Rob Pitingolo’s response to The Gated City has now been posted at Greater Greater Washington under the headline, “Housing is more than supply and demand”. I actually think this headline is a little unfair to Rob, who is not in fact arguing that housing is more than supply and demand. Rather, he’s arguing that housing is not a commodity. That is, homes aren’t all perfect substitutes for each other:
There are many unique types and styles of housing, some of which are more desirable than others. When demand for housing rises in a neighborhood, rents will rise, regardless of the type or quality of the housing. A neighborhood might have century-old rowhouses, 1970s apartments, and brand new luxury buildings. If demand is rising in that neighborhood, rents for all types of these units will rise.
But what if a neighborhood doesn’t have any vacant land sitting around waiting to be developed? How do you increase the supply of housing when there’s no place to build new housing? Basically, you have to knock something down and replace it with higher density housing.
Let’s imagine that a developer is proposing to level some not-so-great ’60s-style townhouses in an urban neighborhood. In their place, the developer is going to build a multi-level apartment complex with a gym, pool on the roof, and ground-floor retail. Perhaps the developer is going to knock down 10 low-quality units and replace them with 50 high-quality units, for a net-gain of 40 housing units.
Even though the number of housing units in the neighborhood goes up, it’s virtually guaranteed that the market rents for those new units are going to be higher than the rents for the old units. So the folks who might have been able to afford one of the ’60s-style townhouses no longer can afford a luxury-apartment in the neighborhood.
This is a good point. Supply matters, but not all housing types are perfect substitutes. If you tear down cheap, low-quality housing to build lots of high-quality housing, then the cost of housing across the metro area as a whole may fall (or grow more slowly) along with the cost of high-quality housing. But you’ve reduced the supply of low-quality housing. Residents displaced from cheap housing who can’t afford the lower cost of high-quality housing may find themselves in a pickle. The solution, however, is not to restrict development (and to be clear, Rob isn’t necessarily suggesting that it is).
There are two key things to remember. The first is that the more development a metro area approves, the less development pressure there will be on any given piece of land. If most of the city is zoned to accommodate tall buildings, then a lot of new demand for the city will flow to those new buildings, placing less cost pressure on the land atop which sit low-quality units. Consider Brookland, in Washington. The land around the Metro station is mostly empty, and local residents are fighting “dense” developments on that land, by which we mean buildings up to 6 stories tall. But residence in the District on metro-accessible land is in very high demand. The less of that demand is accommodated by new, high-quality buildings on empty land, the more will be shifted toward the older homes in the neighborhoods around the station.
The second thing to remember is that when I say I want looser housing regulations, I mean it. I’m bothered by rules that prevent owners from subdividing existing houses — an important means through which affordable housing can be provided. I wish it were easier to convert outbuildings, basements, and similar structures into housing. I wish people weren’t anxious to keep urban industrial land zoned for industrial uses in the misguided view that industry will be coming back to central cities. I’m not just interested in making the supply of high-quality housing more flexible. I want that flexibility to extend across housing types.
Rob is right; lower-income residents might well oppose new development out of a fear that it will mean replacing old, affordable homes with new, unaffordable ones. Those residents are mostly the victim of efforts to make it hard to build everywhere. And if those concerned about the poor succeed in blocking redevelopment of older homes, they’re not stopping displacement — oh, no. They’re simply shifting it elsewhere, to places where the poor aren’t quite as good at finding advocates for their interests.