Real Estate News & Commentary

Solving the Affordable Housing Crisis: Apple, Google, Amazon Can’t Help—THIS Can

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Aerial view of of a residential neighborhood in Hawthorne, in Los Angeles, CA

Facebook has recently pledged $1 billion to fighting the housing affordability crisis in California and other areas in which they operate. Apple has recently committed $2.5 billion. Google, Amazon, and Microsoft have all thrown their name into the ring, as well, providing various levels of assistance and funding to address the problem.

We’ve also got politicians of all types opining on the issue and regular folks caught in the middle of it all.

While bringing these funds in certainly can’t hurt, it isn’t going to solve the problem. The problem is certainly NOT that there isn’t enough money coming into these markets. Evidence of this can be seen in the absurdly low cap rates where affordability is the worst. Take San Francisco, where cap rates are between 3 and 4 percent in strong parts of town.

For those newer to real estate concepts, let me help you out. The technical term in real estate for a 3 percent cap rate is “Bat-$*#@ Crazy Expensive!”

A 3 percent cap rate means investors are willing to pay $33 in price for every $1 in NOI. Let that sink in for a moment.

This tells us that investors are more than willing to pump as much capital as possible into these markets. Foreign investors especially love San Fran, L.A., Seattle, and New York. So, the problem is certainly not a lack of funding that commitments from these companies will address.

This Is What’s Actually Going On With Affordable Housing (or Lack Thereof)

What is the problem then?

The problem, like many others that may seem complex, really comes down to simple economics: our old friends supply and demand.

male showing empty pockets implying moneyless

Case Study: California

With the growth of Silicon Valley and all the ancillary economic expansion that has come with it, the demand for housing has risen alongside it.

In a normal, well-functioning market, this increased demand would lead to a rise in housing prices, expressed through both higher home values and higher rents. Do a quick Google search on home prices and rents in Palo Alto, for instance. Then, pick your jaw up off the floor and come back to this article.

Twelve-hundred-square-foot housing approaching $2 million? Yep. Rents of $6,000 per MONTH for a 670-square-foot, one-bed apartment? You betcha.

Related: 4 Ways Investors Can Help Alleviate the Affordable Housing Crisis (& Make Money)

These higher prices should serve as a signal to real estate developers that there are strong profits to be had by entering the market and building more units. Farmers and other landowners would be enticed to sell or partner with developers to realize these profits. The additional units would then serve to increase the supply of housing and pricing pressures would ease as the number of available units increase and renters can shop around.

The problem is that real estate is not a well-functioning market. And California’s real estate market is as bad as it gets.

Through a combination of political cronyism, nosiness, busy bodying, nimby-ism, and well-intentioned but ill-informed politicians taking action, California has created a highly restrictive system where increasing the supply of housing units is extremely difficult, expensive, and time-consuming. This slows down the rate at which housing can be added and makes the only economically viable developments projects that target the highest end of renters and buyers.

Laws and regulations in the name of preserving “open space,” “smart growth,” “urban growth boundaries,” and the like have the effect of drastically reducing the supply of land for building.

According to the L.A. Times:

“The California Code of Regulations—the compilation of the state’s administrative rules—contains more than 21 million words. If reading it was a 40-hour-a-week job, it would take more than six months to get through it, and understanding all that legalese is another matter entirely…

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“But California’s state building code is also especially restrictive and deserves scrutiny from policymakers concerned about housing affordability. By itself, this section of the California Code of Regulations contains 75,700 restrictive terms (e.g., “shall,” “must” and “required”)—more than some states’ entire codes. The residential housing subsection alone has nearly 24,000 restrictions.”

And that is just the state code. You’ve also got local municipalities layering on the requirements.

State and local governments have made it impossible for otherwise willing landowners to sell to developers. Those developers that can secure sites are faced with a multi-year process full of hearings, paperwork, fees, fines, and aggressive NIMBY neighbors standing in their way.

