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Measuring the impact of zoning on housing in a city

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Re: Measuring the impact of zoning on housing in a city

#71

Post by AnthonyMouse »

triceratops wrote: post #68
AnthonyMouse wrote: post #42

Earlier quoted context omitted.

Why would taxing landlords reduce housing costs? It just increases housing costs for landlords, and in turn renters, as landlords become unwilling to pay for new construction until rents increase to cover the tax.

If landlords become unwilling to pay for new construction, that reduces the demand for new housing supply hitting the market. Which reduces its price and makes it more affordable to owner-occupants. I don't know if it definitely works. But it's plausible. Tax what you want less of, right?

> If landlords become unwilling to pay for new construction, that reduces the demand for new housing supply hitting the market. Which reduces its price and makes it more affordable to owner-occupants.

Construction occurs until the point that it stops being profitable, which is a price point more than a number of units. Zoning rules make it so you have to buy a 5-story building, then knock it down and pay the cost to build a 10-story building in order to add 5-stories worth of units. That's much more expensive than putting a 5-story building where there is currently a single-family home or an empty lot, which is prohibited. So if landlords stop being willing to pay for that, it doesn't cost less, it just happens less, because at any lower price the construction doesn't happen.

Which is how rents increase. Suppose 100 new units would have been built and landlords would have bought half. They stop buying, so construction companies only build 50 new units because there are only 50 buyers at a profitable price. Then demand for rental properties increases over time but supply of rental units doesn't, so rents go up. Then the landlords start commissioning new units again, because rents have increased enough to make it profitable again, but only for as long as they stay that high. The price of the building stays the same -- it's set by the construction cost -- but the rents go up because the landlord has to recover the cost of the building and the tax, or they're not commissioning a new building.

> Tax what you want less of, right?

The trouble is you don't really want fewer rental units, unless you like high rents. What you want is maybe more owner-occupied units, but this is only a trade off when supply is artificially constrained -- otherwise you can build more of both, which is obviously better.

Whereas building fewer rental units without building any more owner-occupied units is quite useless.

Re: Measuring the impact of zoning on housing in a city

#72

Post by AnthonyMouse »

bongodongobob wrote: post #70
AnthonyMouse wrote: post #32

Earlier quoted context omitted.

You do realize that if someone can avoid the tax by renting it out then they'll just rent it out to a friend for a nominal amount to avoid the tax?

I'm talking about the size of the building. An actual apartment complex. I'm not even sure renting homes in general is a good idea. Let the market figure it out for someone who wants/can afford to own it.

> I'm not even sure renting homes in general is a good idea.

Let's review the situation here. 1) The large majority of the land in the area is zoned exclusively for single-family homes. 2) Some people don't have the money to buy, e.g. no down payment or bad credit.

Where are they supposed to live?

Re: Measuring the impact of zoning on housing in a city

#73

Post by bongodongobob »

AnthonyMouse wrote: post #72
bongodongobob wrote: post #70

Earlier quoted context omitted.

I'm talking about the size of the building. An actual apartment complex. I'm not even sure renting homes in general is a good idea. Let the market figure it out for someone who wants/can afford to own it.

> I'm not even sure renting homes in general is a good idea. Let's review the situation here. 1) The large majority of the land in the area is zoned exclusively for single-family homes. 2) Some people don't have the money to buy, e.g. no down payment or bad credit. Where are they supposed to live?

If people (corporations) can't own infinity homes, the price of owning a home goes down.

Re: Measuring the impact of zoning on housing in a city

#74

Post by BenFranklin100 »

voisin wrote: post #65
BenFranklin100 wrote: post #9

Earlier quoted context omitted.

What is your opinion on the recent SCOTUS decisions declaring that forcing developers to pay for community improvements qualifies as a taking? Do you see this having a material effect on housing development?

I am Canadian so haven’t followed this decision, but I 100% support banning municipal governments from funding pet projects with fees on developers. It’s a major component of any project’s cost structure and absolutely flows through to the end buyer or renter. Landlords aren’t just absorbing these costs because the demand for housing exceeds the supply so house buyers/renters are price takers and ultimately shoulder…

Worse, the fees reduce new construction, thus limiting supply and raising rents on existing units. It's bad public policy regardless of its legality.

