Update: Yglesias responds here.
Matt Yglesias‘s ebook, The Rent is Too Damn High, tells the story of how high housing costs have profound negative impacts on our society. Yglesias explains how current attempts to deal with the issue are inadequate, and how restrictive zoning laws and regulations are severely restricting housing supply in America’s coastal cities, thus driving up housing costs, and hampering the economy by limiting the number of people who have access to high-productivity locations. Long-time readers will be familiar with the arguments against NIMBYism and zoning, and I won’t re-tread that territory here. The Rent is Too Damn High is a thorough walk-through of the arguments in favor of urbanism, and is a great companion to Ryan Avent’s take on a similar subject in The Gated City.
Yglesias’s straightforward prose is an asset, covering the core concepts simply without over-explanation. He provides clear examples and suggestions for improvements on topics ranging from rent control, to buying versus renting, migration to the Sun Belt, and what underlies gentrification. He also finds it curious that there’s no clear coalition around density (a topic of some debate here recently) from both the right and the left. RITDH can be humorous at times as well. When discussing how rent control policies aren’t a good long-term solution to high rents, Yglesias quips “The primary sufferers from the policy are the hypothetical people who haven’t been able to move to the rent-controlled city. But guess what? Those people can’t vote — they don’t even live there!”
As a narrative, the book reads a bit disjointed, mostly suffering from a focus on brevity. It jumps from topic to topic leaving the reader to discover how a passage fits in the overall narrative – and some passages seem to not fit. The chapter on “Investing in a house” is neck-jerking roller-coaster through depreciating manufactured goods, timber shortages and people’s desire for larger houses that finally lands on how “investing” in a house can make sense because of the land it’s built on. It’s a great read, but the chapter never quite fits into the larger narrative of how housing supply is serious issue.
The book is short on elaboration and attempts to deal with counter arguments. Yglesias said on his blog that he “didn’t pad it out with a lot of to-be-sures and efforts to guess what objections people will have” and that he’d rather the conversation take place on the blogs. Well this is a blog, so here are my questions and issues with the book.
Yglesias focuses much of his energy discussing building heights, which I’ve said before is a fairly lazy way of considering density. Kowloon Walled City achieved a density of 3.25 million people per square mile without a single high-rise. Of course we don’t want to live like that, but you can achieve fairly extreme densities without tall buildings; not all tall buildings are dense, nor are all dense neighborhoods tall. Yglesias briefly mentions other restrictions – such as parking requirements – but makes no mention of regulations that restrict supply based on costs, possibly by making construction very expensive with lots of rules and review policies and the like. Anyone who remembers the “Mosque at Ground Zero” controversy knows the issue wasn’t that they weren’t allowed to build a tall building, or that historic protections prevented them from building in the style they wanted.
I think this is where a lot of the low-hanging fruit of housing supply lies. It is easily to imagine a situation where you had land where you could build a much bigger building legally, but the paperwork, codes and by-laws were too burdensome to make the project worth while. A friend of mine wanted to construct an accessory dwelling unit in his back yard in the Central District, but when faced with the paperwork and permitting, decided that it wasn’t worth the effort. If more dense development in expensive cities is a policy goal we want, then we should think of these other ways of inducing the construction and increasing incentives. Obviously current zoning in Seattle allows for a lot more development than is being realized; there are two huge empty holes in the ground downtown where skyscrapers could go up. There are also dozens of parking lots throughout the city where dense development could happen. There have to be more reasons than just zoning that these haven’t been developed, and we should explore what these issues are.
There’s also a little bit too much Econ 101 “common-sense” for my tastes. There’s a hand-waving argument that a you will be “motivated to find a new employer” if “you’re producing much more value than is reflected in your salary” which ignores the fact a worker may be more productive depending on the employer: even though LeBron James isn’t earning anywhere near is productive capacity (thanks to a salary cap), he won’t quit and play ball in China because he’d get paid even less playing in a place where he’s less productive. It also ignores the fact that not all skills are completely transferable. This would be fine as an example, but the argument doesn’t really add much to the book and is completely at odds with the arguments Yglesias made elsewhere that moving to more expensive locations makes you better off.
