How big are the buyer and renter gains from SB 827?

This article considers a counterfactual thought experiment: how would California’s housing market be different today if a policy currently under consideration in the California Senate—SB 827, which would allow new residential building along public transit corridors—had been implemented six years ago? I estimate that rent would be 5.8 percent lower in San Francisco, a savings of $266 per month on the median home, and 4.2 percent lower in Los Angeles County, savings of $124 per month.

That is from Salim Furth at Mercatus, here is much more.  You will note those numbers do not include the higher output and innovation from a more efficient allocation of talent.

Here is Salim’s podcast with Matt Yglesias and Emily Hamilton.

Comments

So the answer is: not much

So there isn't enough sprawl and traffic to make you happy we need the state to over ride the people to force more sprawl and traffic on them. How is that good, legal and just???

By the way, here's an interesting article on the lack of earthquake safety building codes for skyscrapers in California:

https://www.nytimes.com/interactive/2018/04/17/us/san-francisco-earthquake-seismic-gamble.html?hpw&rref=us&action=click&pgtype=Homepage&module=well-region&region=bottom-well&WT.nav=bottom-well

I know that in L.A.'s San Fernando Valley, there are big differences from block to block on how badly the ground shakes depending upon whether it's sand / gravel from old flood plains or its firmer ground between rivers. For example, my parents' house came through the 1994 Northridge earthquake with only some unreinforced masonry structures (chimney and backyard wall) collapsing. A couple of blocks away, quite a few 3 story apartment buildings built on the floodplain of the Los Angeles River collapsed, dropping into their underground parking garages. Fortunately, most of the residents were asleep in their beds at 4:18 am and merely experienced a terrifying one-story fall.

Looking at a preliminary SB827 map for the SF Valley, it appears that it would encourage much high rise building on the Los Angeles River floodplain.

That might not be such a good idea.

45-85 feet is neither a high rise nor a skyscraper. Let's not pretend the housing restrictions is California have been purely about earthquake safety. The solution would be to allow the building as long as X earthquake regulations are met.

The state is overriding the people? The government is preventing the development. How about letting the people do what they want with their property?

An extra $266 a month is not small change to the majority of Americans.

But it is to people paying median rent in San Francisco. Enrique Guerra-Pujol isn't saying that there aren't savings, but the hype over the bill would lead one to expect dramatic savings. 5.8% is not dramatic (especially when you consider any type of estimation error, which is not reported in either link... there is not "much more" in the much more link).

"5.8% is not dramatic"

I disagree. A 5.8% marginal gain is huge. More than likely the average person in that cohort probably has less than 20% of their money left after accounting for their normal expenses in a month. Many of them probably have less than 10%. This represents a significant increase in discretionary spending.

"especially when you consider any type of estimation error,"

Now this is a good point. The comparisons the author used to arrive at the conclusion are pretty speculative.

Insert Nancy Pelosi comment here.

"So the answer is: not much"

Nor is there any discussion associated with the subsequent higher costs of increased commute times, greater fuel usage, and eventual costs of roadway expansion.

Not much, but it's a start. More can be done in the future to allow for more and more housing.

+1 Significant and a good start.

I just love the idea that when your home value drops, it's a great thing, because it's a "Buyer Gain"!

Nope, no bias here!

What is this "drops" of which you speak?

My California home bottomed in 2010, and since then I've had a 54% increase. Not bad for 8 years. I can give a little of that up for affordability and the next generation.

In California, the laws of supply and demand are reversed because failing California with massive population loss to Red States has prices rise as demand falls, prices rise as people get poorer.

Must be because California government messes with the economy, building capital assets no one needs, like roads, transit, water, sewer, (the private sector won't build them, so they are not needed).

Massive population loss? California is both the highest in-migration and out-migration state, and population has been steadily growing at +300k a year each year the past decade. You should update your fictional-narrative

When you say "This will reduce the cost of housing!" I hear "This will reduce the value of your house!", and I am not alone.

