Housing is Complicated, Post #2

In my last blog post I wrote about how affordable housing policy has interacted with the politics and economics of development in Santa Monica. In this post I’d like to look beyond that to some of the forces that shape the market for housing.

Housing attracts contradictions. Start with price. People generally complain when housing prices are too high: it’s not good when people have to spend too much of their income on decent housing (or even worse when they spend too much of their income on substandard housing).

But then bad things also happen when prices are too low. Think about the crash in housing prices in the Inland Empire — housing was suddenly much less expensive, but the rapid decline in prices caused a lot of heartache.

Affordable prices for real estate are not themselves a solution to poverty. Think generally about the most disadvantaged areas in Los Angeles County — property values are low, but because of low incomes, housing is still unaffordable to many, and many pay a lot (relatively) for poor quality housing. (Like any commodity, when it comes to housing price and value are related — think of those people paying $500 to rent a room in an illegally subdivided house.)

It costs real money to build good housing. High property values also translate into better public services — it may be an anomaly from our agrarian past, but governments rely on real property taxes. Many ordinary folks rely on the investments they make in real property.

Perhaps when we say that housing prices are too high, what we’re really saying is that incomes are too low.

Housing prices also make a joke out of the classic economics of supply and demand. You’d think that increasing the supply of housing would automatically lower prices, and certainly if there isn’t enough housing rents and prices will tend to increase. But if you believe the solution to high housing prices is simply to build more housing, I’ve got an apartment to rent you in Manhattan.

Many people want, need or like to live where many other people live, and so typically the most dense cities or the most dense neighborhoods in cities, where the number of units of housing is the greatest per acre, have, other things being equal, the highest rents and property values (at least on a per square foot basis).

That’s because these dense neighborhoods are typically convenient to “amenities” that people need or want, from jobs (most important) to shopping to entertainment. Supply is also not, as the economists say, “elastic”: there are always physical or legal restrictions on how much can be built in any given area.

I say that many people want or need to live near other people, because it’s not true for everyone. One mistake that people commonly make about housing is to generalize about housing needs and wants, usually based on their own. The housing policy of the whole country was misguided for decades, generations even, because of a generalization that all Americans wanted to live in single-family suburban houses.

The only good housing policy is a non-dogmatic housing policy. Beware anyone who says that everyone wants to live a single-family home in the suburbs or that everyone wants to live in an apartment in town.

Having said that, one always has to look at the realities of any given situation. In Santa Monica nearly 32% of all land in the city is zoned for single-family homes, but there are few empty single-family lots, and no matter what, virtually all new housing is going to be in some kind of multi-unit development.

It’s also not surprising that housing is expensive in Santa Monica. Many people want to live here, and it’s not only the beach or the weather that attracts them. Santa Monica was always a jobs center, but over the past 30 years Santa Monica added more than 9 million square feet of offices. We also built hotels and invested in our downtown, and employment increased in the hospitality industry and in retail. At the same time the enrollment at Santa Monica College increased significantly.

Little housing was built for these workers and students. Some say that our housing resources should go only to house current Santa Monica residents, but they ignore the reality that economic development in Santa Monica has contributed to a regional need for housing (and a local crisis in commuter traffic).

The demand for apartments in Santa Monica also reflects broad demographic trends affecting housing markets nationwide. The two largest generations in U.S. history, the Baby Boomers and the Millennials (roughly defined as those born between 1980 and 2000) are both increasing demand for apartments (and condos): the former because as they age they are moving out of now empty, single-family nests, and the latter because only the oldest of them have started to form families and look for nests to fill (and for cultural and economic reasons it appears that fewer of them than in prior generations want to live in the suburbs).

These demographic changes have resulted in changes to the form that households take. Some recent research indicates that over the next 20 years, 87% of growth in households will be households without children, and 53% of all growth will be single-person households. I see this in my own family — my 92-year-old father has lived alone since my mother died six years ago, and my 23-year-old son, when he starts graduate school at UCLA in the fall will be looking for his own apartment (on the other hand, he may not find one, which could mean that he’s won’t be living alone and that his parents won’t be empty-nesters).

The challenge for Santa Monica is to respond to the need to house people who work, study, and retire here, while at the same time providing housing for a full range of incomes, including housing for people who essentially have no incomes and would be homeless without assistance. As I said, it’s a challenge.

Thanks for reading.

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