Why YIMBYs are only 50% correct
In-fill housing construction alone cannot make housing affordable.
In a previous article, I explained why housing in so many American cities has become unaffordable. I made the claim that Urban Containment Zones and zoning laws mandated by state and city governments are the principal cause of unaffordable housing.
In later excerpts, I will get to my proposed solutions, but first I want to give my take on the YIMBY movement’s proposed solutions. While my views overlap a great deal with the YIMBY movement, I believe that they do not understand the cause of housing unaffordability. And because of that, their solutions are very unlikely to make much of a difference.
Most of the following is an excerpt from my second book Promoting Progress: A Radical New Agenda to Create Abundance for All. You can order my e-books at a discounted price at my website, or you can purchase full-price ebooks, paperback, or hardcovers on Amazon.
Other books in my “From Poverty to Progress” book series:
This post is part of a multi-post series on Housing:
Why YIMBYs are only 50% correct (this article)
more.
In-fill Is Not Enough
Currently, there is a YIMBY movement that seeks to eliminate policies that restrict new housing construction. YIMBY stands for “Yes In My Backyard,” an obvious dig at the NIMBYs (“Not In My Backyard”) who oppose many construction projects.
The YIMBY movement strongly believes in in-fill development. In-fill development is adding new housing on plots of land clearly within the urban footprint. This includes developing isolated plots of agricultural land, subdividing large plots of existing residential housing, and building rental units on owners’ land.
Anyone in favor of material progress should favor all that, but I think it is naïve to believe that in-fill development will be enough. The major focus should be on constructing new housing on the outskirts of the metro area where land is affordable.
It Is All About Land Prices
Currently, property taxes are a major source of revenue for local and state governments. Property taxes are based on the assessed value of both the land and all structures on that land. This means that owners of empty plots of land pay much lower taxes than owners with buildings on their land. In metro areas where the price of land is going up, landowners increase the value of their portfolio by doing nothing. This creates a strong incentive for land speculation.
What is effectively happening in many major metro areas is that entrepreneurs, engineers, and other workers create wealth that benefits all of society. Unfortunately, because of the artificial scarcity of land in that metro area, a highly significant proportion of the wealth creation goes to those who own land near those industries. Those rentier landowners need to do absolutely nothing to experience massive increases in wealth. Meanwhile, the young, poor, and working class must deal with ever-increasing housing costs, which sap their ability to enjoy the benefits of living in a productive economy.
If you do not believe me, check out the housing prices in California, Hawaii, Seattle, Portland, New York City, and Boston. Expensive houses, right? Well, no: expensive land under the housing!
Take a look at the American Enterprise Institutes Land Share Indicators for 2012 and 2020. The share of the cost of land in all those cities listed above is over 60% of the total cost of houses. For Los Angeles and San Francisco it is over 70%. In comparison, most metro regions have land shares of 25-53%.
And the overall land share is increasing over time. In 2012, land made up 38.2% of the total value of all residential real estate. In 2020, land made up 54.7% of the total value. Given that real estate values increased overall during that period, this is an enormous increase in the cost of land. And that land inflation is concentrated in a few dozen expensive metros.
Supporters of in-fill development do not realize two key facts. The first is the cost of land, which is the fundamental problem, not the cost of the housing on that land. You could pitch a tent in those places, and it would not be affordable because the land under the tent is so expensive.
Building Higher Increases Cost
Many YIMBYs attempt to overcome the high cost of land by promoting construction upward, not outward. This keeps them in alignment with the overall philosophy of promoting density and opposing sprawl.
YIMBYs do not seem to realize that building upwards increases housing unaffordability. The more vertical stories that housing consists of, the higher the cost per square foot (Arenson).
Single-family residences of one or two stories are economically feasible without government subsidies in virtually any location, which is exactly why you see them all across the nation. Because relatively cheap wood construction can be used for the first and second floors, the second floor is only slightly more expensive than the first floor.