So keep the value of your house artificially high by restricting your neighbors' rights to do what they want with their land.

I'll just drop this here for the California haters to chew on (gnash their teeth):

California Leads U.S. Economy, Away From Trump

California is a fantastic state to live in - if you are rich. Let me count the ways:

Most expensive ( or nearly so):
1. Housing
2. Gasoline
3. Energy (electricity - turn off the AC)
4. Water (keep that shower short, no landscape watering except in water pig LA, install that low flow high failure toilet)
5. Public pension benefiits - 3% at 50 for law enforcement and fire - 2.5% at 55 for everyone else
6. Regressive taxes and fees: utilities, fuels, fire protection
7. Sales taxes.
8. Homeowners insurance
9. Most people on public assistance
10. Most illegal aliens

Most horrible:
1. Schools, 49th in USA, except wealthy neighborhoods
2.traffic
3. Infrastructure - roads, bridges, flood control
4. Social capital - bowling alone
5. Gang warfare
6. Illegal immigration - parts of the state have become 3rd world sh*thole countries
7. Drug and alcohol abuse.
8. Crime related to 5, 6, and 7
9. Homelessness - we now have tent cities

I have been in CA since I was 20 - a total of 44 years, and this state has been destroyed by illegal immigration. It went rapidly downhill rapidly after Simpson/Mazzole. Ole!

California is a fantastic state to live in - if you are rich - or if you want to be.

That sounds like America. I mean, not the lousy public schools. And inequality in America ain't nearly so bad as California.

Still, the kind of attitude I expect from a good capitalist.

That's they irony in a nutshell, Brian. You've got to go all liberal on us and complain about the lack of transfer from Cupertino to Modesto.

Is California not socialist enough?

For whom? It's plenty socialist for me. I made no complaint.

You're the one that wrings his hands about everything wrong with America, but all these criticisms melt away in sunny Cali.

I am afraid you are caught in a contradiction, sir.

California generates great wealth not because everyone in the state is a database architect or a movie actor, but because such architects and actors have the framework to prosper.

If you worry about "lousy public schools" and "inequality" you are worrying about those not seizing that capitalist potential.

If you want better schools and less poor people in Modesto, you want more transfers. You want more socialism.

Stop talking like a sausage.

You made a comment about aspirational California. I largely agree with what you said.

Many others have made a similar argument about aspirational America., viz.: "America is a fantastic country to live in - if you are rich - or if you want to be."

I also largely agree with that comment. Do you? Cuz it has a Horatio Alger vibe to it that I hadn't gotten from you before. That's all.

You just wanted to nag about inequality and schools.

Nope. You are defending Cali on the same grounds that a lot of people defend America, but liberals are not generally fond of that argument as it applies to America and tend to focus on problems like inequality instead.

Good for you. Make the jump. Yay California. Yay America.

BD is right. If anything CA is like America distilled. Or heightened. Or avocado-infused.

OK, so California is America distilled. Or heightened. Or avocado-infused.

Where does that leave the libertarian argument?

We circle back to my point. And again it is very strange for anyone to attack that by taking on sheeps clothes so to speak.

I live in Malibu and California is fucking AWESOME! Beautiful weather, beautiful girls, sparkling sunshine. Y'all are just fucking jealous -- and you know what? You should be! Ha ha haaaaaa!

Simpson - Mazzole

https://en.m.wikipedia.org/wiki/Immigration_Reform_and_Control_Act_of_1986

"Approximately 53.3 percent of all VC capital went to California companies" - link

One of the great ironies of California "skepticism" is that it is all funding on the impossibility of reality.

In your mind is this comment actually responsive? And is the height of income and wealth inequality really where you want to plant your flag? Lastly, could you tell me which policy was enacted to ensure that California had excellent geographic features, because I'd really like to replicate that progressive success in the midwest?

Except for the typo, I like it.

One of the great ironies of California "skepticism" is that it is all founded on the impossibility of reality.

All the free market fundamentalists think that they should be doing better, we should be doing worse.

