Rise of the housing YIMBYs

By Leith van Onselen

For years I have argued that markets where land supply is unresponsive (inelastic) – via planning constraints or geographical barriers – are far more prone to suffer from more expensive housing, higher house price volatility, and bigger boom and bust cycles than markets where land supply is relatively responsive (elastic) to changes in price.

These dynamics were explained in detail in my 2013 presentation to a mortgage risk roundtable in Melbourne (available for download here).

In essence, housing markets where strict regulatory barriers are in place – such as urban growth boundaries, restrictive planning/zoning requirements, minimum lot sizes, and upfront development taxes – are incapable of quickly and efficiently supplying low-cost housing.

These supply constraints thereby ensure that increases (decreases) in housing demand feed primarily into higher (lower) prices instead of changes in affordable new construction.

The perceived land/housing shortages and rising prices during the upswing also encourages speculative demand and ‘panic buying’ from first-time buyers, which assists in driving home prices up even further. However, when the economy and sentiment sour, such as in the wake of the financial crisis in the US, the slump in housing demand can cause prices to collapse.

The Los Angeles and San Francisco Bay Area metropolitan areas are a classic example of how land-use constraints have caused house prices to be both volatile and expensive:

California has operated strict growth management (“smart growth”) policies since the 1970s, whereas Los Angeles and San Francisco are also hemmed in to a degree by the ocean, mountains and in the case of Los Angeles the Mexican border to the south. This has cause housing supply to be unresponsive to changes in demand, with frequent boom and bust cycles and unaffordable housing the result.

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Earlier this year, Los Angeles residents sought to ban major developments, in a move that was certain to further stifle supply, increase price volatility, and make housing even less affordable. From the Wall Street Journal:

Voters in the second-largest U.S. city are considering a measure that could effectively halt major real-estate projects…

Many longtime residents have become resentful of new towers that cast shadows over their neighborhoods of single-family homes and push up rents…

Now some activists are pushing back with actions that threaten to grind housing production in some cities to a crawl… The moves threaten to further constrict a tight supply of housing…

In Los Angeles, residents in early March are set to vote on a ballot initiative that, if passed, would suspend for two years any development that requires a modification to the city’s existing planning rules. Currently, such modifications are routine for new developments…

Despite complaints in Los Angeles about a deluge of development, housing construction now is at only a fraction of the rate of the mid-20th century, before strict zoning rules were put in place. From 1950 through 1959, about 250,000 units of new housing were added in the city of Los Angeles, according to an analysis of census data by advocacy group Abundant Housing LA. From 2010 to 2015, the figure was 25,000, though the city issued permits for about 50,000 units in roughly the same period…

Now those locked-out of California’s expensive housing market are fighting back, with the so-called YIMBY movement (“yes in my backyard”) taking hold. From The Guardian:

When a woman stood up and waved a courgette in the air at a City of Berkeley council meeting this summer, complaining that a new housing development would block the sunlight from her zucchini garden, she probably felt confident that the community was on her side. After all, hers was the kind of complaint – small-scale, wholesome, relatable – that has held up housing projects for years in cities around the world.

She didn’t expect the wrath of the yimbys.

“You’re talking about zucchinis? Really? Because I’m struggling to pay rent,” retorted an indignant Victoria Fierce at that 13 June meeting. Fierce went on to argue that it was precisely the failure to build new housing that is causing rents to climb in San Francisco, to the point that she can barely afford to live anywhere in the Bay Area…

The movement is fuelled by the anger of young adults from the millennial generation, many of whom are now in their late 20s and early 30s. Rather than suffer in silence as they struggle to find affordable places to live, they are heading to planning meetings en masse to argue for more housing – preferably the very kind of dense, urban infill projects that have often generated neighbourhood opposition from nimbys (“not in my back yard”).

The birthplace of the yimby movement, the San Francisco Bay Area, has among the highest rents in America. It added 307,000 jobs between 2010 and 2013, but built fewer than 40,000 new housing units, according to state of California estimates.

“It’s clear that this is a housing shortage – and the answer is to build housing,” says Laura Foote Clark, who heads San Francisco-based Yimby Action. “You generate policy by yelling about things.”

