Chapter 1: The Crime
<<ring ring>>
OPERATOR: hello, what's your emergency?
DISTRESSED PERSON We have a situation here
<<DISTRESSED PERSON I can’t believe this is happening>
I've lived here my whole life… I never thought it could happen here…
Scoring: A Voice Inside
They were a beautiful young couple…one worked as a nurse…the other a teacher…one was vivacious…the other lit up the room with a smile…everything was going to plan… until.. It wasn’t
<<Spine tingling scream>> (scream female 12)
I never thought this would happen to people like us?
It was clear from the scene that they never stood a chance…
The crime? Isn't it obvious? High house prices…and high rents…making it hard to find anywhere to live.
<<DISTRESSED PERSON I can’t find any apartments in my price range!>>
<<DISTRESSED PERSON $3000 for a studio? Are you kidding me?>>
The victim? Our hopes and dreams. During the pandemic, rents went up by almost 20% and house prices shot up by even more[1] ... but this is not just a pandemic thing– it's been problem for years[2][3][4]. It’s been brutal.[5][6][7][8][9][10]
As for the perp? Well…Accusations are flying all over the place…
So many baby boomers are active in the housing market that it’s been difficult for millennials to buy a house!
When I was trying to buy my first home I wasn’t buying smashed avocados for $19
Greedy corporate landlords
The short term rental industry has been repeatedly accused of driving housing prices up by contributing to housing shortage
But who’s REALLY to blame here? When it comes to our housing hopes and dreams — who’s murdered them?
Today at Science Vs we’re searching for clues … sifting through the evidence … to find out why exactly housing is so expensive.
And what we’ve uncovered? Will shock you.
When it comes to affordable housing there’s not a lot of it. But then there’s science!
<<aahhh>>
Science Vs affordable housing just after the break
PREROLL BREAK
WZ Welcome back. Today getting to the bottom of why housing is so damn expensive. Rose Rimler, senior producer, has been tackling this question brick by brick. Rose, why are you so interested in this?
RR Well, like anybody who’s been alive recently, I’ve noticed housing is really expensive. A couple people I know who have bought a house recently have told me it was so hard, it was so stressful, that they said it was one of the worst experiences of their lives.
And whenever things are emotional and difficult, I want to know the facts, ahh ok, it’s like a coping mechanism. Why why what’s happening? When I ask myself that question and started looking around. I realized I didn’t really know why. It almost was like a fact of life. Yeah housing really expensive and getting worse all the time, but why? It’s not a law of physics.
WZ laugh yeah
So I wanna know what that explanation is. Like Why. And who can we blame? Who is responsible for killing our dreams?
Chapter 2: Greedy Developers
WZ OK so who is suspect No. 1?
RR Developers. People really hate developers[11][12]. I found a book by a professor who teaches real estate development. He asks his students on first day of class what words come to mind when they hear the phrase “real estate developer” and they say stuff like, quote, rip-off artist, greedy, bloodsuckers, bulldozers, used car salesmen, devils, rich white men, opportunists[13]….
WZ Yeah I don’t even know why, but I want to blame them, but what’s the thinking here?
RR Well they’re out to make a profit off housing while we’re all weeping about how expensive housing it is and that feels bad.
WZ Right right
RR And a lot of people think developers are actually literally responsible for raising the prices of neighborhoods. Like, I went to a community meeting where I live in Brooklyn where they were debating whether or not to let a developer build a new apartment building in the neighborhood. Someone at the meeting said we shouldn’t absolutely say no to this because it will raise rents in the neighborhood.
WZ Ok so is that true?
RR So brand new apartments are gonna be more expensive than older ones like in a freshly built building[14]. In the same way that new cars are more expensive than older cars.
WZ yes yes yes, not surprising
RR So - the new market-rate building on your block is not gonna be affordable to people who aren’t making good money[15]. But here’s what might be surprising - it’s generally not true that the building itself raises the prices of other buildings in the neighborhood – or raises the rents in the neighborhood.
WZ huh
RR I mean– sometimes your rent will go up. But it’s not because of the new development. It’s because you’re living in a desirable neighborhood that’s seeing prices rise. And in factm that’s why the developers chose to put a new building there[16][17][18].
WZ Uh huh cause your rent won’t be rising faster with that development.
RR No. That’s what studies find.
WZ Oh! Interesting.
RR It might even help a little by absorbing demand[19][20][21]
WZ Huh!
RR I think what’s happening here is people mixing up correlation and causation.
RR I would never accuse you, Wendy, of doing such a thing, but um some people
WZ Heavens no. I’d have to quit my job basically.
RR Laugh
WZ Not allowed to host Science Vs falling into traps like that!
RR laugh
The rising prices are coming anyway – but the crane putting in a new building you think that’s what caused it, it is a very obvious target to focus on.
WZ MM.
RR: And yknow – the idea that developers are greedy bloodsuckers – I looked into this and most of them aren’t consistently making huge gobs of profits[23] .
WZ So are developers off the hook? Rose Rimler? Are you here on the mic saying we are wasting our energy blaming developers?
RR I think you should buy a box of chocolate look up mailing address of ten biggest real estate developers in the US and mail them a box of no just kidding. I don’t think they’re the heroes, I don’t think they’re the villains. It’s almost like it’s too obvious.
WZ Right yes it can’t be suspect number one, the book’s too short
RR The lights go out, suddenly they come back on, one guy holding a candlestick everyone’s like ahh! he’s like no it’s not me, they put a candlestick in my hand.
