Diversity, How Bad Do You Want It?
The Post reports today on a new study of regional demographic change conducted in Northern Virginia. Some findings surprised me (I would not have guessed that Prince WIlliam County was very nearly majority minority), but for the most part, it’s entirely predictable. The inner suburbs of Northern Virginia, once the most diverse places in the state, are becoming whiter. Meanwhile, the outer suburbs are becoming majority minority as they grow.
While the new diversity has not exactly been a welcome development in outer suburbs, the loss of diversity in Arlington and Alexandria has been greeted with dismay. Consider:
Alexandria City Council member Redella S. “Del” Pepper (D) said some of the study’s findings, such as a decline in the city’s Hispanic population, were “surprising.” Alexandria was the region’s most heterogeneous jurisdiction in 2000, with a minority population of 45.3 percent, but seven years later that share has slipped to 41.7 percent.
“This is a community that really prides itself on valuing diversity,” Pepper said. “I think [the decline] has occurred because of how expensive it is to live in Alexandria.”
And indeed, Arlington and Alexandria are the most expensive jurisdictions in the region. Why? Well, they’re very desirable places to live, to be sure. They have good schools, great locations, transit access, they’re safe, and so on. They also happen to be extraordinarily stingy with their housing permitting. Arlington has done better than Alexandria, thanks to its aggressive efforts to take full advantage of its Metro resources, but both provide nowhere near enough housing to meet demand. For most of the housing boom, new permits in Arlington and Alexandria fell well below those issued in outer suburbs (in 2003, Arlington and Alexandria approved 7 and 72 new units, respectively), while the outer burbs were adding between 4,000 and 6,000 each. Only in 2006, when the huge inventory additions of the housing boom began to come through the pipeline, did the two inner municipalities rival their outer suburb neighbors.
The result? Prices in the inner burbs started the bust much higher than prices in the outer burbs and they’ve fallen less. The housing bust increased the relative price of the inner suburbs.
This is worth considering when thinking about zoning rules in the District. Do we value diversity? What are we willing to pay for it? Restricting density and heights will speed growth in home prices in the city, and lower and middle income families will opt in ever larger numbers for cheap houses in the outer suburbs. There is only so much that affordable housing policies can do if we’re not willing to build anything like the supply that the market could handle.
This is one of the long-run opportunity costs of the city’s height limit; it’s difficult to support a population that’s demographically and economically diverse. It’s also worth thinking about these issues in light of the urban inequality post I wrote yesterday. This–segregation by income–is one of the means by which inequality is transmitted generationally.
November 4th, 2008 at 10:32 am
So the height limit is two stories? Because if three stories is permitted, than stacked townhouses on a single residence lot is four residences where one was located before … as Jane Jacobs pointed out in the classic The Death and Life of Great American Cities, stacked townhouses are sufficient to raise a block to urban population densities.
November 4th, 2008 at 10:49 am
This kind of post is usually lacking a little basic understanding.
For one thing, wages have been flat for 40 years while the cost of new housing has gone up because houses are much better built than they used to be.
In the 50s and 60s builders used cheap lumber from National Forests to build poorly insulated houses with aluminum wiring on short-platted lots with septics. Whites used freeways built with federal money to flee big cities run by mobsters like Mayor Daley. Hey presto! Jane Jacobean cheap rents, diversity, and opportunity for minorities in the big city!
We’ve learned a lot from that experience. We know now that if you want low income housing, you need to plan a larger development with a mix of incomes, ensure quality construction, mandate SRO-type (now a studio apartment type) of living units in some ratio, and devise long-term funding that deal with the seemingly permanent stagnation of low incomes.
Honestly, some of you smart-alecs from Washington DC need to come out and spend a few weeks in Seattle, looking at how some of these problems are being dealt with there. In fact, for all I know, in Virginia you may simply be dealing with the death-throes of freeway-induced suburbanization. If that’s the case, doing anything at all may take longer than doing nothing and letting it die.
As for the building permits, the most common reason for them not being issued is that nobody has applied. Even your warmest fan would be justified in viewing with caution a few numbers here tossed out with no real proof of what they might mean.
November 4th, 2008 at 11:37 am
For one thing, wages have been flat for 40 years while the cost of new housing has gone up because houses are much better built than they used to be.
