Feb222017
Are renters also to blame for nimby resistance to more housing?
The conventional wisdom holds that renters favor new construction and homeowners oppose it because renters want more abundant and less expensive housing and homeowners want more valuable housing and less traffic. But is it really that simple? A new study says no.
Nimbys oppose all development because they believe their neighborhood was perfect when they moved in, but new development removes beautiful natural features, clogs the roads with more traffic, and changes the character of the community they moved into.
True Nimbys don’t evaluate the pluses and minuses of new development and form an opinion based on facts. True Nimbys oppose everything, and in doing so, they fail to see the hypocrisy in their attitude and actions. After all, they wouldn’t be a resident in their own neighborhood if previous Nimbys had successfully defeated the project where they live.
The cartoon above is one of my favorites because it points to a simple truth that Nimbys conveniently ignore: The neighborhood they live in was better before their house was built and they moved in. The passage of time between when their house was built and a new house in their neighborhood doesn’t matter.
True Nimbys who argue against all new development fail to recognize that the house they live in or the stores they shop in represented the diminution of the quality of life to the true Nimbys that came before them. I wonder how many of them would go back in time and oppose the development where they live? And how many of them are willing to demolish their homes and allow the lot go feral?
When Do Renters Behave Like Homeowners? High Rent, Price Anxiety, and NIMBYism
by Michael Hankinson, Tuesday, February 7, 2017
In theory, renters and homeowners disagree about proposals to build new housing in their communities, particularly if that housing is close to where they live. However, in practice, this is not always the case.
… in high-cost markets renters are still more likely than homeowners to support citywide increases in the supply of housing. Since changes in city governments over the past several decades have generally strengthened the power of neighborhood-level opponents to proposed projects, my findings help explain why it is so hard to build new housing in expensive cities even when there is citywide support for that housing.
I assumed that nimbys would ultimately lose the battle because nimbyism inevitably leads to a lower homeownership rate, leading to a tipping point where renters who want more housing take power from nimbys who oppose all housing. According to this research, my faith in the demise in nimby resistance is misplaced.
NIMBYism and the Rising Cost of Housing
Since 1970, housing prices in the nation’s most expensive metropolitan areas have dramatically increased. Real prices have doubled in New York City and Los Angeles and nearly tripled in San Francisco. Driving this appreciation is an inability of new housing supply to keep up with demand. Even accounting for the cost of materials and natural geographic constraints on supply, the dominant factor behind this decoupling of supply and demand is political regulation, such as limits on the density of new housing developments and caps on the number of permits issued by a localities’ government.
Some people refuse to accept that nimby resistance is the root of the problem.
These limits are a classic example of the NIMBY (Not in My BackYard) phenomenon. Even if residents support a citywide increase in the supply of housing, they may still oppose specific projects in their neighborhood. This seeming disconnect between views on citywide and local development policies creates a classic collective action problem for those policymakers who must find ways to reconcile the conflicting views. …
When Renters Behave Like Homeowners
As noted, renters and homeowners are expected to disagree on support for new housing, with NIMBY homeowners opposing citywide and neighborhood development and renters likely supporting the new supply. In line with existing theory, homeowners in my national survey largely opposed the proposed 10 percent increase in their city’s housing supply (28 percent approval), while a majority of renters supported the new supply (59 percent approval). Likewise, when asked in the experiment which of two randomly generated buildings they would prefer for their city, homeowners exhibited consistent NIMBYism, preferring buildings that were farther away from their home. In contrast, renters on average did not pick buildings based on distance from their home. If anything, renters preferred affordable housing that was closer to their home, displaying a YIMBY or ‘Yes in My BackYard’ attitude. In short, homeowners and renters tend to have very different attitudes towards both NIMBYism and the citywide housing supply.
Those results are what the conventional wisdom would expect.