WZ OK ok who is suspect 2?
Chapter 3: AirBnB
RR Suspect 2 is a company people either love…or love to hate…Any guesses?
WZ Amazon?
RR laugh
WZ AirBnB
RR AirBnB! Ding ding ding. And similar companies that do short term rentals in people’s houses. But AirBnB draws a lot of the criticism, with people blaming them for contributing to this whole affordable housing crisis[24][25][26] . I talked about this with professor Nicole Gurran, she’s a professor at the University of Sydney [27].
NG That’s the real irony because the origin story began as founders of AirBnB being victims of unaffordable housing market in San Francisco
RR oh i didn't know that
NG that’s right, the founders, yknow, tech industry dudes
RR i'm sure they were not surprised
NG there was a conference in San Francisco, they noticed high unmet demand for hotel beds, they thought, hey, we don’t we stick a mattress, blow-up, hence air, in our lounge room and make a bit of money and help with our own rent this month[28] - and they did it and the idea caught on and they made a lot of money from it
RR And at first when Nicole heard about AirBnB– she thought it could be a win-win. Because if people are renting out spare rooms, or maybe their whole place if they go out of town, then it’s actually, from an economist viewpoint it’s really efficient.
RR But that’s not what happened. These days, most AirBnBs are entire homes, they’re not a spare room or couch in someone’s actual home[29][30].
WZ Yeah I remember the transition, I remember going to AirBnBs, realizing, it was always, you could tell by painting on the walls, right? No one lives here! That’s like this weird generic art on the wall no one could be offended by yet we all despise.
RR Right live laugh love
WZ Ok so how big a problem is this, how many houses are now AirBnB houses?
RR That’s what Nicole wanted to ask. Specifically she wanted to ask it about Sydney. So she scraped from AirBnB all the units that were being advertised year round. So not just a week or two here and there, but they’re always AirBnBs so she considered those otherwise what otherwise would have been on the market as long term rentals. And she compared that with the number of rentals available for people who live in Sydney. So the rentals available for tourists through AirBnB versus rentals for people who actually live in Sydney. And yeah what she found was pretty surprising.
NG the number of properties when we did that initial study that seemed permanently available as Airbnb rentals
NG was equivalent to about half
WZ Gasp
NG of the rental vacancy rate in sydney[31]
WZ Ok so for every 2 places available for rent in the normal renty way there was one place available on AirBnB?
RR Yeah
RR It had been a while since Nicole looked at this paper, so she actually, when we were on the call she double checked it. She’s pulled up her paper
NG oh! oh i was right. that's exactly right. So you can run with that
god that's horrific
RR laugh it's like you're surprised all over again
NG i am!
It’s huge - and yknow Sydney's on the high end, but this kind of thing is happening all over. [32][33] There was a paper recently that looked at AirBnBs in cities all over the United States. They found the median for how many rentals were turned into AirBnBs was about 12%[34].
WZ 12%. One in 8, one in 9 houses were just sitting around waiting for AirBnB. That still feels like a bite out of the rental market that would matter right?
RR It does, and it has a consequence.[35][36][37][38][39][40][41] That same US study I just talked about, they estimated that after controlling for other factors, AirBnBs were responsible for 20% of the increase in rent during the time period they looked at[42].
RR So in other words they found that if your rent went up $100, $20 of that was because of AirBnB.
WZ Wa - Wow! So AirBnB is a culprit here. They’ve stuck a knife in our dreams.
RR They’ve got blood on their hands for sure. They’ve got a knife in. And by the way - we did reach out to Airbnb to ask about all this. They didn’t want to comment.
And yknow– to be fair to AirBnB– they’re not the main murderer. Big picture - I asked Nicole how much do these vacation rentals matter …
RR if Airbnb never existed would housing be affordable in Sydney?
NG no we had housing affordability problems before Airbnb
WZ Uh huh right cause if, my dear Watson…Or am I…
RR I think you’re Watson
WZ I’m Watson in this. That’s cool, that’s cool. If, Sherlock, AirBnB in this study was responsible for 20% of the increase in rent, that leaves this big chunk, 80% on the table.
WZ Suspect number 3.
RR This next suspect is looking very guilty… there’s blood spatter everywhere, DNA just dripping off their hands and yknow we’re kind of getting to the point in the episode where we need a real suspect. I’ve got one for you. Gonna tell you all about it after the break.
WZ oooh
BREAK
WZ welcome back. Today we’re looking into our housing crisis. Asking, why is it so expensive to buy or rent a place to live? We talked about developers putting in new buildings– seems like they are not the culprit. AirBnB– kind of a culprit. More like aider and abettor I guess. But we still haven’t found the main killer of our housing dreams. Rose Rimler who is up next?
Chapter 4: Zoning
RR A lot of academics I spoke to about this kept bringing up this one word over and over ….zoning…I got into it with Sara Bronin: a professor of planning and law at Cornell University[43].
RR do you think zoning has become a sexy topic?
SB well i've always thought it was a sexy topic, I think others have started to realize how important it is, it's come up in lots of conversations
WZ Zoning?
RR Yes. Have you sat in a dinner party or been stuck next to someone on an airplane who has brought this up?
WZ Zoning? Can’t say that I have. And I have some very nerdy dinner conversations
RR This is all about the rules a city makes about what can be built and where it can be built…in some of the earliest zoning laws, Wendy, there were rules about how to process your whale blubber outside of town[44].
WZ You’re really trying to make zoning fun. I can see that with the whale blubber, but I keep zoning out
RR If you don’t pay attention to zoning…it will get you!
