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HomeEditorial teamSimply building more housing is not a silver bullet

Simply building more housing is not a silver bullet

Perhaps you’ve experienced it yourself, perhaps you have a friend who has, or maybe you’ve learned about it from the posters which exclaim “There is a housing crisis in Groningen!”

This crisis is not necessarily unique to Groningen; every part of the Netherlands has experienced a rise in housing costs, including rents and mortgage rates, in the last decade. In fact, metropolitan areas in every country around the world have experienced this increase. In my hometown of New York, after the COVID-19 pandemic led to some small decreases in the average rent, high housing costs have returned with a vengeance, giving the city the unenviable title of most unaffordable rental market in the United States.

These recent, record increases in housing costs have had serious social and economic consequences. While cities where housing has become unaffordable are most severely affected, the wider economy is as well, as higher housing costs manifest as an inflationary pressure.

Clearly, this is a massive crisis, and one that can not and should not be easily ignored. So, what is the response from forward-thinking political commentators and politicians elected to carry out the will of the people? Simply put, we need to build more housing. They state in absolutist terms that, wherever housing is being proposed, it should be approved. Many go so far as to propose the abolition of zoning, deregulating the housing sector, and relying and encouraging the free market to provide the needed housing supply. They often brand themselves as YIMBY’s (Yes In My BackYard), the opposite of NIMBY’s (Not In My BackYard).

Intuitively, it makes sense. According to the basic economic laws of supply and demand which we learn in secondary school or university, if prices for a commodity are high, it’s because demand for said commodity surpasses the supply of this commodity. Logically, the only ways to reduce the prices are to either decrease demand or increase supply to meet demand where it is. Since housing is a commodity, increasing its supply is the ultimate solution to this housing crisis.

A number of recently-released economic reports concur with this assessment. In 2020, the Dutch government estimated that the country had a housing supply deficit of 331.000 housing units (meaning that 331.000 housing units needed to be built for prices to stabilize). And in May of 2021, a report produced by an American government- sponsored enterprise called Freddie Mac declared that in 2020, the United States was facing a housing supply deficit of around 3.8 million housing units.

Housing, however, is not like every other commodity, and as both reports admit, their estimate for each countries’ housing supply deficit includes the amount of housing units that need to be built to make sure a certain number of housing units stay empty. The Freddie Mac report states that the estimate of units which need to be built in the US will not only meet demand but also help the country “maintain a target vacancy rate of 13%”, meaning that after the 3.8 million units are added to the market, 13% of all units should remain empty. Empty units are necessary, especially in places with growing populations, to make sure new people can be accommodated. If housing units were built to perfectly match demand, then the available housing which is available for rent or sale would rise in price, as it supposedly has been in the past decade.

Another aspect about housing which makes it unlike any other commodity is that housing units are not sold or rented at a price which only reflects the value of the house itself, but also the value of the land it’s sitting on. For example, a flat in the center of Amsterdam that’s the same size and has the same features as a flat in Emmeloord will be more expensive than that flat in Emmeloord.

However, the YIMBY’s recognize this fact, and for the case of cities and regions where the cost of land is expensive, they propose building densely. The applicability of this in the United States is obvious; the single-family, suburban home, the construction of which is strictly enforced throughout the US by restrictive zoning, is inefficient and has resulted in inflated housing prices. Since much of the land in the US cannot be developed with tall, dense buildings with multiple flats, the burden of the cost of that land falls onto one renter or homebuyer.

In the Netherlands, this strategy of changing zoning rules to allow for or incentivize the construction of taller buildings with multiple flats, called  ‘upzoning’, seems less applicable. The Netherlands has not historically nor does it currently have restrictive ‘single-family zoning’ like in the US, and the country and its metro areas have much higher population densities than the US and its metropolitan areas.

Back in New York, my own neighborhood of Williamsburg was ‘upzoned’ in 2005. In addition to medium-rise, six-story buildings which are already present, multiple towers exceeding twenty stories in height were built along the waterfront. Despite promises from the municipal government at the time, lower housing costs did not materialize after the zoning changes–which were roundly opposed by neighborhood residents–were approved. Some nominally affordable rental units were made available through an ‘inclusionary housing’ program, but these were few and far between the thousands of new luxury rental units which were also built as a result of rezoning. Needless to say, the average housing rent in the neighborhood rose.

Perhaps the residents who opposed the zoning change proposal knew better than the city, since housing markets tend to be regional, and one neighborhood can not fulfill the housing supply needs for an entire metropolitan area.

However, the saga in Williamsburg has more relevance than the false promises of lower housing costs; it demonstrates that while building new housing units is necessary, it is not a silver bullet. Lack of supply in the places where it is needed is one cause for the increase in housing costs, but increasing land costs are also a cause. In Williamsburg and other New York neighborhoods which were upzoned, an increase in land costs were recorded after the fact. If you owned a plot of land and the zoning was changed so that three times as many housing units could be built on top of that land, then you could sell it for a higher price, since the higher development potential of the plot means it’s worth more. 

This increase in the cost of land reduces the affordability of the housing units built on top of it, which runs counter to the objective of the government which encourages upzoning.

