(Before you start reading, see Betteridge’s law of headlines.)

The other day, someone pointed me towards an article on Truth-out.org with an amazing click-bait title: “YIMBYs: The ‘alt-right’ darlings of the real estate industry“.

For those who are already confused, “YIMBY”, an acronym for “yes-in-my-backyard”, is how some housing advocates describe themselves to indicate that they would like to see more homes built in their cities to make them more affordable for more people. And ‘alt-right’ is a term for far-right ideology, often linked with white nationalism and internet trolling.

The article is basically about a philosophical dispute between different types of affordable housing advocates in the San Francisco Bay Area. As the title suggests, it’s full of ad-hominem attacks and bad arguments. I ordinarily wouldn’t bother to write about this, but I think that it touches on some important principles that are worth exploring.

Here’s the nub of Truthout’s argument:

YIMBYs [Yes in My Back Yard] accuse anti-gentrification activists — those calling for affordable units instead of luxury ones — of preventing the construction of new housing development, thus reducing the new housing supply and driving up rents. But while YIMBYism is championed as progressive urban policy, critics like activist Tory Becker of the anti-gentrification direct action group LAGAI, believe it’s actually rooted in the same classist, racist ideologies it supposedly seeks to disrupt.

If simple supply and demand were a universal solution to rising housing inequality, then building new housing units in cities where the costs of living are high would indeed be a route to cheaper, better housing for all. However, the real world doesn’t work that way, and the YIMBYs’ “build, build, build” platform only stands to benefit a fortunate few.

The reality is that a low-income family of color who has lived in an area for years does not have the economic or cultural capital of the tech-moneyed arrivals who’ve got the local police station saved in their frequent contacts list.

That paragraph in bold would be convincing if it were backed up by any data. But it’s not. In the actual real world, as opposed to the fantasy version of the real world constructed by Truthout, we can point to many examples of places that have prevented price rises, or even brought prices down, by building more homes.

You can see it in Seattle, where doubling the pace of apartment construction is expected to halve the rate of rent increases:

The apartment boom in Seattle has already reached historic heights — more units opened in each of the past four years than ever before.

Now, the real boom is about to begin.

Seattle is set to see almost 10,000 new market-rate apartments open in 2017, nearly twice as many as in any other year in the city’s history.

With the construction surge set to continue through the rest of the decade, rent increases that have hit Seattle about as hard as any city in the country are forecast to be cut in half during 2017.

You can see it in Christchurch, where rents have actually been dropping over the last year due to a glut of properties, offsetting some (but not all) of the shortage-driven price increases after the earthquakes:

Christchurch landlords are being encouraged to lower rents and offer incentives to secure tenants as properties sit empty for up to a month.

The city is facing an oversupply of rentals as earthquake-damaged houses are repaired, new houses are built, and more as-is, where-is properties are listed as rentals.

Ray White Shelleys Property Management director Shelley Scott said she had to teach several property owners about realistic weekly rents over the last year.

“In some cases I have had to reduce a couple of my furnished ones by $100 a week, which is quite a lot.”

You can even see it in San Francisco, where recent increases in the pace of apartment construction have taken the heat of rents:

For years, the Bay Area’s mismatch between supply and demand in housing has been an increasingly challenging problem – leading to record-high rents and sale prices as well as an exodus of people unable to afford living in the area. But as thousands of new units come online in 2017, the dynamics of the region’s housing market may be shifting slightly.

Currently, San Francisco is experiencing the biggest apartment building boom in more than 75 years. Thousands of new apartments and condos are coming online in the Bay Area in 2017.

The increased supply is “definitely impacting rents,” according to Patrick Carlisle, chief market analyst for Paragon Real Estate Group.

Specifically, he’s seen a 5 to 10 percent drop since the peak of the market in 2015.

“How much further they’ll fall, I don’t know,” Carlisle says. “But I’ve heard from rental agents that in the past few years through 2015, people were lined up waving cash in the air to get apartments. But now we’re seeing some apartments stay vacant for months.”