WZ AH!
RR Ok– PAY ATTENTION to what I’m going to say next. you do need to listen to understand something very important we’re gonna talk about.
RR: So the zoning that we need to talk about today is what’s called single family detached homes[45][46], this is like your classic suburban style house, Leave it to Beaver-esque. There are zoning laws a lot of towns put in place that make it easy to build those and harder to build other kinds of housing like apartment buildings or duplexes[47].
WZ This is important to understand our housing crisis because in those other properties you can squish more houses, more people can live in an apartment complex than in a suburban type house? Is that right? Basically
RR Yeah imagine you took a Leave it to Beaver house and cut it in half — you have a Leave it to Beaver duplex. You’d put two families on the same piece of land, they’d each get half the space, but each space they got would cost less. So that’s two families for the price of one.
RR And one of the things Sara wanted to know was, just how common is this kind of zoning code? We know this is a problem - but it's hard to study because these laws are made town by town.
So during the pandemic, Sara led this big group project to read and analyze alllll the zoning codes in the entire state of CT, which is where she lives.
SB we read over 32,000 pages of zoning text across 180 jurisdictions
RR and how did you stay awake?
SB oh I, laugh, this is what I love to do personally
RR Laugh
SB reading zoning codes is like reading a treasure map. In order to understand it you have to go from one chapter to the next, follow all the cross references go down rabbit holes to then come up with the answer. The answer is always in the zoning code somewhere and I think it's a fun intellectual puzzle to find out exactly what the zoning code means
RR So the treasure she was hunting for was an answer to this question - how much of the state is set aside for these Leave it to Beaver type of houses. Do you want to guess how much of Connecticut is like um, suburbia please?
WZ Connecticut seems like synonym for suburbia, so I would say 95%
RR It’s 91%
WZ 91% OMG! Omg wow
RR 91%[48][49] of the state. This doesn’t mean it’s impossible to build smaller, denser housing in these areas, but you have to fight through lots of red tape to get it done.
WZ Uh huh
RR So for example…there’s this rule Sara dug up that I want to tell you about because it’s particularly galling. In some towns, there’s a law on the books that says if you want to build an apartment building, you have to add 3 parking spaces for each studio apartment[50].
WZ What??
RR Three parking spots per studio. And it’s like….why?
SB what is the point of that minimum parking requirement on housing?
Is it to encourage car storage? Is it to insure development is orderly? or is it to prevent those apartment buildings from being built in the first place
RR So potentially just a sneaky way to make it harder
WZ Of course! Uh huh! OMG so galling.
RR There are also zoning codes that are about minimum lot sizes– that say you have to have a certain amount of land per house. In Connecticut, Sara found a lot of towns require almost 2 acres of land per house[51].
WZ. Is that in farming communities or no?
RR No! Not necessarily. It’s about half the state. So that includes lots of ordinary suburbs.
WZ That is ridiculous - think how many houses could have been built, how many people could be living there.
RR Rules like this probably help explain why the average American house has gotten bigger and bigger[52], in fact it’s roughly doubled in size since the 1950s[53].
WZ Oh wow
RR And this is important for our conversation because the smaller homes with less land are less expensive so they’re easier for first-time buyers to purchase, people that make less money to purchase. And there just aren’t that many of these so-called starter homes[54].
WZ Right
RR This is where the NIMBYs come in. Have you heard this expression?
WZ Yes “Not in my backyard?”[55]?
RR The NIMBYs are people who make these rules, who say they don’t want apartment buildings or smaller inexpensive housing in their backyards…what happens is they show up to neighborhood planning meetings and say I don’t want any change[56]. I want to shoot down that development project[57].
WZ The boomers? Is this the time in the housing podcast that we mention the boomers?"
RR Yeah there’s a study from Massachusetts that looked at who showed up to vote no on these development ideas and yeah, they tended to be older people[58].
WZ mmhmm
RR And they had lots of different reasons they gave for opposing new development, ….like they said they’re worried about the environmental impact of the project, or the new buildings bringing in traffic[59]–
RR so they might think they have good reasons, but if every community says not here, then where? Then it’s never gonna be built anywhere.
WZ It’s the perfect example of oh we need more housing that’s affordable for my kids but not in my backyard
RR And we know that at a deeper level this is also about keeping people out of the neighborhood that some people don’t want to move in. People of color. Poor people. People have said, literally have said, we want to zone this way because we don’t want POC to move into the neighborhood, or poor people. We want to keep these people out.[60][61][62][63][64].
WZ Right the coded message, talk about building coding, but the coded message of we don’t want things to change is we want to keep it white.
RR Yeah and you can see that in the data. We have research that looked at areas zoned in this way versus areas a little looser with their zoning and we find that this kind of neighborhood tends to be whiter.[65][66]
WZ And so I’m guessing even though that study was based in Connecticut, this is not a Connecticut thing.
RR No[67]. It’s not even necessarily a suburban thing. This is true in major American cities. LA is 74% single family zoned[68]. Seattle is 80% single family zoning[69]..
WZ Wow it’s like in the movie about our housing crisis, this is the montage happens, all these zoning academics going into the archive, doo doo doo, pulling out the zoning laws, people across the country 74%, 90%
RR Yes! That’s exactly what’s happening, Sara’s leading this whole project to make a national zoning atlas[70]. But that’s exactly what it is. It’s real hot. Isn’t that sexy, Wendy? Doesn’t that make zoning incredibly sexy?
