Postscript: a reconsideration
First, the bad news.As of late 2019, about three-quarters of the USA is now "housing unaffordable" for average wage earners.
https://www.ft.com/content/7fa4fadc-e67d-11e9-b112-9624ec9edc59
The good news in October of 2019 is that the price of luxury apartments is plummeting.
The prices of luxury apartments in Manhattan are falling for the first time in 10 quarters, and it’s the fastest annual drop since 2011, according to Miller Samuel, a New York-based real estate consultant.
At the same time, the commercial market, which has been in a bubble for some time, is finally deflating. US Federal Reserve officials have been saying for some time that the commercial market was overheated, even as US banks have made $700bn worth of commercial real estate loans since 2012.
The even better news is that building luxury apartments -- or building anything, for that matter -- brings down the cost of real estate. In terms of footprint, a $138 million Manhattan condominium takes up less space than a $138 million mansion. Moreover, simply building new luxury housing puts more housing supply on the market, enabling ordinary home buyers to move up a notch. This is known as "filtering".
You could argue that some deflation would be healthy — according to a recent Goldman Sachs report, commercial real estate prices in New York are now 42 per cent above 2007 levels and 108 per cent above post-recession lows.
The promise and perils of filtering
According to the theory of filtering, as luxury homes go onto the market for the first time or become more affordable -- and if people actually live in luxury housing, rather than just purchase it for prestige or as an investment -- the rest of society can move up into vacated homes. Middle class people can move up into upper-middle class homes, and lower-middle class folks can move on up into vacated middle-class homes. So perhaps the collapse of high-end urban real estate markets will give a lift to prospective homebuyers.Filtering might suggest a useful strategy in the face of the resistance of affluent communities to inclusive zoning. Wealthy people in affluent suburbs do not want public housing for poor people in their neighborhoods. (To be fair, even poor people do not want to live near poor people, at least not newcomers.) In order to exclude poor people who would be living in small, high-density apartments, affluent communities zone for only big houses on big lots (and a slew of other tricks, like requiring certain architectural flourishes). These zoning regulations have the added effect of taking even more land out of the potential housing supply.
As a compromise, the strategy to deal with this would be to require high-density luxury housing -- luxury apartments, townhouses or duplexes -- in affluent neighborhoods. That is, the initiative would not be to install high-density affordable housing in affluent neighborhoods, but there would still be a push for high-density. For those in affluent neighborhoods, home prices and quality of life would not be hurt or lost with this reform. In fact, if it was required that the new smaller houses and apartments in such areas would be self-sufficient in terms of energy production and wastewater treatment, and this increased the cost of the units, this would be considered an asset by the community because for them it's all about keeping prices high. For the rest of society, the creation of high-density luxury housing would lead to the trickle-down effect of more housing.
The problem with filtering is that it is limited. The new luxury housing stock does not have a trickle down effect for people at or near the bottom. That is, when luxury houses go on the market, the working class does does not necessarily move up into newly vacated lower-middle class homes, nor do the working poor move up into working class neighborhoods.
So a second idea would be to replace the mandate for low-income housing with the promotion of middle-income housing.
More specifically, half the high-density housing mandated in an area would be for the income group just below the income level of the area to be upzoned.
Again, it would be a compromise with current initiatives that displease everyone. (Do poor people without reliable cars really want to live in affluent neighborhoods that have no mass transit, and where the only grocery stores are unafforable even to the middle class?)
This second suggestion suffers from a flaw. It's too complicated and seems arbitrary. In this light, the preceding suggestion -- that inclusive zoning should focus on creating high-density housing that would be priced for the income of the area -- likewise seems belabored.
Seniors in the suburbs? Just leave them be.
The third idea was to build apartments for seniors in the suburbs where they now live alone in big houses among the detritus of knickknacks and furniture accumulated over a lifetime. Seniors would be encouraged to downsize and move into these apartments for their own financial well-being, as well as to help open up the housing market for young families. This would be accomplished by offering seniors outrageous housing subsidies and tax breaks (e.g., no capital gains tax on home sales if they move into an apartment). Seniors who would balk at moving to apartments in the city might agree to live in apartments in their hometown. This idea was thus a compromise.In retrospect, this policy proposal seems too complicated, officious and inhumane. It might be better to just let people be happy living in their memories. After all, memories are all that we will have at some point in our lives, and a house for seniors is literally a "memory palace". Also, it is largely futile. The fact of the matter is that most seniors will not downsize and move, no matter how much we bribe them.
There is another issue that might be even more important than housing affordability.
When policy proposals become too convoluted, it might be time for a total rethink.
"Weird science" and "adding epicycles"
This brings to mind a famous maxim:The simplest solution is not necessarily the best solution, but the best solution is usually characterized by its simple elegance.
This maxim is related to Occam's razor.
https://simple.wikipedia.org/wiki/Occam%27s_razor
Occam's razor (or Ockham's razor) is a principle from philosophy. Suppose there exists two explanations for an occurrence. In this case the one that requires the smallest number of assumptions is usually correct. Another way of saying it is that the more assumptions you have to make, the more unlikely an explanation. Occam's razor applies especially in the philosophy of science, but also more generally.Another issue is "weird science".