Clark and other members of yimby groups consider themselves progressives and environmentalists, but they’re not afraid to throw the occasional firebomb into the usual liberal alliances. They frequently take aim at space-hogging, single-family homeowners and confound anti-capitalist groups by daring to take the side of developers, even luxury condo developers. They have started a “sue the suburbs” campaign that targets cities that don’t approve big housing projects and have even attempted to take over the board of the local Sierra Club…

Yimby groups want to reduce the need for cars by building dense, infill housing close to transportation. They want to do away with suburban sprawl. Most of all, they want somewhere to live…

The net wealth of millennials in the US today is only about half of what of their parents’ generation, the boomers, had when they were the same age in 1989, according to Young Invincibles, a research and advocacy group. The typical millennial has accumulated about $29,000 in assets compared to $61,000 amassed by those in the boomer generation by 1989.

Millennials have been labeled the “avocado generation”. Perhaps baby boomers should be labeled the “zucchini” generation?

But seriously, the interesting thing about this issue is that “over-development” is really a symptom of the pressures from population growth, which itself is driven mostly by immigration. And yet Californian residents overwhelming supported (2-to-1) Hilary Clinton during the US Presidential Election, who was in favour of mass immigration, whereas Donald Trump is opposed.

It seems contradictory for Californians to be supporters of mass immigration while at the same time decrying development, since they go hand-in-hand. It is even the case for the marginalised youth can’t bring themselves to call for managed population growth so that they can have a roof over their heads.

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Unconventional Economist

Comments

  1. Equating ‘not voting for Trump’ with ‘pro mass immigration’ is pretty thin, bro. I don’t recall Hillary running a single issue ‘heaps of immigration’ platform.

    • She ran on lots of things!
      “I’m not Trump”
      “I’m a woman”
      “It’s my turn”
      “I will bomb Iran”
      “I’m not a commie like the guy I stiffed out of the nomination”
      “I’m not tied to the Russians even though I ok’d a massive uranium deal with them and got a huge donation coincidentally and my chief of staff worked for them”
      and who could forget the exasperated:
      “OMG WILL YOU LISTEN TO THAT GUY!? I’M TOTALLY NOT HIM”

    • A portion of Trump voters were definitely motivated by his anti-immigration stance. Not all. But definitely some.

      • you mean his stated immigration stance. his actual immigration stance has been to do nothing.

        trump’s understanding of population and the effects of large scale immigration makes pauline hanson look sophisticated.

      • But the attitudes were deeply divisive – Hillary and the elites called people who were opposed to immigration, racists and deplorables. They deserve whatever push-back they end up getting under these conditions.

    • Nope, my mantra is build baby build. The more shit developments and the faster they go up the better. Maybe then will NIMBY’s start voting for lower immigration as their house values are smashed by overshadowing and nearby roads and freeways. 😀

    • I’d believe it either way. A lot of young people believe in ‘infill’. Certainly I feel like urban sprawl is a bit outdated. You can visit cities like Tokyo and it just feels good to live such a convenient life. As a tourist. Westerners who *actually* live in Japan have very diverse and differing opinions about Tokyo. There is a tonne of propaganda, history and culture tied up in this stuff. For example, its believed by many in my generation (and even myself to a degree) that suburbs were setup in the first place for racist reasons. Lots of them had no footpaths, to encourage car use, which is something a lot of minorities couldn’t afford. Internet access is also affected- its hard to cable up suburbs in a cost effective manner, whereas an apartment building is easy to wire up.

      So there is definitely some backlash against detached housing. I think though that the feelings out there are pretty diverse. Some people who swore by apartment life 10 years ago are hitting its walls now when they want family, or a pet at least. Some apartments have issues like storage, parking, heating or cooling.

      I know a guy who never bothered getting a driver’s license, because he lives the apartment life. Yet recently in the space of an hour, he had 3 unprompted complaints about his current living conditions (no hard trash removal, can’t have a dog, and I cant remember his third issue, think it was too hot).

      I use the sun for a lot of stuff- power and hot water. I have a lot of garden, fruit trees etc. I would definitely not want to be shadowed. But Im in no danger of that.

  2. It’s funny that the same young people flocking to this area probably for the jobs are the ones calling the locals of the area to suffer. While I don’t agree with housing restrictions totally you have to remember a lot of the youth in that area are migrants themselves – they didn’t grow up there say like Sydney. To move into the area and then demand change for your own benefit seems a bit wrong to me. The price rise has gone up because it is desirable to live there mainly because the tech industry markets this place as the centre of the world – the question is why does it have to be?

  3. despite having unresponsive land supply we are continuously building twice as many homes per every new resident than they were building in Arizona, Nevada, California or any other population booming housing bubble state in USA. Sure most of these are units but unit prices in Sydney and Melbourne were/are rising faster than house prices. There must be something more to this simple quasi-economic theories of supply and demand, ah yeah speculative easy credit demand that cannot be satisfied no matter how responsive construction of new homes is.