Their average square footage is much larger too.
And I think the ‘much better built’ is a very good thing.
I also agree with SCO about visiting Seattle - the city part, not the suburb part. Wallingford - where I lived as a grad student - will always be the iconic walkable single-fam neighborhood infilling with a bit more density.
November 4th, 2008 at 11:57 am
Washington smart-alecs? I’m not making this stuff up; it’s based on solid research. Supply constraints, as reflected in new permit approvals, have an enormous effect on housing costs, and a corresponding effect on population and migration patterns. There are good and bad ways to pursue local area affordable housing policies, but there’s only so much those efforts can do given high demand and constrained housing supply.
And building quality and building costs cannot explain most of the growth in housing prices in recent decades. To see this one just has to compare the cost of new construction in various markets. New homes in Houston aren’t built ten times worse than new homes in San Francisco, rather, underlying land prices are driving the difference, thanks to differences in supply restrictions.
November 4th, 2008 at 2:15 pm
Supply restrictions are only part of it. Equilibrium rents are more important.
November 4th, 2008 at 2:32 pm
BTW, a 2007 survey of NAHB members found that their average land prices were ~10% of total price - 7-9% in Seattle, a Growth Management Act state.
November 4th, 2008 at 2:35 pm
Well, I’m not making this stuff up either.
For example, quality and cost i>don’t have to explain most of the growth in housing prices in recent decades. When we’re talking about low-income housing, we’re by definition talking about smaller housing that is plainly finished in neighborhoods with lower land costs. An average house price in any SMSA has nothing to do with a real effort to go low-income.
Again, look at Seattle. In 1970 the city had 3,000 units of SRO housing downtown. Geographically, about half the city was redlined, and the need to find all-cash buyers or go RE-contract kept housing prices low. The housing stock was 50-70 years old and had never been renovated. Fatal fires were common, paint was lead-based, and insulation, if any, was probably asbestos. Low-income housing was cheap, plentiful, and filled with diverse people, but not in a sustainable manner.
As a Pacific Rim city with three universities, Seattle can tackle diversity problems by aggressively linking prosperous development with diverse sources.
Low-income is a different matter. To maintain low-income stock, the city has to deal with geographical constraints, rising building costs, the flat-lined incomes of the poor, and the need to deal with the damage we have done and are doing to the environment.
None of the factors in the paragraph above are the result of irrational NIMBY building codes making it futile to apply for a building permit. Broadly speaking, in fact, growth stalls out in Seattle where the zoning hasn’t been brought up to date and there is uncertainty about what is or will be allowed. Developers aggressively master the codes and Seattle has been building like crazy since the early 90s.
There will always be high demand and constrained supply in a city that is full of vim and vigor. The question is, what do you do about that if you wish to preserve lifestyle, diversity, or low-income housing? If there’s “only so much you can do” and you still want to achieve your goals, you’d better be working on a Plan B also.
November 4th, 2008 at 2:56 pm
The white paper you cite is a response to Theo Eicher’s econometric analysis released in January. (Just google “Eischer statewide land use regulations”, or you can find the paper at my place under “research links”.) Eicher’s work is consistent with the findings of Glaeser & Gyourko, Malpezzi, and a host of others.
The white paper discloses that the cost of a finished lot (which would include permitting costs) in King county comprised 24.5% of the cost of the house in 2007. For a $310,00 median priced home, that’s roughly $75,000, before developer mark-up.
Finally, the white paper focuses on King County, while Ryan is talking about central places. The median price of a Seattle home in 2007 was $500,000+. Most of that extra cost is land.
November 4th, 2008 at 2:57 pm
FYI, I was responding to Dan. (And, oops, failed to close italics)
November 4th, 2008 at 3:00 pm
SC, I’m not sure what you’re getting at. Programs targeted at low-income buyers are one thing. I’m talking about measures designed to insure broad affordability in high demand cities. It’s very difficult to raise a family in New York City with a household income under $300,000. Ditto San Francisco. Housing supply growth is crucial in preventing such places from becoming the sole enclaves of the very rich, and of the young and poor who don’t mind living in a 250 square foot efficiency.
