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Gentrification Is an Irresistible Force

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Ah, gentrification. What’s not to hate? Except for sit-down restaurants, dog parks, charming pubs, bike lanes ... and there goes the neighborhood. Yesterday, we talked about the inherent irony of gentrification: the fact that gentrification is simultaneously driven and abhorred by nice young progressives who just want to live in a walkable neighborhood. We also discussed why so many of the ideas proposed to stop it -- from inclusionary zoning to tougher rent control -- have so far proven powerless against the March of the Affluent.

Today, we’ll take up the remaining possibilities: scatter-site public housing, and massive, city-wide upzoning, particularly in wealthy areas. And we’ll explore why, even if these things are good ideas, they are probably not going to materialize fast enough to halt gentrification -- if they materialize at all.

Scatter Housing Among the Masses

I'm hearing a lot these days about scatter-site housing as a potential fix for gentrification. For the uninitiated, that means a very different approach to public housing than the mass projects of midcentury. Early efforts at public housing focused on “slum clearance,” with the idea that the primary thing wrong with housing for the poor was that the physical house was low-quality: dilapidated, outdated, unsanitary. So the planners of midcentury razed large swathes of poor neighborhoods, and put up massive high-rises in their place. The idea was that modern construction and on-site social service provision would clear up the dysfunctions of poverty, and enable poor people to enter the economic mainstream.

We all know how that turned out: the high rises were often more crime-ridden and derelict than the neighborhoods they’d displaced, and the middle class fled from the area, leaving society’s most financially marginal citizens trapped. Enter the idea of scatter site housing, which is basically what it sounds like: instead of huge high-rises in poor neighborhoods, you build smaller projects all over the city, giving the poor access to the better amenities (particularly schools) found in more middle class places. This sort of housing is supposed to be attractive to more working families than traditional housing projects, and also, like vouchers, to decrease the crime and other problems that are traditionally associated with them.

But scatter-site housing has problems of its own -- problems that clarify why gentrification might not have a solution at all.

Why? Because scatter-site housing that's actually scattered means few units get built. If you want to build lots and lots of public housing, it is mostly going to be in poor neighborhoods, not gentrifying ones. Eventually the public housing may form a bulwark that stops further gentrification, but only because you've concentrated poverty so thoroughly that the middle class won't move in. This is pretty far from our mixed-income dream of an integrated city where rich and poor both get to enjoy the amenities of urban living.

There are two reasons for this, one financial and one political. The first is simply that land in rich neighborhoods, or even gentrifying neighborhoods, is really, really expensive.

Let’s return to my city, not because it’s special, but because well, I live here, so I know a fair amount about it. According to data from the Lincoln Institute, in 1975, in the District of Columbia, the cost of the structure itself accounted for more than 80 percent of the price of an average house. In 2014, that figure was 78 percent. No wonder so much public housing was built midcentury, and so little today.

But there’s a particular problem for scatter-site advocates: that average conceals staggering differentials. A 5,000 square foot lot in the Deanwood section of the city is selling for $60,000. A slightly bigger lot on the other side of the Anacostia, at 4th and N Street Northwest, is on the market for $2.4 million. And we're not even talking about really fancy places like Logan Circle or Georgetown.

If you can find a small piece of land in Deanwood, the land itself will be a marginal cost in the housing development. As you search for larger parcels in more affluent neighborhoods, the price of the land creeps up, meaning that for any given housing budget, you can build fewer units. Large parcels of land in expensive neighborhoods are hard to find precisely because they are already being put to economically lucrative uses such as apartment buildings and shopping centers.

Yesterday we talked about the limits of “just force people to do the right thing,” and we’re back there again today. Thanks to the Constitution, you cannot just take any choice bit of land you think would be a fine site for a housing project; you have to pay the current landowners "just compensation," which courts have interpreted to be the fair market value of the land. And while the government often gets away with a somewhat lower offer than a developer would pay, the judge is not going to let you declare that the real price of that $2.8 million Georgetown rowhouse is actually more like $40,000. Moreover, every piece of land you seize will exit the property tax base, which in wealthy neighborhoods means foregoing tens, maybe hundreds of thousands a year of property tax revenue for each property you build -- more, if it's a commercial development you're seizing via eminent domain.

