The Pandemic, Inequality, Housing Affordability, and Urban Land
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The year 2020 gave us all time to evaluate how the design of cities can influence who gets sick, who dies, and who doesn’t. Sadly, it seems that economic inequality is the real vector for the disease, as reflected in where people live, and with how many others, and in where and how they earn a living. Even more unfairly, Black and Brown Americans are as much as three times more likely to die of Covid-19 than Whites, not because of some genetic or lifestyle difference, but rather because they have fewer of the trappings that wealth provides.
And of all the trappings that wealth provides, housing; where it is, how much you can afford, who lives next door, and what kind of cultural infrastructure supports it, is the most important. In fact, it’s not out of line to say that the ways in which wealth constrains housing choice is many times more crucial to health and wellbeing than runners up such as health insurance, college funds, or retirement savings.
Not convinced? In the United states, since the passage of the Fair Housing Act in 1968, our metropolitan areas have become more segregated by income than ever before. Black and Brown families are more affected by this economic segregation than Whites, and it is this systemic sorting of residents by income into neighborhoods that explains why Black and Brown Americans are dying at rates up to three times higher than Whites. They live in crowded homes, work in high contact “front line” jobs, and come into contact with similarly endangered neighbors on their sidewalks, buses, job sites, and cafes.
It’s not just race. It’s housing wealth.
But dig a little deeper into the statistics and you find that it’s not race by itself that is the vector but the economic inequality that accompanies racial disparities. Fitchburg Massachusetts has the highest Covid-19 infection and death rates of any city in the Commonwealth. Yet it is almost entirely White. It is also the poorest city in the Commonwealth. And it’s not a statistical outlier; the death counts among Massachusetts’ more than 200 separate municipalities track almost exactly with average income of city residents.
There is no evidence that lower income people collect and segregate themselves by choice. It is by necessity, based on housing price.
Wealth in the American middle class is housing wealth, a wealth that is concentrated almost entirely among White families. Black American families, through no fault of their own, on average have only one tenth of the wealth of American White families. It’s simpler to say they generally don’t own homes.
Since the Civil War, Blacks have been systemically blocked from acquiring real estate wealth, and the Fair Housing Act of 1968 has not made things better. Today’s Blacks have four times more college degrees than their parents and grandparents, yet their (housing) wealth won’t budge. It has been stuck at an average of one tenth the wealth of White families for over fifty years.
It’s not just Black and Brown Americans. It’s young Whites too.
Since the Great Recession of 2008, this housing wealth gap has expanded to include not just Black and Brown Americans, but younger White Americans as well. Millennials and Generation Z Whites are now joining their Black and Brown peers in facing untenable housing precarity and blocked access to wealth. With wages stuck at 1980 levels and housing prices at least double (in inflation adjusted terms) what they were 40 years ago, many younger Americans, most with college degrees, are giving up on buying a home and even struggle to rent apartments suitable for raising a family.
Doubled housing prices is just the average increase nationwide. In jobs-rich coastal cities like New York, Washington D.C., and San Francisco, housing prices are four times higher in real terms than they were in 1980.
How are these housing disparities expressed in the metropolitan landscape? In neighborhoods of concentrated housing stress where wage earners struggle to maintain secure and uncrowded housing for themselves and their families.
What the heck is causing this?
Most pundits reflexively diagnose the problem in terms straight out of microeconomics 101. There is clearly not enough housing supply, they say, and this is why costs rise. Add supply and price will fall, they say. But the ratio of housing to population has remained largely stable for 50 years. Why is supply a problem now when the same supply to demand ratio wasn’t a problem in 1970?
This author has had the pleasure of working in Vancouver for the past 30 years. During this time the city has, in the hopes of controlling home price inflation, added more supply than any other North American city. And the result? Housing costs have doubled here (again in real terms) in just the past ten years, with yet another ten percent rise during the year of the pandemic. Vancouver has attempted all the supply side strategies that policy makers in the USA consistently put forth as solutions, but to no avail:
- Legal suites? A great idea for many reasons. On affordability? No help.
- Legalizing duplexes on every lot? A great idea for many reasons. On affordability? No help.
- Lining arterials with four to six story apartment buildings? A great idea for many reasons. On affordability? No help.
- Doubling the population of the downtown peninsula (from 40,000 to over 80,000) with a veritable forest of glass high rises? Great for many reasons. Sadly, none but the wealthy can now afford them.
Why won’t this work?
It’s not the house. It’s the land under it.
It all comes down to the price of city land, and as the saying goes, they just ain’t making any more of it. Every single increase in density allowed by the city of Vancouver has ballooned land value up to a price that matches and often exceeds the newly authorized increase in density.
