I think understanding this debate requires a little more history. Here's a stylized history:
In the 50s-70s there was a lot of white flight and disinvestment from cities, leaving numerous close in urban neighborhoods with poor, often heavily Black populations (Columbia Heights, South End/Roxbury in Boston, the Mission in SF, etc). Then in the 90s and 2000s, for various reasons, urban living became more desirable among young educated professionals. These people, like Matt, typically didn't have the money to live in the existing rich neighborhoods like this so they ended up in poorer ones. But these people also had way more money than the existing residents of these neighborhoods. So they drew new development aimed at them as customers, and because they had greater influence they secured improvements to the neighborhood. Also, displacing poor people also displaces the challenges of poverty. This leads to a virtuous cycle where the neighborhood keeps getting more desirable and thus more expensive.
Typically this involves the construction of a bunch of new homes, but not nearly as many as the number of people who now are interested in moving there. Even if that happened it's implausible it would fix the problem both because the new homes are more expensive and because the demand precedes the new supply.
The basic moral of the story is that the low prices in the original neighborhoods was a demand phenomenon, and when the demand returned the prices rose.
It's worth asking what could have prevented this. I think the only answers are legally prohibitions on moving, or preventing the increased desire for urban living (maybe by having crime not decline?). Which is to say that it can't be prevented.
This is uncomfortable for many, because it implies that some form of displacement is inevitable, but that's because it's the pre-1990 situation that was an anomaly. Lots of people have the desire to ensure that the burden of change doesn't fall primarily on the disadvantaged. But fundamentally this is impossible -- that's what it means to be disadvantaged. The only solution is to reduce disadvantage directly (like with the CTC, although I am generally more radical than Matt in this direction).
If you’re interested in extremely frustrating left-NIMBY arguments, check out the housing discourse in Ireland. A coalition of incumbent home owners, ‘historical preservation’ weirdos and left wing people who don’t understand economics prevent basically any new housing construction. Throw in an absurd planning application process and an extreme parochialism and you get one of the most dysfunctional housing markets in the world!
By the way, as a long time Philly resident and real estate development dabbler locally, huge thanks to San Fran and New York, Boston, DC for pricing everyone out.
You’ve made Philly a much more desirable destination for recent grads and professionals who want an urban lifestyle that is reasonably affordable.
I find this post very curious. I came out *less* convinced than coming in. MY basically concedes that in fact in some cases poor people will be priced out , but assures us it’s “fine” because of the overall growth effects in incomes opportunities etc. but as in the immigration debates, the key question is “fine for whom?”. The poor seniors now priced out of the rental home will not benefit from rising median wages, new employment opportunities or nice new restaurants and gyms, for example… it’s a glaring omission that MY gives no thought to those people and how to address the pain they will suffer. I agree that the solution cannot be stagnation, but I can’t take seriously any proposal that doesn’t suggest serious thought has been given to the implication of social disruption and shows serious care for the poor and disadvantaged. Anyone who thinks “but overall growth is up” is some sort of trump card is this argument merely demonstrates they are out of touch.
I’ve been seeing a few articles about the AirBnB apocalypse. Apparently due to the surge in demand during covid a lot of people bought vacation homes and condos to rent on AirBnB, Vrbo, etc. The were getting top dollar for say 20 nights a month. But now, due to people preferring hotels for various reason, oversupply, etc. rates and occupancy have plunged and people are losing their shirts.
The article mentioned people who are still able to succeed and they talked about the need for good design, the value of repeat guests. One made note of the coffee and wine people liked and made a point of having it stocked when they checked in.
The public seems to have the view that landlords have all the power. They think, “I can just buy something and charge whatever I want for rent.” But that’s totally not how it works.
For whatever reason people have a hard time seeing the real estate market work in the same way as the vehicle, laptop, laundry detergent, stock, etc. market.
My guess is that people really struggle to conceptualize events beyond what are readily visible. It's very easy to see a cheap rent building, no matter the quality, be torn down and replaced with a larger, more expensive building, with incumbent tenants very visibly displaced and with an uncertain future. And even if the tenants find a new place that is of better quality, the rent may still be higher than, even if marginally so--and moving is a pain, especially an unwilling move. I don't know how to better visualize the cases of very clear improvement in quality of living, but it seems like it would help mitigate these immediately visceral feelings that some have.
Fwiw the "housing construction leads to higher rents" is the exact same logic as the notion that highway construction leads to worse traffic because of induced demand.
Another thing that might be adding to the "intuitive" confusion - at least in Brooklyn, you often had construction projects that were *reducing* the number of units. A standard Bed-Stuy move was to take a brownstone that had been 3-4 rentals (each floor an apartment) and turn it back into a single-family home (or single-family plus 1 rental floor at the bottom).