Yglesias also picks and chooses which economic reasoning he likes based on his stated preferences, which is fine as far as an explanation of a philosophy, but is troublesome as an argument for policy. He says “[i]f people have strong feelings about not wanting to live on the same block as a tall building, they can move or they can pay what it costs to make it worth a neighboring property owner’s while to avoid building taller.” The fact the neighbor doesn’t want the tall building is a cost that is not transmitted in the price in this case, and is called an externality in economics. If the tall building blocks sunlight on the unhappy people’s property, or it increases noise pollution or whatever, that is a cost to those people. I don’t personally believe we should compensate people for shadows, but the argument reveals there’s no attempt to make an even-handed survey of land-use issues.
More broadly, there’s a fundamental issue that is missed in this book. Four hundred years ago, a few dozen people lived in Manhattan and Peter Minuit famously bought the island from the Lenape people for 60 Dutch guilders. In 1848, only a thousand or so people lived in San Francisco, and nearly no one in San Jose, Mountain View or Palo Alto. These two most expensive of American cities (not to mention Toronto and Sydney which are even more expensive) were made from scratch, so why can’t we make another one? Maybe New Yorkers like it just the way it is, but what’s standing in the way of making another one? This is not meant to be a hypothetical question.
Another question I have: Yglesias lays out an argument that denser living can be more desirable: New York doesn’t just have more business than Fargo, it has more kinds of businesses. This variety is itself valuable. Also, if a place is more dense, it can have more frequent bus service, more police on the streets etc. No argument here from me, certainly. But if that’s the case, doesn’t it stand to reason that more units and thus more density could make a place even more attractive and thus could attract more demand hence increasing prices again?
In all, the book works best as an explanation of the neoliberal, urbanist credo Yglesias espouses, which happens to be very closely in-line on this subject with the positions of most of the writers on this blog. So while I agree with the vast majority of what is written and would certainly recommend the book as an introduction to the subject, I wonder if it will be convincing to people who already have made their minds up. There’s a lot to housing supply that even people who don’t want tall buildings on their block might be able to agree on, like simplifying permitting practices. Unfortunately these are arguments that are rarely made, and The Rent is Too Damn High is no exception, though in reality they may be the easiest ways to improve the situation.
Overall, I highly recommend this eBook. It’s short (I read it in maybe a half hour, so I guess it’s in the 50-100 page range), constantly interesting and very engaging. At $3.99, it’s well worth the price.
I think he did address this. My take on his argument was that a truly free market prevents this from running away. Essentially, if the increased density adds value and continues to increase demand, then allowing the free-market creation of additional dwellings keeps prices in control. On the other hand, if the density increase doesn’t add value, then demand won’t increase (and prices won’t climb).
I think he sort of does, but I think it’s odd in the context of the rest of the book.
The explanation assumes the derivative of the value/density curve being less than the derivative of the price/density curve (absolute values, obviously, since they have to go opposite directions for this to make sense).
Of course, many urban condos, in the densest parts of the city, fell 100% in price or more and continue to drop.
Doesn’t this suggest an excess of supply, and a dramatic decrease in demand for density?
100% can’t be right, there were no free houses… House prices fell everywhere, and it showed a lack of demand to buy, certainly. People couldn’t get loans, and a lot of people didn’t want to buy, etc.
Rents, on the other hand, have gone up quite a bit, which shows an increase in demand to rent. Overall, more people live here now than did two years ago and a lot more than did 10 years ago.
Yes, the shortage is in the rental market – homebuyers are not particularly squeezed right now (except by their lenders)
This is a part that bothered me as well, and he really brushes it under the rug. He also mentions the destruction of historic buildings in this same way (‘if you want to preserve some buildings, okay’). But, on some level, our zoning laws and the related public processes for new buildings are about addressing exactly these externalities. There’s certainly no question in my mind that he’s arguing in the right direction by advocating for a more free-market process, but the devil is in working out those details.
Perhaps if we believe a historic building has value, we need to raise the money to buy it and protect it from development. It seems like voting to fund that kind of thing would be a clear gauge of the public’s interest in saving it.
