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Tuesday, August 3, 2021

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News + PoliticsOpinionHypocrisy in the local zoning debate

Hypocrisy in the local zoning debate

Professors who argue that local regulations drive up housing prices appear to admit they have no credible data to back up that argument.


UPDATE: Read the UCLA professors’ response to this piece here.

On December 1, 48hills ran my story about the California State Auditor’s dubious sortie against local land use authority, an incursion purportedly undertaken in behalf of greater housing affordability. While I’m waiting for the Auditor to respond to my Public Records Act request for documentation of her numerous claims, I want to call out the hypocrisy of three of the scholars cited in my story.

A market-rate housing development that would have cast a shadow on a Soma park was rejected by SF. Do these sorts of rules really cause housing prices to rise?

To illustrate the tenuousness of the Auditor’s attack, I observed that a growing number of academics are questioning the argument that “local constraints significantly hamper the provision of affordable housing.” I illustrated that interrogation with a few examples:

An article appearing  in Urban Studies in September 2019 posited that “there is no clear and uncontroversial evidence that housing regulation is a principal source of differences in home availability or prices across cities.” The authors, economic geographers Andrés Rodríguez-Pose, who teaches at the London School of Economics, and Michael Storper, who teaches at LSE, UCLA, and Sciences Po in Paris, contend that “[b]lanket changes in zoning are unlikely to increase domestic migration or to improve affordability for lower-income households in prosperous areas. They would, however, increase gentrification within metropolitan areas and would not appreciably decrease income inequality.”

After three of Storper’s UCLA colleagues disputed these claims and defended “the conventional argument that regulation drives up prices,” Rodríguez-Pose and Storper sharpened their critique in an article published in August, “Dodging the burden of proof: A reply to Manville, Lens and Monkkonen.”

Meanwhile, the Winter 2019 issue of the Hastings Environmental Law Review included an article by three UC Berkeley legal scholars, Moira O’Neill, Giulia Gualco-Nelson, and Eric Biber, that concluded that although “the relevant research on the relationship between regulation and housing costs has found a strong connection,”

that research has relied on inferences drawn from the gap between construction costs and sales prices or on surveys of planners [e.g., the Terner survey cited in the Auditor’s report] and other stakeholders about their understanding of the regulatory process. While some research uses mixed method case studies, the methods still limit generalizability.

In other words: The data we have so far shows no clear and uncontroversial overall connection between local land-use policies and the price of housing in the United States. There is plenty of anecdotal evidence, but reliable scholarly data just isn’t there.

What I didn’t make clear is that even as UCLA Professors Michael Manville, Michael Lens, and Paavo Monkkonen (MLM) were attacking Rodríguez-Pose and Storper (RS) and contending that “[v]iewed in full, the evidence suggests that increasing allowable housing densities is an important part of housing affordability in expensive regions,” they themselves had conceded that such evidence is partial, if not altogether lacking.

I only alluded to such an admission by Monkkonen:

paper posted in July, “Superintending Local Constraints on Housing Development,” written by O’Neill, Biber, and two other UC scholars, Chris Elmendorf and Paavo Monkkonen, states that “HCD [California Department of Housing and Community Development] has no reliable data about the severity or prevalence of local governmental constraints” on housing.

I should have added: Bent on showing that such constraints are indeed severe and prevalent and thereby justify the drastic curtailment of local land use authority, the authors find the absence of such data deplorable, which makes their admission that it doesn’t exist all the more significant.

Moreover, in February, a month after Urban Studies had accepted for publication MLM’s rejoinder to RS, the Terner Center for Housing Innovation at UC Berkeley published a paper by the UCLA trio, “Built-Out Cities? How California Cities Restrict Housing Production Through Prohibition and Process,” that cites the 2019 Hastings Environmental Law Review piece. In the Terner paper, MLM note that “one of the more common approaches to measuring regulation (used in over 20 of the 80 papers [we] reviewed) is to survey planning staff.” They then acknowledge that “[t]he accuracy of these survey-based measures remains an open question….In a study of entitlement processes, O’Neill et al. (2019) show that survey responses are often just wrong” (7).

And yet, to “discern how regulation does or does not influence housing supply, and thus price” (4), MLM draw on just such responses, without explaining how their source, the Terner California Residential Land Use Survey, got it right.

We reached out to Professor Manville for his response, and we will be happy to run his comments if he decides to answer us.

The stakes in this fight are huge. The growth machine would have us believe that housing justice requires the suppression of local land use prerogatives. In recent years, the state of California has enacted dozens of laws predicated on that belief; to judge from the bills introduced when the Legislature convened last week, more are on the way.