Building like crazy is in the eye of the beholder. New York City over the past few years has been building like crazy. And yet massive unmet demand exists. Why? Because it’s really hard to get a tower built. It’s lucrative enough that people continue to build them, but the market could support far more. And the bulk of the metropolitan area is low-rise suburban development, while market prices suggest that much higher densities would work, if it weren’t practically impossible to re-engineer single-family home suburbs to denser development.
Dan, rents are a function of housing supply. Also, see AC’s comments.
November 4th, 2008 at 4:27 pm
AC, I’m aware of the provenance of the paper; this doesn’t negate my NAHB point.
I argued when this paper came out that because it was written by a macro guy, he missed some important things.
For econ, I’m a micro guy (urb econ) BTW, and macro blunt-force supply and demand doesn’t get it, what with equilibrium rents and so forth.
So no, rents are not a function solely of housing supply - hedonics, equilibrium, amenities, local wages etc. also contribute to rents. UGBs of course have some effect, but are not the sole determinants of rents.
Second, growth management takes on many forms, and not all are equivalent. In fact, the latest JAPA has a book review on Chuck Nelson et al. The Social Impacts of Urban Containment, which teases out this issue of containment.
Third, a “finished lot” in the aforementioned paper comprises the land price - 10% - plus permitting fees, costs of paper, and site prep. The value of land goes up further when there is a house on it, as anyone who works with GIS datasets and assessor data knows (we use these datasets to target areas ripe for redevelopment - as in when the land is worth more than the structure).
So. Containment policies - including Glaeseresque large-lot NIMBY zoning - contribute some to the land rent. But not all.
November 4th, 2008 at 4:35 pm
“if it weren’t practically impossible to re-engineer single-family home suburbs to denser development”
In Alexandria, along Duke St., about a mile and a half from the King St. metro, there have been two or three cases of a developer assembling a parcel of several SFHs contingent on a zoning change to RB, getting the zoning change, demolishing the SFHs and building townhouses. This has been a patch at a time, but by now, there may not be any SFHs left along that stretch of Duke St. SFH to townhouses is densification.
And there has been building on vacant (or former commercial/industrial) land in Alexandria: the whole Carlyle development is new; Potomac Yards has now broken ground; there are a whole bunch of condo developments on the edge of Old Town. But this development isn’t producing cheap housing: the Prescott condos at Rt. 1 and Cameron are advertised at half a million for a two bed.
November 4th, 2008 at 5:12 pm
Of course.
Amenities and local wages determine demand. Glaeser analyzes the supply side. I’m paraphrasing, but he asks: “Holding demand constant, how much would housing prices drop if a given city’s housing supply were more elastic?” Answer: A bunch, at least in high-amenity cities with inelastic housing supply. The fact that wages/amenities vary across cities does not affect his analysis.
November 4th, 2008 at 6:09 pm
Right. But the demand side - as I believe he states (search of my docs not finding it this moment) - is what drives housing prices. Still searching for the papers…
November 4th, 2008 at 7:29 pm
My point basically was that to develop diversity by increasing inventory (thus driving prices down) you need to build catastrophically more housing than the market can absorb. However, I note that your definition of diversity is retreating from my definition of diversity.
To me, diversity includes a lot of people with incomes under $10,000. And I just don’t see the market, no matter how unfettered, reaching out to provide these people with new housing for about $400/month.
However, even if we say we want to make it possible for people who can spend $1600 a month for housing to live there, another question arises before we issue the unfettered permits- how big a splash will they make in the market?
For example, most communities would have some questions about a developer proposing to add 400 units- but in an SMSA of a million, 400 units isn’t much. It’s like if your fruit vendor ended up with one too many apples. That situation won’t make him radically slash his prices on apples.
So those are some questions I have.
Now, as to rents, they don’t act exactly like you have described. The landlord has costs and if he can’t in some way cover his costs with revenues, he won’t rent the property out. The tenant has a different set of parameters- if they could pay whatever the market demanded, at some point they would buy. Generally speaking, and that means including other parts of America than Manhattan and Washington DC, rents also respond to other factors than supply and demand.
As for econometric analysis based on 2007 (in a state where the Republican candidate for governor is funded mainly by the homebuilding associations)…well, I think I’ll just take that with a grain of salt…
November 5th, 2008 at 8:35 am
Article about building affordable housing in Seattle’s Fremont neighborhood here.