So there was "development" but not actually an increase in supply.
Street parking is theft. It's an absurdity that it is allowed to happen anywhere. I don't want to convince proponents of street parking of YIMBYism, I want to beat them at the ballot box and abolish their way of life.
I always figured that the construction/rent relationship was a statistical artifact: when a 50-unit older building gets a new 100-unit "luxury" neighbor in the adjacent empty lot, mean and median rents on the block have gone up even if the old building stays level.
Interesting read. As a dabbler in real estate investment (its been like shooting fish in a barrel here in Philly these past several decades), these dynamics of agglomeration do tend to overwhelm supply/demand effects in gentrifying urban areas in my experience, and agreed thats usually a very good thing. Smart developers craft newly gentrifying neighborhoods, making sure those cool amenities that drive early adopters are in place.
I’ve been part of investing in the Port Richmond neighborhood of Philly the past 10 years or so in anticipation of the gentrification now occurring, several projects that include apartments and condos but also a ice cream shop, market, bar and bottle shop and now looking at music venue space to fix up. My developer friend has a portfolio there and he and a few others are intentionally seeking to conjure attractive, complementary amenities to boost values for all.
Its a fascinating dynamic here in Philly - the traditionally white neighborhoods gentrify with much more ease and less tension. It took ages for Northern Liberties neighborhood (a longtime black neighborhood home to several members of band The Roots) to turn over. But then Fishtown, a white East European neighborhood, next gentrified with lightening speed.
And now running up the river North of that is Port Richmond, another traditionally white working class neighborhood clearly is going to gentrify before more inland Kensington, which has really horrendous problems, the heroin capital of the NorthEast
On the front lines of this, there are human issues with buying up neighborhoods to invest in them. Like many other things, it can be done humanely and compassionately or it can be done ruthlessly and without regard to trampling people. I’ve always insisted on projects where I’ve bought a dilapidated building that we give tenants at least 90 days rent free time for tenants to secure new housing as we give them the boot. But many others shoe marginalized tenants onto the streets or into desperate situations.
What is Matt’s plan for housing poor people? There really are significant numbers of people who are so income constrained that any improvement in their neighborhood’s amenities will price them out. Even if housing abundance drives down median rents this group will still be out of luck because they can’t afford the median rent.
Matt once advocated legalizing flop houses. This is only slightly less politically toxic than saying poor people should pay for housing by selling their teeth, hair, and kidneys. The precariat wants social guarantees because it knows it will lose bidding wars.
I think it's possible that the weird claims about SF in particular are a combination of SF being a special case and activists not being totally clear about what they value. First of all, with the endemic tech-hate among SF leftists, I suspect that when they talk about new housing not increasing affordability, I think they mean affordability to "normal" people, not to those toxic people who can currently afford SF market rents. And because SF is space-constrained and has a large pool of affluent people (and not-yet-affluent young people with tech jobs that let them afford stratospheric rents) jostling to move there. I don't find it unimaginable that any reasonable amount of new construction would fail to bring rents down to a level that activists consider acceptable.
Your discussion of gentrification also leaves out the activists' solution, which is to make neighborhoods nicer because it's the right thing to do, but not allow anyone new to move in so that they can't disrupt existing communities.
A touchy question. Are people poor because of lack of opportunity or inability to take advantage of opportunities?
Probably some of both. The first group will benefit from a community upgrade, but the second will be displaced. Attacking “stubborn” poverty means rehabilitating individuals, not localities.
Online left-YIMBYs try to portray NIBMYism as a problem of reactionary suburbanites and rich white liberal hypocrites (who I do love making fun of), but in my experience, a lot of the people who would benefit from development fall victim to this type of thinking too.
Low income renters in growing cities see new high rise apartment complexes being built and being filled with rich white hipsters and see their rent going up and make the simple calculation that the new apartment complex brought in the hipsters and drove their rent up. I distinctly remember hearing 3 of my older African American coworkers at the Oregon Convention Center grumbling that "they're trying to change our city" referring to a new apartment building in NE Portland some time in 2016/2017. (Yes, there are Black people in Portland, they mostly live in the Northeastern quadrant, which is where the Convention Center is located). Given where they worked, I'm assuming most of them were renters and would therefore directly benefit from pushing the housing supply curve rightward, but they certainly didn't see it that way. All they saw was the building being built, their rent going up, and rich white kids moving in. I can't blame them at all for drawing that connection.
Sadly to say, I think those of us who want to increase the housing supply face an uphill battle on all sides. Socialists don't want developers to make money, suburbanites don't want "those people" in their neighborhoods, and the people who increased supply would actually help are often pretty skeptical themselves and I can't blame them.
What follows from the idea that new construction raises rents?
