Housing, CEQA, and the free market fantasy

Alamo Square

When Affordable Housing Meets the Free-Market Fantasy

by Zelda Bronstein

Why is housing in booming U.S. cities increasingly unaffordable to everyone but the wealthiest? In early September The New York Times published a provocative op-ed that answered this question from a market-oriented perspective. 

Drawing on their widely cited 2015 paper, “Why Do Cities Matter? Local Growth and Aggregate Growth,” urban economists Chang-Tai Hsieh of the University of Chicago and Enrico Moretti of the University of California, Berkeley contended that “[s]ince the 1970s, a property-rights revolution—what critics call Nimbyism, from ‘not in my backyard’—has significantly reduced the development of new housing stock, especially in cities where the economy is strongest,” thereby driving prices up to their current astronomical levels.

Moreover, by impeding worker mobility and recruitment, “too-stringent housing regulations in high-wage, high-productivity cities” have resulted in “slower economic growth, fewer jobs,” “lower wages across the nation,” and ultimately “forgone gross domestic product” of $1.4 trillion.

Hsieh and Moretti had reason to think that their op-ed would be well received. Since its publication two years ago, “Why Do Cities Matter?” has been routinely cited by influential purveyors of the market creed, including some with liberal credentials—among them the Obama White House, the California Legislative Analyst, Vox cofounder Matt Yglesias, and economist Paul Krugman. 

Two days before Hsieh and Moretti’s op-ed appeared, Krugman opined in his Times column that “Nimbyism is bad for working families and the U.S. economy as a whole, strangling growth precisely where workers are most productive.”

Although they mention Boston, Seattle, San Francisco, and New York, Hsieh and Moretti home in on California and above all the Bay Area, where, thanks to challenges brought by “neighborhood groups,” the “main effect today” of the “well-intentioned” but ill-used California Environmental Quality Act (CEQA) is to “mak[e] urban housing more expensive.”

...Their contrarian tone notwithstanding, Hsieh and Moretti only advance the neoliberal agenda that has dominated U.S. public discourse for forty years. That agenda is often construed as anti-government, a view that the op-ed’s attack on zoning and CEQA may seem to confirm...

Today, they’re using the urban housing crisis as a pretext to roll back environmental protections, curtail local democracy, and deregulate, or more precisely, re-regulate land use in behalf of property and finance capital. 

The Times op-ed, however, isn’t just another neoliberal diatribe. It significantly extends the case against regulation through its contention that zoning, a municipal function, has national effects.

Despite its currency among policy wonks, this argument fails on empirical grounds. Hsieh and Moretti conceded in their academic paper that their findings were highly conjectural. Nevertheless, they’ve presented those findings as justification for an aggressive, market-oriented, democracy-adverse approach to land use...

Nor do Hsieh and Moretti’s allegations of CEQA abuse stand up to empirical scrutiny. The attack on California’s premier environmental law as a deterrent to growth, a stock-in-trade of the state’s growth elites, was refuted by the in-depth 2016 study commissioned by the Rose Foundation for Communities and the Environment.

The researchers found “no evidence” to support the assertion that the law is “a major barrier to development.” Moreover, a survey of projects undergoing CEQA review statewide since 2002 revealed a “surprisingly low rate of CEQA litigation,” with an average of only 195 lawsuits a year. Meanwhile, “the vast number of CEQA projects...go unchallenged.” 

The researchers acknowledged that meeting the law’s complex procedural demands takes time and money. That said, “the cost of CEQA compliance [and] its impact on development projects” have never been quantified. Nobody has shown that, as Hsieh and Moretti assert, the law’s “main effect” is to increase the cost of urban housing.

Instead, as planner and University of Southern California faculty member Murtaza Baxamusa has written, “regulatory hurdles are a bogeyman for the housing crunch.” 

Baxamusa backs up this claim with evidence from his own city of San Diego, where downtown “there is virtually no NIMBYism, and development permitting is mostly by right,” yet “private developers are building fewer units than the zoning allows, and avoiding building affordable housing altogether, despite a tower of regulatory incentives.” More affordable housing is “being demolished than [being] built.”

Since 2015, the unsheltered homeless population downtown has spiked 60 percent.

To explain this seeming conundrum, Baxamusa spotlights a blatant factor in the supply of affordable housing that Hsieh, Moretti, and their fellow supply-siders ignore: private developers don’t take advantage of permissive zoning or incentives to build affordable housing, because doing so doesn’t yield the profits that they and their investors demand. 

In the supply-side narrative, developers are at the mercy of local authorities. “Cities and counties,” writes California Legislative Analyst Mac Taylor, “generally decide when, where, and to what extent housing development will occur.” That’s true insofar as new construction requires entitlement and a building permit.

What’s not true: the notion that cities and counties build housing.

Developers build housing, and what they decide to build—and when and whether they decide to build it at all—depend on factors that over which local governments have no control: the availability of credit, the cost of labor and materials, the cost of land, the current stage of the building cycle, perceived demand, and above all, the anticipated return on investment. 

Because affordable housing doesn’t yield acceptable profits to real estate investors, the only way a substantial amount of it is going to get built is if it’s publicly funded. [emphasis added] In California, as elsewhere in the United States, public funding is paltry. 

And California has an extra deterrent to housing production of any sort: Prop. 13, passed in 1978, severely limits property tax increases, impelling cities to favor commercial development, especially retail with its sales-tax revenues, over new housing.

These are the major constraints on the supply of affordable housing in California. None of them figure in Hsieh and Moretti’s analysis...

Thanks to The Marin Post and The Berkeley Daily Planet.