8 ms·

The Grim Math of the Working-Class Housing Crisis

56 points by gkuan 13y ago

zinssmeister 13y ago
Part of me wonders if this is a temporary problem that got triggered by urban environments becoming extremely trendy in the last decade or so. Either way, we are not only losing a solid worker class, but also some of the skilled labor force because of it (especially here in SF).
- aliston 13y ago
  I think you're definitely on to something here. If you look at housing starts in the US over the past year, they're way up, but they're also predominantly multi-family. This generation has delayed forming families, but at some point probably will ultimately settle down, get married, have kids... the 1 BR in SOMA isn't going to cut it at that point and there will be a flight back to the suburbs.
  - lsc 13y ago
    >This generation has delayed forming families, but at some point probably will ultimately settle down, get married, have kids Statistically speaking, wealthy people tend to have fewer children, and have those children later in life. I believe this was true for the previous generation, too. >the 1 BR in SOMA isn't going to cut it at that point and there will be a flight back to the suburbs. Yeah, but a 2 BR would work just fine, especially if you only have one kid. And 3 BR apartments are not unheard of. (and the cultural changes required to expect kids to share a bedroom are not impossible.) I think that the deciding factor here is perceived safety, followed by quality of schools. As cities are gentrifying, people seem to be thinking of them as safer. And a wealthy population (especially a wealthy population that recently moved in, and here in California, is therefore paying full freight property taxes) makes for a bunch of money to throw at those problems. If cities start being perceived as safer than suburbia? That could push parents out of suburbia and into cities. That's how they got to suburbia in the first place, right? And it's a self-reinforcing cycle; gentrification means more taxes, more resources for law-enforcement, (and conversely, less of those things in the suburbs, if the wealthy folks in the suburbs are moving into the cities.)
  - lkrubner 13y ago
    In the USA, the Baby Boom peaked in 1958 and was then followed by 19 years of decline in the birth rate, hitting bottom in 1977. Its the trough of the late 70s and early 80s who are now in their 30s and having kids -- they can not drive a flight back to the suburbs exactly because they are from a trough: there are not many of them, relative to the demographics before them and after them.
  - dagw 13y ago
    Based on me and my circle of fiends who've settled down, gotten married and had kids that's not happening. We're not trading our 1 BR in town for a house in suburbs, but a 2-3 BR just down the road (or in my case, the same building) as our old apartment.
lkrubner 13y ago
Consider this sentence: "That inability is mushrooming, driven by increasing rents across much of the country and wages that aren’t going anywhere." One has to wonder: where is the money coming from that drives up these rents, if wages are stagnant? The issue is supply and demand. Why has supply decreased? Part of the answer is the housing bust, which followed the housing boom (irrational exuberance was counter balanced by irrational pessimism): http://www.calculatedriskblog.com/2013/09/ny-times-on-shortage-of-buildable-lots.html http://www.calculatedriskblog.com/2013/09/ny-times-on-shorta... As it says there: "The latest land rush is in full swing, as developers realize that they have failed to feed the zoning, permitting and mapping pipeline, which can take months or years to turn raw fields into buildable lots." The other side of the supply and demand issue is the increase of foreign demand. Some of the money comes in the form of foreign money that speculates in the American real estate: http://www.nytimes.com/2011/07/07/nyregion/more-apartments-are-empty-yet-rented-or-owned-census-finds.html?pagewanted=all http://www.nytimes.com/2011/07/07/nyregion/more-apartments-a... As it says there: "But some Manhattan neighborhoods are assuming that vacant feeling the year round, because the people who own or rent apartments there actually live somewhere else most of the time. " A combination of housing bust and foreign speculation in USA real estate leads to a situation where rents go up even when wages are stagnant or falling. ----------- A possible explanation of the international forces at work is offered here: http://krugman.blogs.nytimes.com/2013/09/26/trade-and-secular-stagnation/ http://krugman.blogs.nytimes.com/2013/09/26/trade-and-secula... This was interesting to me: "So the causation could run the other way, with deregulation and rising leverage pulling in foreign capital, keeping the dollar overvalued, and producing persistent deficits."
- yetanotherphd 13y ago
  I don't think any complex macroeconomic explanation is needed for the issue described in the article (and the vacancy rate in NYC is very low). It's simply local income inequality. NYC has a much larger number of rich people, and only a limited supply of housing. This drives up the cost of housing, especially in Manhattan.
  - tomkarlo 13y ago
    That's true of Manhattan but much less so for other boroughs. And rich people still tend to occupy only one unit. Foreign buyers remove units from the pool entirely while contributing less to the local service economy, mad there have been large new luxury buildings where most of the units lack full time residents. That's unhealthy for the city. Most of Manhattan got too pricey for working class families a decade or more ago (unless hey have rent control.) it's a much bigger crisis that large portions of the other boroughs might head that way.
derekp7 13y ago
