Affordable Housing Institute : US

There I was, having an animated breakfast conversation with Harvard’s Ed Glaeser, when the following thought struck me:

 

Are Democrats zoning themselves to a structural electoral minority?

 

Knocked me clear off my horse, it did

 

On this map, why are some areas blue, others red? 

 

2004 Presidential vote, county by county

 

To a real estate person, the answer leaps out: market strength.  Strong markets are blue, weaker markets are red. 

 

Those blue dots popping out of red states?  Their big cities, their complex urban environments.

 

Look like downtown office towers, don’t they?

 

Why then do some states grow faster than others?  Does this too tie to the blue-red divide?

 

Consider these links in a logic chain:

 

Only as strong as its weakest link

 

1. Land prices correlate with voting.  High-cost areas appear blue (Democratic), lower-cost areas appear red (Republican).  We know that homeownership changes behavior; does that change extend to voting? 

 

This element would be stronger  if we had examples where any formerly red area turned blue as its density increased.  Los Angeles comes to mind, but this needs checking. 

 

2. Zoning drives land pricing.  Zoning is destiny, and because land value is a residual, tight zoning drives up land prices.
3. Land prices squeeze affordability.  High land prices mean high development costs and increase the cost-value gap. 
4. Lack of affordability dampens and inhibits economic growth.  Via linkage, increased taxes, or otherwise.  Not necessarily enough to prevent or even stall it, but to encourage it to relocate.
5. Affordability influences population growth.  Americans are also the most mobile people in history.  We go where the jobs are, and where we can afford the housing.  When the income-expense ratios get bad (often correlated with high-cost-housing areas), we move. 

 

Now take a look at the difference between the 2000 and 2004 elections (click and toggle).  Out of 51 states (counting the District of Columbia), all but three went the same way in 2004 as they had in 2000, but from among those states, Republicans gained +7 electoral votes over 2000.  Why the increase?  Reapportionment, driven by population change. 

 

Can we strengthen the correlation coefficient between zoning and political demography? 

 

As Larry Summers told me just the other day, “Make sure everyone understands it’s a speculation.”

 

Glaeser and enterprising essayist Virginia Postrel (read her whole piece!) think so:

 

One of the biggest differences between red and blue America may have less to do with cultural attitudes and more to do with family budgets. Buying a house is a lot easier in “red America,” for reasons that reflect politics as much as economics.

 

In most of the country, housing is not especially expensive. The median house value is $120,000, according to the 2000 census, and 63% of single-family detached homes are valued at less than $150,000.

 

“The norm is a world in which people are living in houses that are between 1,500 and 2,000 square feet, and they are paying around $120,000 for them, which is darn close to construction costs,” said Edward L. Glaeser, a Harvard economist. “The growing edge cities of America are a world in which land is pretty close to free, and people just build like mad — economy housing at 60 bucks a square foot. That’s the red America world.”

 

In other words, politics and economics are in a self-reinforcing (because unrecognized) feedback loop.  High land costs drive a demographic profile that enacts development-rights barriers (both legal and economic), and drives up land costs. 

 

Which came first, the zoning regulations or the development-rights land costs?

 

Construction costs do not vary that much nationwide. Even in New York City, new construction runs only about $110 a square foot in a typical apartment building of 8 to 24 stories. That would imply a price of $165,000 [plus land and site prep costs. — Ed.] for a new 1,500-square-foot apartment, something New Yorkers can only dream of.

 

So why is housing affordable in most places and so expensive in others? Professor Glaeser and Joseph E. Gyourko at the Wharton School of the University of Pennsylvania examined this question in a new working paper (link in .pdf) for the National Bureau of Economic Research.

 

The answer obviously has something to do with land prices. One possibility is that land is expensive simply because people really want to live in places like California and New York City. Since the amount of land is fixed, if demand is high, prices will rise.

 

In test after test, however, the two economists found that demand alone did not explain the difference in prices. For starters, many fast-growing areas did not show skyrocketing house prices.

 

“There are a lot of high-growth places in North Carolina, Florida, Texas, etc.,” Professor Gyourko said. Those places offer amenities like good weather and lots of jobs, he said, but “they don’t have high house or land prices.”

 

“When you have eliminated the impossible, whatever remains, however improbable, must be the truth.” — The Sign of the Four

 

In Los Angeles, for instance, going from a quarter-acre to a half-acre lot for the same house costs about $2.60 a square foot, or roughly $28,000. But a quarter-acre lot with a house on it, minus the cost of the house {Note this point well! — Ed.}, comes to almost 12 times that — $30.44 a square foot, or about $331,000.

The difference represents the value of the right to build. Going from a quarter-acre lot to a half-acre lot in Los Angeles does not give you the right to build a second house.

 

That paragraph’s so significant we need to walk through it slowly.  What is a one-half-acre lot worth?  A quarter-acre lot with a standard house has a value.  Double the lot size — that is, add a quarter-acre — and the price rises $28,000.

 

1 QA + 1 H + 1 QA = 1 QA + 1 H +$28,000

 

Put two quarter-acre lots together, side by side, each with a house, and the price rises $331,000:

 

(1 QA + 1 H) + (1 QA + 1 H) - 1 H = (1 QA + 1 H) + $331,000

 

So the increased value — the development premium — is $303,000.  So Washington DC sees teardowns of houses that straddle oversized lots.

 

The difference between the land prices is the implicit cost of all the local land-use controls, from zoning to the time it takes to get a permit. Some regulations simply raise the cost of building by slowing down the process. Others limit density, making it illegal to subdivide expensive land.

 

Deciphering Cambridge’s land use regulations

 

A $300,000 surcharge for gaining building rights on a quarter-acre lot?  No wonder Los Angeles is the nation’s homelessness capital. 

 

“If I look around me in Cambridge,” Professor Glaeser explained, “there are a large number of $3 million houses on one-half of an acre. Cambridge is also filled with $1 million town houses on a 20th of an acre. If you’re an enterprising developer, if you’re not stymied by zoning regulations, you tear down the $3 million house, you use the half an acre, and you put up 10 town houses.”

Presto: You’ve made $7 million, minus construction costs, and Cambridge has added nine units to meet the rising demand for housing. If land could be subdivided, that sort of process would happen whenever land prices became high.

 

Maybe I’ve lived too long in the People’s Republic of Cambridge [You have! — Ed.], where rent control was the defining local issue until its 1994 statewide repeal, but it sure seems to me (speculation alert!) that high-priced residential property has a political spillover. 

 

But it cannot happen in Cambridge, or most other places in “blue America,” because of land-use regulations. The result is soaring prices.

 

Home ownership is seen as a preserve of the wealthy, rent control gains traction (with its perverse economics and self-perpetuating political torque), development is seen both as exploitation and sprawl, to be resisted at any means NIMBY or BANANA.

 

“Outside of the coastal areas of California and the Amtrak Northeast Corridor, you don’t see this phenomenon,” Professor Gyourko said. “It may be that the civic culture is really different in those areas.” Maybe there really are two Americas. “One allows development, and the other puts a lot of restrictions on it.”

 

Is it possible that, like the child who holds his breath until he’s blue in the face, blue-state land-use and urban development policies are a slow road to a permanent minority?

 

“We’ll think about it.”

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