When you make it that difficult to create new housing, it shouldn’t be hard to understand why prices are unaffordable. (Refer to the sources section at the end of the article for further support for this thesis.)

woman in living room sitting on carpeted floor in front of dark gray couch looking worried, distraught, afraid

The Outlook Across America

It’s not just California, either. All of the places with the most severe affordability problems in the country are highly correlated with the most restrictive housing policies.

Basic economics teaches us that to reduce the price on something, you need to either increase the supply of it or reduce the demand for it. I don’t think anyone wants to destroy all of the jobs in California, thereby reducing demand for housing. Probably also not the best idea to put half of the population on busses and disperse them around the country.

So, we’ve got to focus on supply.

The solution to the problem will come from answering the question: How can we most quickly and efficiently increase the supply of housing to meet the demand and bring down prices?

The Impact of Increasing the Supply of Housing

Let’s do a quick thought experiment to drive home the point. Suppose for a moment that I could waive a magic wand and instantly create 50 million move-in ready new homes and apartments that were easily accessible to the main population centers in California. Before you think it, my magical powers also allow me to create the roads, electrical grid, and other necessary infrastructure, too.

What would happen to housing prices in that scenario? They’d plummet.

Related: Why I’m Investing in Affordable Housing for the Long Haul

How can we replicate this concept in the real world? By removing as many barriers as possible to developers and landowners who want to use their time, resources, skills, and funds to supply the market with more housing.

It would look something like this:

  1. Restore property rights by drastically reducing the amount of restrictions on buildings, allowing property owners rather than politicians and NIMBY busybodies to decide what to do with the land desperately needed for housing. Allow farmland and land surrounding dense population centers to be developed in a manner decided by market forces. This requires massive reductions in zoning restrictions, lifting limits on lot sizes and densities, setbacks, parking, building materials, and the like.
  2. Streamline the approval process for new development. Remove any sort of requirements that don’t directly impact safety. Stop giving people and organizations who should have absolutely no say in what happens to someone else’s property a strong voice in deciding what can and can’t be developed. Reduce the number of agencies, paperwork, red tape, and bureaucrats involved in the process. The process should be measured in weeks, not years.
  3. Remove all rent control laws, which serve to reduce the existing supply of rentals and disincentivize owners to improve the rental stock.
  4. Relax immigration policies and remove tariffs and trade barriers, so that labor and materials for construction projects can come down.

In short, the way to solve the affordable housing crisis is extremely simple but nearly impossible politics-wise. Get out of the way of the entrepreneurs and real estate developers, so they can do what they do best: create high-quality and attractive living spaces for the people who need it.

Sources

  1. https://www.latimes.com/opinion/op-ed/la-oe-broughel-hamilton-overregulation-housing-california-20190703-story.html
  2. https://www.nber.org/papers/w20536.pdf
  3. https://www.aier.org/article/zoning-the-nemesis-of-housing-affordability/
  4. https://www.dailynews.com/2019/04/03/land-use-regulations-are-obstacles-to-the-california-dream/
  5. http://www.independent.org/pdf/policy_reports/2006-04-03-housing.pdf
  6. https://www.bizjournals.com/sanfrancisco/news/2017/02/16/housing-crisis-restrictive-building-laws.html
  7. https://www.desertsun.com/story/opinion/columnists/2015/10/03/sowell-california-affordable-housing-crisis/73169028/

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Do you agree or disagree with my take on the housing affordability crisis?

Let’s discuss in the comment section below. 

Phil McAlister is a Chicago-area native and real estate investor. Working for a large national sponsor, Phil has been in charge of the underwriting, financial modeling, and valuation of over $3 billion in commercial real estate, including multifamily, medical office, self-storage, hospitality, and senior housing assets. Phil leads a team in evaluating commercial real estate deals nationwide and across multiple strategies including core, core-plus and value-add, with an occasional ground-up development sprinkled in. Phil is also involved in evaluating and negotiating multi-million dollar joint ventures with various strategic partners. In addition, Phil has been tasked with evaluating projects in Qualified Opportunity Zones, a new and exciting frontier in commercial real estate.