When theory doesn't match reality, abandon reality, am I right?

This is an economics blog. I think you missed the off ramp for Crooked Timber. Or maybe Reddit/latecapitalism.

Ceteris paribus. A phrase you need to learn.

I love California, and have lived there my entire life. The government is dysfunctional but the geography and Brown’s massive investment in the UC and CSU system in the 70s? are both reaping dividends.

Go Warriors!

People want to live here. They’re willing to pay a lot to live here. Poor people get crushed of course, which is why we have the highest PP poverty rate per capita. But then, liberalism was never about actually helping the poor. Or prop 13 would be gone and massive skyscrapers would be rising in Oakland and SF.

But hey they’ll vote blue. California Dems will donate to the Sierra club, but they won’t let brown people into their school district. But hey they voted against Trump.

I am exactly on the topic of this blog, and probably in line a bit with Tyler's thinking.

California works.

California works even when a certain Theory of political economy says it should not.

By the way that massive investment in California universities is one of the things many commentators in this blog would say should not work. They live in States cutting University funding on Theory.

"California works.

California works even when a certain Theory of political economy says it should not."

Ceteris paribus, as above. Which policy created your geography, as above.

"By the way that massive investment in California universities is one of the things many commentators in this blog would say should not work. They live in States cutting University funding on Theory."

This just isn't true.

Pick a state, Thomas. Tells how the absence of government creates higher growth, without natural endowment.

If you are going to say California doesn't count because weather, certainly Texas doesn't count because oil.

California largely got lucky that Silicon Valley and Hollywood are located there (as well as the best ports on the West Coast). You could argue that irrigation projects and the way that they set up and invested in their universities was far-sighted and contributed mightily to the development of the state's economy, but it didn't take long for other states like Texas and North Carolina to copy their innovations in running public universities (and to be fair Texas and NC have greatly benefited from following CA's lead in this regard). But California is more successful than other states largely due to accidents of history and geography, not because government in CA is vastly superior to that in other states. If you really want to get an insight into good policy, you would have to compare states that don't have such incredible endowments to other states that are similarly poor in the geography and industry clusters that they have inherited. I don't know what states are really doing a good job making the most of what they have, but it certainly seems that California is falling much too short of its own potential to hold it up as a model to others who have to try and make more out of less.

P Burgos,

You are correct. It is an accident of history and the luck of climate and geography. It is certainly NOT due to current governance. Everyone knows about the mild Mediterranian climate. Silicon Valley is the offspring of Stanford and HP and Intel. The Matthew Effect.

No human organization is perfect all the time, but California state colleges and universities host about half a million undergrads (478,638). Texas comes in at under a hundred thousand (82,462) isn't quote churning them out to the same degree.

I don't know where you got your figures for Texas, but you are orders of magnitude low: https://en.wikipedia.org/wiki/List_of_universities_in_Texas_by_enrollment

Can you post your links?

I used:

https://en.wikipedia.org/wiki/Texas_State_University_System

And what did you use for CA?

Texas State system is only one of many public systems in the state, just like California has UC and Cal State systems, Texas has many as listed in my link. Looks like they have about 640,000+ kids at state schools in TX, but that may include grad students.

I used the symmetrical page:

https://en.wikipedia.org/wiki/California_State_University

I did try to find total public university enrollment, but nothing sensible came up.

Fair enough, but the link I used was pretty sensible and more comprehensive. I don't doubt that CA has more college kids than TX, it's got 50% more people. I suspect overall public uni enrollment is around 50% higher in CA too.

"Lastly, could you tell me which policy was enacted to ensure that California had excellent geographic features, because I'd really like to replicate that progressive success in the midwest?"

Water scarcity, except during pineapple express deluges a month per year, is excellent climate?

Limited prime water front?

Compare water front in California to Midwest "land of lakes". Granted, not much surfing in the Midwest, but from what I hear, the owners of California water front hate surfers and object to the California constitution making water front public property.

And in the Midwest, you can buy waterfront to see the sun rise if you are a morning person.