Now that belief faces a growing challenge in academia, where even some of its most vociferous proponents are admitting that they lack conclusive evidence in its support. What’s needed at this moment, then, is not more anti-democratic legislation and duplicitous pleading, but a vigorous public debate over the real sources of California’s housing affordability crisis.

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  1. curious40: if the cost to produce new housing raises the market price of new housing, do the added costs to build new housing directly raise the price for existing housing? Nope. The price of housing is set by what the market will bear, not by the costs of production.

  2. StanFlouride, how can Chicago be the “Gold Standard” of deregulation when the process of adding new homes is arduous?

    The reason why housing is so high is because of all the regulation that adds 40% to the cost of building. Developers should get rubber stamps to build if they follow the code set by the city planners. If they did, there would be more competition to develop. RIght now, because it’s so complicated, it takes a lot of money and really smart lawyers. This keeps the little guy out of the mix and only allows the super rich to compete.

    More regulation means only rich corporations will be building in the cities of the future.

  3. Hah. I am always a bit shocked that any people with academic appointments take Glaeser and Gyourko seriously. For example, in “Why is Manhattan so Expensive” (Glaser, Gyourko, and Saks, 2003) they treat the price of core urban residential land – one of the best understood price formation mechanisms there is, hands down – as a total mystery. Mystifying land price that way is not even consistent with the additional claims they make about the certainty of building replacement costs. Without that fake land-price mystery their whole case vanishes. They seem like they are somewhat satirically displaying the mechanics of micro-economic analysis without any actual analytic substance.

  4. A study by MIT doctoral student Yonah Friedman using Chicago (which was considered the ‘gold standard’ of deregulation) found exactly the opposite of the myth that deregulation lowers housing costs:
    Freemark reaches two startling conclusions that should at least temper our enthusiasm about the potential of zoning reform to solve the housing crisis—conclusions that, interestingly enough, he has said he did not set out to find. First, he finds no effect from zoning changes on housing supply—that is, on the construction of newly permitted units over five years. (As he acknowledges, the process of adding supply is arduous and may take longer than five years to register.) Caveats and all, this is an important finding that is very much at odds with the conventional wisdom.

    Second, instead of falling prices, as the conventional wisdom predicts, the study finds the opposite. Housing prices rose on the parcels and in projects that were upzoned, notably those where building sizes increased.
    Freemark identifies two key mechanisms by which upzoning acts to increase prices. First, the fact that upzoning registered so quickly in higher prices is a signal that land prices respond rapidly to the ability to build more units, which translates into money in the pockets of incumbent landlords. Second, the large effect of reduced parking minimums on the value of vacant land means that the biggest impact of zoning liberalization is on land that is ripe for development anyway. As Freemark puts it bluntly: “[T]he short-term, local-level impacts of upzoning are higher property prices but no additional new housing construction.”
    Report here in Bloomberg: https://www.bloomberg.com/news/articles/2019-01-31/zoning-reform-isn-t-a-silver-bullet-for-u-s-housing

  5. A great deal of the impetus to building deregulation in the last 20 years came from a flood of papers by Edward Glaeser and Joseph Gyourko. Nearly every pro-building position paper by a governmental agency (including Obama’s White House) quoted them. There is much obviously sloppy work in their papers, but the most important one, to me is a passage from _The Impact of Building Restrictions on Housing Affordability_ (FRBNY Economic Policy Review, June 2003, p. 21, https://www.newyorkfed.org/medialibrary/media/research/epr/03v09n2/0306glae.pdf):

    “As noted, we have decided to ignore the housing demand component of the housing prices. Two reasons underpin this decision. First, housing demand has been studied much more extensively than housing supply. A distinguished literature, including Alonso (1964), Muth (1969), Rosen (1979), and Roback (1982), has considered the determinants of housing demand. Labor market demand and consumption amenities, such as weather and schools, are both important causes of particular demand for some areas. We have little to add to these findings. Second, policy responses to housing prices are unlikely to change housing demand. Increasing supply is a much more natural policy response to high housing prices than is reducing demand.” (p. 28)

    In other words, they are knowingly ignoring the effect that richer housing seekers have on housing prices, because they think that “reducing demand” (or, more accurately, shifting down the demand curve) is not something that policies could achieve. This would be like investigating the causes of lung cancer but purposefully ignoring the effect of tobacco, because it’s unlikely that people could be convinced to smoke less; or modeling global warming and leaving carbon emissions out of the model, because it would be impractical to get them reduced anyway.

    In fact, as you, I, Tim, and many others know, a shifting up of the demand curve — that is, more rich people competing for housing — is the one largest reason for the housing crisis. No one is going to price their buildings or rentals for people earning $60K, if there are enough people earning $200K who will outbid them. As long as tech companies pay thousands of people six-figure salaries to come here, it is these people the housing prices will accommodate.

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