    Jeffrey Hare Professional from San Jose, California
    Replied 23 days ago
    Phil, if it were only so easy. Get rid of rules and regulations, solve the immigration conundrum, get rid of rent control, tariffs, and eliminate all of the agencies and neighbors who currently have some stake in the housing situation, and everything would be solved. You are not entirely wrong -- you've hit some of my favorite nails squarely on the head, but your approach is best summed up as "Nice try - ain't gonna happen." Which is sad, because we HAVE to work towards a solution. As a real estate attorney, broker, and mediator, and very involved with local nonprofits seeking solutions to the affordable housing crisis, I am only too aware of the issues, not the least of which is the fact that the typical young Silicon Valley professional -- lawyer, accountant, programmer - with six-figure incomes, qualify for non-existent low income housing based on HUD standards. If these individuals can't afford to buy, there's a whole lot of others who haven't got a chance. But consider your call to get rid of agencies and regulations, such as the fire and building codes which, if they had been in place, would have prevented the LOSS of almost 20,000 homes over the past couple of years. That's 20,000 housing units that went up in flames in two, 24-hour periods a year apart due to lack of enforcement of basic safety rules. Hurricane Harvey showed us what happens when a natural disaster hits an area with no zoning regulations. And those young families who just committed over $2 Million for a 3-Bdrm 2-Bath fixer upper - they aren't about to agree to a high-density, multifamily development at the end of their block, and it's simply naive to expect them to do so - willingly. But I agree that supply and demand still rules the day, and we're going to have to modify expectations on the demand side, as well as find ways to incentivize, not discourage, the supply side. Oh, you forgot to mention one additional factor that has to be solved: climate change.
    Katie Rogers from Santa Barbara, California
    Replied 18 days ago
    Don't get rid of rules and regulations. Most of them are there for very good reasons. However, the rules and regulations should be uniformly applied. Rich developers should not be given all kinds of exceptions, while regular people have to cross every T and dot every I. If the rule isn't really necessary, or has become obsolete,THEN get rid of it. There is a recently approved major project for my community. The developer is extremely wealthy and the design board is reducing the amount of required parking to about a quarter of what the regulations call for. The developer says, never mind, everyone will just use Uber. Not good enough. I think they should leave some of the project unbuilt to see what kind of traffic the project attracts. If the traffic is reasonable, they can always build out. If the traffic proves unreasonable, they can use the reserved space for more parking. What I do not want to see is farmers selling land to developers. We should be very wary of reducing farmland as population increases. Jeffrey, basically I agree with everything you wrote. As for the family who won't allow development at the end of their block, it depends on the reason. In my community, a developer built a large condo complex. ON the first floor, the developer put in a couple of little commercial offices. Because of those two little office, the were able to dub the whole project "commercial" and then build right up to the property line. They built a ten foot wall just a couple feet from the back windows of a neighboring Accessory Dwelling Unit. Those tenants now have no view whatsoever plus the additional headache of weeds growing between the unit and the wall that cannot be reached for removal. The neighboring homeowner should have gone to the design review board meeting and insisted that the required setbacks be respected.
    Phil McAlister Specialist from Chicago, IL
    Replied 22 days ago
    A lot to address here, I'll pick out a couple of your points. First, totally agree that it won't happen and I say it's "nearly impossible" in the article. Doesn't change the fact that it is what is needed. Second, I say in the article remove requirements THAT DON'T DIRECTLY IMPACT SAFETY. But it's your comment about the young families not agreeing to a development at the end of their block that really bothers me. I agree that they won't allow it. But we need to change the mindset about this. Why are they allowed to have a say in controlling someone else's property? It is extremely morally troubling to me that person who sacrificed, saved, and planned for property they own could be forced to do or not do something with THEIR OWN PROPERTY by other people who have no ownership interest whatsoever. This destruction of basic prospects is nothing short of a moral outrage, and no one wants to talk about it. Doesn't it just seem wrong to you that people can gang up and use the force of government to control someone else's stuff?
    Dave Rav from Summerville, SC
    Replied 21 days ago
    @Phil McAlister no doubt if you were a large developer they would allow it! Somehow the permit folks always seem to let these developers build whatever they want. Case in point, 3 large apartment buildings (300-400 units ea) within 1/4 to 1/2 mile of each other near my house. If that were a small investor, they would have shot down that application at the outset. We all know what is going on there - money talks.
    Jon Lundgren
    Replied 14 days ago
    Exactly. There are no words to describe how much I hate politicians.
    Ruth Lyons Realtor from Highland, MD
    Replied 23 days ago
    100% agree with your points. Thanks for sharing!
    Dave Rav from Summerville, SC
    Replied 21 days ago
    The housing affordability crisis is most obvious in California. I feel like other regions' affordability problem is less complex, and less monstrous. California's issues are multifactorial, also someone else pointed out. You have everything from political problems to the wildfires. However, in some areas of California (San Francisco) the government (or someone with considerable power) should have intervened much earlier. You know there is a problem way before the average home sale price hit $1M. Perhaps something is done when its maybe $700k? The number one reason being folks' income can't keep up with housing costs. Talking the middle class, and even the upper middle class. Consider even if you make $150k a year, you would still have significant trouble making mortgage payments on a $1M home. Just doesn't make sense. Government economists should have see this coming and done something.
