Saturday, May 10, 2014

How to make urban housing more affordable part 3: build more urban mixed use neighborhood

OK, so I spoke about how to make housing more affordable by increasing the supply of housing, but it's more than just a question of buildings. When someone buys a home, they don't just buy the home, they buy its location, the entire neighborhood comes with the home. Highly desirable locations yield quite a premium, even supposing the same housing, whereas undesirable locations drag prices down.

And what kind of neighborhoods seem desirable according to the price of housing? Urban neighborhoods. 

Turns out that proximity and walkability are great draws for people. One of the metrics to indicate this is the Walk Score: a score up to 100 calculated from Google Maps, that describes how many services, shops, schools and the like are within walking distance. Studies have shown that each point gained in Walk Score is associated with up to a 3 000$ higher value for housing. So a house with a walk score of 80 would be worth up to 90 000$ more than if it was in an area with a walk score of 50.

Of course, that's not a perfect metric. For instance, this area:

 And this one...

Both have roughly the same walkability score, because it's based only on proximity, which doesn't differentiate between a human-scaled commercial street in an urban neighborhood and an apartment bloc across a huge parking lot from a mall.

But anyway, the key point here is that walkable neighborhoods are quite desirable and sought after. Unfortunately, we have adopted rules over the past decades to make sure that every new neighborhood we build is built essentially for cars. We hire traffic engineers and tell them to do whatever they must do to preserve traffic fluidity, we impose minimum parking requirements that make everything too far apart, we separate uses to avoid "nuisance", creating the far greater nuisance of needing cars to go anywhere.

So this creates the situation where old, urban neighborhoods are highly desirable but we have essentially made it impossible to build any new urban neighborhoods by making rules and laws that do not allow for the possibility of them. All the neighborhoods we have are grandfathered in.

So we have created a shortage of urban, walkable neighborhoods, we constrain the supply by preventing the construction of new ones. Just like constraining the supply of housing means increasing the price of housing, constraining the supply of walkable, desirable neighborhoods leads to increases in the price of housing in those areas.

So we need to make it so that building new ones is no longer illegal. And this is why I'm so keen on changing zoning and making it possible to change the character of neighborhoods. Urban neighborhoods work best when they are an extension of existing urban areas, so it's best to convert the old inner suburbs into urban areas, which is the natural process that would have occurred regardless if we had not prevented it by the introduction of zoning laws, minimum parking requirements and the like.

Some people say that this is wrong, that allowing the conversion of existing suburban-style car-dependent neighborhoods to urban neighborhoods goes against the desires of people and of consumers. We often hear "This is (suburban neighborhood), it isn't (famous city neighborhood of the area)!".

Yet, if the housing prices of these city neighborhoods are so high, it's because that is what people desire as consumers. Price in a market economy is a vehicle of information. If prices get ever more expensive, then that is proof that the demand for that good is higher than the supply, on the other hand, if prices remain cheap, it's likely because supply is equal to or higher than demand.

So if housing in cities get more and more expensive and housing in suburbs stay cheap, it's a sign that the demand for urban living is superior to the supply of it, meanwhile, the demand for suburban living is quite satisfied by the current supply. The solution: build more urban areas, build less suburbs.


  1. Another factor that gives NIMBYs power in California is Proposition 13, which limits tax appreciation for long-time homeowners and insulates them from the effects of gentrification. If only we had high taxes forcing old people out of their homes, redevelopment would be so much easier! Yeah I'm not sure if that would be a good thing. Prop 13 is really morally ambiguous.

    1. I understand the issue of people being "forced" to leave their home is an emotionally charged one, however, I think we must approach the issue rationally:

      1- If houses get very expensive, then typically the property tax rate will decline because the city will not have to tax property value as much to fund its basic services. For instance, the property tax rate in many suburbs near Montréal in which housing is pretty cheap is around 1% of the property value. In Vancouver, where houses are quite expensive, the property tax rate is around 0,38% and declining because house values are increasing.

      2- There are other ways of helping seniors, like reverse mortgages, essentially the homeowners get revenue by borrowing from their house's value. They only need to repay that loan when they sell their house. Alternatively, cities could simply make a program that allow them to put tax liens on housing owned by seniors, to be repaid when the house is sold off.

      3- Home owners whose houses have become massively valuable are not necessarily badly off, they have a lot of money in it if they sell. Sure, their wealth may be illiquid and they may be emotionally invested in their home, but still, on a strictly financial analysis, they are quite fortunate.

      4- There is an issue of fairness. If you under-tax long-term owners, then the services that the taxes pay for still need to be paid for. What happens then? Well, new owners end up paying more. Is that really fair to increase the tax burden on young families who still have student debts, mortgages and the like just to advantage seniors?

    2. Being a bit of a devil's advocate, there… Prop 13 has created a lot of pent-up taxation inequality in the past few decades. It does primarily benefit rich people, so it's obviously regressive. The solution in California has been to gradually increase income taxes and centralize funding for infrastructure and government services at the state level.

      The relatively late development of cities in California (ie after the advent of the motor age) means that the "historic" neighborhoods tend to be low-density. But at the same time, there tends to be unusually high density in postwar suburbs in Southern California. Places like the San Fernando Valley or Irvine are almost entirely low-rise apartment buildings, versus, say, Hancock Park, which is largely 1920s mansions, or Watts, which is largely 1920s bungalows. This inverse density distribution correlates with a wider geographic distribution of jobs, among other things.