This is a super libertarian argument, to be sure. It’s much like the argument that if you want to stop someone from polluting on their property, you have to pay them to do so.
Like what happened with King Street Station. So far I think that’s been a great model.
http://www.newyorker.com/talk/2007/07/02/070702ta_talk_widdicombe
By contrast, in Britain, the sunlight blockers pay those whose light they block.
Yes, they do something similar in Japan too.
Rent isn’t high, it is just people want to insist in living in neighborhoods they can’t afford.
“Can’t live on Capitol Hill! Waaah!”
Try looking in other parts of the city. Cheap apartments are to be had.
I definitely don’t think you’re responding to the book, or the concepts in it. We know that we’re artificially limiting supply in places where people want to live. It does follow that artificially limiting supply drives up price.
Yes, the argument is that it’s not good for anyone that apartments in Capitol Hill are expensive so you have to live somewhere else.
Sounds a lot like “Nobody goes there anymore. It’s too crowded.” Turn Ruggeri’s into a McDonalds and super size it; end of “problem”.
It wouldn’t be a problem if we didn’t simultaneously restrict the development that people want from occurring in other parts of the city.
When we legislatively protect the wasteful swathes of single-family housing, of course that’s going to drive up prices for in-demand apartment living.
Your analogy doesn’t make sense. A fancy Italian restaurant derives much of its value from the fact that it’s small and charming. If more people could live in Capitol Hill, it would make the neighborhood *better*, not worse.
Anyway, as Ben said, I don’t even understand what point you’re trying to make. Many people want to live in Capitol Hill; many people want to provide housing in Capitol Hill; but the government doesn’t let those transactions happen, in the name of protecting a much smaller number of people. Under what moral authority does the government exercise this restriction of the economy? To use your example, it’s not like the government is forcing Carta de Oaxaca to become McDonalds; it’s more like the government is disallowing then from expanding next door, even though there’s a line out the door whenever it’s open.
The whole foundation of our economy is based on the idea that transactions between willing buyers and sellers should generally be allowed unless there’s a good reason. We’ve got tons and tons and tons of restrictions on housing-related transactions, and not nearly as many reasons. The onus to justify should be on the people who want to keep those restrictions, not the people who want them removed. Calling us whiners because we want to make a voluntary economic transaction does not help your case.
I’m being priced out of the central district.
The only affordable place within a 1-hour transit commute of Ballard is Burien. There isn’t an affordable neighborhood in the city.
Affordable what? Condo, townhouse or house; renting or buying? What price range do you consider affordable? Settle Bubble just found a nice house in Delridge (W Seattle) for under 100k, bank owned of course.
What is it you’re being priced out of? Looks like a 1 bedroom in the CD goes for $800-900/mo. A move south puts you minutes away from DT via our shiney new Light Rail system:
If you want to live high on the hog:
Budget basement share a two bedroom:
Compare these rents to San Francisco, New York, London or Paris and explain how density is going to make things more affordable.
Affordability is more than price. You also need to compare the income in those cities to Seattle’s. The average teacher’s salary in Manhattan, for example, is $70,000. Compare that to $51,000 is Seattle, and that’s an extra $1,500 a month you have to spend on things like rent.
Also, all of the cities listed have very restrictive zoning rules. Sure they’re bigger and more dense than us, but they also have supply issues.
Exactly the point I made in another comment. The increased cost of living in Seattle is a direct result of a successful economy that drives up median income. Of course not everyone’s income keeps pace which means you’re no longer part of the demand curve. I want a Ferrari but that doesn’t affect demand or supply of Italian super cars.
I’ll bet, Paris wouldn’t likely allow something like the Station at Othello to be built on the Right Bank. The zoning serves a purpose. Not all of the regulations are good; like rent controls in NY for example. But overall they’ve worked. The reason they have a supply problem is precisely because they are so dense and that drives up marginal cost.
BTW, I made the same point regarding pay vs cost of living. Andrew will contend that the reason is teachers in Manhattan are 40% more productive than those in Seattle.
