Thursday, September 16, 2010

High Cost of Housing

I have been disappointed not to find any new insights into the reasons for high housing costs in Jane Jacob's book; however, I'm grateful for the motivation to think about it. Jacobs mentions the following reasons:

  • supply and demand
  • low-density of housing in suburbs
  • greedy landlords in urban areas
The first seem obvious. The third is not as obvious to me. I'm not sure I agree with it, except in special cases where landlords are given special deals by local, state, or federal governments, or where they are backed by organized crime. 

No doubt, some landlords are greedy. Some waiters are greedy too, and some engineers, and some senators, and some students. It's true that some lines of work might appeal to people who are less greedy than average -- Peace Corps volunteers, for example. But in the 23+ years I've been working with small business owners, I have not noticed that landlords are any more or less likely to be greedy than most other groups of people. So OK, some landlords are greedy, some are not.

Given that the group of people who are landlords contains some greedy members, is it reasonable to conclude that those members who are greedy can cause an overall increase in the cost of housing? The only way this could be true would be if the greedy landlords had a disproportionate influence on the price of real estate. Otherwise, if the greedy landlords raised their prices, people would rent or buy from the non-greedy members of the group, and the greedy landlords would either have to lower their rents, or go out of business.

In some cases, greedy landlords do have a disproportionate influence on real estate prices, such as when a developer gets special privileges from a city government (tax breaks, use of the government's eminent domain powers, free or low-cost infrastructure, etc.). My grandmother Lois Lamar was ripped off by greedy developers who had friends in the City of Austin planning department back in the late 1960's. She owned an entire block of land between San Pedro and Salado Streets near the University of Texas. My great grandfather Arthur Lamar had bought the land and built three houses on it with his own hands. He and my great grandmother rented out two of the houses and lived in one. My father's parents lived in one of the houses from the time my father was born until he was 6 or 7 years old. [Lady Bird and Lyndon Johnson lived across the street for a while, back when Mr. Johnson was a teacher] 

The developer's friends in the City of Austin sent my grandmother a notice that San Pedro Street was going to be widened, and she would lose more than half her front yard and would have to pay for all sorts of remedial plumbing work. If I received such a notice from the city, I'd check it out, but my grandmother was an old woman and not in the best of health. I don't know why my father didn't step in. Maybe he didn't know any better either. 

When the developers showed up and said they were willing to buy the land (at a ridiculously low price, to be sure, but after all, the street was going to be widened and chop off a huge chunk of the land), my grandmother agreed to sell it to them. I have always been a somewhat cynical, suspicious person, but I was just a kid at the time. I urged my grandmother not to sell, to fight it. But no one would listen to me. So the greedy developers pretty much stole the land from my grandmother, put up a hideous apartment complex, and rented out the apartments for the highest price they could get. One of the most infuriating things to me about the whole affair was that the apartment owners mentioned in their advertising that the land had once been owned by a descendant of Mirabeau B. Lamar, second president of the Republic of Texas. This was not strictly true, as my great grandfather was the descendant of Mirabeau B. Lamar's brother. But this particular land owner had already demonstrated that he was not an honest man. [San Pedro Street has never been widened, to this day]

To the extent this sort of thing has happened and continues to happen, greedy landlords are part of the cause of high housing costs, but only to the extent that they can work in partnership with groups of people with coercive power, such as local, state, and federal governments, and in some cases, organized crime. The entire west campus area of UT is now masses of large apartment complexes. There are very few of the small houses, duplexes, and four-plexes left. My daughter lived in one of the very last ones when she was a student at UT. She had to move when the owner sold it to make way for another large apartment building. One might imagine that, with the higher density, it would now be cheaper to live in the west campus area, but the new apartments rent for more per unit than the old houses did. 

Why is this, I wonder? When you replace, say, 32 units with 70 units, why don't the new units rent for something in the neighborhood of 1/2 the cost of the old units? One reason is that the new units are, well, new. Shiny and clean and new. But, based on my observation of both the old and the new, the new units are not as well built as the old ones; the finishes and fixtures are usually not especially nice. One cannot get any cross ventilation, so one is forced to use electric or gas heating and cooling, all year round in order to be comfortable. There are no private outdoor areas. One reason new units cost more than old is that building materials cost more now. But given this fact, isn't is insanely wasteful to just tear down the old buildings and cart away the lumber to landfills? So I suppose one needs to add profligate waste to the equation. This still doesn't explain what motivates the owners to waste materials -- perhaps the cost of labor makes it more expensive to remodel than to tear down and rebuild? I don't think this is the answer, at least not the whole answer. [This is something to think about and return to later]

Also, city codes now require more expensive building methods. People have so many electrical gadgets that many electrical outlets are required in each room. Since the structure allows for only limited (sometimes no) ventilation from the outside, air conditioning is mandatory. People also demand more bathrooms per household. One bathroom is no longer adequate for a two or three bedroom unit. I can't think of anyone but tenants and home buyers to blame for this situation. Sure, I guess you could blame advertisers, movies, TV shows for giving people the idea that they must own 150 electric gadgets per household and have one bathroom for every 1.5 occupants, or whatever. 

But people don't have to do what the advertisers suggest. 


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