We’ve had some recent calls from the urban inter webs not to disparage market-rate housing, which, shrug, I suppose. To me, standing up for market-rate housing is a little like trying to make sure everybody knows the homecoming queen is nice as well as as pretty. Or that Dan Brown writes marketable books. We know that–it’s been demonstrated in markets. Markets don’t need to justify market-rate and above supply–the private and social values are established in the trade–see Pareto–unless there are externalities to the consumption or production, which can be discussed as such. I doubt anybody really dislikes market-rate housing except that it is all that gets built, and lots of people do not like development near them of any kind, period.

Ok, cue: all the boy urbanists on Twitter WHO NEED TO EXPLAIN TO LISA TEH MARKET IT’S THE MARKET LISA.
HERE’S WHATCHA NEED TO KNOW, L’IL GIRL. Now that we have this out of the way, we can go on, and y’all can explain economics to me again today because if there is one thing Lisa needs, it’s armchair economists to explain things because I only work in a building with eleventy dozen real economists who tend not to agree on all the things that Twitter wants to ‘splain to me.

Kurt Paulsen and I got into a relatively detailed discussion of my quip about the UI map released from CityLab where I noted that zoning and California regs, usually the favorite whipping boy of everybody everywhere…can’t explain pretty big portions of the map.

To wit, I am not suggesting that zoning is not a binding constraint in some locations. But there are parts of that map where there are big deficits in affordable units in locales where land is basically free. Zoning cannot be a constraint in those locales. Something else is going on, and that something else is probably that people are too poor and there is insufficient density for there to be a multifamily market at all.

Now, I am having trouble in general because counties do not zone, and they do not generally have restrictive building regs. So this map is already a problem for asssigning causation in that direction. There are undoubtedly places where you can use county proxies for zoning because a sufficient amount of the county is covered by a city which actually does zone. But there are other places where that assumption is not going to serve you well, where assuming that exclusionary regulations cover the entire geography is going to be really misleading.

I’m not convinced by that all the arguments that came my way last night via Twitter that zoning is hamstringing the productivity in urban areas so that people in the countryside are suffering. Cities may boost national productivity numbers, but that is a function of aggregation, not necessarily of strong economic spillovers. It might be that lack of growth in cities ultimately dampens demand for whatever Iowa supplies to cities, but the regional distribution of economic growth over the past four decades suggests that whatever economic spillovers there might be are weak.

But then the Iowans could move to the city if the housing were not so expensive. And that’s true….and yet they have had fewer constraints on migration than people internationally have, and yet there they are, still in Iowa, while I have crazy people telling me we need a wall (even though we already got one) because California and New York are too full of immigrants. People should be able to move to where the jobs are, sure, but I also think David Imbroscio has a point: people should be able to stay home and live a decent life, too.

Anyhoodily…my question today concerns downward-raiding. The market is supplying units at specific price points, and when there is a chronic undersupply of housing at all price points, the argument goes, then people at higher incomes will downward-raid. I’ve been brooding on this term ever since Kurt used it. Downward-raiding means that people buy or rent below what they could technically afford, making those units unavailable for people at lower incomes who might have the use of them were they not tied up with relatively higher income occupants. This happens all the way down the chain so that those at the lowest income levels wind up spending way more than they can afford to get housing.

Again, fine in theory, but the assumption here is that there is income distribution in cities and that it is smooth in some way…so in theory, I should be able to show downward stretching by pointing to an increase in households who are paying less than the longstanding rule of “30 percent of income for housing.” The only problem is that nobody actually seems to believe in the 30 percent rule. Here is a nice piece from Bloomberg that quotes one of my favorite VT peeps, David Bieri on why the 30 percent benchmark is a problem.

Ok but without that benchmark, how can we build any empirical story around downward raiding or upward stretching at all?