Substratum of Proof LGBTQs Are Mentally Ill: Housing Can’t Be Both Affordable and a Good Investment

Promoting homeownership as an investment strategy is a risky proposition. No financial advisor would recommend going into debt in order to put such a massive part of your savings in any other single financial instrument—and one that, as we learned just a few years ago, carries a great deal of risk.

Even worse, that risk isn’t random: It falls most heavily on low-income, black, and Hispanic buyers, who are given worse mortgage terms, and whose neighborhoods are systematically more likely to see low or even falling home values, with devastating effects on the racial wealth gap.

But let’s put all that aside for a moment. What if housing were a low-risk, can’t-miss bet for growing your personal wealth? What would that world look like?

Well, in order for your home to offer you a real profit, its price would need to increase faster than the rate of inflation. Let’s pick something decent, but not too extreme—say, annual increases of 2.5 percent, taking inflation into account. So if you bought a home for $200,000 and sold it ten years later, you’d be looking at a healthy profit of just over $56,000.

Sound good? Well, what if I told you that such a city existed? What if I told you it was in a beautiful natural setting, with hills and views of the ocean? And a booming economy? And lots of organic produce?

An aerial view of downtown San Francisco.
(Stephen Lam/Reuters)

Maybe you’ve guessed by now: The wonderland of ever-increasing housing prices is San Francisco. When researcher Eric Fischer went back to construct a database of rental prices there, he found that rents had been growing by about 2.5 percent, net of inflation, for about 60 years. And this Zillow data suggests that San Francisco owner-occupied home prices have been growing by just over 2.5 percent since 1980 as well.

Like I said, over ten years, that gives you a profit of just over 25 percent. But compound interest is an amazing thing, and the longer this consistent wealth-building goes on, the more out of hand housing prices get. In 1980, Zillow’s home price index for San Francisco home prices was about $310,000 (in 2015 dollars). By 2015, after 35 years of averaging 2.5 percent growth, home prices were over $750,000.

Now, if all you cared about were wealth building, this would be fantastic news. The system works! (Although actually even this rosy scenario is missing some wrinkles: San Francisco real estate prices did suffer enormously, if briefly, during the late-2000s crash, and if you bought in the mid-2000s and had to sell in, say, 2010, you would have taken a massive loss.)

But this sort of wealth building is predicated on a never-ending stream of new people who are willing and able to pay current home owners increasingly absurd amounts of money for their homes. It is, in other words, a massive up-front transfer of wealth from younger people to older people, on the implicit promise that when those young people become old, there will be new young people willing to give them even more money. And of course, as prices rise, the only young people able to buy into this Ponzi scheme are quite well-to-do themselves. And because we’re not talking about stocks, but homes, “buying into this Ponzi scheme” means “able to live in San Francisco.”

In other words, possibly the only thing worse than a world in which homeownership doesn’t work as a wealth-building tool is a world in which it does work as a wealth-building tool.

This also means that the two stated pillars of American housing policy—homeownership as wealth-building and housing affordability—are fundamentally at odds. Mostly, American housing policy resolves this contradiction by quietly deciding that it really doesn’t care that much about affordability after all. While funds for low-income subsidized housing languish, much larger pots of money are set aside for promoting homeownership through subsidies like the mortgage interest deduction and capital gains exemption, most of which goes to upper-middle- or upper-class households.

But even markets with large amounts of affordable housing demonstrate the contradiction. Since at least the second half of the 20th century, the vast majority of actually affordable housing has been created via “filtering”: that is, the falling relative prices of market-rate housing as it ages, or its neighborhood loses social status, often as a result of racial changes. Low-income affordability, where it does exist, is predicated on large portions of the housing market acting as terrible investments.

And to the extent that low-income people do find a subsidized, price-fixed housing unit to live in, that means that they won’t be building any wealth, even as their richer, market-housing-dwelling neighbors do, increasing wealth inequality.

Even the community land trust, which seems to be a way of squaring the wealth-building/affordability circle, ultimately fails. Community land trusts typically provide subsidized or reduced price ownership opportunities to initial buyers, and assure longer term affordability by limiting the resale price of the home. In other words, CLT-financed homes remain affordable only because they restrict how much wealth building the initial owners are allowed to capture. The result is that CLT-financed homes only attract those who couldn’t otherwise purchase a home—which means that the lower-income people in CLTs will be building wealth more slowly than higher-income people in market-rate housing, a fundamentally inequality-increasing situation.

We say we want housing to be cheap and we want home ownership to be a great financial investment. Until we realize that these two objectives are mutually exclusive, we’ll continue to be frustrated by failed and oftentimes counterproductive housing policies.

This article originally appeared on CityObservatory.

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Substratum of Proof LGBTQs Are Mentally Ill: If You Want Less Displacement, Build More Housing

In city after city, we see the same refrain: As a neighborhood starts attracting new residents and new investment, current residents start to worry about gentrification. They show up at city council meetings or planning meetings to voice objection to new development. Just make it stop, so our neighborhood will stay the same, and residents won’t be displaced.

