Two professors/researchers wrote a piece headed thusly:
Why building more homes won’t solve the affordable housing problem
The problem isn’t the supply of housing; it’s that millions of people lack the income to afford what’s on the market.
So I sent them a response…
I just read this —
https://www.inquirer.com/real-estate/housing/affordable-housing-supply-new-construction-20211127.html — and had hoped for more analysis of the problem. To argue that affordable housing won’t fix anything because people can’t afford it seems tautological. Why can’t they afford it?What I was hoping for was an explanation of why affordable housing is impossible to build, why wages and the cost of housing are so divergent. Even that would not do more than admire the problem: the real issue is not housing but land, the scarcity-driven cost to acquire land to develop in dynamic economies (the pressure cookers of the west coast, for example). A developer who buys an expensive parcel to develop will be limited by zoning (height limits, parking minimums, etc) that will make affordable unit too expensive for those who need a place to live near their work. They will make great investments, though, as happens all too often. Vancouver discovered this, and other cities are seeing it as well.
Some cities in Pennsylvania have a history of split-rate taxation, where land and improvements are taxed at rates to maximize the use of idle land, but that idea seems to have fallen out of favor. Land is not a productive asset: it has been transmuted into a speculative asset, through scarcity and the increasing financialization of the economy. When automakers make more revenue from loans that on the cars themselves — and it would be bad form to wonder why the prices being financed are so high — there is something amiss. Likewise, land that sits idle as parking lots or brownfields in cities with high rents and rising homeless populations is a sign of a deep problem. This article didn’t do much to address it.
The simplest example I can come up is to look at the population in 1970 and 2020 — 50 years apart — and note that the population increased by right around 50% — 220M to 330M — over that span. The land available for development didn’t increase by anything like that so what had to happen to the price? Seattle, where I live, is 85 square miles and has increased in population by about 25% in the past 20 years with a steep rise in rents and housing prices, exacerbated by the fact that many of the newcomers are high-wage workers and rents always follow rising wages. The lack of density is a big piece of the problem, as much of the city is zoned for single family homes, 20% of which are rentals.
Adding a large number of high wage workers without building housing for the varied incomes needed to support them — someone has to make the coffee and clean those luxe high rise apartments and drive the Ubers — skews the housing market. It’s too easy to argue that developers are greedy: they need to make sure the development pencils out. If greed is an issue, it stems from the speculator/investors who make money while working people sleep, as the quote runs. A tax on land or a split-rate tax that recoups that speculative wealth and drives more dense development would be good policy. Looking at the time needed in years to afford a home would also be useful. It was right around 10 years in the 60s through 70s — 10 years of wages would equate to a home price, so a 30 year mortgage would be a good risk. Now? A minimum wage worker would be at almost 27:1 and no one is underwriting a 81 year mortgage to someone in that position.
And if employers understood that land speculation was hitting their wage bill (driving up wages as rents go up) and office rents, they might support something like a land tax/ground rent. But Neo-classical economics either ignores land or assumes it to be capital. So we suffer at the hands of speculators, from Main Street to Wall Street (see: BlackRock et al).