    Phil McAlister Specialist from Chicago, IL
    Replied 19 days ago
    Nothing makes me shudder quite like hearing someone say "the government should do something."
    Tim Parker Investor from Bremerton, Washington
    Replied 20 days ago
    I live in Kitsap County across Puget Sound from Seattle. We acquired 2 lots for dirt cheap because the previous owner assumed they were unbuildable. Getting permission from the county to build took 18 months (I swear they were Columbo "Just one more little thing before we let you build, ...."). Because of current septic requirement, we can only build one house. By the time we start to build, we be in about 100k. That means we HAVE to have a final value between $400k to $500k to get our money out (that's the way we like to do things). Our area is 50% military and government employees. THAT PRICE IS NOT AFFORDABLE! We would love to build affordable, but we can't. Development cost (largely controlled by all the bleeding heart politicians) are so high that affordable can't be built. A nice 2-bedroom apartment costs $1600 per month. I make money but it drives me nuts! How are average people supposed to afford this? Sorry for the rant, but how is this supposed to work?????
    Phil McAlister Specialist from Chicago, IL
    Replied 19 days ago
    Frustrating and so sad. I hear so many stories like yours.
    Vaughn K. from Seattle, WA
    Replied 20 days ago
    If you ever want to see something that will blow your mind, look up the Wikipedia page on some of the major cities in the USA in the midwest and further west, and look at the population estimates over the decades section... Some of those cities, like St. Louis, Chicago, SF, etc added MORE people FASTER than any of the cities in the USA are now in a decade back in the 1800s... Yet they never had these issues, because the concept of zoning didn't exist. They just built what was needed, and it was fine. If there was no zoning nonsense, and the other red tape, the same could be happening now. I mostly agree with your other points. I don't think tariffs/cheap immigrant labor matter much at all though... You can still build a house for reasonable money in 98% of the country geographically speaking as is, it's the LAND VALUE and red tape costs that make it a problem in the messed up areas. Materials cost is a rounding error in SF or NYC. Cheap labor is nice on paper, until one factors in all the other issues that come with a massive underclass of poor immigrants, and the effects that has on native born working people. But I'm not going into that issue here! Finally, in a way you're also wrong about not wanting to decrease demand... In fact that is perhaps the EASIEST way to help the issue that might be doable. The fact is it was stupid, irresponsible, counter productive, and ultimately bad for many major corporations bottom line to concentrate so many high paying jobs in such a small geographic area in such a short period of time. Back in the day (as recently as a couple decades ago) Fortune 500 companies distributed their workforce across different cities far more, for logical reasons like cost of doing business in different locations, and indeed many were even in outright suburbs of major metro areas. Then came this trend where they all decided they needed to cram 100% of their workforce into a dozen coastal cities. This is what has screwed everything up for everybody, including the white collar professional who now can't even afford a condo, despite making 5 times the average per capita income in the USA. All they had to do was maintain the status quo that was in place up through the 90s and even early 2000s with respect to workforce distribution, and all major American cities would have been seeing an almost unprecedented amount of prosperity... Instead they've completely ruined the lives of half of an entire generation of white collar workers who have the standard of living of a high school dropout in the midwest, despite making 6 figures. Tech companies have been especially horrible about this. I have been harping on the stupidity of this for YEARS... I got a lot of push back from people making the incorrect argument that 100% of tech employees want to live in SF, Seattle, and Boston... That every finance grad wants to live in NYC etc. It was always nonsense, and the problem has become so great even the idiot CEOs are starting to take action. In tech they're starting to open more offices in other major metros where they have not traditionally been. Pittsburgh, Chicago, Atlanta, etc are all getting offices from big tech firms. Banking is even shifting some duties out of NYC. I think it was JP Morgan Chase that is planning on moving potentially TENS OF THOUSANDS of jobs to Plano Texas. 6 figure jobs are awesome! If they're not all concentrated in 10 cities. If they are, they can actually cause more harm than good. Especially in tech, they created such a cost of living problem all the money has resulted in a net DROP in quality of life and standard of living for EVERYONE in SF, Seattle and other tech cities. Everybody who doesn't make big bucks has suffered, and even those that do make awesome money have a garbage quality of life. Even worse, they hurt their own bottom line by driving their labor costs through the roof because of cost of living issues they themselves created! So they're not even being good capitalists. By them opening more offices in other cities that could use more high earners, it will turn into an unmitigated good. It sucks that they were so stupid they destroyed several great American cities before they figured this out... Anyone with a brain should have seen it coming a decade + ago... But it does seem that they've finally figured this out and the issue may slowly get sorted... I guess it's better late than never.
    Vaughn K. from Seattle, WA
    Replied 20 days ago
    ARGH! Why doesn't BP put paragraph breaks anymore for me without adding the HTML automatically??? Here is the above post with breaks.

