Just Build More Housing? These Days, The Idea Rules, But Without Clothes

Magnificent affordability. The international homebuilding industry struts its stuff.

As a child, I attended a live production of The Emperor’s New Clothes. The Emperor met up with weavers who promised cloth of the finest quality and lightest weight. The Emperor ordered clothes made with the extraordinary cloth and scheduled a parade to display his new garments.  At the appointed time, the Emperor strode down the street wearing red sleepers (evidently the producers did not consider nudity suitable for a seven year old). The citizens, observing the parade, all commented favourably on the new ‘clothes’, with the exception of a child, who piped up, ‘but the emperor has no clothes’.

A housing parable

The article linked to this post is about modern day weavers who offer to solve the affordable housing crisis. The new cloth is more housing. The weft of the cloth is de-regulation and the warp is subsidies for the development industry. The promised outcomes include reduced income disparities in big cities and strengthened economies in communities where income and employment are lagging. With the growing number of people who are homeless or rent burdened, the promise of a simple solution, like building more housing, is appealing.

Two economists at the London School of Economics are cast in the role of the child. They study data about growth and deregulation in cities in the United States. They looked for evidence to substantiate the connection between deregulation and more housing.

Where the parable falls short

Regulation, or the lack of it, doesn’t fully explain what is going on in big cities. There isn’t an observable relationship between areas where there is less regulation on one hand  and housing growth on the other. In fact, some centres with few regulations haven’t seen much housing growth at all (Chicago), while others that are more regulated (San Francisco) are experiencing housing construction booms.

What is going on?

The story is more complex. Patterns and trends can be discerned from employment and income data that shed light on city growth and per capita income. Centres with high economic growth host a collection of growing businesses that are inter-related. The work is complex, requires high skill levels and command high salaries. Communities with lower growth rates do not demonstrate the concentration of related industries. The jobs require lower skill levels. Wage levels are lower than in high centres. Off shore migration of such positions and increased automation keeps the wages low.

Migration data adds another element of complexity and additional insight. Three patterns of migration are observable. First, people living the lagging economic areas who are moving to areas of economic growth are highly skilled, while the people with modest skill levels are staying put. Second, the people with high skill levels are shifting between areas of high growth. Finally, the opportunities for low skill work in areas of economic growth are more likely to be filled by workers from outside the country than the potential domestic workforce living in economically lagging areas.

What are the consequences?

The authors discuss how the ‘cloth of more housing’ cannot address the urgent and growing need for affordable housing among people with low incomes in very large and growing cities. The price of new housing is simply beyond their economic reach and people with more income can always outbid people with limited means for the housing that is built. The ‘solution’ of the ‘cloth of more housing’ is actually contributing to gentrification and pushing people with low incomes out of the neighbourhoods that have been affordable historically. People with low incomes are increasingly crowded into the remaining low areas, where housing is of poorer quality, or they are shifting to the perimeter and adding the burden of long commutes.

The authors also talk about the current fascination with the ‘cloth of more housing’ solution, which extends to academia, politics, the media, advocates, and public programming. By consequence, significant issues are being given short shrift and opportunities to address those issues are being missed. For instance:

  • Housing for people with very low incomes is not being built, even though the need is urgent and growing.
  • Between communities that are lagging economically and those where economies are growing the widening income gap is being ignored.

The full study provides more extensive reasoning and evidence. Read more in Papers in Evolutionary Economic Geography #19.14: Housing, urban growth and inequalities: The limits to deregulation and upzoning in reducing economic and spatial inequality

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