of the nation’s homeless people, more than any other state. A large body of research shows that poverty, overcrowding, housing instability, and homelessness can impair children’s health and development and undermine their chances of success in school and later in the workforce.

Housing vouchers help some 300,000 low-income California families afford the rent, more than all other state and federal rental assistance programs combined. Vouchers reduce poverty, homelessness, and housing instability. They can also help low-income families — particularly African American and Hispanic families — raise their children in safer, lower-poverty communities and avoid neighborhoods of concentrated poverty. Moreover, so-called “project-based” vouchers can help finance the construction of affordable rental housing in areas with severe shortages.

Yet the number of vouchers in use has fallen in recent years, even as California’s housing affordability problems have worsened. Due to across-the-board federal budget cuts enacted in 2013 (called sequestration), 14,620 fewer California families used vouchers in December 2014 than in December 2012. By restoring funding for these vouchers, Congress can enable thousands more California families to afford safe, stable housing. (1, reference omitted)

Really, the analysis here is not California-specific. The authors are arguing that low-income families benefit greatly from rental subsidies and that Congress should restore funding for housing vouchers because they provide targeted, effective assistance to their users. While California has a high concentration of voucher users, all low-income renter households would benefit from an increase in the number of housing vouchers. No argument there.

I am disappointed that the report does not address an issue that I highlighted yesterday — attractive places like NYC and California continue to draw a range of people from global elites to low-income strivers. Policymakers cannot think of the affordable housing problems in such places as one that can be “fixed.” Rather, it must be seen as, to a large extent, a symptom of success.

So long as more and more people want to live in such places, housing costs will pose a challenge. Housing costs can be mitigated to some extent in hot destinations, but they are hard to solve. And if they are to be solved, those destinations must be willing to increase density to build enough units to house all the people who want to live there.

Monday’s Adjudication Roundup

A Resilient NYC

NYU’s Furman Center released a report, The Price of Resilience: Can Multifamily Housing Afford to Adapt? It explains that storm-proofing New York City

poses several special challenges not shared by all coastal areas. First, New York City is largely built out, with much of its building stock long predating current flood-resistant design standards. Resilience in New York, then, primarily means retrofitting older buildings, not just strengthening building codes for new construction. Second, much of the official guidance about how to retrofit residential properties to reduce risk and lower insurance premiums is geared toward 1-4 family buildings, reflecting the national housing stock. In New York City, though, only one-third of the buildings thought to be vulnerable to flooding are1-4 family, detached homes. A much larger number of housing units vulnerable to future storms are located in roughly 4,500 multifamily buildings with five or more rental units. Finding ways to cost effectively retrofit these types of buildings to protect residents and reduce insurance premiums for owners needs to be central to New York City’s storm-preparedness efforts.

Finally, the extreme shortage of affordable housing in New York may make the direct and indirect costs of retrofitting particularly hard to bear. Based on current federal policy, increased flood risk requires for many buildings either investment in physical improvements or payment of higher insurance premiums. Without external funding or other relief, there is no clear avenue to enact these resilience improvements while maintaining affordability. Eliminating all units below the predicted flood level, for example, could result in the loss of thousands of indispensable housing units. Even if units are not lost, property owners may pass on the costs of retrofitting buildings to residents through a rent increase, reducing the supply of affordable units in New York City’s coastal areas. For buildings that are constrained in their ability to raise rents and raise funds for improvements, like many of the rent stabilized and subsidized buildings in the city, the financial burden of making costly retrofits might be overwhelming, leading to the conversion of those buildings to market rate (when permitted), unsustainable operating budgets that may require a bail-out, or a large number of buildings left unprepared for future storms. The costs of not retrofitting, however, may be even more burdensome: building owners may face skyrocketing flood insurance premiums if they do not retrofit their buildings.

While I am not so sure that storm-proofing will be what pushes New York City’s housing stock into the unaffordable column (I think the relentless increases in demand might just to the job for units that are not rent regulated), the Furman Center report reminds us that we have a lot to do to protect New York from the next big storm. The Bloomberg Administration did a lot in a short time to identify what the City can do to increase the City’s resiliency. Given the quality of his housing and economic development team, there is reason to hope that the de Blasio Administration will continue to tackle the threat of climate change in a productive way.

The Furman Center report provides three concrete recommendations to ensure that NYC’s large stock of multi-family housing in flood zones is protected from future storm events:

  1. The Federal Emergency Management Agency (FEMA) should modify the guidelines for its National Flood Insurance Program for coverage of existing multifamily buildings;
  2. New York City should expand its Flood Resilience Zoning Text Amendment to cover buildings in the 500-year floodplain; and
  3. The city should revisit its existing rehabilitation programs to ensure that resilience measures can be readily funded; and it should require that buildings in the 100-year and 500-year floodplains that receive city assistance have adequate emergency and resilience plans.

These all seem like reasonable policies that should be implemented asap.

Southern District of Ohio Unable to Determine Lenders’ Standing, Orders Lenders to Submit More Evidence or Have Case Dismissed

In In re Foreclosure Cases, 521 F. Supp. 2d 650 (S.D. Ohio 2007), the United States District Court for the Southern District of Ohio reviewed 27 private foreclosure actions based on federal diversity jurisdiction. In this case, the court was concerned with the issues of standing and subject matter jurisdiction, and was dissatisfied with the evidence submitted by the lenders. The court concluded by ordering the lenders to “submit evidence [within 30 days] showing that they had standing in the above-captioned cases when the complaint was filed and that this Court had diversity jurisdiction when the complaint was filed. Failure to do so will result in dismissal without prejudice to refiling if and when the plaintiff acquires standing and the diversity jurisdiction requirements are met.”