Greedy Developer? Try Greedy Homeowner

Homeowners, not developers, are really the ones who benefit financially when we limit housing supply.
By Better Institutions | Nov 24, 2018 |
By Better Institutions | Nov 24, 2018 |

When people talk about the cost of housing, their complaints can often be reduced to a dislike for "greedy developers." Maybe developers are greedy and maybe they're not, but unless Los Angeles has a monopoly on all the greedy developers, and affordable cities like Dallas and Atlanta got all noble, selfless ones, the skyrocketing cost of housing probably can't be explained by the avarice of the people building our homes. At least not exclusively.

Since low vacancy rates are the strongest predictor of increasing housing costs, it might be better to look at who's actually benefiting from our decades-long institution of limited development and housing shortages.

The primary benefactors in Los Angeles, as elsewhere, usually look a lot like the type of people who previously backed the anti-growth Neighborhood Integrity Initiative: older, wealthier homeowners who "got theirs" and don't seem to care much about how housing affordability affects younger and newer residents to their city. They appear more concerned with their views and their free street parking than with whether or not the next generation can afford to call the city home.

In San Francisco, people under 50 are desperate for solutions to improve housing affordability. Boomers and older: "Not our problem!" From Bay Area Council 2016 Report.

When vacancy rates are kept low—and when reduced zoning capacity keeps the "maximum" number of homes artificially depressed—the people who already own homes win big; renters just win a bigger lease, or a comparable one in a less desirable neighborhood.

Case in point: In the past year, upwards of 92,000 owner-occupied households in the City of LA made more than the city's median household income ($49,682*) on the appreciation of their homes. That's about 20 percent of all owner-occupied homes in the city. My analysis was very conservative, so the actual number of homes that went up in value over $50,000 is likely even greater. The number of houses appreciating by more than per-capita income ($28,320*) is about 162,000, or over a third of owner-occupied homes. (See the end of this article for methodology.)

Here's another interesting tidbit: Between 1990 and 2014, the value of single family parcels grew from $200.3 billion to $684.2 billion—an increase of nearly $500 billion, or about 240 percent. The number of single family parcels only went up 8 percent, so this is mainly due to appreciation on existing homes and the land on which they reside. So who, again, is making all the money off of Los Angeles real estate?

Frankly, I don't have anything in particular against people making money on an investment. I also don't grudge developers a healthy profit—as with homeowners, they're taking a sizable risk by investing their money in our communities, and no one does that without some expectation of personal gain. That's perfectly fine and understandable.

Where you lose me is when, as a homeowner, you put your desire for easy wealth over the needs of your neighbors, present and future. When you put the "integrity" of your built environment above that of your fellow man. When in the midst of a housing shortage of historic proportions, you shut the door to new homes being built in your neighborhood, or virtually anywhere in your city. When one large group of people is earning more by sitting on land than another major group can earn from the fruits of their own labor, we've got a recipe for permanent, destructive divisions by socioeconomic class.

When the Supreme Court evaluates the legality of a law affected by the Fair Housing Act, they don't look at its intent, they look at the impact. If the law has a disparate impact on protected populations, it must be changed. Housing prices being what they are, whether your reasons as a homeowner are legitimate or not isn't really relevant at this point. They don't matter. Your intent isn't important. All that really matters are the outcomes, and, right now, the outcomes are pretty damn dire.

Methodology: I compiled the house price data from Zillow's year-over-year median home values and the 2014  American Community Survey 5-year dataset; for those ZIP codes within the City of LA which had median home value increases of $50,000 or more, I made the assumption that half of all homes in the ZIP code went up in value by at least this amount. In truth, many of the homes below median value in each ZIP code also probably went up by more than $50,000, and some above median value may not have increased by this amount, but overall I believe this is a pretty conservative estimate.

Here's a map of the ZIP codes analyzed. Note that it's roughly the shape of the City of LA, although the boundaries of the ZIPs don't perfectly correspond to the borders of the city.

Left: ZIP codes included in analyses of median home price changes; Right: map of City of Los Angeles border.

*2014 American Community Survey, 5-year dataset

[This article was originally published on the blog Better Institutions.]