Take a million-dollar parcel and quadruple the allowable density. That land now costs four million.
Land in Vancouver is not sold by the acre but by the allowed “buildable” square feet of interior space. With the market for our real estate insatiable, the market price per square foot of interior space, no matter the parcel density, is between $1,200 and $2,000 per square foot. The more square feet our city permits, the more a developer will have to pay for the land, because the land price is “residual” after the cost of construction, permitting, marketing, and financing are deducted. At current costs that leaves a residual value for the land in Vancouver of between $600 and $1,200 per buildable square foot.
The market simply cannot produce affordable housing, no matter how much new supply we add.
There is no way that average income earners are going to be able to afford that final product at these land prices. It’s only affordable to the top 20 percent of income earners. This is not the cohort who need housing. It is our “front line” workers, our orderlies, our cab drivers, our food service workers; those earning below average wages who need the housing.
And we see no “trickle down” effect, or housing “filtering” with people moving up into high price flats and thus freeing up the lower priced ones for our service workers. Instead the rents on the empty units are jacked up as close as possible to the rents in the new “luxury” units.
In short, the problem is not the price of the house. The problem is the price of the land. And putting more house on the land doesn’t drop the price of the house, it just increases the price of the land.
This is an old problem that we forgot about.
What makes it hard for policy people and citizens to accept this truth is that we have not seen this problem in a very long time. Back in the 1920s of course, but not really since then. But this is actually an old problem that has come back to haunt us; a problem first articulated by Adam Smith in the 1700s.
“As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.”
He and other economists, including David Ricardo (early 19th century), Henry George (late 19th Century), Joseph Stiglitz (late 20th Century), and Thomas Piketty (early 21st century) all discovered that the problem lay hidden in plain sight: urban land will eventually absorb all of the wealth created by city entrepreneurs and wage earners, converting every penny of the value they create, up to and often beyond what is needed to keep the economy humming, into the unearned wealth of the land owner.
And that is exactly what is fueling the raging fire of housing inequality today. Global wealth, in unprecedented amounts, has developed an insatiable hunger for the asset value of urban land. Since the end of the Great Recession urban land is the fastest growing and most profitable asset category, outpacing stocks, bonds, and collectables. Investors are sure that urban land in America’s jobs rich cities will produce secure profits, and as they bid up the price of urban land they are blocking city wage earners from affordable homes.
What to do? It’s complicated; but in short, the best solution is to add density. But only add density in return for permanently affordable housing, with rents pegged to local wages. This will stop land price inflation cold and start the necessary process of extracting urban land from the ravages of the global asset marketplace.
There are many ways to do this and they have all passed constitutional muster in the USA, including inclusive zoning laws in California, and city-wide affordable zoning ordinances in Cambridge, Mass. More examples are provided in this author’s new book which, because of the urgency of this issue, is being given away free here.
The web page for our book has other resources and provides you with a way to connect with our initiate over time. We hope that this effort can provide better understanding of what will work to make housing more affordable and what won’t.
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Well, I’m one of the latter and Meeting of the Minds thought it would be valuable to republish an article I penned in January 2020. In that ancient past, only the most studious of news observers had heard of a virus in Wuhan, China, that was causing a lethal disease. Two months later we were in lockdown, all over the world, and while things have improved a lot in the US since November 2020, in many cities and nations around the world this is not the case. India is living through a COVID nightmare of untold proportions as we speak, and many nations have gone through wave after wave of this pandemic. The end is not in sight. It is not over. Not by a longshot.
And while the pandemic is raging, sea level continues to rise, heatwaves are killing people in one hemisphere or the other, droughts have devastated farmers, floods sent people fleeing to disaster shelters that are not the save havens we once thought them to be, wildfires consumed forests and all too many homes, and emissions dipped temporarily only to shoot up again as we try to go “back to normal.”
So, I’ll say another one of those things I wish I’ll be wrong about, but probably won’t: there is no “back to normal.” Not with climate change in an interdependent world.
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Planning for new, shared modes of transit that will rival private vehicles in access and convenience requires a paradigm shift in the planning process. Rather than using traditional methods, we need to capture individual behavior while interacting with the systems in questions. An increasing number of studies show that combining agent-based simulation with activity-based travel demand modeling is a good approach. This approach creates a digital twin of the population of the city, with similar characteristics as their real-world counterparts. These synthetic individuals have activities to perform through the course of the day, and need to make mobility decisions to travel between activity locations. The entire transportation infrastructure of the city is replicated on a virtual platform that simulates real life scenarios. If individual behavior and the governing laws of the digital reality are accurately reproduced, large-scale mobility demand emerges from the bottom-up, reflecting the real-world incidences.