WZ All right all right, zoning is sexy! I’m ready to buy the T-shirt now. I’m ready.
RR “ask me about exclusionary zoning at my next dinner party.””
RR So the bottomline for us today about zoning is that– research shows that places with more red tape from zoning are more expensive[71][72][73][74].
WZ So this zoning is the killer?
RR A lot of people would say yes. In fact I talked to Sara about this whole murder mystery that we're playing
SB well it's funny i just played Clue last night with my family, it was Miss Scarlet with the dagger in the conservatory
RR perfect! Laugh
RR And I heard from lots of academics that essentially, zoning is miss scarlet…
WZ: Huh!
RR But
WZ But?
Chapter 5: The Twist
RR I don’t think we can end there– because this is the part of your murder mystery where we’ve got the classic third act surprise.
WZ Woah
RR There’s a twist.
They were loading up this suspect into the Paddy wagon…taking 'em downtown, something in my gut didn’t sit right…a hard-boiled detective like me just gets a hunch every once in a while yknow? Something didn’t smell right
WZ All right what, boss, what? Who we gonna blame next?
RR Well – the thing is some cities have experimented with rolling back these zoning laws and allowing for denser housing. And we don’t necessarily see house prices drop when that happens.
WZ oohhhh
RR One study looked at zoning changes across the US and found that on average they haven’t resulted in any affordable housing[75].
WZ What?? But why not? It seems like you rezone, you get more duplexes more apartments, those are more affordable?
RR Badda bing badda boom?
WZ Badda bing badda boom! Why didn’t this badda boom? You’re leaving me on badda!
RR Well one reason for that is that yknow the moment the zoning laws change it’s not like the developers come running[76][77]. Omg let me get my tool belt on. They’re gonna build if it’s a profitable time for them to build. But even in places where we see building we don’t necessarily see housing getting affordable[78].
WZ So what’s going on?
RR That’s a great question and I’ve been trying to figure it out, I’ve talked to at this point dozens of academics from different fields, read a lot of papers. This is how I would put it. In Econ 101 they talk about supply and demand. We’ve been talking mostly about the supply side of the equation.
WZ Mmmhmm building more houses.
RR Yeah the supply of housing. But we also have to think about the demand for housing[79]. And demand for housing has gone up. So as Columbo would say…there’s just one more thing.
WZ Uh-huh
RR One more thing I have to tell you– …so hold tight. Back in the 80s…when there were a bunch of changes in the banking industry. And rules changed about how financial institutions could lend money. Like for mortgages[80][81]. After that, banks could lend a lot more money to a lot more people.
And so a lot more people had access to credit after that happened. They could take out mortgages and they could take out bigger mortgages. So now people who maybe couldn’t have gotten a loan before or couldn’t have gotten a loan that size now can, but so can the person across the street and now we’re all bidding each other up and up and up, and making the prices go up[82].
WZ Of course. Of course if you and me, if we couldn’t get access to a million dollar loan, let’s say, we could not buy a million dollar house.
RR Right
WZ And so credit has screwed around with the demand. It means so many more people can even put in the bid for these ridiculous priced houses[83][84][85].
RR Yes this is also why there are bubbles when interest rates change, it’s all about how much money people can borrow. And ya know if prices go up, that makes housing more valuable. and THAT attracts investors. So then you’ve got all these investors[86][87][88]
WZ Who don’t necessarily want to live in it but who just want to park their money there[89]
RR And it’s not just big corporate investors. It’s everyone who has a retirement fund. Because retirement funds typically have a chunk invested in real estate stocks[92]. Very common stock to own. I’m sure my retirement fund puts stock in real estate, I’m sure yours does. So we’re all part of it.
WZ All right, Rose, what should we be doing now?
RR Well I think what we're learning – is that this isn't a matter of just building a bunch of new apartments… or houses… or restricting AirBnBs - although all that stuff could help a little[93][94]. It’s really about changing this whole financial system… and at that point WENDY. We are out of the realm of science and citations and data I can bring to you and we’re in a whole new podcast maybe called Politics Vs…
WZ Oy
RR That’s above my pay grade…
RR And you know what, Wendy? Sherlock Holmes doesn’t REVIVE the body at the end of the mystery. He just solves it. And today we solved the mystery we set out to solve.
WZ That is true my dear Watson
RR Nope you’re Watson.
WZ Ah! What does Watson say?
RR He doesn’t say anything.
WZ He doesn’t say anything. All right well then…<silence>
RR That’s right
WZ Laugh. Thank you Rose
RR That’s Science Vs
WZ laugh
CITATIONS
CREDITS
This episode was produced by Rose Rimler along with me, Wendy Zukerman, with help from Joel Werner, R.E. Natowicz, Meryl Horn, and Michelle Dang. We’re edited by Blythe Terrell. Fact checking by Eva Dasher. Mix and sound design by Bobby Lord. Music written by Bumi Hidaka, Emma Munger, and Bobby Lord.
Thanks to everyone we reached out to for this episode including Dr. Yonah Freemark, Prof. Stephen Sheppard, Prof. Sonia Hirt, Prof. Solly Angel, Dr. Sherry Bokhari, Dr. Salim Furth, Dr. Norbert Michel, Dr. Max Holleran, Prof. Manuel Aalbers, Prof. Kirk McClure, Dr. Kate Pennington, Prof. Joseph Gyourko, Prof. Jessica Trounstine, Jenna Davis, Dr. Jake Wegmann, Prof. Hui Li, Dr. Edward Kung, Dr. David Wachsmuth, Dr. Brian Doucet, Dr. Aradhya Sood, Dr. Stan Oklobdzija, and Dr. Andrew Whittemore.