I think understanding this debate requires a little more history. Here's a stylized history:
In the 50s-70s there was a lot of white flight and disinvestment from cities, leaving numerous close in urban neighborhoods with poor, often heavily Black populations (Columbia Heights, South End/Roxbury in Boston, the Mission in SF, etc). Then in the 90s and 2000s, for various reasons, urban living became more desirable among young educated professionals. These people, like Matt, typically didn't have the money to live in the existing rich neighborhoods like this so they ended up in poorer ones. But these people also had way more money than the existing residents of these neighborhoods. So they drew new development aimed at them as customers, and because they had greater influence they secured improvements to the neighborhood. Also, displacing poor people also displaces the challenges of poverty. This leads to a virtuous cycle where the neighborhood keeps getting more desirable and thus more expensive.
Typically this involves the construction of a bunch of new homes, but not nearly as many as the number of people who now are interested in moving there. Even if that happened it's implausible it would fix the problem both because the new homes are more expensive and because the demand precedes the new supply.
The basic moral of the story is that the low prices in the original neighborhoods was a demand phenomenon, and when the demand returned the prices rose.
It's worth asking what could have prevented this. I think the only answers are legally prohibitions on moving, or preventing the increased desire for urban living (maybe by having crime not decline?). Which is to say that it can't be prevented.
This is uncomfortable for many, because it implies that some form of displacement is inevitable, but that's because it's the pre-1990 situation that was an anomaly. Lots of people have the desire to ensure that the burden of change doesn't fall primarily on the disadvantaged. But fundamentally this is impossible -- that's what it means to be disadvantaged. The only solution is to reduce disadvantage directly (like with the CTC, although I am generally more radical than Matt in this direction).
If you’re interested in extremely frustrating left-NIMBY arguments, check out the housing discourse in Ireland. A coalition of incumbent home owners, ‘historical preservation’ weirdos and left wing people who don’t understand economics prevent basically any new housing construction. Throw in an absurd planning application process and an extreme parochialism and you get one of the most dysfunctional housing markets in the world!
By the way, as a long time Philly resident and real estate development dabbler locally, huge thanks to San Fran and New York, Boston, DC for pricing everyone out.
You’ve made Philly a much more desirable destination for recent grads and professionals who want an urban lifestyle that is reasonably affordable.
I find this post very curious. I came out *less* convinced than coming in. MY basically concedes that in fact in some cases poor people will be priced out , but assures us it’s “fine” because of the overall growth effects in incomes opportunities etc. but as in the immigration debates, the key question is “fine for whom?”. The poor seniors now priced out of the rental home will not benefit from rising median wages, new employment opportunities or nice new restaurants and gyms, for example… it’s a glaring omission that MY gives no thought to those people and how to address the pain they will suffer. I agree that the solution cannot be stagnation, but I can’t take seriously any proposal that doesn’t suggest serious thought has been given to the implication of social disruption and shows serious care for the poor and disadvantaged. Anyone who thinks “but overall growth is up” is some sort of trump card is this argument merely demonstrates they are out of touch.
I’ve been seeing a few articles about the AirBnB apocalypse. Apparently due to the surge in demand during covid a lot of people bought vacation homes and condos to rent on AirBnB, Vrbo, etc. The were getting top dollar for say 20 nights a month. But now, due to people preferring hotels for various reason, oversupply, etc. rates and occupancy have plunged and people are losing their shirts.
The article mentioned people who are still able to succeed and they talked about the need for good design, the value of repeat guests. One made note of the coffee and wine people liked and made a point of having it stocked when they checked in.
The public seems to have the view that landlords have all the power. They think, “I can just buy something and charge whatever I want for rent.” But that’s totally not how it works.
For whatever reason people have a hard time seeing the real estate market work in the same way as the vehicle, laptop, laundry detergent, stock, etc. market.
My guess is that people really struggle to conceptualize events beyond what are readily visible. It's very easy to see a cheap rent building, no matter the quality, be torn down and replaced with a larger, more expensive building, with incumbent tenants very visibly displaced and with an uncertain future. And even if the tenants find a new place that is of better quality, the rent may still be higher than, even if marginally so--and moving is a pain, especially an unwilling move. I don't know how to better visualize the cases of very clear improvement in quality of living, but it seems like it would help mitigate these immediately visceral feelings that some have.
Fwiw the "housing construction leads to higher rents" is the exact same logic as the notion that highway construction leads to worse traffic because of induced demand.
Another thing that might be adding to the "intuitive" confusion - at least in Brooklyn, you often had construction projects that were *reducing* the number of units. A standard Bed-Stuy move was to take a brownstone that had been 3-4 rentals (each floor an apartment) and turn it back into a single-family home (or single-family plus 1 rental floor at the bottom).