So there is some pretty good evidence that building more can improve affordability, or at least prevent it from getting worse. And, as Truthout inadvertently points out, if it gets worse it won’t be high-income people who drop off the bottom rung of the housing ladder: it will be low-income people without the means to afford higher rents for the insufficient supply.

However, it is true that in the context of a city that is largely built out, like San Francisco and the East Bay, building more homes means disruption to the existing built fabric. Sometimes, this will mean that people experience nuisances from construction in their neighbourhood. It may mean increased occupancy of on-street parking, which is inexplicably painful to some people. It may mean that some long-term tenants are evicted.

Truthout appeals to the negative consequences of eviction and neighbourhood disruption as a reason to disbelieve the fact that building more homes improves affordability:

When Truthout asked for evidence that the YIMBY trickle-down model would benefit people who aren’t making tech salaries, Foote Clark was quick to send a dozen papers that claim to show how neoliberal deregulation will end the housing crisis, and that rich NIMBYs are the main benefactors of further regulation.

But tell that to people like Iris Canada, the 100-year-old Black woman who had used local regulations to stay in her home of six decades, only to be evicted in February. “This eviction killed her,” Iris’s niece, also named Iris, said at a March 29 vigil for her aunt, who died from a stroke just a month after her eviction.

However, these stories can coexist in the same factual universe. Evictions are undoubtedly tragic for the people being evicted… but in the aggregate, ongoing redevelopment, some of which may entail displacement, will be beneficial for many more people. If San Francisco had built more homes in the 1970s, 80s, 90s, and 2000s, Iris Canada would have had other places to live.

Finally, Truthout ultimately offers no solutions to the housing affordability crisis, except to disregard the YIMBYs and listen to the people who’ve been fighting evictions (and development) for decades:

YIMBYs brand the activists continuing the tenant’s rights legacy as “NIMBYs” who are aligning themselves with wealthy homeowners. However, activists like Becker and McElroy, who have been in the game for much longer than Trauss and company, foresee a new wave of redevelopment like that of the 1960s and 1970s, when “urban renewal” made a few people rich, while leaving large swathes of city dwellers homeless or forced to migrate out of the areas where their families had lived for generations.

At risk of being impolite, I have to point out that “activists like Becker and McElroy” have failed. Their decades-long struggle, which has had many tactical and strategic successes, has culminated in systematically unaffordable housing and the potential for more displacement across the entire the Bay Area. Their methods and philosophies, which undoubtedly have noble underpinnings, have come to naught. The YIMBYs may not be right about everything (who is?) but at least they are offering new solutions, which we urgently need.

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  1. I think this needs unpacking.

    Yes, simply building more homes in a capitalist way can drive down average rents/reduce increases at the price of the negative effects. But a massive programme of public-owned housing, while ensuring low-income renters are protected, is better. Especially if funded by a hyper-progressive taxation system that forces those who have profited from the sweat of the workers to subsidise their housing.

    An analogy is useful here. Unions are better than no unions. But workers’ soviets are better. Criticising unions doesn’t mean promoting a non-union workforce, it simply means supporting the establishment of a proper solution.

    1. JDELH does have a point. Building more housing is better than not doing so even if it is expensive housing. However if all the market does is build expensive housing eventually they won’t have any buyers for it (or that is how it should work except that the NZ government in all it’s genius decided to would be a good idea to allow foreign buyers to buy our properties – thus turning a market of 4.7 million people into one of 1+ billion).
      This is where the government needs to step in and build affordable housing (duplex, triplex, mid-rise etc) and where they need to pull their heads out of their asses and ban sales to foreign buyers. It is not a coincidence that the rapid rise in house prices in the western world correlates to the rapid rise of China with literally Trillions of dollars being sent out to buy hard assets around the world.

      1. I’d go beyond banning sales to foreign buyers and forcibly repatriate properties owned by non-NZ residents/citizens.
        I’d start with US/UK immigrants to avoid accusations of racism.

      2. Would you also restrict land being owned or partially owned by foreign companies? That would make it pretty hard for many companies to operate.