So if you have a set budget for building affordable housing -- and there is going to be a set budget, whatever level we choose to set it at -- then the more you try to scatter public housing into wealthy neighborhoods, the fewer units you will be able to build. For example, one estimate puts the cost of building a four story, 30 unit building in downtown DC at about $550 a square foot, or about $550,000 per 1,000 square foot unit. Now, that’s the private cost. But remember that while public projects have lower costs on some aspects, they have higher costs on others. Public projects have to go through things like lengthy public bidding procedures, and if they are using HUD money, will have a lengthy and expensive process to go through in order to qualify. And while they don’t have to pay real estate taxes, they do have to give up real estate taxes when they build a public project and take that land out of the tax base. Even if we assume, quite unrealistically, that the city’s costs are half as much as a public builder, you can see how building family size-units in an expensive area of town would quickly chew through even a sizeable affordable housing budget. And of course, then you have to maintain the property, repay your real estate loans, and so forth.

That's the practical objection. The political fact is that if you try to plop, say, a 56-unit low-income housing project in the middle of a wealthy neighborhood, the neighbors are going to freak out.

You will say this is terrible NIMBYism. I will say that this is neither here nor there: The neighbors are still going to freak out, and if you want to build affordable housing on their block, you will need a plan to deal with that fact. Housing projects offer affluent people no personal benefit -- they are unlikely to find themselves in need of an apartment catering to folks living below the poverty line -- but even small ones will change the appearance of their community, and, it is believed, will bring with them some fraction of the problems that afflicted larger projects.

The larger the disparity between the incomes of the people who are going to be housed, and the people who are living near the site, the more community opposition you will face. You can issue clarion calls to residents to do their bit for the public weal, but in general, people are very good at thinking up reasons that a particular project, while splendid in theory of course, should actually be sited somewhere else more appropriate, and of course, much less close to their own home.

Scatter-site advocates are aware of this, and frequently rail against the outrageous power of prosperous NIMBYs to manipulate the political system in their favor. The truth is a little more complicated. Yes, they will call their friend the city councilman, but that's not actually their biggest weapon. Their biggest weapon is the legal system.

Starting in the 1950s, the American legal system remade itself to give community groups much more power over government decisions. Unfortunately, it turned out that Georgetown is a community too, and this community has plenty of money to hire lawyers. There is no way to allow the community blocking rights that progressive groups generally support when it comes to, say, environmental groups stalling pipelines, while denying those rights to the prosperous parts of town. The right to sue the government is not a means-tested benefit that can be limited to only the deserving poor; it is the privilege of every American citizen. And as with most things, rich people enjoy more privileges than most. If you want to stop this kind of NIMBYism, you will also have to strip poor neighborhoods of the right to protest the often awful things that city planners do to their neighborhoods -- and that is a right that affordable housing groups rarely want to give up.

So basically, you can build more units more quickly on cheap land in areas where you are already providing a lot of social services and the neighbors are not going to vote against you in the next election for putting a housing project in their area -- or you can build fewer units on very expensive land, after spending lots of time and money resolving lawsuits that will challenge everything from your zoning compliance to your environmental impact statement to whether there is adequate soundproofing on the units. This is not a hard call, and it is why cities by and large have ignored progressive calls for a massive push to create scatter-site housing in affluent neighborhoods. Even Europe's welfare states tend to put their massive housing projects in peripheral suburbs, not their high-end historic districts.

The Problem of Political Support

There are two additional wrinkles we need to consider. First, what does your tax base do when they hear that their neighborhood has been slated for 2,000 low-income housing units by the year 2020? Let's say you have managed ... er, somehow ... to make it impossible for these community groups to sue, and you have studiously ignored their angry letters and phone calls to the city council. What do these people do? There's a risk that the answer is "move," in which case the tax base collapses again. Now you have lots of affordable housing, and all the problems that cities complained about before people started complaining about gentrification.