However, in high-rent cities, renters look far more like homeowners. Instead of paying little attention to the location of proposed new housing, renters in expensive cities are just as NIMBY towards market-rate housing as homeowners. Moreover, this renter opposition to nearby development does not mean they support less new development overall. In fact, renters in expensive cities show just as much support for a 10 percent increase in their city’s housing supply as renters in more affordable cities. The main difference between these groups of renters is their NIMBYism.
Results from the San Francisco exit poll show a similar combination of supporting supply citywide, but opposing it locally. When asked about a 10 percent increase in the San Francisco housing supply, both renters and homeowners expressed high levels of support, at 84 percent and 73 percent approval, respectively. But, somewhat surprisingly, when asked if they would support a ban on market-rate development in their neighborhood, renters showed far more NIMBYism than homeowners, with 62 percent of renters supporting the NIMBY ban compared to 40 percent of homeowners.
This could be a San Francisco specific result. The key phrase above is “a ban on market-rate development.” Liberals in San Francisco oppose market-rate development in favor of affordable housing projects, so it may not be that they are more nimby than homeowners, they may simply oppose the market-rate development in favor of affordable housing. In other words, they still want development, just not the kind described in the survey.
NIMBYism and How We Permit Housing
Renters in high-rent cities generally both want new housing citywide but behave like homeowners when it comes to their own neighborhood. These scale-dependent preferences present a policy challenge for keeping cities affordable. Over the past 40 years, city governments have increasingly empowered neighborhoods to weigh-in on housing proposals through formal planning institutions. In doing so, these decisions have amplified NIMBYism and the ability to reject new housing, without maintaining a counterweight for the broader interest for new supply citywide. In other words, while most residents may support new housing for the city as a whole, both homeowners and renters are willing and increasingly able to block that supply in their own neighborhood, effectively constraining the housing supply citywide. This is housing’s collective action problem.
As I pointed out in A possible solution to California’s housing crisis, this is a “tragedy of the commons” problem.
Each individual in California wants to be the last new resident in their neighborhood. The nimbys lobby their local politicians to block new development because they believe it will improve their quality of life. And since local governments directly control development approvals in California, politicians pander to nimbys or face defeat at the polls; thus almost no new residential developments obtain approval in California, creating a shortage of housing that adversely impacts everyone.
Most economists believe the only solutions to “tragedy of the commons” type problems is for a government entity to step in and force cooperation for the greater good because individuals acting in their best interest fail to produce a desirable result. So how could the nimby problem be addressed in California?
The State established the California Coastal Commission to address a similar problem. The actions of individual developers along the coast was ruining a valuable resource used by everyone. The Commission regulates all land use within the coastal zone and serves as another layer of regulatory approval. We need something similar in housing.
California Housing Commission
A California Housing Commission would have a simple mandate, “To ensure sufficient housing is provided to meet the needs of a growing population and economic growth.” This agency would oversee County and City general plans to ensure a balance between residential and commercial development. Further, the Commission would exercise discretionary approval power over projects of a certain size to confirm the residential and commercial balance is maintained throughout the cities, counties, and regions in California.
Do we really need another agency to approve plans? Unfortunately, yes we do. Without this agency, each local governing body will continue to act in its own best interest and exacerbate the housing shortage.
Searching for hipster homes in Echo Park: Being a hipster comes with a hefty price tag.
Being a hipster in Los Angeles is like being a drop of water in the ocean. Apparently one of the requirements of being a hipster is living in certain enclaves. Now in Los Angeles, a renting majority county, living in the right neighborhood is important. The HGTV housing erotica that is pumped out to the masses has conditioned many to accept the “fixer upper” world of crap shacks. Now typically when I say crap shack a bunch of Taco Tuesday baby boomers get offended but just remember that many hipsters actually want a crap shack. They are actively looking for “personality” in a property as if they were swiping right on Tinder. The market capitulated fully last year and now we are in the stage of euphoria. You can do no wrong with housing and Echo Park is home to many lovable hipster homes.
