Friday, July 27, 2018

Yuppie Fishtanks: YIMBYism explained without "supply and demand"


YIMBYism is the idea that cities need to build more housing in order to relieve upward pressure on rents. In Northern California, where I live, YIMBYs tend to get into fights with progressives about market-rate housing. YIMBYs don't want to build only market-rate housing, but they think market-rate housing has to be an important component.

NorCal progressives, in contrast, tend to think that market-rate housing is bad - either they think it lures more high-earners into a city and pushes up rents (induced demand), or they object to private housing developers making profits, or market-rate housing just sounds like cities catering to the needs of richer residents instead of poorer ones. Instead, the progressives tend to support what they call "affordable housing" - either public housing, government-subsidized housing, or privately-subsidized housing mandated by inclusionary zoning.

When defending market-rate housing, many YIMBYs appeal to the idea of supply and demand. If you supply more market-rate housing, the market rate itself will fall, making many previously unaffordable houses into affordable ones. This might be true - in fact, evidence suggests it is true, at least to some extent - but I think it's a weak defense, for several reasons.

First of all, supply and demand is a simplistic model. It assumes a single homogenous good, when in fact everyone knows that housing comes in a bunch of different types. It doesn't take location into account, when everyone knows location is crucially important in urban real estate. And there are some situations, especially labor markets, where supply and demand just seems like a bad model for how the economy really works.

Second, the effect of new supply on rents might not be enough to help working-class families. If you build a ton of new housing and rents only go down by 3% - or go up by 3% less than they would have otherwise - it's not going to do a lot to help the people who progressives really want to help. Because of this possibility, "supply and demand" can sometimes sound a bit like "let them eat cake".

But in fact, I think it's very important to build market-rate housing. And though the forces of supply and demand are probably at work, I don't think the supply-and-demand model captures exactly why market-rate housing is important. So in this post, I want to try to explain the YIMBY position without invoking supply and demand.


Background: Invasion of the Tech Yuppies

The structure of the U.S. economy has changed a lot in recent decades. Knowledge-based industries like tech, medicine, and finance are much more important - for simplicity's sake I'll refer to all of these as "tech". Tech businesses have ever more of an incentive to cluster together in cities, which means that tech workers - who tend to earn high salaries - have been moving into cities like San Francisco.


If they're going to work in the city, these tech workers are going to want to live in the city. Where will they live?

Some will move into shiny new glass-and-steel apartment complexes downtown:


Looks kind of like a fishtank, doesn't it? A beautiful fishtank for yuppies.


But these beautiful giant yuppie fishtanks have limited space. So some of the incoming techies will go looking for apartments in other parts of town - neighborhoods occupied by long-time residents.

Many of the long-time residents currently renting these units are working-class. Many come from disadvantaged minorities. Some are artists or other creative types. 

The incoming techies have lots of money to spend, and landlords - the people who own the units where the long-time working-class residents live - know this. Therefore, they have an incentive to raise the rent, which usually means the working-class residents have to move and the techies will occupy the nice old Victorian apartments pictured above.

Now, often they can't do this, because of rent control. But there are things they can do to get around rent control. They can convert units to condos. They can evict tenants under the Ellis Act. Or they can just wait for residents to move out, then raise rents.

Additionally, not all apartments are subject to rent control, so often this isn't even necessary - landlords can often just raise the rent, which usually results in the replacement of working-class tenants with yuppie newcomers. 

The result: Displacement, gentrification, and an increasing rent burden on everyone not protected by rent control. 


How to Prevent Displacement From the Tech Invasion: The YIMBY Solution

The YIMBY solution to the problem described above is simple: Build more of the pretty glass fishtanks to catch the incoming yuppies as they arrive.


Most of the yuppies would probably rather live in the fishtanks. The fishtanks tend to be located downtown, near to where the yuppies work (SoMa, Embarcadero, etc.), rather than in the older residential neighborhoods. Additionally, the fishtanks are pretty and modern and new, with gyms and common space and other stuff yuppies like. Probably more attractive for the average yuppie than an aging Victorian far out in the Mission or Haight with no built-in community or on-site services.

Even more importantly, long-time working-class residents and struggling artists and disadvantaged minority families are highly unlikely to go live in a yuppie fishtank. That means that every unit of yuppie fishtank housing - i.e., new market-rate housing - that you build will either A) be occupied by a yuppie, or B) sit empty on the market. Landlords want to fill all of their units, so if there are too many fishtanks and (B) happens, they'll drop the rent until more yuppies move in.