Special thanks to Meg Driscoll, Flora Lichtman and a big thanks to our voice actors: Aliza Rood, Annie Minoff, Chantelle Young, Valentina Powers, Alena Acker, Krystian Zun, and Moo.
Science Vs is a Spotify Studios Original. Listen for free on Spotify or wherever you get your podcasts. Follow us and tap the bell for episode notifications.
[1] Between 2019 and 2021, the national median home price jumped 25%...and the average rent has jumped 18%
[2] See Atlanta Fed’s affordability index: https://www.atlantafed.org/center-for-housing-and-policy/data-and-tools/home-ownership-affordability-monitor
[3] See this graph of wages, Case-Shiller index, and inflation prepared by economist in an email exchange with RR: https://fred.stlouisfed.org/graph/?g=12oVC “The basic story is…house prices, other prices (CPI), and earnings track closely together for the 21 years from 1979 through 2000. Then housing becomes more volatile. The house price bubble makes housing WAY more expensive, but bursts in late 2007 and the prices come back in line by the beginning of 2012. Then the cycle resumes, with house prices rising 104% from early 2012 through July 2022, followed by a small 3rd quarter decline in late 2022.”
[4] American Community Survey– “Who could afford to buy a home in 2009?” asks who how many Americans can afford to purchase outright or qualify for a 30-year conventional mortgage with a 5 percent down payment a modestly priced home– one that is among the 25 percent least expensive owner-occupied homes in the area where a family lives. This has been going down with time. In 1984, 60% of families met these criteria; in 2009 43% did. In 1984, 34% of individuals met these criteria; in 2009 31% did. And see Figure 3
[5] Rental prices were at an all-time high before the COVID-19 pandemic (Joint Center for Housing Studies of Harvard University, 2018), and as of March 2021, an estimated 10.7 million adults were delinquent on rent (Center on Budget and Policy Priorities [CBPP], 2021).
[6] New research published this week showed the share of rental properties under $400 per week has fallen to 15% in most capital cities – half of what it was a year ago.
[7] “Nationwide, the share of renters who are considered ‘burdened’ — spending more than 30 percent of their income on rent and utilities — has climbed to 47 percent .” https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_Americas_Rental_Housing_2020.pdf
[8] In 2020, 46% of American renters spent 30% or more of their income on housing, including 23% who spent at least 50% of their income this way
[9] https://www.nytimes.com/2023/01/25/realestate/rent-burdened-american-households.html?smid=nytcore-ios-share&referringSource=articleShare
[10]Affordable Housing: Affordable housing is generally defined as housing on which the occupant is paying no more than 30 percent of gross income for housing costs, including utilities. https://archives.hud.gov/local/nv/goodstories/2006-04-06glos.cfm
[11] The most dramatic result, however, is the outsized influence of developer profit frame. Forty eight percent of people told about the developers’ large profit opposed the development, compared to 28% of respondents who saw the control frame.
[12] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4266459 PAGE 43 —or use this link https://www.city-journal.org/article/folk-economics-and-the-politics-of-housing if that’s broken
[13]Each year, on the first day of the real estate development class that I teach, I ask my students, “What words
come to mind when I say ‘real estate developer’?” Their answers include “rip-off artists,” “greedy,” “bloodsuckers,” “bulldozers,” “used-car salesmen,” “devils,” “rich white men,” “opportunists,” and so on. They pile it
on and I have difficulty writing everything on the board fast enough.” https://www.google.com/books/edition/How_Real_Estate_Developers_Think/ku7gBwAAQBAJ?hl=en&gbpv=1 pg 7 and 8
[14] Extrapolating using the full-sample depreciation rates, a 50-yearold rental unit rents for 83.9 percent of a newly built home, while a typical 50-yearold owner-occupied unit sells for 65.6 percent of a newly built home.
[15]It is also true that when first produced, housing tends to supply the medium- and high-end segments of a housing market, because housing is so expensive to build.
[16]developers are more likely to build where prices are already appreciating (Boustan et al.,2019;Green et al.,2005;DiPasquale,1999).
[17] Any study of the impact of new market-rate development on surrounding rents
must contend with the reality that new market-rate development is more likely to be built in
fast-appreciating areas (DiPasquale, 1999; Mayer and Somerville, 2000; Green, Malpezzi, and
Mayo, 2005).
[18] The San Francisco Bay Area has badly lagged in housing development for decades. The city’s extremely high prices are found not just where new development has occurred, but also in neighborhoods largely untouched by construction (39% of San Francisco’s rental units sell for over $2,000 per month; only 3% of the region’s rental units have been built since 2010).4 Yet when the San Jose Mercury News surveyed residents in 2018 about the cause of the Bay Area’s housing crisis, the most common answer (at 57%) was “Developers who are trying to maximize profits rather than build what people want or need” (Kendall, 2018).
[19] Asquith 2019: https://research.upjohn.org/cgi/viewcontent.cgi?article=1334&context=up_workingpapers Looked at new construction in 11 different cities and found that new construction decreases rent 5-7%
[20] Pennington 2021 [San Francisco] “I find that rents fall by 2% for parcels within 100m of new construction. Renters' risk of displacement to a lower-income neighborhood falls by 17%.” Increases gentrification but not displacement
[21] Li NYC https://blocksandlots.com/wp-content/uploads/2020/02/Do-New-Housing-Units-in-Your-Backyard-Raise-Your-Rents-Xiaodi-Li.pdf
[22] researchers in the past
two years have released six working papers on the impact of new market-rate
development on neighborhood rents. Five find that market-rate housing makes
nearby housing more affordable across the income distribution of rental units,
and one finds mixed results.