        1. Of course. And I’d start, as with housing, with “Anglo” companies to avoid accusations of racism. It’s about patriotism – whether you are ethnically Chinese or ethnically English is irrelevant – if the first one is a NZ citizen he’s a true kiwi.

        2. So a listed company like Contact Energy would not be able to own a house to accommodate workers on a fixed term contract at either Clyde or Roxburgh?

          I take it you would kick out Bunnings and Progressive Enterprises and let Mitre 10 and Pak N Save have a monopoly?

    2. And when workers soviets inevitably fail then who ever is the most brutal person can take over as a dictator and he murders everyone who doesn’t support him and eventually the population and number of houses will be broadly in balance.

      No thanks. The system we have isn’t perfect but even our incumbents are better than that shit.

      1. No MFWIC. Look at all the people celebrating on the street in Venezuala, and all the free tear gas the police are handing out. Socialism is clearly the best way

    3. Wait am I understanding what you just wrote?

      An economic system that killed 100 million + people is better than one that’s bought 60% of the world’s population out of extreme poverty in the last 2 centuries?

    4. But it’s not about good and better. It’s about good and NOTHING.

      If you want Auckland Council to build 100,000 socialist housing units (as the state and some cities used to do for several decades) then you better be okay with waiting a very long time.

      1. Whether it’s socialist or not, maybe we should look at outcomes instead.

        Two big factors driving new housing – cost of land and cost of the build. Council or the government can potentially drive down the later by economies of scale.

        Council and the government have greater ability to act with the former by rezoning and being able to hold land on their books with longer scale economic imperatives.

  2. Good article Peter -which I agree with.

    One caveat regarding the contention that -building more houses ‘all other things being equal’ leads to lower prices. That assumes demand and supply are ‘normal’ -i.e the standard economically depicted downward and upward curves in relation to price and quantity.

    I think in some situations there has been speculative building booms -where high costs/increasing prices -are baked into the market -and because of speculation/hype -that only increases demand further (i.e. speculative demand isn’t a downward sloping curve) -until it doesn’t and the bubble pops -leaving large numbers of empty residences which were built even though they did not satisfy the ‘true’ underlying demand. Examples might be Ireland and Spain in 2007 and possibly the apartment market in Australia’s state capital cities now.

    I don’t think there is evidence this is occurring anywhere in NZ. It is quite clear supply in Auckland is running behind demand. The city is not building enough houses to cater for its increased population. But it is worth keeping in mind that this sort of distorted housing market is possible.

  3. I think the issue that that this blog has pointed out a number of times is that we don’t have a free market when it comes to housing. The above article shows that the free-enterprise entrepreneur types in San Francisco are not afraid to use big government to protect their interests.

    If we had an actual free-market, rather than a command and control approach, then we will see supply meeting demand as we do in all other areas of the economy. Despite the increase in the number of Aucklanders I have yet to see empty shelves in the supermarket or petrol stations out of petrol. Yes I know housing takes a longer time to respond to the market but this increase in demand has been going on for more than 15 years. I think we need to allow free individuals to make their own choices about land and housing. We actually might see people getting what they want.

    1. There are just too many things that will always distort the market.

      Developers are not paying the full costs of materials, for example. The pollution and fossil fuel inputs to each material are going to be paid by future generations. They are also not paying the full costs of putting demolition materials into the landfill. No one is paying the full costs of the infrastructure supporting development. Then there’s the whole packet of distortion arising from inequity in wealth, such as the unequal ability of people to create wealth using the country’s infrastructure. People with capital can make wealth from that capital, using the publically-funded (over many generations) infrastructure of the country. This distorts the market of housing by putting some people in the position of being able to make wealth from others by renting them houses.

      A true free market is impossible, so it’s only a useful tool if it works. It doesn’t, so we need to look to other tools.

      1. Markets always need regulation -even supposedly ‘free markets’ like food -there is a plethora of regulations on hygiene requirements, weights and measures……

        NZ’s housing market needs better regulation -there are obviously huge problems. But I doubt there is more than a handful of kiwis who would agree to nationalisation of all property -which would be the honest alternative to a regulated housing market.

