Evidence and Innovation in Housing

Lee Anne Fennell and Benjamin Keys have posted the Introduction to their new book, Evidence and Innovation in Housing Law and Policy, to SSRN. It opens,

No area of law and policy presents more important and pressing questions, or ones more central to human well-being, than that of housing. Yet academic discourse around housing is too often siloed into separate topical areas and disciplinary approaches, while remaining distanced from the contentious housing policy debates unfolding in communities across the nation. In June 2016, the Kreisman Initiative on Housing Law and Policy at the University of Chicago Law School convened a conference in downtown Chicago with the goal of breaking down these barriers and forging new connections – between different facets of housing law and policy, between different disciplinary approaches to housing issues, between academic inquiry and applied policy, and between the lessons of the past and adaptations for the future.

This volume is the product of that conference and the dialogue it provoked among academics, practitioners, and policy makers. Its baker’s dozen of contributions comprises cutting-edge interdisciplinary work on housing and housing finance from leading scholars in law, economics, and policy. The pieces individually and collectively showcase how research and policy can come together in the housing arena. We hope the end result will have lasting relevance in setting the course – and identifying the obstacles – for housing law and policy going forward.

This book is organized around two interlocking roles that housing serves: as a vehicle for building community, and as a vehicle for building wealth. These facets of housing carry implications both for the households who consume residential services and for the larger economic, political, and spatial domains in which housing plays such a primary and contentious role. Cumulatively, the pieces here confront, and respond innovatively to, the dilemmas that these two facets of housing create for law and policy at different scales of analysis. (1)

This collection of papers brings together an all-star cast of housing nerds. While the papers are an eclectic mix, they are pretty consistent in that they ask important questions about housing policy. Even better, the Introduction contains links to open access versions of each paper. They are listed below:

Part I – Housing and the Metropolis: Law and Policy Perspectives

1 – The Rise of the Homevoters: How the Growth Machine Was Subverted by OPEC and Earth Day By William A. Fischel

2 – How Land Use Law Impedes Transportation Innovation By David Schleicher

3 – The Unassailable Case against Affordable Housing Mandates By Richard A. Epstein

Part II – Housing as Community: Stability, Change, and Perceptions

4 – Balancing the Costs and Benefits of Historic Preservation By Ingrid Gould Ellen & Brian J. McCabe

5 – Historic Preservation and Its Even Less Authentic Alternative By Lior Jacob Strahilevitz

6 – Losing My Religion: Church Condo Conversions and Neighborhood Change By Georgette Chapman Phillips

7 – How Housing Dynamics Shape Neighborhood Perceptions By Matthew Desmond

Part III – Housing as Wealth Building: Consumers and Housing Finance

8 – Behavioral Leasing: Renter Equity as an Intermediate Housing Form By Stephanie M. Stern

9 – Housing, Mortgages, and Retirement By Christopher J. Mayer

10 – The Rise and (Potential) Fall of Disparate Impact Lending Litigation By Ian Ayres, Gary Klein, & Jeffrey West

Part IV – Housing and the Financial System: Risks and Returns

11 – Household Debt and Defaults from 2000 to 2010: The Credit Supply View By Atif Mian & Amir Sufi

12 – Representations and Warranties: Why They Did Not Stop the Crisis By Patricia A. McCoy & Susan Wachter

13 – When the Invisible Hand Isn’t a Firm Hand: Disciplining Markets That Won’t Discipline Themselves By Raphael W. Bostic & Anthony W. Orlando

Historic Preservation and Affordable Housing

photo by Ebyabe

Lior Strahilevitz has posted Historic Preservation and Its Even Less Authentic Alternative to SSRN. The abstract reads,

Historic preservation regulations are costly, contentious, and – as best we can tell – tend to promote residential segregation. Preservation as practiced in the United States also tells historical tales in a way that is inevitably selective, often more attuned to contemporary needs than historical objectivity, and likely to signal current residents and visitors about whose stories aren’t worth commemorating. Yet historical preservation, even to its critics, can further desirable goals. This essay examines traditional historic preservation strategies while also considering two potential alternatives, neither of which has received much attention.

The first alternative to traditional historic preservation – fake history – is employed on a large scale in the fastest growing residential community in the United States. The essay provides a case study of the use of fake history and theming in The Villages, Florida, revealing both the strategy’s potential for generating low-cost cultural resonance and its pitfalls. The possible connections between The Villages’ omnipresent theming and its disturbingly homogenous demographics are explored. The essay suggests that The Villages’ alternative to historic preservation might be replicated elsewhere and speculates about the demographic results of efforts to create more inclusive fake historical narratives.

