Kaus’ House

Mickey Kaus has a post up comparing & contrasting two NYT stories on the housing market. Since this (unlike, say, energy) is something I actually know something about, I’m just thrilled to lay out why both stories are true, and his concern misplaced.

The stories he quotes can be found under his Friday, November 28 dateline, so scroll down. Does anyone out there know how to link directly to his stories? If not, Mickey, if you read this, could the MS folks help you out on this sometime? Helllp….Back to the issue at hand. They have the following ledes:

“Apartment Glut Forces Owners to Cut Rents in Much of U.S. … While rents have continued to rise in many big cities on the coasts, including New York and Los Angeles, they are falling in more than 80 percent of metropolitan areas across the country.”

NYT, David Leonhardt, November 29, 2003

and

“Poor Workers Finding Modest Housing Unaffordable, Study Says… With the rise in housing costs outpacing that of wages, there is no state where a low-income worker can reasonably afford a modest one- or two-bedroom rental unit, according to a study issued today by the National Low Income Housing Coalition …. “When low-income families are paying so much of their income on housing, they are left to skimp on other necessities like food, medicine, clothes and time spent with children,” said Sheila Crowley, president of the National Low Income Housing Coalition.”

NYT, Lynette Clemetson, September 9, 2003

Here’s the deal. The housing market isn’t “a” market, it’s a collection of submarkets, each of which has links of varying strength to its neighbors. The submarkets are defined loosely by cost and location (there are other social/cultural selectors as well, but these two really drive the markets), each of which serves to isolate a submarket somewhat from its neighbors. In my personal case, I can’t legally move (under the terms of my Marital Settlement Agreement) from an area roughly one mile on a side – but other people are also connected to a location, by schools, jobs, or family ties. They can’t simply pick up and move to another region of a city, much less another a city, because of job issues or social ties. This means that they can’t transparently make the economically rational choice to move from, say Los Angeles to Pahrumph Nevada. They do – at increasing rates, as many of the low-housing-cost regions see some measure of population inflows. But the reality is that many low-housing-cost regions are also low-wage regions, so the choice isn’t quite so easy to make.

And within a geographic area, there are a series of horizontal markets defined largely by price (although obviously the low-cost ones tend to cluster in or within neighborhoods). And it’s here that we see the explanation for both articles – apparently contradictory but equally true.

At the top of the rental housing market is luxury or near-luxury housing, which competes with for-sale housing for tenants. They have the means and credit to buy a home, should they choose to, and when interest rates are low and the housing markets are strong, they do – sucking much of the demand out of the top of the market.

Below that – all the way to the bottom, if we choose – is a series of markets of people who realistically are not going to be confronted with the option of homeownership anytime soon. The pressing issue in those markets is simply affordability (which gets tweaked, as Mickey notes, but only because the rents in the marketplace are so high and costs of new development so expensive that otherwise no landlord would rent to certificate holders and no developer could afford to build new affordable housing – note that I’ll question whether they should build new affordable housing, but that’s a policy argument for another day).

Make sense?

So in the submarkets appealing to high-wage workers, they are abandoning rentals for ownership (probably a good thing). In the submarkets available to low-wage workers, they are increasingly crunched between flat incomes and rising rents.

Both are true, and there’s nothing to bust anyone over, so move right along…

8 thoughts on “Kaus’ House”

  1. Are you saying that rents are falling in yuppie submarkets because yuppies are buying homes due to low interest rates, while rents in low-income neighborhoods are rising because of low supply and flat wage growth?

    Are you saying that Section 8 is vastly underfunded and in danger of being cut, even while poverty is on the rise?

  2. Well, I think Hope VI, for all its flaws, did some good things. I guess I don’t know much about how expensive Section 8 is, and I’ll have to read up on that.

    In general, though, I think that there needs to be sort of a “third way” for low-income housing markets. Market-based policies that discourage landowners from sitting on vacant properties are a good start, as are streamlined review processes for new urban construction.

    Here in Pittsburgh, in order to get anything built, you need to before several different review boards or commissions, in part because city planning has been downsized to the point where they’ve largely outsourced the review process. This means that it takes a long time and lots of money to get anything done.

    Cities need to develop fairly rigid criteria that increase certainty and reduce costs for developers, without detracting from safety, aesthetic, or other concerns.

  3. The tax cut for the rich made the decision to move to low-housing-cost areas much simpler. Being able to keep the difference between what we got for our run-down little building in Chicago and what we paid for our mansion in Milwaukee moved us from working poor to middle class.

  4. Kaus’ confusion highlights something that habitually annoys me about the New York Times’ stories– they tend to describe these kinds of trends as though they affect “everyone,” when in fact they’re really only applicable to people with middle-class incomes.

  5. Lord where to start…Kaus is so wrong he makes my head hurt! The Bipartisan Millenial Housing Commission completed a study on May 30, 2002 that identifies Affordable Rental Housing as a screaming need. 22 million families are paying rents that are unaffordable, many are paying rents that are over half their incomes.

    Mickey actually suggests that high end units can be rented by lower income families. Haw! The rents he cites $750 + per month would be close to 50% of the Nationwide Area Median Income. I wonder if he thinks he could live on 50% of his net income? For more detailed post see my blog.

    Kaus needs to get out of LA more!

  6. Housing prices on the coasts (and a few inland enclaves) are artifically inflated by a whole series of local regulations which make development and construction difficult and expensive. There’s a report (pdf) which shows how restrictive zoning drives prices of land upwards, primarily in the coastal metropoles. Meanwhile, liberal do-gooding has eliminated, for safety and aesthetic reasons, many of the really cheap private housing options available to poor workers (or welfare recipients). Without a large supply of new housing, the rents which landlords can command for old, run-down buildings stays high.

    Compare rents at Craigslist Las Vegas and Craigslist San Francisco Bay Area. Getting something built anywhere in the Bay Area is a difficult, arduous task best undertaken by the patient and politically well-connected. As a result, new housing tends to be large luxury housing or subsidised, neither of which increases competition for lower-rent tenants.

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