        1. I think you missed my point around supply. I think we are over-regulated in supply such as density controls. Quality of housing is different.

        2. I was fine with your comment Adrian and I think I possibly miss read Heidi’s comment -thinking she was promoting some sort of command and control plan every solution.

        3. No I don’t think Heidi was promoting command and control. She may well have been promoting some thing equivalent to the mass housing production programmes run by Labour (state housing) and National via State Advacnes Loans and the Group Building Scheme. (http://www.teara.govt.nz/en/housing-and-government/page-3 )

          In both cases, a clear case of market intervention aimed at maintaining a good flow of new houses. If you like – command and control with a carrot rather than a stick.

          New Zealand’s housing has become extremely distorted due to the tax advantages which apply equally to wealthy baby-boomers collecting multiple properties for their children or grand-children, or foreign investors. Returning expat kiwis are just one further factor.

          The answers which will be a mixture of carrot and stick won’t solve the problem overnight but will eventually tame the housing market beast. The solution begins by recognising all factors that make up the problem including the undeniable influence of Chinese led foreign investment. It isn’t racism, it is recognising that the emerging No1 global superpower of the 21st century has a lot of money to invest and a passion for property.

    2. Agreed. And as a free individual, I will set up my leather tannery / slaughterhouse / chemical processing plant on the next plot over from your house. Hope you don’t mind the noise, smell, birth defects…

      1. And under a true free market you’ll be required to manage or otherwise account for any and all externalities of your actions. You’d probably find that the cost of managing your chemical emissions etc would make your operation uneconomic anywhere outside of an industrial area.

        Note that a free market isn’t anarchy, its not a battle to the death between warlords.

        1. OK, so we are now accounting for the externalities of all actions. Wonderful. I am assuming you will be creating sound and light on your property, and short of some sort of anti-matter shield, I am assuming some will leak onto mine. And those photons are almost certain to destroy a few particles on my side of the fence.

          No worries; as long as you account for this damage by rebuilding the individual particles destroyed (and I am going to guess you will need to build some sort of collider for this?) then we’re all even.

          Libertarians live in some fantasy world where all externalities are sometimes costed in, but then forget about all the bits that don’t fit their logical model.

          If a free market isn’t anarchy, it is regulated, and by definition, it isn’t free.

        2. First and foremost I think we need to account for all the hot air you are leaking into the comments section!

  4. Great article. There must be a fair way of reducing the incentive to build large homes. Right now the building in not-quite-inner suburbs seems to be the replacement of small modest houses with large expensive homes at no greater density, along with plenty of disposal to landfill and provision of more off street parking. The increased land prices should have resulted in development to increase density, but instead has just resulted in luxury homes.

    Could consents be prioritised in the system if they increase the density of homes? Or should consents only be granted if they do? Or is there an economic tool to use? I realise the UP could change this, but I don’t think the mentality has changed yet.

    1. I wonder if there are any stats on how many people live in those luxury houses, compared to the houses they replaced? I know several families (Asian, Polynesian, and NZ European) who have three generations living in these larger luxury houses, who previously lived in two smaller houses. Many of the larger houses built in Swanson have been designed in a way that effectively gives a “granny flat” within the main house.

      1. Would be interesting to know. Certainly the only figures I’ve ever seen have shown an increasing amount of space per person. However, one of the interesting positive side-effects of unaffordable housing could be that multiple generations end up living together. But it will only work for some families, and only be positive for some of those…

        I would like to see eco-retrofitting of large homes into spaces that do work for more people – whether as multiple units within the same envelope or as partially independent units with some shared facilities. It can be a way of increasing density without losing green spaces, and without losing the embedded worth of the existing development. At least until an even higher density is appropriate for the area.

    2. One example of an effective private market tool that could be used lies in the Danish State Loan system, started in 1933 and widely taken up after WW2.

      Their government provided below market rate loan packages (as only the state can do and still make money), for first time buyers, with some significant conditions. IIRC, they stipulated a maximum dwelling size, maximum cost and a requirement to use an Architect.