A second, and novel, alternative to traditional historic preservation would select sites for historic preservation restrictions at random within a given community. Many of the problems associated with the way historic preservation regulations are implemented in the United States stem from the arbitrary and occasionally ugly battles over what to preserve and what to erase. Historic preservation becomes a battlefield for cultural warfare. Compared with this alternative, the case for randomly preserving in each city a few blocks that date from each particular era, while letting market forces dictate what gets preserved or destroyed elsewhere, may be surprisingly strong.

While I do not like either of these novel alternatives, we would certainly benefit from fresh thinking about what we are trying to achieve with historic preservation. Historic preservation remains too much of a niche area of regulation dominated by the few who feel most strongly about it. It has slowly but surely increased its reach in cities like New York. But it has not been accompanied by much serious thinking by broader constituencies about the costs and benefits of each incremental step.

There are obvious trade-offs with landmarking that don’t just affect landowners and developers. By restricting new construction, landmarking tends to restrict the supply of new housing units. This might be okay, but we should certainly think through those costs before just letting preservation districts cover more and more of a city. I am not particularly interested in communities based on fake history, but others are welcome to them. For me though, I am concerned that our most important cities might end up like Paris — stunning historic playgrounds for the wealthy, encircled by high-rise ghettos for the poor.

Two Cheers for Obama’s Housing Development Toolkit

photo by Daniel Schwen

As the Obama Administration nears the end, the White House released a Housing Development Toolkit. It opens,

Over the past three decades, local barriers to housing development have intensified, particularly in the high-growth metropolitan areas increasingly fueling the national economy. The accumulation of such barriers – including zoning, other land use regulations, and lengthy development approval processes – has reduced the ability of many housing markets to respond to growing demand. The growing severity of undersupplied housing markets is jeopardizing housing affordability for working families, increasing income inequality by reducing less-skilled workers’ access to high-wage labor markets, and stifling GDP growth by driving labor migration away from the most productive regions. By modernizing their approaches to housing development regulation, states and localities can restrain unchecked housing cost growth, protect homeowners, and strengthen their economies.

Locally-constructed barriers to new housing development include beneficial environmental protections, but also laws plainly designed to exclude multifamily or affordable housing. Local policies acting as barriers to housing supply include land use restrictions that make developable land much more costly than it is inherently, zoning restrictions, off-street parking requirements, arbitrary or antiquated preservation regulations, residential conversion restrictions, and unnecessarily slow permitting processes. The accumulation of these barriers has reduced the ability of many housing markets to respond to growing demand.

Accumulated barriers to housing development can result in significant costs to households, local economies, and the environment. (2, emphasis in original)

Glaeser & Gyourko identified the tension between local land use policies and federal affordable housing policies a long time ago, but the federal government has never really done much about it. To its credit, the Obama Administration had touched on it recently, but never in this much depth. So one cheer for the toolkit’s focus on local land use policy as an issue of national concern.

And a second cheer for highlighting actions that states and local governments can take to promote more dynamic housing markets. They include,

  • Establishing by-right development
  • Taxing vacant land or donate it to non-profit developers
  • Streamlining or shortening permitting processes and timelines
  • Eliminate off-street parking requirements
  • Allowing accessory dwelling units
  • Establishing density bonuses
  • Enacting high-density and multifamily zoning
  • Employing inclusionary zoning
  • Establishing development tax or value capture incentives
  • Using property tax abatements (3)

I withhold the last cheer because the toolkit spends no time discussing how the federal government could use its immense set of incentives to encourage state and local governments to take steps to increase the housing supply in high-growth areas. The federal government used such incentives to raise the drinking age and it did it to lower the speed limit. Isn’t the nation’s affordable housing crisis important enough that we should use incentives (such as preferred access to HUD funds) to spur development that is good for Americans collectively as well as for so many Americans individually?

Does Historic Preservation Destroy Affordable Housing?

Spencer Means

The Real Estate Board of New York released a report about Rent Regulated Units in Landmark Districts. The report opens,

This analysis was conducted to examine the frequent assertion that landmarking helps preserve existing affordable housing. It is based on data that recently became publicly available that provides a snapshot of the number of rent-stabilized units in 2007 and again in 2014.