In a more realistic world, what happens when you announce your sweeping plans is that political support for that "affordable housing" line item in the budget starts to collapse. More than half the households in the District of Columbia now make more than $50,000. DC is a liberal city, and people of all income levels are willing to spend money on various forms of housing subsidy. But if you require them to spend that tax money, and also live next to a housing project, many of those people will cease to support the construction of any new housing projects

John Lindsay actually attempted to live out the affordable housing fantasy in New York City: build public housing in middle class neighborhoods without regard to what those callous, awful NIMBYs think. The angry citizens of Forest Hills forced him to a negotiated settlement, brokered by a young lawyer named Mario Cuomo ... and then, for this, among other reasons, Lindsay left office in near-disgrace, having reluctantly decided that he wouldn't run again because it was quite clear he wouldn't win. He’d lost the middle class of the boroughs, and without them, he could not assemble a big enough coalition.

All of which is to say that a fantasy plan in which middle class people stop caring about having housing projects near them is not a good affordable housing plan.

The Comprehensive Approach

But aren't I just being a defeatist? Libertarians never think the government can do anything. So maybe each of these proposals won't work but what if we tried all of them at once? Inclusionary zoning, tax credits, rent controls, vouchers -- a massive War on Concentrated Poverty to ensure that, instead of a future where DC is dominated by gentrified neighborhoods filled with affluent professionals, people of all income levels are scattered across the city, with equal access to the many amenities of a vibrant and growing urban area?

Well, the first thing to say is that we are doing all those things; this is what that looks like. It does not look like "stopping gentrification"; it looks like "easing the transition for some of the lower-income residents". If there's political support in the District of Columbia for, say, slapping a 3 percent surtax on everyone's income so that we can build thousands upon thousands of new affordable housing units in every neighborhood in the city, I haven't noticed it.

This is a really important point. We are not debating whether DC, or San Francisco, or New York City, can create any affordable housing units. They certainly can, and in fact, they are. What we are discussing is whether these cities can create enough affordable housing units to prevent gentrification. No one has yet, and given the constraints that I have outlined, I am arguing that they are very, very unlikely to do so in the future. Gentrification tends to stop when affluent people stop wanting to move into the city -- and while there are many government-sponsored ways that we could potentially achieve this end, they would involve things like deliberately underfunding schools, and allowing crime to rise.

What About Upzoning?

And now, finally, we arrive at the market-based approach that is well-favored among the cognoscenti: forget building “affordable housing,” and just build “housing”. Lots and lots of it. Slash the red tape, alter the zoning code to let people build more high-rises near public transit, and tell the community groups to go to hell when they protest. There are two good books on this you should read: The Rent is Too Damn High, by Matt Yglesias, and The Gated City, by Ryan Avent. Both authors are brilliant, erudite, and completely right. They are also probably not going to change the minds of tens of thousands of angry homeowners who don’t want high-rises built in their neighborhoods.

The problem is not the economics, which is correct; the problem is that those homeowners are also completely correct that building high-rises near them will change the character of their neighborhood. And they like the neighborhood the way it is, which is why they live there. I live in a walkable row-house neighborhood, and I would be very sad if they upzoned my street. Now, I’d support it. But I’m an economics blogger, and a crazy libertarian ideologue. Most of my neighbors are not, and I can testify that they -- rich and poor alike -- often get very upset when someone proposes throwing up a tall building that will overshadow their yard. You can argue until you’re blue in the face that people in the apartment buildings aren’t going to spend all their time peering into the backyards of the houses next door, and that denser development is the only way to get amenities people want, like a Target or a Trader Joe’s -- and I have done just that on the neighborhood listserv. Now, perhaps my rhetorical skills were insufficient, but I haven’t seen anyone else argue a neighborhood into supporting higher density, either.

Inspired by the “denser development means a more prosperous city!” arguments, DC reconsidered its Height Act, which blocks tall development downtown, and embarked on an overhaul of its zoning code that promised to lower the costs and ease the development of higher-density housing. After six years of contention, we got ... somewhat reduced parking minimums for development near metro stops, and the right to build an accessory dwelling in your carriage house. (The Height Act was also modestly revised to allow structures on rooftops.) Meanwhile, the DC Planning Office is making war on “pop-ups”, the practice of putting an extra story or two atop existing row homes, and the zoning commission seems to be seriously considering going along with their proposal. Two steps forward, sure, but such little steps, and now we’re looking at going backward again.