Once you start building the third floor, however, this forces builders to shift away from wood construction and towards using concrete. Such changes in materials increase costs by 30-50%. This makes three-floor housing feasible without government subsidy only in wealthy metros on the Pacific Coast and Northeast.
A fourth story requires the addition of an expensive elevator system, which doubles the construction costs per square foot compared to the first two stories. This makes them economically feasible without government subsidies in only a few housing markets.
As you build more stories, the costs just escalate further. The fifth story triples or quadruples construction costs so they require some type of government subsidy except in the most expensive areas. Once you get to eight or more stories, the construction cost per square foot is five to eight times the price of single-story construction (Arenson).
Yes, you can construct tiny apartments and call them “affordable,” but those apartments are very expensive per square foot. You cannot get around the economic disadvantages of vertical construction. Worse, as the housing size per unit shrinks, fewer and fewer people actually want to live there. So you are stuck with very expensive housing that few people want to live in, given a choice.
Density Creates Unaffordability
The fundamental intellectual problem with much of the YIMBY movement is that they still have not overcome their desire to promote density. Both YIMBYs and NIMBYs agree that sprawl is bad.
But government-enforced density is the major cause of housing affordability. Until we realize that density is a major driving factor in unaffordable housing, then we cannot truly bring down housing costs.
Those on the Left in general also need to overcome their prejudice against single-family residences. Both by their buying behavior and poll responses, it is clear that Americans want to live in single-family residences. The drive by urban planners to force Americans to live in much denser housing than home-owners prefer is a big part of what got us into this problem in the first place.
The reality is that any housing built within expensive metros will be expensive regardless of the type. That is why the construction of one- or two-story housing on the outskirts of the metro area is the only real solution to housing affordability.
Affordable Housing Isn’t
Some housing advocates try to break this conundrum by advocating for affordable housing. One of the biggest oxymorons in housing policy is so-called “affordable housing.” In our current political lexicon, affordable housing is government-mandated or government-subsidized housing that is sold for prices below market value. When constructed in metro areas with unaffordable market housing, such housing is generally nowhere near being truly affordable.
In many regions, in order to get approval to construct new housing developments, builders are forced to build a certain number of “affordable housing units.” Because it is impossible to sell or rent these units at market value while complying with the regulations, builders are forced to increase the prices of other houses within the same development.
Because the type of urban planners who favor such “affordable housing” also favor density, those units are typically multi-story and built well within the urban area. The result is highly expensive housing.
In reality, current “affordable housing” means unaffordable housing where someone else pays the bill. That bill is either being paid by other homeowners in the same development or by taxpayers. I define affordable housing as houses or rentals that have an affordable cost per square foot on the open market without subsidies. An affordability index of 3.0 or lower is a good place to start.
The current affordable housing policy is simply not sustainable. Housing prices in metro areas will continue to mount, forcing greater and greater subsidies, which in turn drive market-based values even higher. Affordable housing is a great business model for some developers, but it is a losing proposition for everyone else.
Multi-Family Housing Does Not Help
Some claim that, by constructing multi-family residences, such as condominiums and apartments, we can address the housing shortage while lowering the urban footprint. I am in favor of building more condominiums and apartments to lower rent prices, but I seriously doubt that it will have any effect on housing prices.
Single-family residences and condos/apartments are effectively two separate markets, like cars and pickup trucks. The kind of people who want one are unlikely to want the other unless they are given no choice.
Most Americans appear to view living in rental properties as a temporary solution, not the desired lifestyle for the long term. Rentals are also popular for families who have recently moved to a new metro area and want to take their time to purchase the right house. And condominiums are a niche market reserved for the most affluent metro areas.
Generally, families with children want single-family residences, though they cannot always afford them, while singles and couples without children prefer multi-family residences. Once those same people have children, their preferences change to favor the other market.
