Wednesday, March 9, 2016

Gentrification and level of analysis

The economics check out. Still no way to run a city though. Source: JFwhite.org
In the last few years much of the wonkosphere has coalesced around a policy position towards housing that could loosely be defined as "build more damn housing". These folks see the urban affordability crisis as a classic econ 101 shortage, where demand outstrips supply. They emphasize local building restrictions like zoning, height caps, parking requirements, etc. as impediments to overall affordability.

NIMBYs and anti-gentrification activists have long been criticized for being ignorant of fundamental supply-demand logic. But a more sophisticated understanding of pro-building opponents sees them as entirely rational. Shelterforce, a community development publication, has an excellent article that highlights just that idea:
If you buried your head in an Econ 101 textbook you might argue that building new housing anywhere in a given region would lower rents and prices across that region, right? So why are so many community advocates up in arms about new housing causing higher rents? 
What happened in south of market and parts of Brooklyn and what people fear in the Mission (and the rest of Brooklyn!) is that high-rise luxury housing was dropped into otherwise distressed neighborhoods. These luxury projects dramatically changed the perception of these neighborhoods–they sent a clear signal to the market that these places were safe–both in the sense that they were safe for wealthier residents to live in and in the sense that they were safe for more investment in residential development.  However much these projects decreased rents regionally by increasing supply, they had a larger impact of increasing rents in the immediately surrounding neighborhoods by increasing demand.
This is a model of housing where the regional market has the typical downward-sloping demand curve, but at local levels might have upward-sloping demand curves. That disconnect creates a classic collective action problem, where incentives for neighborhoods and local residents result in an outcome that's bad for everyone.

Theory might suggest government action here as a way to correct the market failure. And in theory, government action could (and should) promote citywide affordability by restricting the power of individual neighborhoods to act selfishly to curb supply. (Another way, as the article suggests, would be cruder interventions like price controls).

The big reason why we don't often see an idealized government intervention is that regional planning politics is incredibly difficult to sustain. Some cities manage it, but because city councils and zoning boards are typically elected from local constituencies, we often see the political system sustaining or even amplifying the localist bias (and thus the policy collective action problem between local and citywide affordability).

Immediate solutions to this political problem aren't obvious, although strengthening regional planning institutions and reforming electoral systems for local government might help. The trend towards greater ideological coherence among elected officials--much maligned--might actually help at the local level by orienting policy more around citywide ideas and goals.

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