    If you ever want to see something that will blow your mind, look up the Wikipedia page on some of the major cities in the USA in the midwest and further west, and look at the population estimates over the decades section... Some of those cities, like St. Louis, Chicago, SF, etc added MORE people FASTER than any of the cities in the USA are now in a decade back in the 1800s... Yet they never had these issues, because the concept of zoning didn't exist. They just built what was needed, and it was fine. If there was no zoning nonsense, and the other red tape, the same could be happening now.

    I mostly agree with your other points. I don't think tariffs/cheap immigrant labor matter much at all though... You can still build a house for reasonable money in 98% of the country geographically speaking as is, it's the LAND VALUE and red tape costs that make it a problem in the messed up areas. Materials cost is a rounding error in SF or NYC. Cheap labor is nice on paper, until one factors in all the other issues that come with a massive underclass of poor immigrants, and the effects that has on native born working people. But I'm not going into that issue here!

    Finally, in a way you're also wrong about not wanting to decrease demand... In fact that is perhaps the EASIEST way to help the issue that might be doable. The fact is it was stupid, irresponsible, counter productive, and ultimately bad for many major corporations bottom line to concentrate so many high paying jobs in such a small geographic area in such a short period of time.

    Back in the day (as recently as a couple decades ago) Fortune 500 companies distributed their workforce across different cities far more, for logical reasons like cost of doing business in different locations, and indeed many were even in outright suburbs of major metro areas. Then came this trend where they all decided they needed to cram 100% of their workforce into a dozen coastal cities. This is what has screwed everything up for everybody, including the white collar professional who now can't even afford a condo, despite making 5 times the average per capita income in the USA. All they had to do was maintain the status quo that was in place up through the 90s and even early 2000s with respect to workforce distribution, and all major American cities would have been seeing an almost unprecedented amount of prosperity... Instead they've completely ruined the lives of half of an entire generation of white collar workers who have the standard of living of a high school dropout in the midwest, despite making 6 figures.