Echo Park
It is definitely an interesting time to be alive. I find it surprising that many people think that because Trump is a real estate guy that somehow he is going to enact policies that inflate California crap shacks. That is how distorted things have gotten. If Hillary would have won, it would have been “real estate will go up because the status quo remains.” With Trump winning the narrative is “he is a real estate guy so therefore he is going to try to influence prices higher.” If Kanye West ran and won it would be “Kanye mentioned in his song that crap shacks were only meant to go up in value so therefore things will got up.” We’ve already noted that 2.3 million adults live at home with parents in California because of sky high real estate prices (both in rentals and housing).
The market right now is still in a mania stage. The herd is foaming at the mouth to purchase properties even if it means mortgaging their lives. It doesn’t matter the quality of the place but the important thing is to get in. You don’t want to miss this train before it leaves the metro station.
It is interesting to see the older generation raking the younger generation over the coals if they have doubts about real estate. It seems like they are trying to justify their own purchase as the ultimate milestone in their lives. So what if a young professional doesn’t want to buy and would rather invest in the stock market and travel the world? Oh no! You have to follow the Taco Tuesday baby boomer pattern of buying no matter what. There are generational differences here by the way. Sometimes it makes sense to buy, and at other times it doesn’t. You can’t use dull catch phrases like “real estate never goes down” or “renting is flushing money down the toilet” because those are simple deflections that cloud the much more complicated picture here. We are talking $700,000 for a place with bars on the window!
But what is true is that the housing lust is very real in this market. Crap shacks look beautiful, freeway traffic looks like a deep tissue massage, and a 30-year mortgage looks like chocolate covered strawberries falling from heaven.
How long can hipsters support this market in Echo Park?
California big purchase sentiment at bubble levels: The psychology behind house lust.
You would have a hard time believing it but California’s homeownership rate is near a generational low but the good news is that hipster pants couldn’t get any tighter without turning into spandex. A large part of the state is now fully praying at the altar of real estate mania lighting incense for the HGTV gods to bring granite countertops alongside host with upgraded body parts. It is an odd sort of Hollywood herd mentality but this is how we do things here in California. While the majority of L.A. County lives in rental Armageddon you have geriatric house humpers salivating at the Botox stretched mouth when a crap shack hits the market. “This makes total sense with a 20 percent down payment! They don’t make land anymore!” They also don’t make more time and life is too short chasing crap shacks. But for some, the crap shack is the ultimate dream like sipping hard liquor in the Caribbean. The culmination of all financial success is being in debt for a beat up house and this is the race many are trying to run.
Housing mania running wild
It is understandable the wish to own a home but $700,000 for a shoddy drywall reinforced shack? And many people will lock into this and take out a 30 year mortgage and then endure the health destroying commutes of Southern California just to keep the “nest” paid while the weight packs on and heart arteries clog up. But damn it feels good to own a home! People deep down know something is off. This is why the public still inquires and debates. If the decision to buy were so clear cut, housing cheerleaders would be out in the market buying every property they could get their hands on assuming they actually fully believed in their thesis. But they don’t fully believe in it. They don’t want to admit in that fleeting thing called luck. And that is the rub of delusion and mania.
Housing mania is running at full force. But what is different this time in California is that instead of the homeownership going up with the mania, the homeownership rate went down yet mania went up. Is this because marijuana is now legal that things are surreal? No, it just means fewer hands are owning property and big investors have turned many homes into single family rentals.
Hedge Funds Can’t Sue Over Investments in Fannie and Freddie
Hedge funds largely failed in their legal challenge to the U.S. government’s capture of billions of dollars in profits generated by Fannie Mae and Freddie Mac after their bailout, sending shares of the mortgage guarantors plunging.
Perry Capital LLC, the Fairholme Funds and other big investors lost a bid to overturn a judge’s ruling that said they can’t sue the government over the dividend change. The change known as the “net-worth sweep” forced the companies to send almost all their profits to the U.S. Treasury, leaving shareholders with nothing. The companies have been under government control since being bailed out during the 2008 financial crisis.