What would happen if one of these cities passed a law that apartment rents would have to be adjust for income level? So lower income people would get a break, and higher income would have to pay more? Would that be effective, and would it be legal? Or, the city could have a housing subsidy tax that is progressive based on income.
- bandushrew 13y ago
  It would be effective, but maybe not have the effect you are hoping for. People investing in rental homes would invest more into homes targeted at higher incomes, and the quantity of homes available to lower income people would decrease, driving up rentals on them.
- fennecfoxen 13y ago
  So you're saying that landlords subsidize their low-income tenants' rent? That's totally going to be an awesome way to encourage people to build new housing and go into the landlording business! ... except not. The destructive legacy of the War Emergency Tenant Protection Act (NYC's rent control law - the 'war' in question is WWII) is well-known and well-documented (and equally well ignored by people who think that it should work because they want the world to work that way). It's half the reason why the rent is too damn high - because no one builds apartments anymore except crazy luxury apartments. There's no money in it. Heck, landlords have abandoned hundreds of thousands of apartments over the decades because of rent control. The city took them over, and, at one point, realized it owned 70% of Harlem. Clearly more of the same is the only answer. :P ---- Postscript. When people ignore a consensus among climate scientists about global warming, we mock them. When people ignore a consensus among economists about the destructiveness of rent control (cf. the Whaples "where is there consensus?" surveys of economists), we elect them instead. Meh.
  - derekp7 13y ago
    Well the way I was thinking was that the higher-income tenants would subsidise the lower-income ones -- but within a certain range (i.e., no more than 10% higher for the high-income ones, and 10% lower for the low income ones -- adjust as necessary). This could be implemented via something like a sales tax, but would apply to the monthly rent, and would be progressive based on the tenant's income (above a certain income level, tenants would pay more, and below a certain level tenants would receive a subsidy). The apartment owners would still get the same overall income though. This should only have the effect of driving higher earners out of the city, which would then cause the desired effect of lowering property values, and therefore lowering rent overall.
fennecfoxen 13y ago
"New York mayoral candidate Bill de Blasio has made affordable housing a centerpiece of his campaign. If polls are any indication, he will soon have the chance to put his money where his mouth is." ... no... he's really going to put other peoples' money where his mouth is. taxpayers' money. landlords' money. developers' money. Rent Control 2.0, here we come! It worked so well the last time. :P The socialists will probably mod me down for this, obviously.
- hudibras 13y ago
  Just in case anybody is interested in what de Blasio actually is proposing: http://www.billdeblasio.com/issues/affordable-housing http://www.billdeblasio.com/issues/affordable-housing Pretty shocking stuff, I know.
  - fennecfoxen 13y ago
    I assume your shock is for rhetorical purposes only. Anyway. There's plenty of feelgood language with destructive consequences on the backend. But I'll point out a lovely bit: "Bring Basements and Granny Flats into the Legal System There are thousands of unsanctioned housing units across the city in basements and above garages — but the city doesn’t recognize them. That deprives tenants of legal protections, and prevents landlords from making the kinds of upgrades that would ensure the health and safety of families living in them. Bill de Blasio will end the practice of pretending these homes and their families don’t exist. As mayor, he will bring them into the regulated housing system, ensure they meet legal standards for safety, and work to bring them under rent-regulation, so their tenants will have the same basic protections as New Yorkers in traditional apartments." Yes. Protections like "gee, if I rent out my basement to someone, it sounds like there will be a bunch of extra regulatory requirements. I'll need to be careful or my tenants might take me to Housing Court and get a free legal advocate like deBlasio proposes in another section, and get me on some technicality, and then I won't be able to evict them. Maybe I'll reconsider whether to bother at all." And he's right! That's exactly the same sort of awesome protection that existing rent control already provides!
mathattack 13y ago
One problem is the very policies supporting cheap housing (rent control for example) make it much less profitable for people to invest in medium income housing.
- joe_the_user 13y ago
  Some of the policies. Allowing high rise construction in Silicon Valley seems like a policy that could increase investment and affordable housing.
  - mathattack 13y ago
    Yes. Increasing the housing stock, and creating opportunities for people to make money servicing the middle class helps.
patrickg_zill 13y ago
This might explain NYC a bit, given the large number of bankers and banking firms there - 5.2 times more than the average, is their pay: http://www.zerohedge.com/news/2013-10-22/chart-day-average-new-york-banker-makes-52-more-average-mere-mortal http://www.zerohedge.com/news/2013-10-22/chart-day-average-n...
- gaadd33 13y ago
  Is average really a good metric there or are they only including people in investment banking/trading/similar positions? Otherwise its pretty meaningless number given some of the top people make $10M+ and I don't think the back office/cleaning crew/security staff positions pay much of (if any) a premium compared to non financial firm positions.