California has to steal water from other States, desert States.

It's so awful in CA that you will live there for 50 years but not a minute more.

msgkings,

Think frog in the boiling pot. All of these things evolved over the last 44 years.

I am planning on leaving when my kids finish school - I don't want to move them in the middle of high school.

We have a little hideaway in the mts., but now it is being overrun by illegal pot growers.

The water and housing issues emerged as a result of the explosive growth, most of it due to illegal immigrants from Mexico and their astonishing fertility. They have fundamentally changed the demographics of CA.
CA voted for prop 187 to block benefits for illegals. It won easily. It was overturned in a lower court. Gov. Gray Davis refused to appeal to a higher court. Davis was recalled but before he lost he approved the backbreaking 3% at 50 pension for first responders to get their votes. He got them but lost. Schwarzenegger won and supported a couple of propositions to reign in public employee and teachers unions. They used their massive (payed by taxpayers) war chests to defeat all the propositions. Now the unions run the state and we are in a deep pension hole.

To accommodate the sudden influx of Hispanics (80% Mexicans) many school districts implemented the disaster known as bilingual education. School funding is a zero sum game. You can find bilingual Ed, but only at a cost to something else.

Then all (some, very few) of those citizens born of illegal aliens graduate from high school but are poorly represented at Cal State and University of CA. So now all the ( once free) community colleges have to offer 50 remedial English and ESL classes but only one English 1B (Lit) class. 50 remedial arithmetic classes but one Calculus 3 class.

The once free (~ $15 fees) community colleges now cost around $100 plus $50 per unit so a full time student with 15 units pays $750. Fifteen bucks to $750. The UC system is even worse, way worse.

The explosive population growth without corresponding investment in infrastructure has created a traffic mess and a housing shortage.

All those people need roads, houses, and water, which we don't have. All the rivers save one or two have already been dammed. The fossil water in the aquifers has been drawn down so low that coastal aquifers are getting salt water intrusion. The immensely valuable and enormous Central Valley is subsiding due to aquifer depletion but coastal cities can't implement desal because of "carbon footprint".

Gas prices experienced two large recent jumps due to carbon tax on fuels and a bump in the sales tax on gas.

Housing, traffic, water, education and quality of life are all getting worse. It didn't happen overnight. Frog in the slowly boiling water...

"It's so awful in CA that you will live there for 50 years but not a minute more."

I think saying it's awful in CA is hyperbolic, but it's clearly getting worse. California has gone from the quintessential America state in the 1970's to the state with the worst Poverty rate in the nation. That's a drastic change.

The schools are not "49th in the USA" in terms of student performance. They're almost dead in the middle ranked by student performance.

What it's low on is spending per student. This should be a good thing! Median performance with below median spend.

"Only 29.2% of fourth graders in the state are proficient in math, and only 27.8% are proficient in reading — each the third lowest share of any state. "

Rich white liberals and their immensely privileged children do fine in California. The third-world voters you import? Let them eat government cake, while living in their progressive ghettos?

https://www.usatoday.com/story/money/economy/2018/02/08/geographic-disparity-states-best-and-worst-schools/1079181001/

Rich white people do well everywhere. Rich Asians and Hispanics and African-Americans do too. You act like CA is the only state with poor people.

But one of the reasons that California has so many poor people is because of policies which make it very difficult, time consuming, and expensive to build new housing (unlike say Texas). And I believe that Texas actually does considerably better than average in educating students from poor families. I am not sure if that is true about California, but I suspect not.

Poor(er) people do very well in midwestern states which have educational institutions that focus on education rather than illegal immigration and Democrat politics. To prosper in progressive polities one must be rich. That isn't true in places that don't spend most of the time increasing structural costs of living.

You think poor people do very well in the midwest? I think you are very confused about the realities on the ground. Rockford, IL, Northwest, IN, Milwaukee, Rust Belt, OH, Flint/Saginaw/Detroit, Mi. Probably the only places in the midwest that do alright with respect to opportunity of poor people on average are Iowa and Minnesota.