    Tech companies have been especially horrible about this. I have been harping on the stupidity of this for YEARS... I got a lot of push back from people making the incorrect argument that 100% of tech employees want to live in SF, Seattle, and Boston... That every finance grad wants to live in NYC etc. It was always nonsense, and the problem has become so great even the idiot CEOs are starting to take action. In tech they're starting to open more offices in other major metros where they have not traditionally been. Pittsburgh, Chicago, Atlanta, etc are all getting offices from big tech firms. Banking is even shifting some duties out of NYC. I think it was JP Morgan Chase that is planning on moving potentially TENS OF THOUSANDS of jobs to Plano Texas.

    6 figure jobs are awesome! If they're not all concentrated in 10 cities. If they are, they can actually cause more harm than good. Especially in tech, they created such a cost of living problem all the money has resulted in a net DROP in quality of life and standard of living for EVERYONE in SF, Seattle and other tech cities. Everybody who doesn't make big bucks has suffered, and even those that do make awesome money have a garbage quality of life. Even worse, they hurt their own bottom line by driving their labor costs through the roof because of cost of living issues they themselves created! So they're not even being good capitalists.

    By them opening more offices in other cities that could use more high earners, it will turn into an unmitigated good. It sucks that they were so stupid they destroyed several great American cities before they figured this out... Anyone with a brain should have seen it coming a decade + ago... But it does seem that they've finally figured this out and the issue may slowly get sorted... I guess it's better late than never.
    Brian Hughes from Seattle, WA
    Replied 20 days ago
    Hey - lots of WA contingent here. I'm also from Seattle, and have a couple "affordable" small MF properties. I agree with the problem statement, but a wholesale discard of zoning laws and a return to wild west expansionism isn't a good idea. Current politics aside, a major reason for the advent of zoning laws was so you don't end up with a pig farm next to that new housing development, or so nobody decides to put an arsenic mill next door to a school, and so on. That said, yes as population grows zoning needs to reflect those changes and that has failed in many areas. I think the key to reducing nimbyism is gradual, predictable evolution, instead of massive re/upzones. It is absolutely true and expected that anyone who has just sunk their life savings into buying their first (or next) home is going to react negatively (the dreaded NIMBY) to outside parties wanting to come in and mow the neighborhood down for dense/transit oriented/etc urban villages (as some of the activists around here want to do with all SF neighborhoods) But if buyers and homeowners could look at the long range plan and see that in the next 10 years, no more than X% of lots, starting with ones most suited for it or whose owners applied for it, would be upzoned to Y zoning, where Y was something moderately denser than SFR, the neighborhood would more gradually evolve and it would be more likely to be acceptable to people. Couple that with build-as-a-right and yes, simplify building codes and reduce permitting costs and that will help. Also (of course) agree rent control and other onerous rental restrictions will only restrict supply. Many SFR homes could easily have a ADU added, but the worst those laws get the less infill development of that sort happens. Just across my 2 small properties (a triplex and 4-plex) I could add another unit in the 4-plex very easily, if it were not for zoning. It has an unused, above grade storage area that could easily be converted to a studio. And the Triplex has a large enough lot I could easily build 2 or 3 units behind the existing building, while preserving enough parking for each unit and actually ADDING to green space. But in the latter case, the expense of permitting and Seattle's left wing leadership are major deteriments to my enthusiasm to do that.
    Vaughn K. from Seattle, WA
    Replied 19 days ago
    I think as with a lot of things, the most basic version of the premise isn't too crazy... No mega factory next to a school. Not too crazy... The problem is that it got taken waaay too far by idiots.

    That said, I think a lot of people overplay the "horror" of no zoning. TONS of small and midsized cities have no zoning laws. Houston is the largest city in the USA with no zoning laws, and it doesn't look much different than anywhere else.



