Follow Up: Market Segmentation in Housing

Things are moving fast these days.

Texans for Reasonable Solutions, among others, has helped push through a number of housing reforms in Texas.

Maine has passed a couple of bills that should allow more step-change urban development, as I put it in the “Market Segmentation” post.

And California has suddenly gone YIMBY. California YIMBY (again, among many others) has somehow pulled a rabbit out of their hat. Major reforms are getting near unanimous support.

The governor just signed legislation that gets rid of CEQA abuse on new infill housing, and SB79 passed the California senate and is being debated in the house. It would legalize step-change multi-unit housing across the state everywhere that is within a half mile of a public transit stop.

Greg Morrow, a real estate scholar at UCLA created this chart to show the evolution of zoning in Los Angeles over time.

By 1990, almost all growth in the housing stock had to seek special permission. Los Angeles went from broadly allowing step-change housing investment in 1960 to broadly obstructing it after 1990. Then, Los Angeles became very expensive. And then urban economists decided Los Angeles must be a superstar because people will pay so much to live there.

NIMBYs never quit, and in California, these things tend to get larded down with golden handcuffs.

ED-1 was supposed to have golden handcuffs. It was an ordinance passed in Los Angeles that exempted new below-market rental units from many of the delays and obstacles that make housing in LA so expensive. It served as a proof of concept - that all those delays and obstacles are the reason LA rents are so high - because after it passed, it succeeded with flying colors. Developers started pushing through affordable new homes all over the city. They could build them profitably when the city allowed them to.

So the mayor killed it.

So, it’s never over until it’s over, but SB79, together with limits on faux environmentalist lawsuits against infill housing construction, look like they could be transformative. They could move that black line back up in Morrow’s chart. They could lead to more step-change development. And they could reverse filtering so that continuous change in Los Angeles home values would now again filter down - becoming more affordable as houses age.

We might be living at a turning point.

Here is a video from some California NIMBYs. The video does a really good job of highlighting how effective SB79 would be. There are good visualizations of the scale of step-change growth that the bill would allow, and estimates of how far the holding capacity of Los Angeles would move.

In reality, of course, these changes would happen slowly over the whole city. Los Angeles isn’t going to double its population in 2 years, or even 2 decades. But, California may have just made city-building legal again for the first time in at least 35 years.