Contrary to statements made by advocates, affordable housing is not preserved at higher levels in NYC’s historic districts. The data shows that properties located within New York City’s historic districts showed a greater net loss of rent regulated apartments than those located in non-landmarked parts of the City.

FINDINGS

An analysis of the data found that, from 2007 to 2014, the decline in the number of rent regulated apartments located within New York City’s landmarked properties was four times higher than in non-landmarked parts of the City.

Citywide, landmarked properties showed a much greater decrease in the number of rent stabilized units (-22.5%) than non-landmarked properties (-5.1%). At the end of this seven year period, there was a net loss of nearly 10,000 rent-stabilized units in landmarked districts in the City.

The Manhattan and Brooklyn numbers are particularly startling. Manhattan landmarked properties lost 24.5% of their rent-stabilized units compared to a loss of 11.5% in nonlandmarked properties. And Brooklyn landmarked properties lost 27.1% of their rent-stabilized units compared to 3.4% in non-landmarked properties.

The historic districts that had the highest net loss of rent stabilized units were Greenwich Village (-1432 units) and the Upper West Side/Central Park West (-2730 units). Combined, these two historic districts showed a decrease of 30% in rent stabilized units during this seven-year period. (1, footnotes and references omitted)

This study has been criticized for conflating causation with correlation. I think the criticism is warranted. The relevant question appears to be whether landmarking causes an increase or decrease in the number of rent stabilized units. The REBNY study does nothing to demonstrate causation.

Intuitively, it would seem that residents of hot neighborhoods like Greenwich Village would both seek to keep out new, large developments (which landmarking would achieve) and see higher and higher rents over time (which would lead to a reduction in rent-regulated units through a variety of mechanisms). It is not obvious how landmarking itself would lead to a reduction in rent stabilized units.

It is a shame that the REBNY study is so flawed. It raises important questions, but just leaves us more confused than before. There are serious arguments that historic preservation reduces affordable housing overall. If REBNY wants to take a meaningful position in this debate, it should produce a serious study.

Rebirthing NYC Neighborhoods

One can imagine Mayor de Blasio thinking about his ambitious housing plan with one voice saying “Density!” over one shoulder and another voice saying “Preservation!” over the other.  But which voice is the angel’s and which is the devil’s?

Peter Byrne has posted a short essay, The Rebirth of the Neighborhood, to SSRN. The essay represents the voice of Preservation and engages with Edward Glaeser, a voice of Density. Byrne argues that

new urban residents primarily seek a type of community properly called a neighborhood. “Neighborhood” refers to a legible, pedestrian-scale area that has an identity apart from the corporate and bureaucratic structures that dominate the larger society. Such a neighborhood fosters repeated, casual contacts with neighbors and merchants, such as while one pursues Saturday errands or takes children to activities. Dealing with independent local merchants and artisans face-to-face provides a sense of liberation from large power structures, where most such residents work. Having easy access to places of sociability like coffee shops and bars permits spontaneous “meet-ups,” contrasting with the discipline of professional life. Such a neighborhood conveys an indigenous identity created by the efforts of diverse people over time, rather than marketing an image deliberatively contrived to control the perceptions of customers. At its best, a neighborhood provides a refuge from the ennui of the workplace and the idiocy of consumer culture, substituting for churches (or synagogues), labor unions, and ethnic clubs that structured earlier urban social life. (1596-97)

Byrne argues that the “three chief legal tools for neighborhoods have been zoning for urban form, historic district preservation, and environmental protection.” (1597) In criticizing Glaeser and his ilk, Byrne writes that they often complain “such “laws destroy or take private property.” (1603) Byrne replies that “historic district regulations enhance property values by protecting the setting within which any urban property sits and from whence it derives most of its value.” (1603)

I am not going to resolve this debate in a blog post, but I will make a few points. First, a lot of these assertions are not self-evidently true and should be empirically tested, if possible. Second, the perspective of the Essay is that of the “new urban residents” who actually make up a small proportion of the total residents of a city.  Those “old urban residents” are more likely focused on the affordability of their own homes, the quality of their children’s schools and the safety of their streets. Third, it is possible that Preservation and Density can work together intelligently as we rework the urban fabric.

As Mayor de Blasio struggles with the implementation of his housing plan, it is worth remembering that Preservation and Density can each be an angel, can each be a devil. It is the Mayor’s job to make both of them listen to their better natures.