Well it seems like I am letting my personal experience color my opinions. But yes, I was thinking more along the lines of "small cities, small towns, and their semi-rural surroundings", not rustbelt communities nor deeply blue and segregated cities.

Home ownership is essential to the American Dream. Or at least that's the conventional view. Another view is that home ownership co-opts the owners into a system that supports monetary policy that promotes rising asset prices and aggressive monetary stimulus if asset prices fall, and opposes policies that might promote stable assets prices. Policies that restrict housing construction and policies that promote housing construction win on both accounts, but it takes a seasoned politician to thread the needle.

Home ownership allows people to build equity instead of pissing away their income in rent. If you eventually pay off your home, you can live on a lot less money, which provides a person with immensely greater freedom and financial security. It allows one to, for instance, not have to have a job, much more easily. As someone who seems to feel that the employer-employee relationship is an exploitative one, you ought to appreciate that. It also provides collateral that they can use to start their own business.

Does it? If you lived in a redlined part of New York you could buy a brownstone for peanuts. Admittedly 40 years later you could sell it for peanuts too.

But in the meantime you got to live in a really good convenient of New York for decades with very little cash down.

I am not sure that living in the suburbs with its monster commutes, slaving away to pay off a mortgage, and deferring your consumption, is really as sensible.

"you could buy a brownstone for peanuts"

So your plan for people is to go back in time to the 70s?

Hazel is right, ownership will put you ahead if you stay in the house for more than 10 years. Your payment is less than rent and every payment include an equity portion. Only the insurance and taxes go up with inflation, the rest is frozen in time.

But the argument being made is that government is not building enough public assets, e.g., public transit, but also, roads, expressways, water and sewer, public schools, etc.

Prime buildable lots along roads and transit lines increase linearly the longer these transportation corridors are.

Technology exists to build transit without taking much private land, technology invented more than a century ago, and used to make large cities possible.

Boston built the first modern subway, and in the Big Dig demonstrated buildable land can be created by redesigned expressways. Decades of dispute in Boston over ripping up housing to promote access to suburban housing led to legal and political and economic solutions that in a number of cities is using "the market" to fund building transportation and housing and jobs to more fully utilize property.

In California, SoMa district of SF, transportation is at the core to building lots of real estate for business and housing, and other public spaces. The Transbay Transit Center is key to the economic development of real estate in SoMa.

I'd be all for this if there was no "below market rate" provision. Local municipalities are getting more and more restrictive. Sunnyvale is rezoning residential areas for 1-story housing only in many places because the people with the dumpy old Eichlers are banding together and proclaiming that nice modern 2-story houses "ruin the character of their neighborhood."

I'd like to see this go even further: Where ever a single family detached house is allowed to be build, allow a 2-story 2-family home to be placed. That would really solve problems in Silicon Valley, etc.

"allow new residential building along public transit corridors"

Won't many property owners then fiercely resist the expansion of such corridors? Expansion would lead to drastic changes in the 'character of the neighborhood' - and such changes, even when they are some distance away, are almost universally reviled. After all, even without SB 827 it seems as though it may take centuries (if ever) to get that high speed train running in a useful manner, since it's only wanted in principle.

In the USA, public transportation usually ends up being an immense and utterly absurd waste of time. Even worse, conservative economists push buses against all else. But buses are slow, tardy, stuck in the same traffic as cars, and serve as cauldrons of respiratory illness. Maybe transit is merely an early 20th-century "solution" mainly suited to Manhattan, downtown San Francisco, and a few dozen more square miles. (And even in Manhattan, they don't seem to feel like maintaining their subways any longer.)

If California ceased expanding transit because of fierce resistance, there would be less for their politicians to virtue-signal about. From outside California, it would be a considerable blessing to be relieved of their preaching. Maybe SB 827 would be a good idea for that reason.

Rural land owners with limited rental opportunity to farmers due to lack of water for irrigating cattle fodder will object to expressway and transit access to their property?

