October 21, 2018

The Gordian Knot in Housing Politics

A huge amount of space on the internet is dedicated to discussion of train memes, urban planning and housing policy. It’s not surprising that these are constant topics of vicious conflict—that’s true of all American politics. Unlike the American political mainstream though, the camps involved congregate in many of the same online spaces. There are two major camps: YIMBYs—a set of generally pro-market activists with links to the technology industry, and what I’ll call “housing leftists”—a loose coalition focused on tackling housing issues from a leftist angle—many of whom are affiliated with the Democratic Socialists.

Housing leftists will often argue YIMBYs are secretly far right. I’ve not been convinced—the community leans progressive, queer, and polyamorous. YIMBYs will similarly try to shoehorn the conflict onto a single axis, and argue that housing leftists are actually NIMBYs, focused on keeping their leafy suburbs isolated and wealthy. This also doesn’t make sense—housing leftists are resolute proponents of public housing, and like YIMBYs, they’re almost all young enough that owning housing is far beyond reach.

That these groups colocate in online space leads me to think that despite these protestations, their underlying worldviews may not be so deeply divergent that they’re irreconcilable.¹ I hope to convince you that there is a way forward that unravels the sources of their conflict.

The Perceptual Origins of the Impasse

One thing that’s interesting about the conflict between YIMBYs and housing leftists is that the camps are geographically concentrated. YIMBYs are deeply concentrated in Northern California and the Pacific Northwest, and while they show up in other places, they don’t have nearly the cultural sway.² Housing leftists, in contrast, hold much more power in East Coast cities. While this is partly cultural, it seems that it also reflects different realities. Activists in places like New York have much more experience of a certain pattern through which displacement plays out—a low-zoned residential area with poorer residents is upzoned, massive structures go up, the existing residents are displaced.³ In contrast, in places like San Francisco, those massive structures largely don’t go up—the existing built environment is maintained, people continue to move in, and the residents are displaced largely through ever-rising rents built on pure scarcity of housing.⁴

These diverging phenomena lead to a natural association, in cities like New York, of construction with rising costs and displacement—and the opposite association, in places like San Francisco, of blocking construction with rising costs and displacement. Further—YIMBYs associate anti-market behavior with these consequences, while housing leftists associate market behavior with them. This dispute over the basic causes and effect involved in unaffordable housing results in a deep impasse that this leads the rhetoric to is basically intractable without examining how the same phenomenon manifests in different ways in different contexts.

One way to move beyond this impasse is to take a look at how both groups diverge from mainstream American views on housing policy. Both tend to be in favor of increased rates of taxation, especially on landowners, in some form or another. Neither camp is particularly endeared to government-backed mortgages. Crucially, both hold that housing should be made more affordable—which seems uncontroversial, except that ‘protecting home values’ is a sacrament for many American politicians, and the value of real estate cannot both increase and decrease. Most tellingly, both hold that wealthy neighborhoods should be upzoned—a belief so far from political safety that it’s rarely touched.

Reframing the Conflict

To understand this situation, we need to move from Karl Marx’s classic dialectic of “Capital vs Labor,” to Henry George’s understanding of the situation—a three-way battle between Capital, Labor, and the third input to production—Land. In George’s understanding, land—as something in infinitely inelastic supply, not created by any human—is distinct from capital goods—which, in response to more demand, can have their production increased. A consequence of this is that regular modes of ‘competition’ fail for land—there is no cost of production, and with fixed supply, the price raises to the level of its utility for the last-user for whom it makes sense. The consequence of this logic is that all rent paid for land itself (as opposed to rent for use of a building) has many characteristics usually associated with a monopoly; it is a sort of extortion by a party who took no act to create the land, in order to conduct any normal economic activity.⁵

In the paradigmatic East Coast cities, landowners and capitalists have made a sort of peculiar coalition—to maximize rent on land by coordinating investment into only the zones with the lowest rents relative to their potential value—which, due to a century of redlining and white flight, are usually inhabited by the poor and minorities. This is seen as pro-market by housing leftists, but in some sense, it’s not particularly: it allows the selective use of market forces, but only concentrated in a way that drives construction totally to one area. An upzoning of say, Boston’s Seaport area is ostensibly pro-market. But the continued underzoning of Back Bay rowhomes is clearly not. Both of these are part of the same overriding strategy, which allows housing supply onto the market only at a rate too slow to provide a real decrease in housing costs, and only in ways that create net value in land. It splits the proceeds of this bargain between concentrated capital, which profit from development in a constrained environment regardless of how good they are at construction, and the existing lay-landowners, who in return parlay political favor towards the project.