What drives up marginal cost is building restrictions that limit supply and drive land prices in buildable areas upward. Highrises don’t cost much more than short buildings, per sf. And can be much cheaper when you factor in the cost of land.
People are more productive in dense cities. And people have kids, and these kids need teachers, and these teachers need to live near the kids. Since the productive people set the going rate of housing in a supply-constrained city, these people need to pay teachers more so they can afford to live there too. Cities are productivity machines, and the yield of this productivity rises all boats.
Bernie, it’s supply and demand, which means productivity and other things. It’s funny, you criticise me for making exactly the point I criticised in the RITDH above :) (the econ 101 part)
Try out padmapper dot com. Let’s you see rentals on a map, rather than grinding through craigslist listings.
Using your numbers there’s almost a 40% increase per sq-ft going from 4 stories to 8. Increasing the height restriction can significantly increase property values on top of the increased construction cost. More stories may reduce the impact per sq-ft but it’s still always an increase; you can never brake even. Of course there are some sweet spots and it depends a lot on what you’re trying to accomplish; mixed use, luxury, Class A office, etc. But there’s currently developable parcels at any height you want to build and a number of projects owned, planned and permited that are on hold. Sure it would be cheaper to build if we didn’t use zoning to encourage density; that’s called sprawl. Lynwood and Federal Way both think they can be the next DT Bellevue just by increasing height restrictions.
“Sure it would be cheaper to build if we didn’t use zoning to encourage density; that’s called sprawl.” I think you’ve lost it completely.
Renting. My personal benchmark is a 2bd or 1bd+den, target size 700sqft, for $800 including W/S/G. This is roughly 1/3 of our household income… if my wife is working. My wife’s income is spotty, though, so it’s typically more like 1/2 our income.
I think it’s a pretty typical picture for someone working in the unskilled trades – which is a good fifth of the city population.
Owning is theoretically cheaper, with the large number of bank-owned properties on the market in Seattle. The catch is actually getting approved for a mortgage on retail-management income… even though the payments on a $150,000 home would be lower than my current rent, even though we’ve never missed a rent payment in 10 years, banks take one look at our income figures and run away screaming. Lenders are the gatekeepers there, not actual home prices.
So the financial industry holds us in the rental market. At least until we figure out the secret handshake to get in the system for a HUD homesteps loan.
If we were willing to downsize to a 500 sqft studio, it would not be a problem. Many moderately sized one-bedrooms are in our price range, too. If I was still a bachelor I would downsize. But having that extra room for a study/office is kind of necessary for our combined mental health (not to mention it makes entertaining guests much more comfortable).
I have used many mapping services to hunt down apartments – but in the end I usually end up manually correcting garbled addresses and remapping them. It breaks down like this: Tukwila has affordable units, but none a comfortable walking distance to transit. Renton/Skyway sometimes has affordable units, but the transit service is low-frequency. Edmonds/MLT/Lynnwood has some affordable units, but there is one hell of a seam in the transit system at the county line that makes a commute to Ballard ridiculously long (also no Sunday service is a non-starter).
In the city limits, there are often units around Lake City and Greenwood/Aurora that flirt with the price cap, but the application process for rentals in these neighborhoods is competitive(!), so we keep losing out to higher income applicants. 10 years ago it wasn’t this way… all I needed to do was be the first applicant to show up with a cash deposit, and have a decent reference from my previous landlord.
So that leaves Burien, and the corridor served by the 120. Apartment complexes in that area have high enough vacancy rates that the application process is not a competitive one, thus you can actually rent the apartments advertised.
Bernie – I actually toured that 2bd. It is no-utilities-included, though, and the W/S/G fees put it out of our budget. A chat with the manager also indicated our income was to low to pass the application.
<blockquoteLeven though the payments on a $150,000 home would be lower than my current rent, even though we’ve never missed a rent payment in 10 years, banks take one look at our income figures and run away screaming.
Follow up. Yes, it’s absurdly hard to get a loan today at the advertised interest rates. But… if you have time there are going to be screaming deals on bank owned real east coming up in the near future.
Lack, I suppose you realise this, but you probably qualify for low-income housing?
