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I've been enjoying asking basic math questions to destroy dearly held beliefs and I would like to continue. This one requires more intuition than cold basic math though, but it's in the same ballpark.
Let's talk about housing. Housing's so fucking expensive. Especially in desirable places! YIMBYs (or maybe abundance democrats) argue we should build more housing. A lot more. But what kind of housing? Who are we trying to help?
Well. Take a town of 150k people. A one bedroom in a decent part of mine is approaching $1600 a month and inventory is also frustratingly low across the board. Before we get to my actual point lets focus on an absurd toy non-solution first. Let's build 1,000,000 Connestoga huts across town and charge $450 a month in rent. This eliminates a lot of housing pressure but anyone but the most hardcore libertarian would recoil in horror at the thought because it would mean the town would be flooded with poor single people. Per capita tax revenue would plummet while per capita demand on public services would likely increase. Traffic would explode. Parks would be overrun with trash. Police would respond to calls by lottery. This would turn the town into a nightmare.
But we don't have to get this absurd! My contention is, because of progressive taxation, public services are diminished even if you build housing that the median income family can afford!
Looking at federal income tax, the top 1% pay almost 50% in federal income tax. The top 10% pay about 75%. State and local income taxes are structured in similar progressive style. What about sales tax? More tax is paid by people who spend more, and things that are considered essential (like food and cheaper clothes) are usually exempt. Property tax? Lots with higher assessed value and luxuries are taxed at higher rates. Public service spending is carried by the affluent.
For another intuitive look at this, a family with two kids in public school will consume $3000-7500 per month(!) in state expenditure. Public education costs alone dwarf the entirety of taxes most families pay (of which only a small amount is even earmarked for education).
Not just education. The Medicare and Medicaid we all know kicks in at the federal poverty line, but the thresholds for some kind of subsidies are high enough that a family can earn as much as $85,000 in a city like NYC and still qualify for some assistance.
This means every municipality has an economic incentive to refuse newcomers that aren't making potentially 90%ile household income. This means sure, build housing, but only 90%ile housing, or become poorer.
I would like to be wrong about this! It's frightening to think of every newcomer to your town as making it per capita poorer unless they're very affluent!
One weakness in this rationale is we don't have a solid accounting of all of the transfers. E.g. if 90% of education was funded through federal and state revenues, you could imagine purpose building a town just to have a lot of schools so that people with small kids move to it and pull funds from the rest of the country and state. But I think that number is more like 60% and a lot of the "state" funds are likely a matter of appropriation and will be distributed ~right back to where they came from.
I'm kind of surprised nobody else is pointing this out! Am I hitting on some truth neither side really cares to acknowledge because it doesn't support their favorite platitudes or am I just smart enough at economics to twist myself into a gnarly retarded knot?
EDIT: oh! one argument that I've heard from a grimacing YIMBY is that he is forced to admit I am correct, but that's why we can't do this on a local level. Instead we must mandate more housing be built on a nationwide basis (e.g. a federal #NoZoneZone authoritarian order) so any one town or city would be protected from all of the
poornot affluent people rushing to it at once and ruining it. This seems like a solution but I am still not convinced I am describing a true real and local deficiency.I'm actually not sure this is correct. The steel-man case for YIMBIsm is for market rate new construction, not incentivizing a bunch of Connestoga huts.
The marginal new construction unit is typically purchased by people above the median income in a given location.
This is obvious at an aggregate national level. The median sales price for new houses sold in the United States is $413.5k. At 20% down, prevailing 6.48% interest rates, and 30% of gross income spent on housing, this is a household income of $98.6k which is well above the ~$83k national median income.
In areas with higher housing prices the marginal income of home purchasers is also higher. For example the media sales price of all homes in California was $833k. While in Santa Monica the median sale price is $1.9MM. Connestoga huts are not competing for developer dollars in an area where the marginal sales price is in the millions. Because of Prop. 13 those purchasers are also paying far more in local property taxes towards local schools than people who were already locked in.
The nice married family with two kids moving into the new built house down the street is well above the average income, and therefore definitionally increases the per capita income. At the national level for example, married family households have a median income of $122.5k, again well above the unconditional median.
A marginal change in zoning will lead to a marginal change in the marginal new home purchaser. You might be able to make a reductio ad absurdum argument for the most extreme straw-man YIMBY, but the "official" YIMBY position is more like revise model zoning codes to allow triplexs where duplexs are now allowed.
I didn't say YIMBYism was about building lower income housing.
Sorry, I wasn't maximally clear in what I was even responding to.
You asked the question:
My answer is the kind of housing where there is:
With current aggregate zoning requirements, new market rate construction is on average purchased by families well above the median income family. Therefore you can make marginal changes to relax aggregate zoning requirements without reaching the point where
Further, because of effects from initiatives like Prop. 13, public services are not necessarily diminished by even a median income family making a housing purchase.
My basic math argument is: the marginal elasticity is sufficiently small, and the existing equilibrium is sufficiently far from public service collapse, that marginal changes should not produce a catastrophic phase transition.
Let's say for the sake of argument that sounds fine, but does this make a dent in housing affordability? I'm not sure the people arguing for build build build aren't imagining they're solving the problem of housing is so fucking expensive.
I keep thinking there's a NoTrueYIMBY fallacy.
Seems to be working out for Austin, TX, which has built an enormous number of mostly-market-rate housing units in the recent past. The people I know who live there generally think the city is thriving, and rents are actually decreasing. So I think the cities with massive housing issues (e.g. SF, Seattle, Los Angeles, Boston) should at least try Austin's playbook out here.
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