    If I had a magic wand this is what I would propose: Heavy industry should have its own special zoning areas... But all commercial, retail, and residential should be able to be built wherever, and in whatever size/style one wants. Sounds like madness right??? Consider this...

    IMO NIMBY zoning laws are EXACTLY why we see things like what has ruined a lot of great Seattle neighborhoods, like Ballard in particular. See, everybody fights to avoid ANY increase in density... But people need to be able to live somewhere... So eventually the city breaks, and upzones a FEW limited areas.

    What does that do? Well, because of the immense demand, it means 100% of those newly upzoned areas have to get leveled and redeveloped, doesn't it? Because those people gotta go somewhere. This is exactly why some areas have been so radically changed! However if there weren't top down decrees on this stuff, the market likely would not have concentrated the development so heavily.

    IMO if the city had done something like this: Every single family lot is now zoned for up to a quadplex/townhouses. Every street over 3 lanes can now have up to a 3 story apartment building. Every street over 5 lanes can have up to a 6 story building. Maybe figure out something sensible for proper skyscrapers too, with no height limits, in the few areas that do that sort of thing...

    What would THAT have done??? I think we would have seen far more dispersed development. In other words, instead of blocks in Ballard where 100% (or nearly) of the plots have been rebuilt, you would have ended up with a lot more blocks, randomly dispersed throughout the entire city, where perhaps a single project would have been done. A few townhouses here, a small apartment complex there. You already see that stuff in the city from before the zoning laws got stricter in the 70s (IIRC), and it doesn't hurt anything at all. You barely notice the ONE quad on the block, or the apartment on the corner 2 lots.

    In other words I think this type of approach would have accomplished NIMBY goals BETTER than the way we do it now. A single quadplex doesn't really change the character of a block... But 80% of the block turning into townhouses sure as heck does. Many towns that don't have zoning laws don't become the dystopian nightmare people imagine... They end up towns with a random duplex thrown in here and there, etc.

    I think the "chaos" of no zoning, or very reasonable zoning like I propose above, tend to produce better results, even from a NIMBY perspective, than top down government bureaucrats trying to figure things out. The invisible hand of the market pretty much always beats top down planning IMO.
    Phil McAlister Specialist from Chicago, IL
    Replied 19 days ago
    In my opinion, there's a bit of a false narrative going on with zoning. Market forces would by and large prevent as you say, a pig farm from ending up next to housing. Developing homes next to a pig farm would be uneconomical to developers as the value they are modeling wouldn't support the project. If it did, all the better! Free individuals would get to choose for themselves whether or not the trade-off between a cheap home and smelling pigs all day is worth it. Take Houston, for example. https://urbanland.uli.org/industry-sectors/city-almost-no-limits/
    Danni Catambay
    Replied 20 days ago
    I think your conclusion is on point: heavy administrative and bureaucratic restrictions limit the expansion of new housing. But I think your policy recommendations are misplaced. *** What you advocate is what was known thirty years ago as "laissez-faire" economics. About fifteen years ago we called it "libertarianism." Essentially you are saying that "free" markets know better what society needs more than democratically elected governing bodies do. But this is a major fallacy. *** What markets know is how to maximize monetary returns. But a healthy, functioning society needs to weigh in more than just money. That's why regulations get complicated: because money is simple and life isn't. For example: zoning laws exist to maintain quality of life and separate business and residential activities so that both can be enjoyed with a minimum of negative externalities. If you removed the zoning restrictions, one would encroach on the other, potentially destroying decades of past investment as it is no longer suited to the environment it exists in (i.e. wrecking my home value because it's no longer in a residential zone). *** It is certainly true that *SIMPLE* regulations enable faster movement in the market and in general. But SIMPLE does not have to mean LESS RESTRICTIVE. We can have fewer regulations without allowing free reign and still taking into consideration the many extra-market nuances that play into over all quality of life.
    Vaughn K. from Seattle, WA
    Replied 19 days ago
    I think your mistake lies in thinking perfection can exist... This is the fundamental flaw in all thinking that involves big government being the savior.