Another phenomenon which reduces affordability is the large amount of homes that have been purchased for the sole purpose of being an asset of investment or a seasonal secondary home, and as a result, stay empty for most of the year. Known as Pieds-à-Terre, these housing units are purchased by investors looking to put their money in an asset which they know will stably appreciate in value, or by wealthy people who merely want a second home as a place to stay. The prevalence of Pieds-à-Terre is unclear, but estimates for how many there are in Manhattan, a borough of New York with nearly 1.7 million inhabitants, range around 10.400. Anecdotally, many of the flats in the taller residential buildings in my own neighborhood which were built because of the rezoning seem to be empty most of the year; from the street you can see how many of them do not light up in the evening.

While the presence of second homes in Dutch cities is less pronounced, cities in the Netherlands, similar to New York, have a major problem with real estate investors buying homes which were intended to be sold to homebuyers and instead renting them out. This reduces supply specifically for prospective homebuyers, forcing them to compete with others for fewer houses for sale. If houses for sale become prohibitively expensive, homebuyers then have to compete for rental units with renters who often have lower incomes than homebuyers (swap the order: forcing renters to compete with homeowners). Unlike laws proposed in New York to tax or ban Pieds-à-Terre which have been successfully lobbied against by real estate companies, this practice by institutional investors is now being cracked down upon by municipal governments in Amsterdam and The Hague.

Whether it’s institutional investors becoming landlords, Pieds-à-Terre taking homes off the market only to be used for one month out of the year, or post-rezoning land costs driving up housing costs, there are many factors in what makes housing expensive. Ignoring all of these factors and merely calling for building more housing, regardless of where it is and who the intended purchasers and renters will be is a flawed and simplistic position for a topic as complex as housing. Simply building more housing does not address the root cause for why housing is expensive, and that cause is that housing is treated as a commodity, and even bought and sold for investment gains like stock in a company. In addition to it being essential for human health and prosperity, housing enables cities to do the thing which makes them cities: providing a place to live.

Additionally, the YIMBY approach does not take into account the consequences of saying ‘yes’ to all housing construction projects, regardless of the location and context of those projects. For instance, consider the waterfront towers in my neighborhood. While local politicians who champion the YIMBY approach laud them for their ability to provide housing supply and affordable homes, they are extremely vulnerable to climate change-induced sea level rise and storm surges. Thus, these buildings and their housing units will not be able to provide housing in the long term, stability is a crucial part of effective housing. The situation is the same in the Netherlands; as sea levels rise, more of the country comes under threat of being flooded, and development needs to be carefully managed so that more people are not living in the path of the looming danger.

The solution for the housing crises in New York, in the Netherlands, and anywhere else in the world is building housing, but in order to address all of the factors which make housing expensive, and the unwanted effects of free market attempts to address the crisis, this solution must be radical. Radical like the housing programs initiated during the Great Depression and after World War II, when many Western countries faced a similarly severe shortage of affordable housing that was not in a poor condition or damaged. Instead of relying on the free market, which many citizens in these countries had seen as bringing the world into the Depression, countries embarked on a massive public and social housing construction program. This involved using eminent domain or public funds to acquire the land necessary for housing development, both strategies which eliminate or reduce the costs associated with land that would otherwise be pushed onto the renter or homebuyer. These were government programs, no profit was intended to be made from the housing units which were rented out, meaning rent only needed to cover maintenance costs.

Nowadays, public and social housing programs throughout the West have had their funds decreased or partially or wholly privatized, leading to their affordability and quality being undercut. Housing developed under these programs also were designed in a Modernist style, making them aesthetically unattractive but also anti-pedestrian and in some cases, auto-centric.

To address these concerns, an effective, alternative approach to housing should grant the residents of the neighborhood and the housing themselves autonomy over the development. With all of the land acquired (done so at no extra costs for the residents) for the construction of new housing, a community land trust would be formed to make sure the land stays in community hands, in perpetuity, and out of the speculative land market. Community land trusts are community organizations made up of those who live on the land and other neighborhood residents, who democratically decide how to develop the land. If there arises a need to build new housing, the community land trusts give neighborhoods a decisive part of the process of designing and planning the new housing development. This process is conducted through participatory-democratic assemblies where binding decisions would be made about where new housing should be built, how it should look, and what other services can be included in housing developments. Instead of buying and selling land for use, at the behest of their members, community land trusts lease the land for a certain amount of time without charging anything for the land. Examples include the Cooper Square Community Land Trust in New York, the Dudley Street Neighborhood Initiative in Boston, and the E16 Community Land Trust in London.

This model of developing and managing housing would truly be affordable. It would eliminate or reduce costs from land transactions, since the land would be acquired either through donation, government procurement, or subsidized purchases, and subsequently kept out of a speculative market and transferred without any additional costs. Residents would only have to pay for maintenance.

Considering the members of the land trust would be themselves in need of housing and since community land trusts require active involvement in the management of housing units, the likelihood of them allowing Pieds-à-Terre would be low, addressing the other major cost concern. However, unlike with the YIMBYs’ deregulatory approach, under this model, housing being used as an investment can easily be illegalized and restricted by the democratic body entrusted with governing the land.

Since community land trusts involve the residents of the housing developments and the surrounding housing units, the likelihood of them deciding to put future housing developments on plots of land threatened by climate change or where existing historic structures are already located is also low.

Building more housing is necessary, without a doubt. But how it is done is a matter of major concern, and to properly confront the problems associated with a free market, for-profit housing sector, an alternative model must be developed. Otherwise, the contemporary housing crises we see all around the world will not be fully solved, and nor will that solution be sustainable.

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