And it's conservatives who object to paying workers to do big infrastructure projects with century long returns. The subways in NYC are pretty universally century old investments with limited reinvestment to offset depreciation of capital.

Conservatives argue capital must defy nature and appreciate, not depreciate. Appreciation of capital requires blocking investment so existing capital is the only source of extremely and increasingly scarce capital.

Scarce capital, such as land with transportation access, can generate high rents for rent seekers, and building more transportation to increase the supply of lands with equivalent access will destroy "wealth" created by scarcity rent seeking.

It was new transportation services opening up land that "destroyed" the "inner city" by providing substitute land that was cheaper per area. The building of that transportation was funded by big government tax and spend with political central planners picking winners, the Levittown developers, and losers, the landlords in dense cities. Note, the central planners bulldozed working class neighborhoods to the benefit of the white collar winners.

Bulldozing working class neighborhoods and destroying "wealth" was done to cut costs of creating winners. In the 50s, building highways and subways under existing structures was very feasible, but destroying wealth was cheaper, as long as you counted only the cost of the buildings bulldozed for expressway, and ignored the disruption to the neighborhood and the noise and pollution that was forced on nearby landowners.

Don't forget the lead poisoning from vehicle exhaust fumes!

End property zoning.

I don't think it's the zoning. Probably more like lots of state and national park land and creatively finding sub-sub-species to protect. It's a huge state; there's plenty of land. I imagine that environmentalist dam will eventually break.

Admittedly the topography is difficult in a lot of prime areas. You can't build where there's always the risk the whole hillside will come sweeping down one day.

A lot of the

Nothing against eliminating impediments to housing construction, but this bill seems to be way oversold as a panacea.

First, it is hard to imagine the densest areas of Los Angeles and San Francisco getting even denser. Many CA cities already zoned for high density near public transportation so the impact of the bill will likely be de minimis in those areas.

Not sure what assumptions went into the rent savings, but as Randall O'Toole has written "The problem is that high-density housing–that is, mid-rise and high-rise housing–costs 50 to 68 percent more, per square foot, to build than low-density housing. If California really wants to build housing that is affordable to low-income people, it needs to build more low-density housing. To build that, it needs to open up land that has been off-limits to development because it is outside of urban-growth boundaries." http://www.newgeography.com/content/005896-will-density-make-housing-affordable

And it should be noted that Weiner says that he has amended the bill to exclude existing "affordable" housing: "No net loss: Similar to the state density bonus, there shall be no net loss of affordable units through SB 827. In the rare occasion that rent-controlled or subsidized affordable housing is removed, and in addition to the Right to Remain Guarantee for tenants already contained in the bill, the developer must replace each of these units with a permanently affordable housing unit on a 1:1 basis."

That and the other limitations in the bill such as requirements to pay prevailing rates make one wonder how much housing will actually get built.

Zoning density may limit housing but enactment of the bill may prove only that there are many other significant limiting factors that need to be addressed as well.

However failure of the bill would be definitive proof that voters and legislators in California positively do not wish to take steps to solve the housing shortage in the state.

Defeated in committee: https://www.nytimes.com/2018/04/17/business/economy/california-housing.html

Some details:

"Several lawmakers who serve on that committee said they support the bill’s goal of creating more housing, because the state sorely needs it. But they argued it wouldn’t be a good fit for small, rural towns, and they said its affordable housing provision wasn’t strong enough.

“Density for density’s sake doesn’t necessarily lead to affordability,” said Sen. Ben Allen (D-Santa Monica). "

"The Los Angeles City Council voted unanimously to oppose it. In January, councilmember Paul Koretz told the Los Angeles Times that he would “have a neighborhood with little 1920s, ’30s and ’40s single-family homes look like Dubai 10 years later.”"

"Still, critics, including many social justice organizations, said that wasn’t enough. And they said they feared buildings with a majority of market-rate units could drive up housing costs in the surrounding area."

https://la.curbed.com/2018/4/17/17249654/california-senate-bill-827-housing-transit-vote

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