In contrast, San Francisco (and much of California) is much more tightly under the control of landowners alone. The result is that in many cases, almost all development is blocked. This creates a sort of artificial scarcity that lifts the value of existing homes over time, with extremely little necessary capital investment. There is something resembling a coalition between the landowners and labor—landowners are willing to back certain proposals which have benefits for existing renters, or which stick the cost for services on large corporations rather than landowners—but considering the actual situation of labor in the city, it’s still not exactly a winning position for labor. It’s worth noting that policies like designating that new construction consist of some percentage of means-tested below-market-rate units can fit this pattern—in exchange for handing a few units to the needy, construction costs increase, the units coming onto the market are decreased and market rate is maintained at a steady level, to the benefit of existing landowners.

In both of these cases, the profit comes from those who haven’t yet covered their implicit short-position in housing—millennials, the poor, and minorities—and it goes to those who own land—the suburban professionals that constitute the so-called “Upper-Middle Class,” as well as real-estate holding companies like Trump Organization. The discourse on housing myopically focuses on conflict between millennials and the poor, while conveniently ignoring the wealthy boomers who profit from it.

A fundamental problem in the housing debate is that the limited forces of the YIMBYs and housing leftists are unable to provide enough power to create the world either of them imagines. Instead, they squabble to form a coalition with landowners—who, as kingmakers, will take a massive share of the profits. YIMBYs are liable to succeed only in making San Francisco into a city which partakes in slow-motion displacement campaigns in targeted neighborhoods—the Sunset will stay wealthy and aloof even as construction booms in Outer Mission. Meanwhile, housing leftists could find themselves having turned New York into a city which blocks all new construction—with all the San Franciscan problems that comes with.

Searching for a way out

The way out—to the degree that the discourse can find one—must go through a three-factor analysis. There must be agreement on a coalition between labor and capital, whose interests are aligned in seeking taxation from landowners rather than workers or productive activity. This is an extremely controversial proposal—while it’s obvious that the Republicans are the party of a coalition between capital and land, many ignore that the Democrats are equally beholden to landowners. For example, the Democrats are likely to win the House back in November through opposition to the caps on the State and Local Tax deduction included in the Trump tax bill. As Gregory Meyer writes in yesterday’s FT:

Ninety-six per cent of any tax cut resulting from repeal would go to the highest 20 per cent of US households by income, according to an analysis by the Urban-Brookings Tax Policy Center. More than half would accrue to the top-earning 1 per cent.

In the purest sense, making housing truly affordable is at odds with state intervention to prop up real estate prices—again, housing cannot both get more expensive and more affordable. One aspect would necessarily look like a push towards land-value taxation—a move from expecting that productive industry and wages provide the fuel for society, towards expecting that landowners provide it. In reality, LVT as a concrete policy has failed over and over, and we would do better to start moving towards policies with the same effect more amenable to the citizenry. We should draw inspiration from Pittsburgh’s “split-rate taxation,” which for decades resulted in unusual economic success as it charged a six-times higher rate on land than on structures, from Philadelphia’s adoption of deferred property-tax reappraisals following construction of new structures, and support for ADUs and by-right zoning. We should tap into the distinctly American belief that one should have the freedom to act as they desire to promote by-right zoning, into the suburbanite’s hatred of empty lots to oppose policies which provide favorable tax treatment of them, and into the socialist’s hatred of speculators in order to justify crackdowns on the use of American real-estate for money-laundering.

Mostly though, I’d like to ask that the YIMBYs and the housing leftists take the time and discourse to think hard about what it would take to build a positive vision of what the housing policy of a more beautiful future could look like.

Thanks to John Backus, John Williams, Mark Mollineaux, Michelle Chan and Omar Rizwan for their helpful comments on this essay.