Andrew: Negative. I make too much to qualify for low-income housing. I’m kind of stuck in a donut hole between subsidized housing and market-rate housing. We do qualify for and receive food stamps, though.
If I had a child, all the government assistance would come rolling right in, but we chose not to go that route.
Bernie,
Comparing Seattle to San Francisco and New York is not meaningful, because those cities have zoning every bit as restrictive as Seattle, if not much more.
The fact is, urban development has been illegal in the United States since World War II. There are no examples to compare to in this country.
The reason that Seattle is cheaper is because *fewer people want to live here*. In fact, so many fewer people want to live here that housing is more affordable *even though we have less of it*.
There are only two ways that building more housing could possibly make housing less affordable:
1. We destroy so much older housing stock in the process that the supply of older affordable units disappears.
2. We see so much economic growth as a result that supply can’t keep up with demand.
I’m sure you’ll agree that #2 is a good problem to have.
As far as #1 goes, most new construction isn’t coming at the expense of existing old buildings. On Capitol Hill, for example, most of the new buildings are replacing warehouses, parking lots, or abandoned buildings. The Marion Apartments uglified the corner of Bellevue & Pine for years. Generally, by the time that a building gets knocked down, it’s because no one wants to live there anymore.
Finally, it’s a red herring to assume that regulations of any sort can possibly decrease costs. Every regulation costs money. If building a project in a different way would be cheaper, then developers would already be doing it. If you disagree with that claim, you’re effectively arguing for central planning, at least with respect to housing.
It’s true that new buildings cost more to live in than old ones, and that developers will happily add cheap amenities (like granite countertops) that allow them to charge more in rent. So if the equilibrium housing market underserves a segment of the population, then provide rent subsidies to low-income households.
But eventually, today’s luxury buildings will be tomorrow’s cheap deals. Unless we don’t build any today, in which case today’s cheap deals will be tomorrow’s only option.
Lack: Are you aware of Capitol Hill Housing? They have subsidized programs that aren’t connected with the hellhole that is SHA. For example, here’s a property with units available that will rent to you if you make as much as 60% of the area median income (and it sounds like you make less).
Here’s another one in Ballard that serves people making 40% or 50% of the area median income. I think you said that’s where you work?
The buildings are generally very well-maintained and well-managed. Again, nothing like SHA.
I read Yglesias’s blog for years but his urban policy views never got past “taller is better” and “barber licensing is bad.” Is the book any better?
It’s much more fleshed out than his blog posts are. The arguments feel more finished and well-reasoned.
If you’re not familiar with the theory behind these ideas, the book will be awesome. If you are familiar with the theory but aren’t quite sure about the consequences, the book will also be awesome. If you don’t like the way he covers the topics and think the view is a little too simplistic, you might think this better, but you may not. Still, it’s worth reading if you care about land use.
Yglesias’s response actually illustrates a blind spot many density advocates have, and Jeffrey alludes to above:
Yes, actually, there is: Portland, OR is a much better place to live and work for most people. Unless you’re in lobster fishing, tourism, or the other small industries where you can work in Portland, ME, your economic opportunities are better in a larger, denser city than a small town. People like density, and will pay more to live in dense ideas where they can walk to work, groceries, etc.
We should encourage our cities to grow (with appropriate infrastructure and planning so the resulting city is walkable and livable), because walkable density is good in its own right, and it may help reduce the cost of living for more people. But when you consider the second-order effects of density, and the basic rules that are applied to all modern residential construction that aren’t going to go away (no windowsless tenement slums), the point at which Portland, OR’s rents equal Portland, ME’s exists only in theory.
I don’t think Yglesias is missing that point since his book argues exactly the point that cities provide economic benefits. These benefits would be even larger if more people could afford to live in cities. Yglesias’ argument is that more people could afford to live in cities if regulatory constraints were reduced.
I think it’s great that he responded to Andrew’s post.
I believe what Matt is saying is that regulations are making the supply curve very steep. Bruce is correct to point out that even price = marginal cost in Portland Oregon and Portland Maine will never be equal because the second derivatives (the marginal change to marginal cost per unit) will never be the same because houses can’t be built like iPads, and the higher demand raises that curve.