Eventually, every yuppie fishtank unit that you build will be occupied by a yuppie.

Now if the new fishtank units catch the incoming yuppies and prevent them from invading long-time residential working-class neighborhoods, that's good!

And if the new fishtank units lure yuppies away from long-time residential working-class neighborhoods, that's also good!

If the new fishtank units instead draw yuppies in from other cities - for example, in the Peninsula to the south - that's not ideal, but also not so bad. It means more yuppies in the city, but they'll be living in fishtanks instead of in long-time residential working-class neighborhoods. In other words, it's a wash - it neither increases nor decreases the total number of gentrifiers. (In any case, I think this is unlikely to happen much. The number of tech yuppies moving to SF is constrained by the number of tech offices in SF - almost no one wants to commute down the peninsula and back every day if they can help it. and yuppies are usually rich enough to be able to live near their jobs if they want.)

So the YIMBY solution to the yuppie invasion isn't - or shouldn't be - just to build market-rate housing anywhere and everywhere. It's more like the following:

A) Build market-rate housing that appeals specifically to yuppies, clustered in specific neighborhoods away from long-time working-class residential areas.

B) Instead of tearing down existing housing to build market-rate housing, replace parking lots and warehouses and other inefficient commercial space with new market-rate housing.

In other words, YIMBYism is about yuppie diversion. It uses market-rate housing to catch and divert yuppies before they can ever invade normal folks' neighborhoods.


Why Affordable Housing Is Not a Great Solution to the Yuppie Invasion

Affordable housing - a catch-all term encompassing public housing, publicly subsidized housing, and privately subsidized housing - is popular among progressives, and is often put forward as an alternative to market-rate housing. 

Although YIMBYs believe affordable housing is good (for reasons I'll explain below), they also believe it's not a very good solution to the yuppie invasion described above. Why? Because affordable housing accommodates gentrification instead of preventing gentrification. 

Suppose you're a long-time working-class resident who gets displaced by rising rents. Now the government offers you affordable housing somewhere else in the city. Well, at least you still have a place to live, and at least you're still in the city you've always lived in, right? But you have to move out of your home, which is expensive and emotionally draining. And you probably have to move to a new neighborhood, where your local ties will be weaker. In other words, it would have been better if you never had to move at all.

So if cities can catch and divert the incoming yuppies (with new market-rate housing) instead of accommodating displaced working-class people, it's much better.


Why Affordable Housing Is Good Anyway

Affordable housing isn't a great solution to the tech yuppie invasion, but YIMBYs still want to build affordable housing. Why? Because affordable housing allows working-class people to move into the city to avoid commutes. 


Building new market-rate housing probably doesn't draw many new yuppies into a city from outside, since if their jobs are outside the city they'd still have to commute; most people would rather not commute, and yuppies can typically afford to live near where they work. But many working-class people are forced to commute from outside the city. Affordable housing changes that equation. It allows more working-class commuters to live closer to their jobs.


NIMBY Solutions to the Tech Yuppie Invasion?

The YIMBY solution of catching and diverting incoming yuppies with market-rate housing (yuppie fishtanks) seems like a good one because it creates a city where everyone, yuppies and working-class folks alike, can live, while limiting the disruption to long-standing neighborhoods and communities. 

But some progressives dream of other solutions, based on strengthening protections against yuppie invasions of long-time working-class neighborhoods. For example, repealing the Ellis Act, making it harder to evict tenants. Or strengthening rent control, making it harder to raise rents when a tenant leaves.

YIMBYs generally support repealing the Ellis Act. Rent control is more ambiguous, since it tends to hurt a lot of working-class people while helping others. 

But initiatives like these, on their own, won't be enough to create a good city for working-class residents. 

When combined with prohibition of market-rate housing development, these initiatives seek to drive yuppies out of a city entirely. By creating an iron-clad, invincible wall around working-class neighborhoods and apartments, and confining them to ever-shrinking, ever-more-highly-priced islands of market-rate housing, this strategy seeks to force yuppies (and possibly their employers as well) to leave for greener pastures.

But this is not a good idea. Driving yuppies and tech businesses out of the city means lower tax revenues. Those tax revenues are essential for paying for city services for the poor and working-class. Public housing, housing subsidies, homeless shelters, drug addiction clinics, social workers, public transit - these things all rely on tax revenues. And tech businesses and yuppies provide those revenues.

NIMBYism, even progressive NIMBYism, doesn't lead to a city that works for everyone. It sacrifices prosperity, and (even more importantly) the social services that prosperity makes possible, in order to avoid the cultural change that comes from having yuppies walking the streets.