56 points by gkuan 13y ago

Part of me wonders if this is a temporary problem that got triggered by urban environments becoming extremely trendy in the last decade or so. Either way, we are not only losing a solid worker class, but also some of the skilled labor force because of it (especially here in SF).

aliston 13y ago
I think you're definitely on to something here. If you look at housing starts in the US over the past year, they're way up, but they're also predominantly multi-family. This generation has delayed forming families, but at some point probably will ultimately settle down, get married, have kids... the 1 BR in SOMA isn't going to cut it at that point and there will be a flight back to the suburbs.
- lsc 13y ago
  >This generation has delayed forming families, but at some point probably will ultimately settle down, get married, have kids Statistically speaking, wealthy people tend to have fewer children, and have those children later in life. I believe this was true for the previous generation, too. >the 1 BR in SOMA isn't going to cut it at that point and there will be a flight back to the suburbs. Yeah, but a 2 BR would work just fine, especially if you only have one kid. And 3 BR apartments are not unheard of. (and the cultural changes required to expect kids to share a bedroom are not impossible.) I think that the deciding factor here is perceived safety, followed by quality of schools. As cities are gentrifying, people seem to be thinking of them as safer. And a wealthy population (especially a wealthy population that recently moved in, and here in California, is therefore paying full freight property taxes) makes for a bunch of money to throw at those problems. If cities start being perceived as safer than suburbia? That could push parents out of suburbia and into cities. That's how they got to suburbia in the first place, right? And it's a self-reinforcing cycle; gentrification means more taxes, more resources for law-enforcement, (and conversely, less of those things in the suburbs, if the wealthy folks in the suburbs are moving into the cities.)
- lkrubner 13y ago
  In the USA, the Baby Boom peaked in 1958 and was then followed by 19 years of decline in the birth rate, hitting bottom in 1977. Its the trough of the late 70s and early 80s who are now in their 30s and having kids -- they can not drive a flight back to the suburbs exactly because they are from a trough: there are not many of them, relative to the demographics before them and after them.
- dagw 13y ago
  Based on me and my circle of fiends who've settled down, gotten married and had kids that's not happening. We're not trading our 1 BR in town for a house in suburbs, but a 2-3 BR just down the road (or in my case, the same building) as our old apartment.

lkrubner 13y ago

Consider this sentence: "That inability is mushrooming, driven by increasing rents across much of the country and wages that aren’t going anywhere." One has to wonder: where is the money coming from that drives up these rents, if wages are stagnant? The issue is supply and demand. Why has supply decreased? Part of the answer is the housing bust, which followed the housing boom (irrational exuberance was counter balanced by irrational pessimism): http://www.calculatedriskblog.com/2013/09/ny-times-on-shortage-of-buildable-lots.html http://www.calculatedriskblog.com/2013/09/ny-times-on-shorta... As it says there: "The latest land rush is in full swing, as developers realize that they have failed to feed the zoning, permitting and mapping pipeline, which can take months or years to turn raw fields into buildable lots." The other side of the supply and demand issue is the increase of foreign demand. Some of the money comes in the form of foreign money that speculates in the American real estate: http://www.nytimes.com/2011/07/07/nyregion/more-apartments-are-empty-yet-rented-or-owned-census-finds.html?pagewanted=all http://www.nytimes.com/2011/07/07/nyregion/more-apartments-a... As it says there: "But some Manhattan neighborhoods are assuming that vacant feeling the year round, because the people who own or rent apartments there actually live somewhere else most of the time. " A combination of housing bust and foreign speculation in USA real estate leads to a situation where rents go up even when wages are stagnant or falling. ----------- A possible explanation of the international forces at work is offered here: http://krugman.blogs.nytimes.com/2013/09/26/trade-and-secular-stagnation/ http://krugman.blogs.nytimes.com/2013/09/26/trade-and-secula... This was interesting to me: "So the causation could run the other way, with deregulation and rising leverage pulling in foreign capital, keeping the dollar overvalued, and producing persistent deficits."

yetanotherphd 13y ago
I don't think any complex macroeconomic explanation is needed for the issue described in the article (and the vacancy rate in NYC is very low). It's simply local income inequality. NYC has a much larger number of rich people, and only a limited supply of housing. This drives up the cost of housing, especially in Manhattan.
- tomkarlo 13y ago
  That's true of Manhattan but much less so for other boroughs. And rich people still tend to occupy only one unit. Foreign buyers remove units from the pool entirely while contributing less to the local service economy, mad there have been large new luxury buildings where most of the units lack full time residents. That's unhealthy for the city. Most of Manhattan got too pricey for working class families a decade or more ago (unless hey have rent control.) it's a much bigger crisis that large portions of the other boroughs might head that way.