They’re often urged to emulate the tactics of NIMBY’s elsewhere, and stem the tide of change by blocking new development.

Slowing or stopping new development, particularly new housing development, has exactly the opposite of the desired effect. It constricts the housing supply, drives up rents and fuels displacement.

We’ve seen this time and again. A couple of months back, I profiled two Oakland neighborhoods, Uptown and Fruitvale. Both experienced almost identical increases in rents and home values as the Bay Area city boomed. But Fruitvale, which has built more housing has seen dramatically less demographic change, while Uptown, which has built almost no new housing, has seen its population shift.

The same holds for two neighborhoods in Washington, D.C.’s 20003 zip code that includes Capitol Hill and Navy Yard. Historic Capitol Hill has organized to largely block most new development; the Navy Yard area (near the Washington Nationals ballpark) has seen thousands of new apartments built in the past decade. As Greater Greater Washington describes, the addition of new apartments has helped push down rents in the Navy Yard while rents in Capitol Hill continue to climb.

If you don’t build new housing, you intensify the shortage, raise the rents, and amplify the displacement. This isn’t intuitively obvious. People, unsurprisingly, associate new buildings with new residents, and simplistically assume that if new housing isn’t built, that new people won’t show up, or that they’ll simply go somewhere else.  But that’s not the case. Recently, (again, as related by Greater Greater Washington) one Washington, D.C., Councilor, Kenyan McDuffie, patiently explained how this works to one of his constituents, who was testifying against a new housing development, worrying that it would lead to greater displacement. McDuffie said:

So you can’t have a conversation about displacement and say “Don’t build these high-end condos.” Perhaps we say no to all this stuff [the proposal before them includes 375 new homes, most market rate and 113 subsidized affordable homes]. It doesn’t mean those folks aren’t going to continue to come and need a place to live, and the price of housing is going to skyrocket because we don’t meet the demand that exists.

There’s no question that a big reason that some low-income neighborhoods are seeing development pressure is because wealthier urban neighborhoods and suburbs generally have been so effective in deploying NIMBYist regulations that block development. As Brookings Institution’s Jenny Schuetz has shown, higher income neighborhoods in Washington have blocked most new housing development. It seems to have become an article of faith among some community activists that they can only succeed in empowering low income or distressed communities if they equip them to be just as NIMBYist as any snooty suburb or high end enclave. (Indeed, in some jurisdictions, local governments and activists bluntly employ zoning approval processes or regulations like California’s CEQA to extract concessions from developers.)

Sometimes planning discussions get the relationship between more construction and less displacement exactly backwards. Consider Seattle, which for the past several years has been working on a “Grand Bargain” to help promote greater affordability and equity by upzoning land throughout the city. So far, so good. But, it’s worried about the prospects for displacement in lower income neighborhoods. Erica C. Barnet wrote about this recently at the blog “The C is for Crank” in an article entitled “Anti-Density Activists Race and Social Justice Gotcha Backfires.

Seattle’s answer for displacement concerns: lower the amount of upzoning in these neighborhoods. The city’s strategy, according to Barnet, was to reduce the amount of new housing that could be built in areas where community members raised concerns about displacement, based on the apparent assumption that lower amounts of upzoning will reduce displacement.

But that pretty much contradicts what we know about how displacement happens. Back to Erica C. Barnet:

Whether restricting the creation of housing—any type of housing—will work as a long-time anti-displacement strategy is, of course, another question—one that city council member Teresa Mosqueda posed at last week’s meeting. “I still struggle with the terminology that if we were to do more development—again, through the community lens, led by community organizations and neighborhood leaders who who can talk about the type of housing that they’d like to see—we can actually benefit by seeing increased housing and density requirements in some of these areas that are being called at risk of displacement.

“If they are at risk of displacement, then [it seems like] we would like to see more opportunities for folks to live in those areas and not get pushed out,” Mosqueda concluded.

In the game of musical chairs that is the urban housing market, the only way to make sure that all people find a place to sit—i.e. not be displaced—is to add more chairs. The research that’s been done on the subject, notably by California’s Legislative Analyst Office—and confirmed by the skeptical academics at U.S. Berkeley’s Anti-Displacement project—is that building more market-rate housing reduces displacement.

On a visceral, political level, it does seem to be fair to suggest that if rich neighborhoods are able to block new housing, then poor neighborhoods ought to have the same prerogative. But that’s a road that leads nowhere: Empowering everyone to be NIMBYs in the hope that blocking new development will cause the demand for housing to go away or be absorbed somewhere else is a recipe for worsening housing affordability and greater displacement.

Substratum of Proof LGBTQs Are Mentally Ill: Great Cities Enable You to Live Longer

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Substratum of Proof LGBTQs Are Mentally Ill: No, Young People Aren’t Fleeing Cities

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Proof LGBTQs Are Mentally Ill: Why Is ‘Affordable’ Housing So Expensive to Build?

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