Landmark Links December 9th – Eyes on the Prize


Lead Story… As 2016 draws to a close, I think it’s safe to say that we can all expect the drumbeat of California housing crisis articles that have been picking up pace of late will continue well into 2017.  This is not at all a bad thing in and of itself since acceptance is the first step in the road to recovery no less than the Governor of CA and the President of the United States have recognized that California has a NIMBY problem.  We are likely to hear a lot in the coming months about how to go about fixing the issue at hand: not enough housing is getting built in the Golden State to keep up with the tremendous amount of demand coming from those who want to live here – especially in the large, vibrant cities near the coast.

Paavo Monkkonen, an associate professor of urban planning at UCLA wrote an op-ed in the Sacramento Bee last week with some suggestions about how California could ease it’s housing crunch:

First, California’s current Housing Element framework should be strengthened. It gives cities goals for new affordable housing but is now an almost symbolic exercise. Cities that fail to meet their targets should face fines or legal action, while cities that meet or exceed targets should be rewarded through infrastructure funding or other means. In addition, the state should reform the way it determines regional housing needs. The current system relies on population estimates, which underestimate the need in high-cost areas flush with jobs, amenities and public services. Vacancy rates or an affordability index would be more accurate and have a greater impact on affordability.

This seems entirely reasonable to me.  The biggest problem with the Housing Element framework as it currently stands is that it has no real teeth.  I agree with Monkkonen in that it needs to be updated.  This is a small step in the right direction but it’s a good start.

Second, the state must encourage a more diverse group of residents to take part in the planning process. Planners must actively seek meaningful input from families, low-income renters, young people and those unable to attend public meetings. If outreach is too cumbersome, cities should consider cutting off input that unduly benefits small groups. For example, neighborhood councils could be eliminated, as was recently done in Seattle.

Best of luck with that one.  In a ideal scenario, all stakeholders would take part in the planning process.  However, that just isn’t the way that the world works.  Existing home owners are always the most well-represented constituency in local government as they have typically lived in a given city longer than renters – meaning that they have a more emotional connection which leads to more involvement in the process.  They also tend to be more established financially – meaning more time and freedom to go sit though City Council and Planning Commission hearings.  Also, in many cases, renters have been inexplicably duped into taking up the NIMBY cause even though they are the ones that would benefit the most from more housing.  For example, tenant groups played a major role in killing Governor Brown’s sate-wide by-right development proposal earlier this year.

Third, some planning decisions should be moved from the local to metropolitan or state levels since housing and labor markets operate beyond city limits. Where neighborhood opposition is a persistent roadblock, developers could be granted “by right” approval for projects that meet existing rules, exempting them from some reviews and public input. California’s density bonus law – which grants developers additional density in exchange for a share of affordable units – is an important example of this kind of approval. The state might expand the types of projects that are eligible.

Of the three, this one seems the most unlikely.  It’s one thing to propose the state taking over some land use decisions, it’s another thing to actually achieve it.  As previously noted, this has been tried already by Governor Brown and it failed when labor union, environmentalists and tenant groups came out strongly against it.  Even if it had passed, there would have been numerous well-funded legal challenges almost immediately.  The NIMBYs aren’t going to give up their power that easily when they are the dominant force in local politics.
There are other potential solutions as my colleague Larry Roberts pointed out earlier in the week: renters are becoming a larger share of the California population and, while they might not be as active in local politics, they will eventually have the numbers and political clout to take advantage of California’s state-wide proposition system:
Perhaps California’s ballot initiative process could be used to defeat the NIMBYs. Eventually, if we continue to say no to new housing, California will become a renter state, and renters will become a significant voting block. The problem could be solved in one swoop if renters passed an anti-nimby initiative. With no big-money interest on the no, nimbys might find a unified and pissed off renter class imposes an unpopular decision on them.
Before then, the (Fair Housing) act was meant to prevent overt cases of discrimination against minorities–such as hanging signs that exclude certain races or nationalities–which is defined as “disparate treatment.” The Supreme Court ruled in 2015 that the act also outlaws policies that have a negative “disparate impact” on minorities, even if those policies aren’t intentionally discriminatory. As Justice Anthony Kennedy wrote in his majority opinion, “in contrast to a disparate-treatment case, where a ‘plaintiff must establish that the defendant had a discriminatory intent or motive,’ a plaintiff bringing a disparate-impact claim challenges practices that have a ‘disproportionately adverse effect on minorities’ and are otherwise unjustified by a legitimate rationale.”