      Result? Lots of small, cheap, high quality homes. Surprise! Take a look at the architectural coffee table tome “Landmarks” for more on this story. [declaration of interest: I’m an Architect]

      It’s really not hard then. We even had a state loan model of our own here once. And if we start building social rental homes in decent numbers again we might really make a dent in the problem.

      So really we are just lacking a Finance Minister with vision, but I think we all know that’s one of the major reasons why we are in this mess.

      1. Thanks for that. (I’ll look at the book – it’s in the library.) I was sad when I realised that many greenfields developments in Auckland have a minimum house size covenant… so backward.

        1. Covenants are just one indicator of why government needs to stop blaming Council and ask what else is getting in the way of increased supply. Minimum house size covenants are economically, environmentally and socially damaging, but hey, let’s carry on letting private landowners encourage and control social segregation…

  5. I don’t know if this holds true for Auckland, but from talking to builders in Seattle, they are mostly building big houses because it gives them a better return. When land supply is constrained and what you can build is limited due to zoning restrictions, combined with an available pool of people with enough money and desperate to by a house due to limited supply, the equation becomes simple. Bigger houses maximize the amount you can sell the resulting house for, giving a better return on the $400-500k you had to spend buying the land.

    The only way to change this is for the land to come down in price. The only way for that to happen now is to reduce the zoning requirement to allow smaller lots. So in the case of Seattle we have the vast majority of our lots zoned as SF5000 which means one house per 5000sqft. This is the smallest single family zone. There is some wiggle room in what you can do if your block is due to historical reasons already less than that which most inner city ones are. But an immediate action that should be taken is to simply rezone all SF5000 to a new SF3000 level. This would allow a builder buying larger 6000sqft or 9000sqft lots to build two or three houses respectively reducing the cost of land per home. Additionally it opens up buying and replatting adjacent lots to the smaller size.

    1. Restrictive planning rules mean buildable land plots are rationed -so what is available goes to the top end of market at top dollar to meet their needs and the middle and bottom ends of the market misses out……

      1. +1, you can make more selling 3 120m2 houses on a 600m2 for $500k each than selling one 260m2 house on 600m2 for $1.2M. We just need to allow people to do this.

        1. Let’s unpack this:

          120 sqm is about 300k for the build at $2500 psqm; 30k for the combined consent/design/etc fees; 10k for marketing/agent fees and maybe 20k for interest. 30k for the developers margin and 10k for unknowns. So 400k.

          That implies 100k for the land or $500 psqm.

          I very much doubt you can find any serviced residential land in Auckland now for 500 psqm.

          At the moment Auckland is faced with two combined problems:

          Demand/supply issues for land.
          Demand/supply issues for construction.

          The first issue has several aspects: 1. the current near inner city needs to change away from the backyard is the NZ way mentality. ie. so called New Urban Luddites. 2. As I think Prof. John Tookey is saying in his recent paper, if you are holding a greenfield site on your books and it’s valued at (say) 1.5k psqm. Why swamp the market and drive down the value of your land?

          In reality the 500k above is at min going to cost another 200k more just for land value.

  6. Whenever you hear terms like “Alt-right”, “neoliberal” and “racist” it pays to be extremely skeptical about the information that follows.

    I’ll also add the prime reason why housing markets don’t work is due to the framework under which the market works. This is often a combination of national and local rules which combine to act as a constraint. In Auckland compliance costs and land costs are the two biggest killers of building projects followed by labour constraints.

  7. You don’t have to go as far away as North America to see how housing supply can reduce prices and rents.

    Jump across the ditch and you’ll find that Brisbane median house prices of approximately $500k. That’s despite consistent population growth of +2% p.a. and wages that are comparable to if not higher than Auckland. From my observations, it’s largely because they have enabled and built large volumes of apartment in central locations.

    Brisbane’s a hot transport mess in other ways, of course, but you can’t deny that when it comes to apartments it whups Auckland’s ass.

    That’s partly why I’m happy to live there, and why I’d actually find it difficult to return to Auckland.