The fundamental problem is the asymmetry between the passion of existing residents and newcomers. A newcomer wants more housing to be built so that they can afford a home, but is not going to show up at a zoning board meeting to testify in favor of a particular 50-unit development that they might like to live in. Nor are they going to be as interested in changes to the zoning code as a homeowner who knows that any change means his home (and his biggest asset) might suddenly be overshadowed by a 10-story apartment complex -- maybe they should be, but maybe it’s just easier to move to Virginia. And it’s not obvious that you can shift this dynamic by trying to encourage more renters and less homeownership -- because the only place in America that has more renters than homeowners has achieved that by giving lots of renters quasi-property rights in their apartments, which then gives them all the incentives that homeowners have to preserve their quality of life by blocking density.

At the heart of the matter is loss aversion: people will fight harder to preserve something they have than they will for a potential gain. Homeowners in low-density neighborhoods will fight like tigers to preserve what they have. We’ve given them the legal tools to frequently win that fight -- and if you try to take those tools away, they’ll fight that, too.

Then What?

What’s the solution, then? If the problem we’re trying to solve is “gentrification,” I don’t think there is one. I think we can at best slow it, and ease the transition for displaced people. But gentrification will stop when demand ebbs, and not before. We’ve given communities a lot of power over what gets built near them, and there is no easy way to take that power back.

Long time readers will hear me harkening back to a theme I've discussed before, in many contexts: modern government is slow. It is designed to be slow -- much slower than modern gentrification. That’s why gentrification is winning the race in cities from coast to coast.

The activists of the 1960s looked at the wretched excesses of earlier planners like Robert Moses, and agencies like the TVA, and they wanted to give ordinary people a tool to stop it, a voice in the plans that were made about their community. They succeeded. Those tools create lots of what you might call veto points on any major policy proposal, points where some interested citizen can force the government to stop, or at least pause for a good long while as the lawsuits are sorted out.

There are a lot of good things about this; it prevents the government from taking bad plans to their illogical conclusions. But it means the government is simply incapable of the kind of massive and rapid changes it made between the 1930s and the 1960s. That's why Franklin Roosevelt could get the Hoover Dam built in the first half of his presidency, and Barack Obama couldn't find any truly "shovel ready projects". It's why Dwight Eisenhower could oversee an unprecedented highway building boom, and the Southeastern High Speed Rail Corridor, which is essentially a minor upgrade of existing rail bed that will enable trains to go only marginally faster, has taken more than a decade just to get planning permission. It's why we will never have another Robert Moses, and also why we could never have built enough affordable housing to replace the units that were lost over the last decade.

If you want to change things, you need to go back and remove all the veto points. But understand that when you do so, you don't just empower affordable housing advocates, but also the Robert Moses figures who want to tear down their houses to run a freeway through there instead. Either the government has these powers, or it doesn't -- and if it does, they can be used for ends you very much disapprove of.

I think it's quite possible for a progressive group to say, "Okay, this is important enough that we have to start blowing up those veto points: restrict the ability of communities to sue the government, limit the government's power to control what gets built where, and then go out there and build as much housing as we can." But my sense of progressive politics is that this is as impossible as getting Forest Hills homeowners to meekly assent to a large housing project in the middle of the neighborhood; the veto points are simply too useful for other goals that progressives also hold dear.

If this sounds like I’m pointing and laughing at activists hoist by their own petard, let me say that this is the furthest thing from my mind. I don’t want another Robert Moses, and I do want more housing built, and unfortunately, there is an inevitable tradeoff between these priorities. The trade we made has limited the government's ability to preserve and create affordable housing while also limiting its ability to destroy communities. And I don't see any way to make a different one at this point, so blame is sort of beside the point. Maybe the legal changes of the 1970s were a mistake, but if so, they are a mistake that we cannot easily undo.

And so here we are: The government simply has relatively little power to create more affordable housing in the face of massively increasing demand for homes in desirable cities like Washington, New York and San Francisco. It can create some units that will benefit a few people. It can slow the process of gentrification a bit. But the dream of adding all those new, affordable-housing-advocating, affluent young people to the city, while allowing the former residents to stay in place, seems to me to be just that: a dream. A nice dream. But still a dream, which like all dreams will eventually evaporate as reality overtakes it.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Cameron Abadi at cabadi2@bloomberg.net