    The reality is THERE IS NO PERFECT. The real world is not perfect, nor will it ever be.

    The question is, who does a better job, government bureaucrats who usually have no expertise in the problems at hand, or the collective wisdom of millions of market actors all doing what seems to make sense to them, and only when there is a willing buyer/willing seller situation? AKA both parties see the choice as beneficial.

    History shows that it generally isn't the government employees who do things the best way. All the cost problems that have been created by excessive zoning and other red tape are a PERFECT illustration of how the "solution" is worse than the "problem."

    Do you think MOST people would be better off if a house in SF was still $400,000, but maybe they had a quadplex on the corner now... Or that house being $1.2 million or whatever, with no quadplex? I think most people in SF would gladly have taken the $400K house option over $1.2 million... Other than those that bought their place for $50K in the 70s and are planning on selling and retiring to Arizona! But screwing future generations to artificially inflate real estate values for those that already bought in in the past is a VERY stupid and short sighted way to do things!

    Everyone gets excited about high housing prices... But the reality is high housing prices are the OPPOSITE of what is best for society at large. If everybody could spend $200 a month to cover their housing, but they were making just as much money at their job, that would leave them tons of money to spend on OTHER things of value. So anything that jacks housing values above their real replacement cost is essentially a net negative for society.

    Obviously $200 a month is probably undoable... But my point is that if the cost of housing dropped considerably, it would be a boon for society, just as $5,000 computers that couldn't do much more than word processing is vastly inferior to $300 computers that can do tons of awesome stuff. Anything we can do to lower housing costs actually makes us that much wealthier as a society.
    Phil McAlister Specialist from Chicago, IL
    Replied 19 days ago
    Couldn't disagree more. We haven't had anything remotely resembling laissez-faire for well over 100 years. The evidence is overwhelming that free markets, and free association more generally, do in fact know better than government what society needs. This should be painfully evident. You should spend a little more time looking into the genesis of zoning laws. They exist because government and big business got together to force certain people and businesses out of certain areas, often for nefarious reasons.
    Vaughn K. from Seattle, WA
    Replied 19 days ago
    From your last couple posts you seem to be a man after my own heart!

    If only we DID still have a proper-ish free market... Could you imagine how much better a lot of things would be? Top down control NEVER works well. Half the time it is an outright failure... And the other half of the time you get half the quality at twice the price the free market could have done.
    Brad Shepherd Syndicator from Austin, TX
    Replied 20 days ago
    A few weeks ago the Freakonomics podcast did an episode about the long term harm of rent control measures. It was fascinating. It came down to there being a few winners in the short term, those currently in the impacted apartments, and then everyone else loses, near and long term. The bottom line of why that happens is simply supply. Supply dries up, prices increase, no one moves, and the market freezes up. People arguing for rent control are the "bleeding heart" politicians simply looking for short term wins, securing the vote of 'the little guy.'
    Phil McAlister Specialist from Chicago, IL
    Replied 19 days ago
    That was a great episode and a great example of how good intentions can create bad outcomes when you don't understand economics.
    Matthew Chalfant from Killeen TX
    Replied 19 days ago
    Well written article. You have a great voice and it is both informative as well as approachable. You also avoid the problem of sounding like all you did was sit in some university classroom and pontificate on "what ought to be." This would be a fantastic piece to submit to a larger news outlet because as an investor you have more background in what it actually takes to affect these issues. I think you are right it would take a magic wand to do it overnight, however, the investment in the community would take a lot of money and create a significant amount of jobs for people to build all of the roads, power grids, and other secondary structures in support of this larger undertaking. This would go a long way to ensure that large tech companies aren't the only employers in town and thus build a stable economy. Keep the great content coming!
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied 17 days ago
    Giant tech companies seem to create housing crises, not solve them at all.
    Jon Lundgren
    Replied 14 days ago
    Time to start taxing the hell out of the ultra-weatlhy. That's a start. 60 of the Fortune 500 companies paid ZERO taxes on 79 BILLION dollars. Billion. That's absolutely ridiculous.