[23] "The gross profit margin on the builder’s land and construction costs for a portfolio of homebuilders range from 9–11 percent per annum across the cycle."
Pers.comm with author. RR: Can you tell me a little bit more about how you arrived at that figure? Author: The return data are from publicly-traded homebuilders across a full cycle.
[24] https://www.nytimes.com/2023/05/12/business/airbnb-short-term-rental-discrimination-housing.html
[25] https://www.forbes.com/sites/garybarker/2020/02/21/the-airbnb-effect-on-housing-and-rent/?sh=304d1b142226
[26] https://www.fool.com/the-ascent/mortgages/articles/4-reasons-airbnbs-are-partly-to-blame-for-the-housing-crisis/
[28] In 2007 Brian Chesky and Joe Gebbia were broke and looking to raise money to make their rent in San Francisco. They decided to rent out air mattresses in their apartment to attendees of a conference because all the hotels were booked. They called their service “Air Bed and Breakfast.” In a few years, this small experiment would create the hotel industry disruptor Airbnb.
[29] The results show that majority of Airbnb supply, demand, and revenues (SDR) was generated through entire homes, which account for approximately 70%, 75%, and 91% of SDR respectively.
[30] The majority of its listings across many countries are entire homes, suggesting that Airbnb is actually more like a rental marketplace rather than a spare-room sharing platform.
[31] We calculate that the number of dwellings removed from the permanent rental market in the region amounts to about half of Sydney’s current rental vacancy rate based on the Inside Airbnb data on frequently available listings.
[32] “Many neighbourhoods—above all in Montreal—have seen two or three percent of their entire housing stock converted to de facto hotels…Airbnb has removed as many as 13,700 units of housing from rental markets in Montreal, Toronto and Vancouver”
[33]Los Angeles cannot afford to lose housing units. The Los Angeles Department of City Planning’s Housing Needs Assessment shows that the city needs an additional 5,300 units of affordable housing each year to keep up with demand. However, Los Angeles developers have only averaged about 1,100 units of affordable housing per year since 2006. The 7,316 whole apartments currently listed on AirBnB represents nearly seven years’ of affordable housing construction at thecurrent rate of housing development.
[35] 25 cities in Europe: Our results show that home-sharing has significantly contributed to a rise in rents and housing prices in European cities. While these effects are mainly concentrated in city centers, we also document effects in other districts
[36] According to the NYC comptroller, “in New York City, “Airbnb is responsible for nearly 10 percent of citywide rental increase between 2009 and 2016.”23”
[37] In Boston: We show that a one standard deviation increase in Airbnb listings is associated with an increase in asking rents of 0.4%.
[38] “We find that in New York City, the impacts appear to be that an increase in localized Airbnb availability is associated with an increase in property values…..Rough calculations based on average property values, average Airbnb rentals, and an assumption that potential income streams will be fully capitalized produces an intermediate estimate of about 17.7%”
[39] “It found that the increasing number of Airbnb listings in the Dublin region is co-related to less housing being available in the long-term rental market and a rise in rental prices in the GDA.”
[40] “First, based on 2018 data, we estimate that more than 2% of all properties in London, and up to 7% in some local areas are being misused through Airbnb as short-term holiday rentals. …Last, we show that a 100% increase in the density of possible Airbnb misuse can be associated with up to an 8% increase in unit rental price per-bedroom per-week, an equivalent to up to an average of £90 price increase per year.
[41] Berlin: Our results suggest that each nearby apartment on Airbnb increases average monthly rents by at least seven cents per square meter. This effect is larger for Airbnb listings that are available for rent for a larger part of the year.
[42] “About one-fifth of actual rent growth” https://www.documentcloud.org/documents/21091701-mksc20201227
[44] Piecemeal approaches to land use regulation continued through the nineteenth century, with the typical city ordinance setting limits on offensive uses such as tanneries and whale blubber storage (Schwieterman and Caspall, Ch. 2)
[46] From the start, U.S. advocates of land use zoning argued that single-family and multifamily housing belonged in separate districts, with the latter “exist[ing] only in the neighborhood of factory and business districts” (Marsh, 1909, p. 130). This would prevent “enormous economic waste” in destroyed property values but, more important, protect “the civic spirit and social life” of single-family neighborhoods (Whitten, 1921, p. 25) from which these values flowed…. contemporaries knew that the construction of apartments in single-family districts, and the threat to social and economic value that entailed, was the greatest impetus for zoning’s spread (Comey, 1919). “The rank and file of the people are coming to look upon [zoning] as merely a matter of maintaining or increasing property values,” stated one early critic (Munro, 1931, p. 203).
[47] Into the 1960s, building was lightly regulated almost everywhere.
Much housing was built in all high demand areas, including coastal California and New York City. However, between the 1960s and the 1990s, it became
far more difficult to build in some areas with strong economic growth, especially
those along the coasts. For example, there were 13,000 new housing units permitted
in Manhattan in the single year of 1960 alone, which is nearly two-thirds of the
21,000 new units permitted throughout the decade of the 1990s (Glaeser, Gyourko,
and Saks 2005).