So there was "development" but not actually an increase in supply.
Street parking is theft. It's an absurdity that it is allowed to happen anywhere. I don't want to convince proponents of street parking of YIMBYism, I want to beat them at the ballot box and abolish their way of life.
INFINITE property tax glitch! (2022, still unpatched!)
I always figured that the construction/rent relationship was a statistical artifact: when a 50-unit older building gets a new 100-unit "luxury" neighbor in the adjacent empty lot, mean and median rents on the block have gone up even if the old building stays level.
Interesting read. As a dabbler in real estate investment (its been like shooting fish in a barrel here in Philly these past several decades), these dynamics of agglomeration do tend to overwhelm supply/demand effects in gentrifying urban areas in my experience, and agreed thats usually a very good thing. Smart developers craft newly gentrifying neighborhoods, making sure those cool amenities that drive early adopters are in place.
I’ve been part of investing in the Port Richmond neighborhood of Philly the past 10 years or so in anticipation of the gentrification now occurring, several projects that include apartments and condos but also a ice cream shop, market, bar and bottle shop and now looking at music venue space to fix up. My developer friend has a portfolio there and he and a few others are intentionally seeking to conjure attractive, complementary amenities to boost values for all.
Its a fascinating dynamic here in Philly - the traditionally white neighborhoods gentrify with much more ease and less tension. It took ages for Northern Liberties neighborhood (a longtime black neighborhood home to several members of band The Roots) to turn over. But then Fishtown, a white East European neighborhood, next gentrified with lightening speed.
And now running up the river North of that is Port Richmond, another traditionally white working class neighborhood clearly is going to gentrify before more inland Kensington, which has really horrendous problems, the heroin capital of the NorthEast
On the front lines of this, there are human issues with buying up neighborhoods to invest in them. Like many other things, it can be done humanely and compassionately or it can be done ruthlessly and without regard to trampling people. I’ve always insisted on projects where I’ve bought a dilapidated building that we give tenants at least 90 days rent free time for tenants to secure new housing as we give them the boot. But many others shoe marginalized tenants onto the streets or into desperate situations.
What is Matt’s plan for housing poor people? There really are significant numbers of people who are so income constrained that any improvement in their neighborhood’s amenities will price them out. Even if housing abundance drives down median rents this group will still be out of luck because they can’t afford the median rent.
Matt once advocated legalizing flop houses. This is only slightly less politically toxic than saying poor people should pay for housing by selling their teeth, hair, and kidneys. The precariat wants social guarantees because it knows it will lose bidding wars.
I think it's possible that the weird claims about SF in particular are a combination of SF being a special case and activists not being totally clear about what they value. First of all, with the endemic tech-hate among SF leftists, I suspect that when they talk about new housing not increasing affordability, I think they mean affordability to "normal" people, not to those toxic people who can currently afford SF market rents. And because SF is space-constrained and has a large pool of affluent people (and not-yet-affluent young people with tech jobs that let them afford stratospheric rents) jostling to move there. I don't find it unimaginable that any reasonable amount of new construction would fail to bring rents down to a level that activists consider acceptable.
Your discussion of gentrification also leaves out the activists' solution, which is to make neighborhoods nicer because it's the right thing to do, but not allow anyone new to move in so that they can't disrupt existing communities.
A touchy question. Are people poor because of lack of opportunity or inability to take advantage of opportunities?
Probably some of both. The first group will benefit from a community upgrade, but the second will be displaced. Attacking “stubborn” poverty means rehabilitating individuals, not localities.
Random observation:
Online left-YIMBYs try to portray NIBMYism as a problem of reactionary suburbanites and rich white liberal hypocrites (who I do love making fun of), but in my experience, a lot of the people who would benefit from development fall victim to this type of thinking too.
Low income renters in growing cities see new high rise apartment complexes being built and being filled with rich white hipsters and see their rent going up and make the simple calculation that the new apartment complex brought in the hipsters and drove their rent up. I distinctly remember hearing 3 of my older African American coworkers at the Oregon Convention Center grumbling that "they're trying to change our city" referring to a new apartment building in NE Portland some time in 2016/2017. (Yes, there are Black people in Portland, they mostly live in the Northeastern quadrant, which is where the Convention Center is located). Given where they worked, I'm assuming most of them were renters and would therefore directly benefit from pushing the housing supply curve rightward, but they certainly didn't see it that way. All they saw was the building being built, their rent going up, and rich white kids moving in. I can't blame them at all for drawing that connection.
Sadly to say, I think those of us who want to increase the housing supply face an uphill battle on all sides. Socialists don't want developers to make money, suburbanites don't want "those people" in their neighborhoods, and the people who increased supply would actually help are often pretty skeptical themselves and I can't blame them.