      1. Springfield looks awful the street design is terrible. The station isn’t actually close due to the street design which means crossing local streets designed like expressways & making your way around a horrible street layout due to no grid.

    1. Hi Stu, the availability of apartments in recent apartment buildings and towers constructed en masse in the large Australian cities has to be one factor in taking the edge off housing demand (and prices). My understanding is that overseas investors are generally encouraged through incentives/disincentives (carrot/stick) to build new houses.

      At a large scale there are international construction companies with the skills needed to build good quality/cost effective high rise apartment towers that I would argue is lacking in the NZ construction sector. The next NZ government surely has to head in this direction as part of the solution to the housing crises.

      And yes no doubt there will still be many standalone homes built in exurbs too. In regard to the standalone houses,a feature of the Australian residential construction sector has always been much lower construction costs for standalone homes. Kitset? Modularity? Lower cost of raw materials due to wider range of suppliers?

  8. It is a myth – that it is good to build affordable house and bad to build luxury house.

    Building luxury new houses increase the supply of the top end. Rich people will sell their older house and buy the new better one.
    Older luxury house will oversupply and become affordable to middle class people – and sell their average house.
    Average house will become affordable to poor people.
    The cold and damp tiny house will be demolished to make way for better house.

    So in long term the quality of living will increase and people in general will have a nicer house for the same price.

    On the other hand, if government build a lot of ‘affordable’ house that are small and compromised, we will increase the divide between the rich class and poor class.

    There will be an oversupply of cheap houses, so poor people will not get wealth from their cheap house through capital gain.

    Since we don’t build many new luxury house, the old luxury house will be under supplied. So rich people have to compete with each other and spend multi millions on overpriced old house in Ponsonby.

    So average people will never afford the better house, and they will forever locked into their ‘affordable home’ that are small and compromised.

    1. Kelvin, what have other countries done? What encourages small, quality, well insulated, solar heated, passively cooled apartments? Small does not equal compromised. Large does not equal quality.

      1. We may assume those affordable homes soon to be built by housing NZ are high quality and good value for money.

        What possibly can happen is those affordable house cut corners underneath with poor design, cheap materials to make it ‘affordable’.

        1. Certainly the quality needs to be discussed. You raise a good point. HIstorically, HNZ built quality houses (at least comparatively), and used to be able to refuse to build on substandard land. I do wonder what quality these new houses will be.

    2. Houses built for the top of the market are not necessarily what the middle and bottom of the market need. For instance, NZ overbuilds 4 bedroom McMansions and underbuilds 2-3 bedroom dwellings. The market has not responded to the big growth in new households which is more weighted to singles and couples compared with the past.

  9. Why is all the talk about the poor? To me it seems like it’s the young that are being affected the most, even those who have done everything right and have reasonable incomes.

    1. Because when there is rationing by price -which is what is happening in the housing market -it is the poor that miss out.

  10. Three story terrace housing is comparatively cheap to build and eliminates what would be wasted land between standalone dwellings.
    Zoning specifically for this style of build should achieve what would be the most affordable housing

    1. I completely agree. If done well it creates a better, more attractive urban streetscape in my opinion. In Seattle we have LR zones of varying density that allow townhouses. But these are all build on individual lots, usually as a four pack disconnected from all adjacent houses. It has resulted in very bland unattractive urban “forests” of flat roofed, flat sided stumps. Terraced housing would be far superior. Also worth noting that terraced housing doesn’t have to be small. It can be built in lots of shapes and sizes. New developments in Perth have followed this style with large 4 bedroom, 3 story terraced houses where each has its own design different from the rest and the results were pretty good IMO.

      1. Yeah terrraces can be huge. Say you have a 180m2 section per terrace. That’s about six to a ‘quarter acre section’.

        But under the Unitary Plan, in the Mixed Housing zone you can cover 45% of the section with a building, and you can go to three stories. That gets you 240m2 of floor area in each house. Can easily get four bedrooms, two living rooms and multiple bathrooms into that. Thats about the same as two traditional ponsonby villas put together.

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