[48] Among other findings, the dataset confirms the dominance of as-of-right16 zoning for single-family housing (90.6% of zoned land) over four-or-more-family zoning (2.1%). 17
[50] . That some towns—including the wealthy town of Darien and the smaller towns of Lebanon and Naugatuck—require 3 parking spaces for every new studio or one bedroom apartment defies any reasonable justification
[51] Today, 72.8% of the state (i.e., both residential and nonresidental areas) allows single-family housing only if its lot exceeds 0.92 acres, while 44.8% of the state allows single-family housing only if its lot exceeds 1.84 acres.
[52]Since 1950, the average size of new single-family houses in the United States has more than doubled…The median size of a completed single-family home was 2,299 square feet.
[53] Pg 39 Sonia Hirt book
[54] an even larger decrease in the supply of entry-level single-family homes, or starter homes.
[55] Modern land use regulation in the United States dates back at least to the
1910s, when the initial zoning laws were enacted to limit negative externalitie
from spillovers between different kinds of land users. While there are no consistent time series measures of the local residential land use regulatory environment,
researchers generally agree that such regulation has proliferated across markets
and become onerous in some places. The term NIMBYism (“not in my back yard”)
dates back to Frieden (1979).
[56]Homeowning opponents sometimes argue that new housing will depress their property values,
while renting opponents sometimes argue (in something of a contradiction) that it will increase
their rents (Hankinson, 2018). More frequently, opponents cite concerns about congested roads
and parking, or changes to community character (Pendall, 1999). Lurking beneath some of these
complaints is also a fear or resentment of new people, who might be of a different income level or
racial or ethnic group—though opponents rarely state this motivation explicitly (Fennell, 2006).
Finally, there is evidence that some opposition is rooted in political ideology and moral intuition
(Lewis, 2015).
[57]These voices have real policy import; citizens who attend these meetings have a variety of avenues to stymy developments, ranging from persuasion of local planning officials to filing lawsuits on the development in question (Einstein, Palmer, and Glick 2018). NIMBY (Not In My Backyard) sentiments predominate in these venues (Fischel 2001; Marble and Nall 2017; Hankinson 2018).
[58] We find that meeting participants are unrepresentative of the broader public in a variety of ways. They are more likely to be older, male, longtime residents, voters in local elections, and homeowners. Moreover, these individuals overwhelmingly oppose the construction of new housing: almost two-thirds of these participants speak out in opposition to new housing development.
[59] See Section 3.3 https://www.dropbox.com/s/k4kzph3ynal3xai/ZoningParticipation_Perspectives_Final.pdf?dl=0
[60] “According to Bartholomew, an important goal of St. Louis zoning was to prevent movement into ‘finer residential districts…by colored people’ “ Rothstein, The Color of Law, pg 49
[61] In the US, the first zoning experiments took place in the late nineteenth century
in cities in California, where the major concern was to exclude undesirable uses,
such as laundries frequented by the Chinese in predominantly white neighborhoods
[62] Zoning advocates early on noted how height and bulk restrictions could effectively shut immigrant-packed tenements out of single-family districts, whether in New York City (Fischler, 1998) or suburban Boston (MA; Comey, 1919).
[63] From the start, U.S. advocates of land use zoning argued that single-family and multifamily housing belonged in separate districts, with the latter “exist[ing] only in the neighborhood of factory and business districts” (Marsh, 1909, p. 130). This would prevent “enormous economic waste” in destroyed property values but, more important, protect “the civic spirit and social life” of single-family neighborhoods (Whitten, 1921, p. 25) from which these values flowed…. contemporaries knew that the construction of apartments in single-family districts, and the threat to social and economic value that entailed, was the greatest impetus for zoning’s spread (Comey, 1919). “The rank and file of the people are coming to look upon [zoning] as merely a matter of maintaining or increasing property values,” stated one early critic (Munro, 1931, p. 203).
[64] Local government’s use of zoning, with its ability to control the use and density of development, is not
merely riddled with instances of apparent prejudice but is an effective tool in the generation of this dual urban housing market. In particular, scholars to date have focused on zoning’s role in the exclusion of minorities from areas whites found desirable and on its role in exploiting minority residential communities for commercial and industrial development
[65]Blocks zoned for multifamily housing have black population shares 3.4 percentage points higher and Hispanic population shares 5.5 percentage points higher than single-family zoned blocks directly across a border from them.
[66] Table 2 offers clear evidence that when cities are threatened or forced by the court to liberalize their land use laws they see growth in their population of people of color. In 1970, the average city was about 94% white, whether it would later face a Fair Housing Act lawsuit or not. By 2011, cities without lawsuits were about 73% white on average, compared to 68% white in cities with lawsuits.19 Land use regulations have the power to shape the demographics of communities.
[69] “ In San Francisco (CA), home to some of the most valuable and productive land on Earth, about 38% of residential land is R1. In Los Angeles (CA) the proportion is more than 70%. Seattle’s (WA) estimated share is more than 80%, and San Jose’s (CA) approaches 90%.1 In the prosperous suburbs of urban areas, moreover, R1 approaches ubiquity (Hirt, Citation2014).”
[71] Glaeser and Gyourko (2018) estimate that in the most heavily regulated, supply-constrained metropolitan markets, home prices are roughly three times as high as they would be in the absence of regulatory constraints https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.32.1.3
[72] Jackson (2016) uses longitudinal data from California’s cities to assess the effect a city’s adoption of additional land use regulations has on the number of new construction permits issued, and finds that each additional land use regulation adopted reduced multifamily and single- family permits by an average of more than 6% and 3%, respectively, and that regulations reducing allowable density had even larger effects.
