Housing costs in large US cities, zoning, and the illegal city of Somerville

[AN63093]

Mods, feel free to delete/merge/move this if it's already been posted.  I wasn't sure whether to post this here or in the Demographics forum; my goal was to try and illicit some longer, more 'serious' (ugh, I know) posts.

The cost of living, particularly in the case of housing, in places like SF, NY, LA, DC, Boston and so on, is something that I've put a lot of thought into over the years and do a lot of research/reading about (urban planning being a bit of a hobby of mine, despite being radically different than my career field.. I suspect I have some kindred spirits in a discussion board like this).

I have many friends in the Bay Area, some with decent jobs mind you, and not all just doing the "struggling in the big city while pretending to be an artist" thing, and many are living in outright tenement conditions.  If it weren't for electricity, the internet, and more reliable plumbing, their living conditions would not be significantly different than that of the early 20th century.  And again, not all of these people are just too into the whole "SF thing," and living in shared artist communes or whatever, but I know some that are actually kinda traditionalist and would like to buy a house and start a family.  The problem is, throughout the Bay Area suburbs, you have all these crappy little 1970s ranch homes that were built for the working class, going for $1mil, $2mil, etc.  It's an utter nightmare.  And forget about the city proper.

Millennials that work in the app start-up culture in SF are honestly, some of the most insufferable people on the planet and SF might possibly be the worst fit for me in the country when it comes to places to live.  But that being said, I take no pleasure in their suffering and it pains me to see people working hard, with good jobs, having done "everything right" in their life, and basically precluded from the American Dream.  I lived in Europe for the better part of the last 5 years and when I moved back to the US, I was simply astonished how much rents had rose; I almost didn't believe it at first.  It just pains me to see people living as wage slaves in places that look like the Triangle Shirtwaist Factory except these are Google engineers that ostensibly have an "upper middle class" income.

What are the causes of this and what can be done?  I think it's more than just increased demand in a hot job market (although that has a lot to do with it).  You also have NIMBYism, rent control, and one thing that I think doesn't get discussed enough- lots of foreign investment from primarily Chinese speculators that are flooding the market (many of these people don't even reside in the properties they have invested in).  Finally, you have zoning, which I think is a fascinating topic and I wanted to share this link if no one has seen it yet:

"The Illegal City of Somerville"

Fascinating stuff.  The article talks primarily about two examples- Somerville, MA (which is a dense inner-suburb of Boston), which if it was built today, only has 22 (!) buildings that would meet the current zoning code.  Another example given is Manhattan, where 40 PERCENT of all buildings built would be illegal to build today.  I found that quite interesting, having grown up in Manhattan myself.  Here is a quote and image from the article.

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[Alabama_Indy10]

Take a chill pill.

[GlobeSoc]

Take a chill pill.

Says the boi from a state unaffected by this

[Lord Admirale]

NYC needs serious rent regulations. Like I honestly don't know how people can live in New York, the rent is INSANE. De Blasio's answer is to pump up taxes on those making a certain amount per year.... not sure what that's gonna do.

If I were Mayor, I'd set caps on rent by how much square footage one apartment has. That way landlords can't rob their tenants dry. 

[AN63093]

What sort of rent regulations would you have in mind?

What you're talking about is just a price ceiling, but NYC basically has that in the form of rent control.  More than a third of available units were rent stabilized before the 50s, and then there's another sizable percentage that was stabilized after then.  I can't remember the exact % for non-regulated units, but it's less than half.

I'm not sure what good expanding rent control would be.  Arguably, it's part of the problem, since what has happened is you have some tenants that just stay in their units for decades, then hand them down through the family.  This has artificially reduced the supply considerably, such that the remaining units are rented out by landlords as if they were in a cartel and can just hike up prices (and they find people that will still pay them).

Now economics generally teaches us that a cartel situation is generally unsustainable since someone will 'cheat' and flood the market with cheaper goods.  But that doesn't account for a situation like NY, since the supply is so low and difficult to expand, it's practically fixed.  So if you're a landlord, you can't really compete on price, you'll just lose money, so you end up renting out your units at $4k/month like everyone else.