That doesn't seem like a trade worth making. A successful city is one that doesn't simply preserve itself in amber, but embraces positive change that will improve the lives of its working class and poor residents. 


Wait - Does This Explanation Really Throw Away Supply and Demand?

Astute readers will notice that supply and demand isn't completely absent from this explanation of YIMBYism. But this explanation contains several major departures from the textbook supply-and-demand theory that you might learn in an Econ 101 class.

First of all, in a typical supply-and-demand model, there's only one kind of housing. In this explanation, there are three kinds of housing - "yuppie fishtanks" (new market-rate housing), long-time resident housing, and affordable housing. Market segmentation is real. This is something activists actually understand better than people who think only in terms of supply and demand.

Second of all, a typical supply-and-demand model of housing ignores location. In this explanation, location is crucial - the YIMBY solution is to build new market-rate housing in neighborhoods like SoMa, so that incoming yuppies go there instead of to neighborhoods like the Mission.

(Now, there are far more complicated economic models out there that capture all of these ideas and more. These models are actually more nuanced and realistic than my explanation here. But it's very hard for most people to think in terms of these models, and these models can also give different predictions depending on their assumptions.)

So when defending the YIMBY position, it's important to go beyond simply yelling "supply and demand". I hope this post gives YIMBYs a language to talk about market-rate housing without having to assume that all housing is the same, or that location doesn't matter. 

Market-rate housing isn't the only solution to the problems facing cities like San Francisco. But it is an important, even crucial part of the solution.

23 comments:

  1. Vertical housing & parking

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  2. Your argument against "forcing YIMBYs out" critically assumes that the tech firms which employ YIMBY's provide tax revenues which "are essential for paying for city services for the poor and working-class". However, many tech firms get tax breaks from the city of San Francisco for locating there (e.g. Twitter), and many others simply pay little in the way of local taxes.

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    1. Anonymous6:07 PM

      Even if the corporations pay little in local taxes, its employees (who are usually paid above average wages) do. And since these employees are typically young/single workers they will pay significantly into local schools and public without using as much as long-term residents.

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    2. Easy enough to fix

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  3. Interested piece, but I don't think "yuppies" prefer the fishtanks. Neighborhoods like the Mission and Haight are viewed as fun and interesting, while SOMA is viewed as sterile and not fun on the weekends. Fishtanks are great if you're moving here and need a place in a week and don't have time to go to 40 open houses. But I think the yuppie diversion idea only works if yuppies prefer the fishtanks, which I don't think they do.

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    1. Remember, every fishtank space will evebeventy be occupied by a yuppie (since other folks can't or don't want to live there). With the vast majority coming from in town (or people who were going to move to town anyway). So fishtank units will be priced attractively.

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    2. I agree with the parent to some extent. As a yuppie (though I hope I don't embody many of the term's negative connotations), I don't want to live in a yuppie fishtank. I currently rent in a small condo building in SoMa, and it's... okay. My place is nice, but the neighborhood is just okay. In the evenings I usually end up hanging out in the Mission, Potrero, Inner Sunset, or elsewhere. I have a 30 minute walk to work from home, which is also great, and I'm lucky to have, but I'd value living in a different neighborhood over that.

      Noah, I think you're correct in that a *lot* of yuppies will prefer -- or at least be content with, given the right price -- the fishtanks. But I think you greatly underestimate the number of yuppies who won't.

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    3. Liberal Arts and Crafts3:17 PM

      That's where the greater nuance he mentioned at the end comes it. It's not just big glass fishtanks. You could find big old warehouses, hell maybe even a clever redesign of a parking ramp could do it, and make those into less bland studios and 1-2 bedrooms. You could take parking lots and build super sustainable co-housing style semi-contained neighborhoods at high density, with several tiers of housing including subsidized low income. The point is building the necessary quantity of market rate housing in the locations, and in the styles that are attractive to "Yuppies" and to do so while minimizing the destruction of existing housing stock, which means building fairly high density.

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    4. SFRes3:50 PM

      In addition to (and embedded in) the assumption that yuppies want to live in clusters of new buildings close to work, is the assumption that they don't want to commute. First part: Many prefer the sunny "cool" Mission District to SOMA or Mission Bay. And Queen YIMBY, Sonja Trauss, who is running for Supervisor in District 6, which encompasses SOMA and Mission Bay as well as the low-income dense area called the Tenderloin, argues that there has been too much development concentrated in District 6 and other areas must take up the slack. Specifically, they argue for upzoning areas zoned for single family homes on the west side. The west side is not close to the tech jobs. Also, they make no distinction between wealthy west side n'hoods and the Sunset and Outer Sunset that are largely working class. Second part: Yuppies are happy to commute as long as there are free, private luxury buses to shuttle them to and from work. So maybe part of the solution is to get rid of these buses - but YIMBYs don't want that.

