Sep 7, 2019
Jenny Schuetz of the Brookings Institute and Cecile Murray from the University of Chicago have a new working paper entitled “Is California’s Apartment Market Broken?”—and the short answer is, YES. This paper untangles some thorny quandaries. Questions often arise over the relationships between new multifamily development, zoning, and high home prices: do new apartments trigger higher rents and worsen displacement? Does lower-density zoning stabilize land prices or cause them to spike?
Schuetz & Murray evaluated hundreds of California municipalities with data from the Terner Center Land Use Survey (TCLUS), and found results that, frankly, did not shock any of us at California YIMBY. Most cities in California zone less than 25 percent of their total land area for multifamily residential uses, and two-thirds of cities have zoned more than 50 percent of their land for single-family homes. The state is planning to have more jobs than housing units, and far more mcmansions than apartments. The cities that zoned for more multifamily housing saw consistently lower rents, while the ten most expensive cities permitted almost no multifamily housing since 2013.
In standard economic models, rising prices point to higher demand, which signals a need for new supply. Such a model would predict that more supply is coming to higher-demand areas, but instead, Schuetz & Murray found no correlation between rising prices and more multifamily development—and where that relationship was most lacking, prices rose more sharply. Worse, the researchers found, “the correlation between rents and construction appears to be negative.” But high land values are mostly hoarded by incumbent landowners, while new housing is mostly built in cities with more permissive zoning. That’s not how it’s supposed to work.
As the researchers note, “high rent cities did not expand their supply of apartments more rapidly, as predicted by urban economic theory, and in fact issued slightly fewer multifamily permits than cheaper cities, controlling for housing market conditions.” This is wrong. More people ought to be able to live in places were more people want to live. One potential cause for this market failure? “Developers may be deterred from even applying to build apartments in communities where they anticipate being denied.”
Preventing homebuilders from providing much-needed multifamily housing in places where more people seek it out has broken California’s housing market. The status quo isn’t working.
But Schuetz & Murray predict that simply zoning for greater density where rents are highest won’t fix the problem: zoning is just one political tool to restrict multifamily development, and those who hoard valuable land will always find another way. So additionally, the researchers suggest attaching “financial incentives” to encourage municipalities to allow more homebuilding, not unlike Governor Newsom’s proposal to tie homebuilding quotas to transportation funding.
Regardless of the right carrot-and-stick approach, it’s clear that this market failure didn’t happen overnight. It took many decades of systemic injustice to get us to a place where more valuable land didn’t allow for more dense populations. Indeed, there’s strong evidence showing longstanding financial incentives supporting restrictive zoning for more privileged residents, closely linked to our sordid national history of racism and segregation.
We turn to UC Merced political scientist Jessica Trounstine, whose 2018 book Segregation by Design made waves among urban scholars, but has perhaps not received enough attention in the world of land use policy. Trounstine’s innovative research methods found a strong link between restrictive zoning and deep inequities in public services, including public schools, parks, roads, and water infrastructure, in an evaluation of hundreds of municipalities across the country.
Using a novel measure of the spending-equity ratio between a city and the overall metropolitan region, Trounstine found that cities with a more segregated population provided fewer public resources for residents than less segregated cities. These results were consistent across both race and class lines, as cities with more homeowners also spent more equitably on public services for each resident. These inequities map on neatly to the stringency of land use regulations (which includes not just zoning but the overall regulatory process), cities with the strictest regulatory environments also showed increased race and class segregation.
Trounstine’s thesis is one that YIMBY activists have long suspected, but her research strongly supports it: zoning and other strict land-use controls are tools of segregation used, in part, to maintain an unequal distribution of public resources that favors whiter and wealthier populations. Trounstine has been pursuing this evidence for a few years now, with some research from the book initially appearing in an earlier paper, “Segregation and Inequality in Public Goods” (2016).
In Segregation by Design, she notes, shockingly: “Increasing the segregation index from the twenty-fifth to seventy-fifth percentile…lowers the per capita direct general expenditure from $1,413 to $1,299.” That may sound small on its own, but given that the average per capita spending on parks is just $51, the resulting disparities may be dramatic.
In light of this evidence, we are more committed than ever to the fight for fair housing, and ending the housing shortage. California YIMBY works not just toward a California for everyone, but also a more just and prosperous California. We know we can build cities with abundant housing, good schools, beautiful parks, and safe roads for everyone—on both sides of the tracks.