    • What matters is whether there is a predictable, quota-rigged pipeline of land for supply. Spain was the extreme case where overbuilding got cranked up even as prices remained outrageous and bubbling. California actually never built impressively many homes at all, there was just a couple of counties where they didn’t obstruct growth and they got swamped, and all the mythology about building has taken off from there. Arizona and Nevada both suffer from most land being in National Parks, or Defence Department, and not for sale. Hence a supply volume that suddenly succumbed to speculative gaming pressure in around 2002.

      Other States had similar or even faster construction rates AND stable prices, and in every case the causative factor is no quota scheme, superabundant land supply for splatter or leapfrog development, and freedom for the private sector to put in the services without waiting on some public monopoly.

    • “here must be something more to this simple quasi-economic theories of supply and demand, ah yeah speculative easy credit demand that cannot be satisfied no matter how responsive construction of new homes is.”

      Nailed it.

      It may be true that unresponsive supply pushes up prices but at the end of the day we live in a world where private fiat money creation to pour into pushing up prices can always expand faster than any physical supply ever can.

  4. Shame that ultimately the YIMBY movement will fail. While they might be successful in getting a few projects built here and there, that will be irrelevant in a system, such as in California, where land is rationed. Like MB commenter Phil has said, the price of urban land is elastic to allowed density. The price of the land that these projects will be built on will reflect the pricing power of the landowner selling the land for development to higher density, especially when on the demand side there is rabid population growth. Which would also explain why even though Sydney housing and unit completions have been ‘adequate’ as DoctorX explains on another thread, ALL of that building has occurred on ridiculously expensive land. There can never be affordable housing built on expensive land.

    • THANK you, Timon; someone is paying attention, and has an intellect they are using!!

      You are absolutely right and I am glad you just beat me to it, to point this out. The YIMBYs are well-intentioned but ignorant; all they will achieve is fatter profits for those who sell sites for redevelopment, and smaller and smaller average new “housing” units hitting the market at a roughly predictable still-exorbitant price.

      There is no market in the world where the prices were reduced by reducing the size at which units are allowed to be supplied. If anything, the smaller the allowed size, the higher the price and the greater the gouge. For example, Hong Kong must be about the densest of the lot; the fact that they cram 20 times as many people onto the given space has still not altered that the de facto median multiple is around 15 – the land underneath has inflated by a compensating 10,000 percent in response to being allowed to cram in this many people. The land price inflation relationship to the allowed cramming is obviously not even linear, it is exponential.

  5. “And yet Californian residents overwhelming supported (2-to-1) Hilary Clinton during the US Presidential Election, who was in favour of mass immigration, whereas Donald Trump is opposed.”

    There were other very good reasons for not voting for the Daddy Trump, most of which are now very apparent.

  6. SchillersMEMBER

    “in every case the causative factor is no quota scheme, superabundant land supply for splatter or leapfrog development, and freedom for the private sector to put in the services without waiting on some public monopoly.”
    These are precisely the factors we now have the direct opposite of, in Australia today. With the addition of further cost inputs like the 10% GST on all new builds (but not on established 2nd hand sales of course) and big up front infrastructure charges levied on the developer and passed onto the buyer.
    Add ever increasing demand due to mass immigration coupled with endless speculative “investment” (both foreign and domestic) and It would be difficult to imagine a set of policies more guaranteed to make land (and therefore housing) unaffordable.

  7. Perhaps they simply see population growth as a global challenge and would never entertain the idea that their nation could be a free-rider in accommodating global population growth. Increased standards of living from lower immigration isn’t a free lunch, it comes at the expense of standards of living in other (usually poorer) countries and this doesn’t sit well with everyone, particularly young voters. This would be consistent with them voting for Clinton, a globalist, as opposed to Trump, a nationalist.

    I don’t read the comments often enough to know whether you have considered the issue from this perspective, but if not I hope you give it some thought.

    I think many young voters view immigration policy through the lens of global inequality. We have high immigration because our standard of living is much higher than elsewhere, it’s standard of living arbitrage. If you are not a nationalist and you believe that all humans have equal importance then standard of living arbitrage simply makes sense and is acceptable. In this situation, your focus turns purely to how we should accommodate this immigration as best we can (i.e. more government spending on infrastructure etc.).

  8. California is a massive echo chamber of liberals, they are more worried about making sure there are tampons in the men’s room for transgendered folks than reducing immigration for affordable housing. I know because I work with many of them.