Which is also right.
Sure, and I agree with that, but that’s not what his response said, which was: “across the board […] differential “cost of living” between different metro areas generally reflects regulatory constraints”. I reject that as an oversimplification; it’s more complicated.
I’m with Bruce on this one and Andrew’s observation on marginal cost (“houses can’t be built like iPads.”) is spot on. As part of a commitment to build a project, be it SF home or large scale development the investor is relying on zoning protections. One thing markets abhor is uncertainty.
I know this is tangential to the actual point being made, but Portland, Maine is a nearly 400-year-old city, and most of its city center is both denser and consistently taller than West Coast cities with 5 times its population.
Seriously, name a city under 100,000 people around these parts with almost a full square mile of consistent high-density and with unbroken street frontage at 3-6 stories as the default. How much of Everett does that describe? Five square blocks?
Because all the good places are already taken. Those cities are situated at strategic transportation junctions. Some economist proposed the idea of “charter cities” in the middle of nowhere, where anyone could basically do whatever they want. There is a reason why this wouldn’t work. Even if, those places wouldn’t be very desireable.
Obviously New York is built in a very special geographic location: huge natural harbor, mouth of a large river, climate, etc. But it’s not like those features are important to wall street or the advertising industry.
And Phoenix’s location isn’t hugely more special than, say, Spokane.
Spokane, the “Inland Empire” was built up because of the railroad and the vast natural resources that surrounded it. NY got it’s start because of the harbor and river which evolved into railroads and airports. Once you become the center of something it’s largely self perpetuating like Chicago and commodity futures trading. Sun belt cities like Phoenix, Las Vegas and parts of Florida offered cheap land and warm weather to the retiree demographic. The bust is a good example of what happens when cheap housing is driving demand. It’s like buying twice as many eggs as you can eat because they’re so cheap; eventually you end up with a pile of rotten eggs.
Well, given that most of the 18th century Coastal Cities were established near water, not for the views, but for shipping, their efficiency as living spaces can be questioned.
The high priced areas are all water bound — they are either on the edges of bays (SF), islands (Manhattan) or isthmuses (Seattle)…but for reasons that have nothing to do with 21st century economics where it’s more important to have an Internet connection than a shipping lane !
Transportation is still important, but you make a good point. Having a large city on the coast would have been a definite negative in the middle ages because of farm land and vikings, which is why london and paris are 30 or so miles inland from the sea.
(Sorry, the citation didn’t show up the way I thought it would. This was Jane Jacobs in The Economy of Cities.)
So… there are lots of places to build cities still left that are at least as good as today’s cities (I think you have to include here the sites of small towns that never developed much commerce or industry — that’s the measure of a city more than its official charter). Today a strategic transportation junction is just the junction of two freeways, and there are plenty of these where there’s no city yet, or at least no city of much consequence. There may not be as many reasons to build brand new cities as there used to be. When the major cities of the west coast were built there was serious demand for cities on the west coast; that demand has now been satisfied. So if you find a site with strategic advantages of location and are determined to build a city, you’re entering a saturated marketplace full of established competitors instead of a wide-open one. Your site’s advantages have to overcome the inertial advantages of your competitors.
That’s why, in the US, so much development is occurring in suburbs. Commercial developments in the suburbs are often located near freeway junctions, outside the political reach of a city whose leaders are often interested in the strength of an existing downtown, but close enough to share the advantages of the existing city (population, markets, other goods and services). Even when regulations in place are stupid and self-defeating, a business will typically, quite rationally, prefer an existing city with dumb regulations to the middle of nowhere.
SPL does not have a copy. It has no ISBN which makes it hard to request. A shame, I would like to read it.
ISBN-10: 1451663293
ISBN-13: 9781451663297
Gracias – the Amazon listing didn’t have one for me to crib.
Parking lots can be a great way to sit on land and still have a great cash flow. Then you can be the last one to sell in a neighborhood and maximize your profit. Get an upzone for it and you’ve won the lottery.