[73] Taken together, the literature has offered a solid body of evidence that land use regulations tend to raise land values and impede housing production, particularly in cities with restrictive land use regulatory practices, such as San Francisco or New York.
[74] Glaeser et al. (2006a) explore the wedge between marginal construction costs and market price, labelling the gap a ‘regulatory tax’ ranging from zero in a few low-demand and low-regulation cities to upwards of 50% of home values in the Bay Area and Manhattan. These studies suggest that regulation reduces supply elasticity, resulting in larger price increases and slower growth in quantity as demand increases, as well as lower responsiveness to demand shocks (Saiz, 2010).
[75] we find no statistically significant evidence that these reforms lead to an increase in affordable rental units within three to nine years of reform passage. https://yonahfreemark.com/wp-content/uploads/2023/03/Stacy-et-al-2023-Land-Use-Reforms-and-Housing-Costs.pdf
[76] At the time of writing, the city has issued only a handful of permits that take advantage of the 2040 plan’s single-family upzoning
[77] I find no evidence for short- or medium-term increases in housing-unit construction, potentially a product of the relatively slow financing and approvals processes for new projects, but indicating that upzoning does not produce a supply response within five years after policy implementation.
[79] House price cycles are more extreme where housing supply is less elastic, institutional and regulatory practices (e.g., on financial liberalization) allow for riskier lending, and in thinner, emerging market economies where income and credit con- ditions change more rapidly. Paradoxically, the rise in housing construction during the US housing boom of the 2000s was not nota- bly smaller in areas with lower supply elas- ticities. This reflected how common demand shocks induced a stronger rise in prices in less supply-elastic areas, as the easing of credit standards had a larger effect in such areas.
[80] See timeline on pg 1 which starts in late 70s/early 80s. “In previous decades, banks had essentially been portfolio lenders, holding assets on their books until they reached maturity. Now, by a process of securitization, assets could be pooled together and repackaged into securities. Financial institutions could turn the illiquid assets on their books into highly-liquid securities that could be sold off to investors. Other financial obligations mixed aspects of options and futures and insurance contracts, and they allowed financial firms to bet on or hedge against all sorts of possible outcomes.
[81] By the 1980s, the financial sector had certainly recognized that a number of
financial risks had increased and needed to be hedged, both in the property sector
and from other areas. The property markets in the United States and the United
Kingdom became more integrated with their financial markets.
[82] There is broad historical evidence that shifts in credit availability have fueled general asset price booms and busts (Schularick and Taylor 2012), including those in land prices.
[83] In the past century, mortgage markets were transformed from being a “facilitating market” for homeowners in need of credit into a tool for facilitating global investment. Since mortgage markets are both local consumer markets and global investment markets, the dynamics of financialization and globalization directly connect homeowners to global investors, thereby increasing the volatility in mortgage markets, Aalbers, Manuel B.. The Financialization of Housing (Routledge Studies in the Modern World Economy) (p. 11). Taylor and Francis. Kindle Edition.
mortgage credit is typically seen as a key indicator of housing financialisation, which can
broadly be defined as ‘the increasing dominance of financial actors, markets, practices,
measurements, and narratives at various scales, resulting in a structural transformation of
economies, firms (including financial institutions), states, and households’ (Aalbers 2016,
p.2). The liberalisation and expansion of mortgage markets have integrated fixed and local
housing into liquid and global financial markets (Gotham 2009), allowing global flows of
capital to spill into real estate. Evidence suggests that this has been a major driver of house
price increases across countries (Andrews et al. 2011; Ryan-Collins et al. 2017; Stiglitz
2012), while it did preciously little to broaden homeownership access (Kohl 2018; Arundel &
Ronald 2021). In other words, mortgages facilitated the homeownership dreams of
governments and households alike, but, while homeownership rates increased only slightly,
price increases—over time—have made homeownership less rather than more accessible.
[86] Private-equity firms have been investing in basic needs, such as housing, energy, and health, because people cannot avoid them. However, housing presents some unique features. It differs from other market commodities, because housing is not only a necessity, but it also requires most households to spend a significant share of their income (Arnott, 2015). … For the above reasons, the managers of the private equity firms and other financial vehicles have targeted housing as the best sector to yield significant profits.
[87] However, buy-to-rent investors have a much more noticeable presence in a small number of metropolitan areas where their purchases are concentrated. For example, in metropolitan areas like Atlanta where they have been most active, they accounted for 12 percent in 2013, compared to 18 percent for other investors in the same market. Thus, in a few markets these purchases have become frequent enough to have a noticeable effect on housing market outcome
[88] https://escholarship.org/content/qt07d6445s/qt07d6445s.pdf Atlanta, the top market for institutional SFR operators, …And see Fig 3
[89] “ghost dwellings”
[91]DOI is 1024529415623916
[92] Our findings demonstrate how the ownership of R-REIT stock is remarkably homogeneous: the largest shareholders in each of the studied R-REITs are the three largest index exchange-traded funds, which are heavily backed by pension fund capital. ..A.s we will demonstrate in the next section, listed R-REITs receive most of their
funding from a range of asset managers and funds. Three providers of exchange-traded funds
(or ETFs), a type of index fund, are among the largest stockholders in all 15 R-REITs we
investigated: BlackRock, Vanguard, and State Street.
[93] the new regulations depressed property values in the neighborhoods facing the tightest regulations by approximately 30%