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  4. >> Most of the yuppies would probably rather live in the fishtanks

    That seems to be a key assumption to this article. I don't live in the Bay Area, but I question whether this is true. I would think most people would rather live in the Victorians. Personally, I would.

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    1. Remember, every fishtank space will evebeventy be occupied by a yuppie (since other folks can't or don't want to live there). With the vast majority coming from in town (or people who were going to move to town anyway). So fishtank units will be priced attractively.

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    2. Anonymous8:12 PM

      In Noah's scenario where lots of fishtanks get built, they're likely to be cheaper than today's fishtanks (or at least cheaper than the smaller number of fishtanks that will get built if we continue with the status quo). At a minimum, this would mean fewer gentrifiers, and there's a good chance that the yuppies who do choose to live in the Haight are less likely to be doing it just for cheap rent, and more likely to do it because they like the neighborhood. And in turn, yuppies who live somewhere because they like it are far more likely to be 'good gentrifiers', like this guy: https://thoughtcatalog.com/roxanne-earley/2014/08/10-rules-for-being-a-good-gentrifier-from-an-urban-planner-in-brooklyn/

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  5. Anonymous7:15 PM

    > not fun on the weekends

    The city would do well to bring on a yuppie fishtank area social czar, to find ways to ameliorate this problem. "Not fun on weekends" is a downer.

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  6. I like your post and think it’s a helpful addition to the YIMBY arsenal. I think it’s particularly convincing for socially motivated NIMBYs in SF.

    But I don’t think it’s an argument that will convince all the folks who want to restrict density in the name of “neighborhood character”. The fight in the rest of the Bay Area is all about what you call YIMBY strategy B, building dense housing on commercial property and parking lots. Those lots lead to some of the biggest fights out there!

    One problem is that new dense housing generally does make things worse in the short-term for existing residents, particularly existing homeowners in middle-class and affluent areas. There’s more traffic, more kids in the schools, worse “views”, less home equity appreciation, etc.

    Of course, it’s still very much worth it on net to build that housing! And it’s important to convince people even in the suburbs to allow those new dense housing developments.

    So a challenge to you: what’s the non-supply-and-demand-based YIMBY argument for the rest of the Bay Area?

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    1. If people want to preserve "neighborhood character" (which sometimes is a euphemism for wanting to keep black people out), there is no argument that will make them YIMBYs.

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  7. One potential wrinkle: the induced yuppies still need to consume other goods, like food, in order to live. That demand should drive up the cost of living for long-term residents. It's probably orders of magnitude smaller than the cost-of-rent effect, but it is still a consequence, no?

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    1. Yes. But the fishtanks that hold the induced yuppies also pay property taxes, which are used to fund social services.

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  8. This comment is long and pointless and is just me figuring out what Noah is doing here. In fact, I found myself proposing a change, then looking up the text to quote and discovering that it already was written as I thought it should be. Don't waste time reading this comment

    I agree that "supply and demand isn't completely absent from this explanation of YIMBYism." In fact it seems to me that your argument for Yimbyism is entirely an argument about supply and demand. I don't know why you say that supply demand models assume a homogenous good. I think that's just not true. You note that it's not true of the academic literature.

    Hmmm so we agree and yet I am commenting. Why ? It's easier than resisting, but I also think I understand what you are doing. I think the point of the essay is "it's important to go beyond simply yelling "supply and demand"." and especially (as you clearly explain) "I hope this post gives YIMBYs a language to talk about market-rate housing ". The point is new rhetoric not new analysis. I disagree with the next clause "without having to assume that all housing is the same, or that location doesn't matter. " I don't really follow the debate, but I haven't detected anyone assuming that.

    I think I know what you are doing -- trying to find an way to discuss supply and demand without the words "supply" or "demand." That is reasonable -- it is also made clear in the title in which you wrote ""supply and demand"" in quotes.

    The words hurt YIMBYs because leftists associte them with a right wing ideology. It is best not to fight over words if that is at all possible. So "Yuppie Fish tanks" is an improvement over "increased supply of housing" even though they are, in context different ways of describing the same damn buildings.