The funds may still be able to pursue some contract-based claims.
A split ruling by a federal appeals court in Washington Tuesday mostly rejecting the hedge funds’ appeal sent shares in the government-sponsored enterprises swooning. Fannie Mae fell 35 percent to $2.71 in New York trading, while Freddie Mac shares were down 38 percent to $2.47. Some classes of Fannie’s preferred shares were down more than 30 percent.
Fed’s Williams Says Historically Low Interest Rates Will Persist
Historically low interest rates are here to stay, making it much harder for central banks in wealthy countries to prevent and limit recessions in the future, according San Francisco Federal Reserve Bank President John Williams.
Writing in the bank’s latest economic letter, Williams argued that a decline in the long-run economic growth rate of the U.S. and other rich nations has depressed business investment, and with it, interest rates.
A low-rate world is “likely to be very persistent,” as an aging population and lagging productivity hold down growth, he said.
Court of Appeals agrees to rehear CFPB case, agency to fight “unconstitutional” ruling
If President Donald Trump wants to fire Consumer Financial Protection Bureau Director Richard Cordray, he’s going to have to wait a little longer to do it, as the U.S. Court of Appeals for the District of Columbia Circuit ruled Thursday in favor of the CFPB. The ruling allows the embattled agency to defend the constitutionality of its leadership structure.
The ruling stems from the CFPB’s fight against PHH, which started with a $103 million increase to a $6 million fine initially levied against PHH for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks.
The fight ended, or so it appeared, with the CFPB’s leadership structure being declared unconstitutional by the U.S. Court of Appeals for the District of Columbia Circuit in a 2-1 vote.
The CFPB fought that ruling, asking the court to rehear the case en banc, meaning that it wanted the entire court to hear the case, rather than the three judges who ruled on the case in October.
And Thursday, the full court of appeals granted that request, meaning the CFPB can now defend its constitutionality before the full court.
In agreeing to rehear the case en banc, the decision from October that declared the CFPB’s leadership structure unconstitutional is vacated.
And that means the CFPB can continue to operate as is until further notice. That also means that President Trump cannot fire Cordray unless it’s for cause. The previous decision made the CFPB director fireable at will, but that’s not the case anymore.
According to the court, arguments in the appeal are scheduled for May 24, 2017.
The court’s ruling dictates that the parties should address the following issues at the hearing:
1. Is the CFPB’s structure as a single-Director independent agency consistent with Article II of the Constitution and, if not, is the proper remedy to sever the for-cause provision of the statute?
2. May the court appropriately avoid deciding that constitutional question given the panel’s ruling on the statutory issues in this case?
3. If the en banc court, which has today separately ordered en banc consideration of Lucia v. SEC, 832 F.3d 277 (D.C. Cir. 2016), concludes in that case that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case?
SoCal Caps 2016 with Steady Home Price Growth and Modest Sales Gain
Southern California’s housing market closed 2016 with the highest median sale price in nine years, continued steady price growth, slightly higher full-year sales than in 2015, record luxury sales, and lower levels of investor purchases and distressed sales. But inventory remained tight, exacerbating the affordability crunch, and there were stronger signs of a disconnect between home prices and incomes in some parts of the region.
The median price paid for a home in San Diego, Orange, Los Angeles, Ventura, Riverside and San Bernardino counties combined in December 2016 was $470,000, up 6.8 percent year over year and the highest since the median was $500,000 in August 2007. For the past two years, the annual gains in both the region’s median sale price and CoreLogic’s Home Price Index (Figure 1), calculated by county, have been fairly steady in the 5 percent to 7 percent range.
Of course people will do whatever it takes to protect their important investment they made in their home. They are facing big developer money who is willing to dump a massive apartment building wherever they can get away with it … all in the name of a big profit.
Government is the tool which finds a middle ground between these two groups. In my opinion, for the most part, it works well.