There is a typical way of doing business in any endeavor. In science, the standard framework of conducting research is a "paradigm". Paradigms become obsolete. Long after a paradigm is established, all sorts of anomalies crop up in the data. This forces scientists to try new things and challenge the prevailing scientific understanding.
https://en.wikipedia.org/wiki/Paradigm_shift#Original_usage
Extraordinary research – When enough significant anomalies have accrued against a current paradigm, the scientific discipline is thrown into a state of crisis. To address the crisis, scientists push the boundaries of normal science in what Kuhn calls “extraordinary research”, which is characterized by its exploratory nature.[6] Without the structures of the dominant paradigm to depend on, scientists engaging in extraordinary research must produce new theories, thought experiments, and experiments to explain the anomalies. Kuhn sees the practice of this stage – “the proliferation of competing articulations, the willingness to try anything, the expression of explicit discontent, the recourse to philosophy and to debate over fundamentals” – as even more important to science than paradigm shifts.At first, there are attempts to salvage the current worldview by creating a more elaborate version of that worldview.
An example of this would be the concepts of "epicycles", "deferents", "equants" and "eccentrics" in the geocentric model of the cosmos. These concepts were developed to explain irregularities in the movements of heavenly bodies like the Sun around the Earth.
https://en.wikipedia.org/wiki/Deferent_and_epicycle
A new paradigm: Beyond zoning
It has been asserted by some that zoning in general does not make sense, even though it is an intuitive solution and the conventional practice. But nobody knows what else to do.In any case, inclusive zoning might be banned in the near future.
https://www.citylab.com/equity/2019/10/supreme-court-inclusionary-zoning-constitutional-takings-clause/596863/
So what is to be done?
One touchstone of good planning is that policy should aim to create self-organizing systems.
In a self-organizing system, a few rules or a small set of stimuli compel individuals who possess local autonomy and who interact with one another to respond to challenges by creating order spontaneously.
https://en.wikiquote.org/wiki/Self-organizing_systems
Self-organizing systems are structures that process where some form of overall order or coordination arises out of the local interactions between smaller component parts of an initially disordered system. The process of self-organization can be spontaneous, and it is not necessarily controlled by any auxiliary agent outside of the system. It is often triggered by random fluctuations that are amplified by positive feedback. The resulting organization is wholly decentralized or distributed over all the components of the system.Donald Shoup's parking policy proposals is exemplary in terms of promoting self-organization at the street level.
Shoup's three recommended parking reforms are simple rules that promote spontaneous self-organization.
- Remove off-street parking requirements. Developers and businesses can then decide how many parking spaces to provide for their customers.
- Charge the right prices for on-street parking. The right prices are the lowest prices that will leave one or two open spaces on each block, so there will be no parking shortages. Prices will balance the demand and supply for on-street spaces.
- Spend the parking revenue to improve public services on the metered streets. Because everybody will see their meter money at work, the new public services can make parking meters politically popular.
- Eliminate zoning. As inclusive zoning becomes a fraught process, it might be best to find a way around zoning altogether.
- Charge progressively tiered fees on real estate. Big houses on big lots that are under-occupied (or even unoccupied) impose negative externalities on the rest of society by driving up land prices and wasting resources.
- Distribute revenues equally. Revenues would be collected at the state level and divvied up to the counties on a per capita basis. More administrative functions would be devolved to the counties.
The semi-futility of reform
New ideas can be exciting, but it is best to keep in mind the fate of certain tax reforms.In the 1990s, along with cutting spending and raising taxes, the Clinton administration raised revenues by eliminating deductions and exemptions from the tax code.
https://en.wikipedia.org/wiki/Economic_policy_of_the_Bill_Clinton_administration
In proposing a plan to cut the deficit, Clinton submitted a budget and corresponding tax legislation that would cut the deficit by $500 billion over five years by reducing $255 billion of spending and raising taxes on the wealthiest 1.2% of Americans.[5] It also imposed a new energy tax on all Americans and subjected about a quarter of those receiving Social Security payments to higher taxes on their benefits.
Clinton signed the Omnibus Budget Reconciliation Act of 1993 into law. This act created a 36 percent to 39.6 percent income tax for high-income individuals in the top 1.2% of wage earners. Businesses were given an income tax rate of 35%. The cap was repealed on Medicare. The taxes were raised 4.3 cents per gallon on transportation fuels and the taxable portion of Social Security benefits were increased.
This pattern of raising taxes and cutting spending (i.e., austerity) in an economic boom coincides precisely with the advice of John Maynard Keynes, who stated in 1937: "The boom, not the slump, is the right time for austerity at the Treasury."Clinton's austerity regime helped to drive down the national debt.
https://upload.wikimedia.org/wikipedia/commons/b/b8/US_Federal_Debt_as_Percent_of_GDP_by_President.jpg
In fact, tax cuts for the wealthy came back with a vengeance.
https://www.nytimes.com/interactive/2019/10/06/opinion/income-tax-rate-wealthy.html
Tax reform is like building castles in the sand.