    Here I think a problem is that YIMBYs are tribal too. Sticking with "supply and demand" is insisting that lefties admit YIMBYs are right and were right all along. If one wants increased supply of housing, one should be willing to call it something else to get it. Yuppie fish tanks or Phillip Mamouf-Wifarts https://www.youtube.com/watch?v=wz_V4lRdtjo or whatever.

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  9. Skrtt_Skrtt10:49 AM

    Thanks for the post, Noah. Nice comments from everyone too. I'll throw in my 2-cents as a YIMBY activist and as someone who just recently went through the SF rental market as a yuppie.

    I saw rooms in three fishtanks. I also saw rooms in 8 victorians / bungalows in SFR LR2 neighborhoods. Proximity to work was not my only consideration: neighborhood mattered too. Plenty of my yuppie friends in SF would rather live in "cute" neighborhoods like cow hollow, the marina, russian hill, pac heights, telegraph hill, north beach, the mission, duboce triangle, NoPa than in a lux fishtank in SoMa. Personally, I can't stand these neighborhoods and being surrounded by people who look like me with basic AF values, but I recognize that that is idiosyncratic. The fishtanks ended up attracting me more because of amenities like free valet parking, a gym, a pool, rooftop fun, etc.

    I still agree with Noah's point that building more fishtanks in desirable locations will alleviate pressure on median-rate rent growth (if not drive it down), but the likelihood that local governments will upzone those neighborhoods is incredibly low, even with London Breed: so make sure you call your state representatives to support state-wide solutions like Scott Weiner's (even if they're admittedly a bit ham-fisted).

    Finally, it's important to bear in mind the fishtank developer's perspective here. They build these lux glass high-rises with above-market rents (usually starting at $3.5-4K / mo for a 1BR) precisely *because* the margins are better than building a fishtank with market-rate housing. I'm not sure we'd see many fishtanks being built at market-rate, especially when certain percentages of new units are mandated below-market. This may cast some doubt on Noah's "if-you-build-it, they-will-move" premise. But who knows. Can you imagine if a bunch of 8-story fishtanks starting to crop up in those neighborhoods above? I'd cheer, and people would probably move in to them quickly. But it's a big "if".

    And last but not least, glad that Noah responded to the objection that his argument still bottoms out in supply-demand, but I think we should draw the opposite conclusion than he does: indexing supply and demand to a market segment or location does not change the kind of problem that it ultimately is. The rallying cry should be "more supply *in x,y,...z neighborhoods at a,b,...c prices*.

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  10. I'm not local to SF, but am interested in this discussion in relation to other cities. SF is rather unique in its historic design (and resistance to change, to some extent) and its sky-high cost of living. My point is, this article and the audience it is directed at, really only applies to SF; without going into fine detail, the circumstances in other cities make this rationale/approach not very useful elsewhere. I'm not criticizing, just saying the ideas are not universally helpful, IMO.

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    1. David Littleboy11:20 AM

      Well, apparently Boston/Cambridge is looking very much like SF right now. Cambridgeport, which was fun ethnically when I was a kid growing up in Boston (1960s) went through a long period of being a place you really didn't want to be and is now being gentrified by MIT types, who used to not have gentrifying levels of money when I was there ('72 to '80). Times change.

      But the salient thing about Boston/SF is not the nature of the historic design, but that there are humongous tech booms going on there.

      But for places with other economic and historical conditions, things are different. Tokyo seems to be in the midst of a long period of slow but significant growth: 1% a year for 15 years, and suddenly you notice lots of what passes for fishtanks here.

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  11. Expat landlord7:22 AM

    In London the Yuppie Fishtanks get bought on 5% mortgages by investors looking for capital appreciation who are happy for them to stay empty, so this doesn't work...

    https://www.home.co.uk/guides/house_prices_report.htm?location=london&all=1

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  12. This is mostly a supply-side problem. Too great a supply of idle money is allowed to go to the owners. Restructure our tax system to take 95% plus from the top bracket and lower the % from lower brackets, re-empower unions, and we get less inequality in the amount of money everyone has available for housing. Quite aside from the working class being more able to afford housing because they have more money, taking away the exorbitant wealth of the owners would mean less money in the housing market chasing the same area of land, and prices will fall for all of us.

    This is the actual free market solution to the problem of housing becoming unaffordable. The problem is created by crony capitalism, the free rein our current maladministration of capitalism gives to unproductive rent-seeking. The solution to the overabundance of people who can afford ridiculous real estate rents needs to be the systematic reduction in the amounts they are able to extract from the actual production of goods and services as rents.

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