Who Causes Problematic Housing Demand?

Not you and I, of course!

On its face, the housing question is a very simple one. It’s a fundamental need that human communities have been capable of meeting since we left the proverbial cave. But, it requires a durable asset that brings with it a whole host of permanent implications, including who will use it tomorrow, next year, in twenty years, etc. All the baggage that comes with that means that community reactions to its externalities are turned up to 11 in a way that reactions to consumption decisions about food, clothing, etc. are not. We want control over those externalities.

So, a simple issue - people need a roof over their heads - ends up being a very complicated one - who exactly gets to decide what that roof looks like and where it will be.

The automobile allowed us to avoid those difficult questions for the last century by mostly building homes where there weren’t many people who might assert their control. That led to sprawling metropolises, for good or ill. But, possibly, more importantly, it left us with a decades of atrophying political conventions about negotiating the control residents should expect to have over changing conditions and changing populations.

In a way, our mistaken mortgage regulatory reactions to the Great Recession, by killing the entry-level new single-family home market that had been facilitating greenfield growth for most American cities, has forced us to face up to this issue. The need for new homes didn’t go away, and the remaining sources of new housing are more likely to be investor-funded, multi-unit, and infill development. We tripped and fell into the lair of the fattened up, hibernating NIMBY monster.

Anyway, that is all a bloviated way of saying that treating housing as an “affordability” problem is a bit of a distraction. One way this distracts is when complaints that purport to be empirical are really just dressed up assertions of rights (or, more precisely, the lack of rights). Actually, I would say that housing is just an especially good example of the broader political rule that political solutions have much more to do with who we consider coercible than they have to do with what would solve the problem.

Arizona is currently considering a landmark housing bill (SB1117) that addresses these issues by reasserting some pretty basic building blocks for creating a growing metropolis, such as creating the presumption that it is legal to have dense multi-unit housing near mass transit rail lines.

Municipalities are the keepers of the NIMBY monster because they are the selectively democratic institutions who are in a position to choose insiders and outsiders who either have rights or do not. The selectivity is created by who can vote in municipal elections, and our main way of mitigating their overreach and exclusion is through broad principles mandated at higher levels of government.

Here is a good example of this confusion of empirics and rights from a Twitter account called “AZ Neighbors”, who shares a presentation from the “Maricopa Association of Governments”. It is a 7 tweet thread.

The last 3 tweets claim that there are plenty of new units under construction and in development to meet demand for housing in Phoenix without resorting to infill development that wakes the monster. The first 4 tweets are claims about various sources of housing demand that are driving up housing costs:

• “26% of housing stock is investor or seasonal-owned. Maricopa County accounts for 52% of that. Their purchases drive housing prices up by reducing available stock.”

• “15% of buyers in the Phoenix MSA are out of state, paying a 14% higher median sales price, driving prices higher.”

• “19% of sales in Maricopa County in the 3rd Qtr. of '22 were from large corporate buyers.”

• “Although Short-Term Rentals only account for 1.4% of total housing stock, the local impacts can be significant. In Phoenix STRs represent over 7,600 units that could be used for housing, & in Sedona STRs make up over 27% of their housing stock driving prices higher.”

This is presented as “data”, but it’s really just a “list of interests who don’t have local democratic representation.” I mean that literally. That’s all this is. You can understand why these municipalities would present it this way. But, it is important to keep in mind that this thread is not “data” in any meaningful sense of the word. It is one thing and one thing only: a description of the imperfections of democracy in practice, which we need state and federal governments to corral.

SB1117 is addressing a fundamental governance need. Is it a perfect bill, or the right bill? I’m not sure if that can be answered, but it is a necessary bill, and MAG is spelling that out for you quite literally. The fundamental processes through which cities are made is outside the Overton Window of the democratic institutions that are governing them. Some form of a metropolitan bill of rights is the only solution.

It is possible that a different historical path could have brought us to a place where these municipal institutions could have been a part of the negotiation toward managing the evolution of the metropolitan area they are a part of. That is not the path we are on.

This issue doesn’t just apply to them, however. It is very common to see some sort of “data” presented as empirical evidence of the problems created by some source of housing demand. Some academic paper showing that STR’s increase local rents by x%, or foreign buyers increase local prices by x%, or corporate investors decrease local homeownership by x%. In every case, these purported empirics are simply a self-evident mathematical observation. At best, they are a measure of supply elasticity, and in fact are evidence of the actual problem - inelastic supply - behind high costs. The only reason that, say, foreign buyers would have a significant effect on prices is because there are some binding local regulations preventing new supply.

These claims are duplicity. The “data” means nothing. The conclusions of these studies, should you ascribe any to them, are purely the result of their construction. If the group being measured as a source of demand is treated as an independent variable to be analyzed, then it is simply being identified as a group that is coercible. Everything you need to confirm that they should be coerced has been established before the first cell in your spreadsheet has been populated. Everything else is just answering the question, “All else equal, does more demand raise the price?” Well, no shit, Sherlock.

These are not easy problems to address! Short term rentals pose real issues for neighborhood comfort and safety. Some families can be displaced by infill development. It is not irrational to worry that your surrounding neighborhoods are being populated by new residents who have different values than you do or who may be more prone to irritating behaviors. There are no perfect solutions to these problems. They will involve a difficult negotiation about who must compromise.

This MAG “data” mostly just makes the point that our municipalities, in their current form, are wholly not up to the task of addressing these difficult problems. Don’t be like MAG.

Difficult problems like this lend themselves to prejudice, because prejudice makes problems easy to solve! It is a mirage. A fool’s errand. You can puke on all the Google busses that you like, but tackling the housing problem with a list of prejudices about who is welcome and who is not only brings discord. Trying to Solve difficult problems with prejudice is actually bad.

There’s no getting around the difficulty of shared needs in a free society. And, if someone is engaged in the “corporations/foreigners/speculators/STRs are pushing up our home prices” game, they might be delaying the difficult process of compromise, but they’re doing it at the expense of their own relevance (and, of course, at everyone else’s expense, in the meantime).

Another way to be ineffective at politics is to accuse detractors of being prejudiced. Calling people engaged in prejudicial thinking prejudiced is a surefire way to coax them into a defensive corner. (I know. I’ve been in both positions.) But, any issue that is important and difficult, like housing, requires a careful assessment of who can be part of a pluralistic majority and who will refuse to be.