derekp7 13y ago

What would happen if one of these cities passed a law that apartment rents would have to be adjust for income level? So lower income people would get a break, and higher income would have to pay more? Would that be effective, and would it be legal? Or, the city could have a housing subsidy tax that is progressive based on income.

bandushrew 13y ago
It would be effective, but maybe not have the effect you are hoping for. People investing in rental homes would invest more into homes targeted at higher incomes, and the quantity of homes available to lower income people would decrease, driving up rentals on them.
fennecfoxen 13y ago
So you're saying that landlords subsidize their low-income tenants' rent? That's totally going to be an awesome way to encourage people to build new housing and go into the landlording business! ... except not. The destructive legacy of the War Emergency Tenant Protection Act (NYC's rent control law - the 'war' in question is WWII) is well-known and well-documented (and equally well ignored by people who think that it should work because they want the world to work that way). It's half the reason why the rent is too damn high - because no one builds apartments anymore except crazy luxury apartments. There's no money in it. Heck, landlords have abandoned hundreds of thousands of apartments over the decades because of rent control. The city took them over, and, at one point, realized it owned 70% of Harlem. Clearly more of the same is the only answer. :P ---- Postscript. When people ignore a consensus among climate scientists about global warming, we mock them. When people ignore a consensus among economists about the destructiveness of rent control (cf. the Whaples "where is there consensus?" surveys of economists), we elect them instead. Meh.
- derekp7 13y ago
  Well the way I was thinking was that the higher-income tenants would subsidise the lower-income ones -- but within a certain range (i.e., no more than 10% higher for the high-income ones, and 10% lower for the low income ones -- adjust as necessary). This could be implemented via something like a sales tax, but would apply to the monthly rent, and would be progressive based on the tenant's income (above a certain income level, tenants would pay more, and below a certain level tenants would receive a subsidy). The apartment owners would still get the same overall income though. This should only have the effect of driving higher earners out of the city, which would then cause the desired effect of lowering property values, and therefore lowering rent overall.

fennecfoxen 13y ago

"New York mayoral candidate Bill de Blasio has made affordable housing a centerpiece of his campaign. If polls are any indication, he will soon have the chance to put his money where his mouth is." ... no... he's really going to put other peoples' money where his mouth is. taxpayers' money. landlords' money. developers' money. Rent Control 2.0, here we come! It worked so well the last time. :P The socialists will probably mod me down for this, obviously.

hudibras 13y ago
Just in case anybody is interested in what de Blasio actually is proposing: http://www.billdeblasio.com/issues/affordable-housing http://www.billdeblasio.com/issues/affordable-housing Pretty shocking stuff, I know.
- fennecfoxen 13y ago
  I assume your shock is for rhetorical purposes only. Anyway. There's plenty of feelgood language with destructive consequences on the backend. But I'll point out a lovely bit: "Bring Basements and Granny Flats into the Legal System There are thousands of unsanctioned housing units across the city in basements and above garages — but the city doesn’t recognize them. That deprives tenants of legal protections, and prevents landlords from making the kinds of upgrades that would ensure the health and safety of families living in them. Bill de Blasio will end the practice of pretending these homes and their families don’t exist. As mayor, he will bring them into the regulated housing system, ensure they meet legal standards for safety, and work to bring them under rent-regulation, so their tenants will have the same basic protections as New Yorkers in traditional apartments." Yes. Protections like "gee, if I rent out my basement to someone, it sounds like there will be a bunch of extra regulatory requirements. I'll need to be careful or my tenants might take me to Housing Court and get a free legal advocate like deBlasio proposes in another section, and get me on some technicality, and then I won't be able to evict them. Maybe I'll reconsider whether to bother at all." And he's right! That's exactly the same sort of awesome protection that existing rent control already provides!

mathattack 13y ago

One problem is the very policies supporting cheap housing (rent control for example) make it much less profitable for people to invest in medium income housing.

joe_the_user 13y ago
Some of the policies. Allowing high rise construction in Silicon Valley seems like a policy that could increase investment and affordable housing.
- mathattack 13y ago
  Yes. Increasing the housing stock, and creating opportunities for people to make money servicing the middle class helps.

patrickg_zill 13y ago

This might explain NYC a bit, given the large number of bankers and banking firms there - 5.2 times more than the average, is their pay: http://www.zerohedge.com/news/2013-10-22/chart-day-average-new-york-banker-makes-52-more-average-mere-mortal http://www.zerohedge.com/news/2013-10-22/chart-day-average-n...

gaadd33 13y ago
Is average really a good metric there or are they only including people in investment banking/trading/similar positions? Otherwise its pretty meaningless number given some of the top people make $10M+ and I don't think the back office/cleaning crew/security staff positions pay much of (if any) a premium compared to non financial firm positions.