The size of a typical multi-family residence aligns with this perception. While the average new single-family residence is 2,350 square feet, enough room for a family with children, apartments average 1,065 square feet, while condominiums average 1,400 square feet. Those sizes are sufficient for young singles but quite cramped for families with children. Very few condos or apartments are as big as modern houses (2019 American Community Survey).
This is not due to bad urban planning, but due to consumer preferences. Developers could build larger condos or apartments, but they do not do so due to a perceived lack of demand. Nor is there much of a market for very small single-family residences. The two markets do not overlap much.
Now, it is true that many lower-income families are forced to live in smaller multi-family residences because they cannot afford to buy a house, but that is because of a shortage of housing. Very few residents of single-family residents would actually prefer to live in condos or rentals for a long period of time.
High-rise Rental Dystopia
If we do not rethink our current attitudes towards sprawl, we could unintentionally create a dystopian society. About 83% of single-family residences are owned by live-in residents who accrue the increased value of their house and the land that it rests upon. Meanwhile, a full 87% of multi-family residences are rentals (2019 American Community Survey).
If housing construction focuses on multi-family residences to increase density, wealthy landowners and developers will be the only people who can afford to purchase most real estate. Those landlords will receive all of the increased value of the land and still be able to extract higher rents from tenants. Everyone else without a high income will be forced to be a renter their entire lifetime. None of those renters will receive any additional wealth from housing inflation.
Such a society is destined to be highly unequal, with the benefits of economic growth and progress going to a small class of landowners. This is not the type of society that I want to live in. Nor can it be defined as progress in any way.
Historic Preservation
One reasonable argument against widespread housing construction in the urban centers is the desire to preserve historically important buildings. As a history buff, I love to visit historical buildings where famous people lived or that represent architectural designs from bygone eras. I would hate to see all of these treasured buildings bulldozed in the name of progress.
I do believe, however, that we have expanded the definition of historic importance to such an extent that virtually all older buildings apply. This makes it very difficult for older metropolitan areas of the Northeast to construct new buildings. Historical preservation must be balanced with promoting housing affordability.
Fortunately, historic preservation is rarely relevant to housing construction on the outskirts of metro areas. Historical buildings largely tend to be clustered in older urban centers, while more modern construction has proceeded outwards. In fact, sprawl tends to preserve historic buildings as the focus shifts outwards. Historical preservation is really only a strong argument against in-fill development, which I believe is a less effective solution to the problem of housing unaffordability anyway.
So if the YIMBYs proposals will not make housing affordable again, what will?
Most of the above is an excerpt from my second book Promoting Progress: A Radical New Agenda to Create Abundance for All. You can order my e-books at a discounted price at my website, or you can purchase full-price ebooks, paperback, or hardcovers on Amazon.
Other books in my “From Poverty to Progress” book series:
This post is part of a multi-post series on Housing:
This is why I continually advocate for a Land Value Tax (LVT): https://www.lianeon.org/p/just-tax-the-land
We could, gradually, flip the tax burden off of the structure and weight it toward the land itself. That would drive down the purchase price of land and free up land that is not used efficiently (parking lots, golf courses) for more development.
When is your next book coming out? I'd love to read it.
Interesting perspective - I enjoyed reading this.
I wonder: how much of the higher cost with multi-story buildings is driven by building codes? For example, the multiple stairway requirement for buildings with more than 3 stories adds significant cost (two stairwells, central connecting corridor = less usable space). It also forces larger units (because only the outside can be living space (bedrooms, living rooms) and there is more dead, dark inside space (closets, bathrooms). This difference explains why there are more family-sized units in multi-family dwellings in Europe where this rule doesn't exist.
More here from a great recent article: https://www.thesisdriven.com/p/the-case-for-single-stair-multifamily
I also wrote about this a while ago from my perspective having grown up in Europe and lived in these multi-family, single-staircase buildings: https://heikelarson.substack.com/p/why-are-european-apartments-better