Re: Measuring the impact of zoning on housing in a city

#75

Post by boplicity »

renewiltord wrote: post #43
boplicity wrote: post #13

Earlier quoted context omitted.

In this case, it may not have just been that 5 acres was enough "room" for five houses. It gets into questions of building infrastructure for those houses -- sewers, water rights, etc. One development of 5 houses might not move the needle on that, but it then opens the door to neighbors doing the same thing, which could very much require major investment in infrastructure for the area.

How were any houses built at all originally? Surely there were no sewers once upon a time.

People used to live next to cemeteries and drink well water.

Yes, they also got very sick from doing this.

How were any houses originally built?

Well, sometimes they were just built.

It's a good thing we've learned a few things since then. Not that city planning is perfect. Far from it. But it certainly does serve a purpose.

Re: Measuring the impact of zoning on housing in a city

#76

Post by AnthonyMouse »

bongodongobob wrote: post #73
AnthonyMouse wrote: post #72

Earlier quoted context omitted.

> I'm not even sure renting homes in general is a good idea. Let's review the situation here. 1) The large majority of the land in the area is zoned exclusively for single-family homes. 2) Some people don't have the money to buy, e.g. no down payment or bad credit. Where are they supposed to live?

If people (corporations) can't own infinity homes, the price of owning a home goes down.

That doesn't follow at all. If you reduce investment then you reduce production. The price only goes down if the cost of creating more of them goes down, unless you can remove so much of the demand that you no longer need to add more supply. The small percentage of single-family homes owned by corporations isn't that.

Re: Measuring the impact of zoning on housing in a city

#77

Post by bongodongobob »

AnthonyMouse wrote: post #76
bongodongobob wrote: post #73

Earlier quoted context omitted.

If people (corporations) can't own infinity homes, the price of owning a home goes down.

That doesn't follow at all. If you reduce investment then you reduce production. The price only goes down if the cost of creating more of them goes down, unless you can remove so much of the demand that you no longer need to add more supply. The small percentage of single-family homes owned by corporations isn't that.

Nah. There's 30 homes and 30 people. 10 people own two homes apiece that they live in 50% of the time. That leaves 10 homes for the other 20 people to fight over, driving the price up. Pretty simple.

Re: Measuring the impact of zoning on housing in a city

#78

Post by AnthonyMouse »

bongodongobob wrote: post #77
AnthonyMouse wrote: post #76

Earlier quoted context omitted.

That doesn't follow at all. If you reduce investment then you reduce production. The price only goes down if the cost of creating more of them goes down, unless you can remove so much of the demand that you no longer need to add more supply. The small percentage of single-family homes owned by corporations isn't that.

Nah. There's 30 homes and 30 people. 10 people own two homes apiece that they live in 50% of the time. That leaves 10 homes for the other 20 people to fight over, driving the price up. Pretty simple.

Your assumption here is that the number of homes is fixed and that there are otherwise enough for everybody.

Only ~5% of homes are second homes, not 33% as in your example.

Now suppose there are 25 homes and 30 families, better reflecting current reality. If you can't make more you're screwed. But you can create new housing. Zoning makes this expensive, because zoning requires it to be done in an expensive way. You have to destroy a large building to build an even larger one because multi-unit buildings aren't allowed where there are currently single-family homes. But you can do it. It just costs $600,000/unit as a result.

Since there are more families than existing homes, everybody bids up the price of housing units because they don't want to be homeless. When the prices hit $600,000/unit, construction companies build more units because now it's finally profitable. Then all the units stay that expensive because there are only just enough -- or not enough, but the remaining people don't have $600,000. But they don't go higher than that because that's the price at which more can be created under existing zoning rules.

If Richie Rich comes along and buys two second homes, that doesn't raise the long-term price, because the price is right at the threshold of profitability for new construction. So two new units get built at that price and the market price stays where it is -- at the cost of creating more units. If you want units to cost less, that cost has to go down, because units can't be added for less than that and eliminating 100% of second homes is not enough of a reduction in demand to shift from that being the price-setting factor.

Whereas if you could build new units for $200,000 then Richie Rich could buy a hundred of them and they'd still cost $200,000 because construction companies would just build a hundred more.

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