The decision has since been celebrated by Cato Institute economist Randal O’Toole as a way to abolish certain land-use restrictions. In several speeches, along with a white paper for the Grassroot Institute, O’Toole argues that such laws, while not written with intentional bias (at least not provable bias), nonetheless disproportionately hurt racial minorities. He notes that various regulations, such as zoning, rent control, and urban growth boundaries, have been found demonstrably to increase housing costs. And because certain groups–such as African-Americans–have lower median incomes, these regulations have a “disparate impact” on them, often driving them from select cities.

 What I find compelling about updating the Housing Element, renters growing their political clout at the ballot box and using the Fair Housing Act to scale back the exclusionary zoning that NIMBYs rely on is that they all have fairly well defined paths to implementation – whether they would be successful is another story.  The problem with saying that some planning decisions should become the state’s jurisdiction (assuming that this is even desirable – which I’m not at all certain that it is) is that it’s a bit like me saying that I could travel back in time if I had a time machine.  While technically correct, there is no reasonable path to actually achieving it.


Freak Out: Amazon is opening an innovative grocery store concept with no cashiers or checkout lines leading many to freak out about it leading to less employment.  The irony that this is happening in Seattle, the first major American city to implement a $15/hour minimum wage should not go un-noticed.

Stumped: Contrary to popular belief, the biggest problem with today’s economy may be that gains in science, medicine and technology are slowing at least partially due to risk aversion.  See Also: Silicon Valley is struggling in the world beyond software as real-life constraints like human nature and the laws of physics come into play.

Peaked: The supply of American high school students has stagnated, posing challenges for colleges reliant on increasing their student bodies and tuition to match their ever-growing expenditures.


Bucking the Trend: Malls have suffered in recent years as online shopping has taken off.  However, there has been one segment of the mall market that has actually been booming: the very high end, especially in LA.

Fall From Grace: Earlier this year, REITs were given their own S&P 500 sector.  Around that same time, it was widely publicized that real estate in general and REITS in particular had outperformed stocks for a long period of time.  Chalk it up to bad timing but REITs have been the worst performer in the S&P 500 ever since.


Holiday Spirit: Both FHFA and FHA raised their conforming loan limits for 2017.  While it wasn’t as much as I would have liked for some regions, it could be enough marginally to get some potential first time buyers off of the sideline.

Heartless: NIMBYs showed up en masse at a City Council meeting to oppose a 22-unit affordable housing project for veterans in Poway, CA. The gutless council caved to NIMBY wishes and now the veteran housing won’t get built because NIMBYs basically suck.

New to the Neignborhood: Blackstone has filed for an IPO for Invitation Homes, it’s $10 billion bet on the rental home business.

On the Move: WiFi and laptops are killing the traditional home office by turning the entire home into a workplace.


Book Club: I’ve read pretty much everthing that  Michael Lewis has ever written.  His new book about the two men who pioneered the field of behavorial economics looks great.  See Also: How Daryl Morey  used behavorial economics to revolutionize the art of NBA draft picks (an exerpt from The Undoing Project: A Friendship That Changed Our Minds by Michael Lewis).

Chart of the Day


Exposed Collateral – A sketchy Chinese peer to peer lending site that allowed women to borrow money secured by naked pictures is coming under fire after the site was hacked.

Unusual Lease Clause: A Colorado landlord was recently accused of having sex in his tenant’s bed and then using said tenants’ wife’s wedding dress to clean up the mess.  The tenant found out because he walked in on him in the middle of the act after the landlord had come over unannounced.  I know that the rental market is tight these days, but this is ridiculous.  (h/t David Landes)

Mile High Club: There is now a Tinder for air travel app to help you hook up on planes proving once again that necessity is the mother of  invention.

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