Why the poor are screwed.

by w3woody

Cory Booker Proposes Bill to Curb Exclusionary Zoning

Democratic Senator and possible 2020 presidential candidate Cory Booker has proposed a bill to curb exclusionary zoning, a practice that massively increases the price of housing in many cities and cuts off millions of people from job opportunities. Booker deserves credit for being one of the very few national politicians to highlight this enormously important issue. If enacted, his proposal would be a step in the right direction, thought it would probably have only a modest effect.

As they say, read the whole thing.

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I agree that exclusionary zoning has exacerbated the problem of housing prices–especially in areas such as California, where it is virtually impossible for lower-middle class and poor individuals to afford a place to live. Constraints in supply have led to rising prices in a perfect example of the Supply/Demand curve in play.

However, at this point changing zoning laws to allow old neighborhoods to be replaced with apartment complexes will not help the poor–and in fact, may make things far worse.

Here’s the problem. Right now, nation-wide, housing costs roughly $100/sqft to build. (My parents are in the building industry–and many areas, such as California, are seeing construction costs closer to $130-$150/sqft to build.) This implies a 500 square foot apartment (which is rather small by today’s standards) would cost between $50,000 to $75,000 to build. Assume it is rented out for 1% of the purchase price (which is a reasonable guesstimate here), and you’re talking about an apartment that would rent for around $500 to around $750/month, depending on the construction price. Using the National Low Income Housing Coalition’s guideline that someone should spend around 30% of their income on rent, and that implies apartments only affordable to those who make between $11/hour and $16/hour.

And these are perfect storm numbers; meaning I’m assuming these apartments are built without any profits going to the building contractor (that is, the construction costs I’m citing are hard costs, assuming the contractor forgoes his profits), that these apartments are built with the absolute minimum acceptable size (note 500 sqft is considered the threshold to “tiny apartments”), and these apartments are built on the idea everyone involved makes minimal profit.

In practice, there are a lot of headaches going down this route. It’s why new apartment complexes being built around the country are being built larger (around 1,000 square feet is not atypical), and building contractors don’t like working for free. This means new apartments being built typically are renting for $1,000-$1,500 or more–which is only affordable if you earn around $30-$35/hour, which is close to the average family income rather than the lower end of the socioeconomic scale. And often new apartments are being build as “luxury apartments”–larger apartments demanding much higher rents with amenities which target them squarely to the middle- and even upper-middle class, such as young IT professionals who often are paid $80k-$120k/year.

It’s why, in areas where you are seeing a lot of new apartment construction, you’re also seeing serious problems with affordability: the new housing stock is being targeted to the wrong audience, strictly for economic reasons.

Now, the only housing that is affordable to the poor–without substantial government subsidies–are older houses and older buildings in areas where the value of the property has declined since its construction. That’s because the construction costs are sunk; the only costs necessary to provide apartments to lower-middle class and poor individuals are maintenance–and in some poorer areas (such as here in rural North Carolina, or areas of rural California) you see a lot of poor families who own houses that they’ve inherited–houses that have a lot of costly maintenance that has been deferred for financial reasons.

If you bulldoze those older houses in older neighborhoods to the ground and build apartment complexes–you’re basically wiping out housing stock affordable to the poor and replacing it with housing stock targeted at the middle class. By definition.

And this is why I’m concerned when we talk about eliminating exclusionary zoning. Because in essence what we’re really talking about is targeting older, poorer neighborhoods–older neighborhoods with relatively lower-density housing, such as areas of South Los Angeles (formerly South-Central Los Angeles) which has thousands of cheaper bungalows and inexpensive older apartments–bulldozing them to the ground, and building shiny new apartment complexes the residents of South Los Angeles will no longer be able to afford.

Instead I would like to see a continuation of “outer ring” development: instead of replacing cheaper older housing stock with new and more expensive housing, I’d like to see additional “outer ring” development of relatively inexpensive apartment complexes which target the middle class. Otherwise, what you’re doing is making it impossible for anyone making less than perhaps $50k/year to live there.

And that “outer ring” development implies a more coherent transportation policy than we see now–including a mix of mass transit (busses, light rail) and expanding existing car infrastructure (such as expanding highways and improving surface street transportation). Unfortunately improving auto transportation infrastructure is a political non-starter, as is leaving older, less aesthetically pleasing but cheaper housing stock alone–which is why, especially with Mr. Booker’s proposals–the poor are screwed.