There is a similar problem in SF, which has rent control as well.  And speaking of CA, you also have the Proposition 13 problem... which, for those unfamiliar with it, capped property tax increases based on their assessment in the mid 70s (they can only be reassessed when sold).  So what happened is a similar effect, you have tons of people (mostly older working class) hanging on to their property and not selling, when they otherwise wouldn't be able to afford the property taxes, and the supply is significantly decreased as a result.  So it's created this odd mix where the only people who can afford to live there are old working class who locked it in early, the rich, the very poor (in various housing projects), and practically no one else, much less any middle class.

Now I understand there were benefits to these laws as well, particularly for the elderly, who may have been on fixed incomes and couldn't afford the taxes or increases.  But they've also had the effect of really screwing younger generations and preventing some from ever having a real chance at owning a home, especially when you factor in student loan debt too. 

I don't honestly know how people live in NY either, Irritable Moderate.  When I was still living there I could afford it thankfully, but looking back, I'm simply aghast at how much money I was wasting on rent and what little value I was getting out of it.  And this was over 5 years ago, so it's even worse now.

[Lord Admirale]

What sort of rent regulations would you have in mind?

What you're talking about is just a price ceiling, but NYC basically has that in the form of rent control.  More than a third of available units were rent stabilized before the 50s, and then there's another sizable percentage that was stabilized after then.  I can't remember the exact % for non-regulated units, but it's less than half.

I'm not sure what good expanding rent control would be.  Arguably, it's part of the problem, since what has happened is you have some tenants that just stay in their units for decades, then hand them down through the family.  This has artificially reduced the supply considerably, such that the remaining units are rented out by landlords as if they were in a cartel and can just hike up prices (and they find people that will still pay them).

Now economics generally teaches us that a cartel situation is generally unsustainable since someone will 'cheat' and flood the market with cheaper goods.  But that doesn't account for a situation like NY, since the supply is so low and difficult to expand, it's practically fixed.  So if you're a landlord, you can't really compete on price, you'll just lose money, so you end up renting out your units at $4k/month like everyone else.

There is a similar problem in SF, which has rent control as well.  And speaking of CA, you also have the Proposition 13 problem... which, for those unfamiliar with it, capped property tax increases based on their assessment in the mid 70s (they can only be reassessed when sold).  So what happened is a similar effect, you have tons of people (mostly older working class) hanging on to their property and not selling, when they otherwise wouldn't be able to afford the property taxes, and the supply is significantly decreased as a result.  So it's created this odd mix where the only people who can afford to live there are old working class who locked it in early, the rich, the very poor (in various housing projects), and practically no one else, much less any middle class.

Now I understand there were benefits to these laws as well, particularly for the elderly, who may have been on fixed incomes and couldn't afford the taxes or increases.  But they've also had the effect of really screwing younger generations and preventing some from ever having a real chance at owning a home, especially when you factor in student loan debt too. 

I don't honestly know how people live in NY either, Irritable Moderate.  When I was still living there I could afford it thankfully, but looking back, I'm simply aghast at how much money I was wasting on rent and what little value I was getting out of it.  And this was over 5 years ago, so it's even worse now.

The problem with New York City's (and others) rent control is that it only does it for a select few, I'm talking about universal rent control. If everyone's rent is controlled, then you don't have the people who cling onto their apartments and pass it down to their kids, grandkids, etc.

[AN63093]

I don't see how even a universal system would change things much.  It would seem to me that all the existing issues I discuss would just be exacerbated in that case.  People that were lucky enough to get in early and lock-in their rents would be set, and could just stay forever.  Turnover would be extremely slight, supply problems would be even worse, and when a unit finally did go vacant, the supply would be so low that the rent would be ungodly high (unless your intent is to maintain a price control even in the case when units go vacant.. which would lead to another problem- demand would be so high in that case, that you'd need to create a system to fairly allocate who would "get" an apartment in the city.  Plus supply would be even worse since there would be an incentive for hoarding).  

I suspect this system would also have the effect of driving up rents in some of the few remaining affordable places in NY, like the Bronx.

I'm not trying to be combative or difficult Josh, I promise, and I appreciate the replies.  I'm not very ideological, especially when it comes to an issue like this, and I'd certainly support a regulatory scheme that could be proven to actually reduce rents.  But I have yet to see it.  Every scheme I've seen so far just seems to lead back to same old problems.  Truly a puzzle, IMO.