Supply and demand doesn’t effect housing the way people think. We must look to centralized urban planning to solve the housing crisis.
Part 1 of this piece is available here. In it, I go into the specifics of the controversial California housing bill SB50, why it wouldn’t help the housing crisis, and some related policy concerns. This post goes deeper.
Supply and demand in housing
The neoliberal frame that Buttigeig and Wiener operate from is the same one that causes conservatives and YIMBYs to harp on “supply and demand”. However, supply and demand as a concept tells us less about the economy than capitalists think it does, especially in regards to housing.
Supply and demand is used as a principle to refute socialist ideas, but that indicates a complete misunderstanding of economics. Marx was well aware of supply and demand, and its role in informing prices. But Marx was curious about finding where economic value really comes from.
For example, let’s say there’s more housing, and prices go down, or there’s less housing and prices go up. However, there must be some other value that informs the price, before any fluctuation occurs. There is a value that exists independent of the price. The fluctuations in price correspond to something beyond supply and demand.
Marx determined that the thing that gives an object economic value is labor. More specifically, he says it’s a combination of material, that then has had labor performed on it. The reason a house has a higher price than a Coca-Cola is the house requires much more labor and material. The price of a house may fluctuate, but it will never fluctuate to be anywhere near the price of a Coke.
The point is, supply and demand effects prices, and no one denies it exists. But capitalist apologists assume the entire economy is at the mercy of supply and demand, and everything else revolves around that (because it’s the only economic idea they’ve heard of). Another reason capitalist apologists deify supply and demand is because it’s an economic principle they engage with in everyday life. They can understand that when you’re at a baseball game the concession stands are the only supply of food at a place where demand is high, and that’s why prices are high (although it’s an artificial scarcity). But supply and demand tells us a lot less about the economy, especially the housing economy, than people think.
A common sentiment about housing in the U.S. is that empty houses outnumber homeless people by six times. The common capitalist reply is that most of those abandoned houses aren’t in LA or San Francisco, and the housing market is heavily localized.
What the capitalists don’t realize is that their rebuttal isn’t actually a pro-capitalist argument. And the impact of the empty houses statistic isn’t that there’s so many empty houses that we should fill immediately, but rather, the argument gestures towards the wild inconsistency within a capitalist housing sector.
The fact that there’s thousands of empty homes in Michigan and Ohio (just for examples), doesn’t mean we should forcibly ship homeless people to live in them. It means the structural engine that propels the housing industry, is incentivized by profit, and this profit motive doesn’t align with the public’s need for housing.
Capitalism developed in cities, which is hospitable to private ownership and wage-based labor dynamics. Capitalism thrives where it concentrates, and it concentrates best in cities.
For example, growing up, my family went to family reunions at guest ranches sometimes. The staff worked there all summer. They ate the same food that the guests did, so they had three meals a day. They had lodging that they shared for the summer, and they got a stipend. Many of the wranglers would work other seasonal and freelance horse jobs when it’s not summer. Many of the cooks and serving staff would work at other resorts during the other seasons. Very few of the staff was from the state where the ranch was.
A similar example is farmhands in rural areas. It’s common for farmowners to hire bumpkins who live in shacks around them to do farm work. They usually get paid the same way as day laborers, but get treated much more like a “family member” than a conventional wage employee.
Sorry for the detour, but I’m reaching for a point. Although these jobs take place in a capitalist society, and use conventional capitalist wage labor, it’s different than urban divisions of labor. Working in agriculture tends to have, sorry for the redundancy, a more agrarian labor structure. It retains elements of feudal economic relations, by tethering workers to the workplace, and closer ties between the land-owners and the employers, which are usually sub-capitalist classes at conflict in capitalist cities.
My point is, housing and capital function very differently in cities. In cities, land is the hottest commodity, and there’s an overabundance of demand. In the country, labor is the hottest commodity, and there’s relatively less supply.
So, conservatives bring up that most empty housing is not where people want to live. They think that’s a “gotcha” moment, but in reality, that is a feature of capitalism. It is by design that there’s less housing in cities. In cities, land is valuable, which is why it’s scarce. Land isn’t as valuable in the country because it’s much less scarce.
When people point out that there’s six times the empty housing than homeless people, they aren’t saying we should ship all the homeless in LA to rural Ohio and stick them in abandoned drug dens. They are pointing out that the incentives that drive the capitalist economy contradicts housing needs.
This elaborate intertwining of capital and housing makes the housing market much less subjected to supply and demand than the supply and demand involved in, say, oil or gold.
When new housing is built, it’s funded by massive concentrations of capital. The only way to get investors is to incentivize them with profit. The more expensive a property is, the more profit it has the potential to accumulate. This is why virtually all new urban housing is “luxury” housing, and the capitalist class, with their shit-eating grins, assure us “don’t worry, the rich people will move out of your neighborhood and move here!” which, of course, never happens.
People make a simplistic “supply and demand” argument because they assume when a new housing unit is built, a new person moves in. However, the reason the housing was built to begin with was so the investors can get more money. A lot of times it’s more lucrative, due to the speculative nature of stocks and investment, to not occupy an apartment, or to make it into an airbnb instead.
I found an LA Times op-ed written by Steven Sharp which illustrates the problem of supply-side housing solutions. In my opinion, the op-ed comes to bad conclusions – as one would expect from a Californian journalist writing about housing – but there’s some illuminating details. For context, and to Steven Sharp’s credit, he runs the blog Urbanize LA, which provides a lot of info on housing developments throughout LA, even though he’s clearly a “supply and demand” YIMBY.
In 2016, backers of Measure S, the failed ballot initiative that sought to curtail high-density development within Los Angeles city limits, depicted downtown as a poster child for “overdevelopment,” with a growing collection of high-rise apartment and condo towers that cater to the wealthy while offering nothing for the working class.
So far, Sharp packs a lot of ideas in and glosses over them, likely because of space limits imposed by LA Times.
Measure S was, among other things, a moratorium on developments with variance in the zoning code for two years. It would have made it so, for two years, no one could get an exception for going above zoning heights.
But Sharp does a misleading rhetorical maneuver that YIMBYs make all the time. He conflates those who think “overdevelopment” is bad, and those who think those developments are exclusively for the wealthy. Sharp wants you to think there are two groups involved: pro-development and anti-development. But, we can actually divide this issue into three positions that align with three different class interests. The working class opposes the development because it offers nothing to the working class and exacerbates housing issues. The capitalist class supports the development because it allows them to accumulate and concentrate capital. The middle class opposes development because they want to preserve their provincial, suburban, pseudo-Lord way of life with a yard and their own little domain.
The real estate data firm CoStar revealed in September 2017 that the apartment vacancy rate downtown had reached 12.4%, three times higher than the citywide average. This vacancy rate raised eyebrows, even among growth advocates who recognize the need for more housing.
How can market rate apartments drive down rents when they’re sitting empty? Could economists possibly be wrong about something so fundamental as supply and demand?
The answer: of course not.
But the real answer is: of course. The fact that vacancy rates hover around 3% (he says 12.4% is three times the average, but everything I’ve read, it’s closer to four times) in LA, and new developments have a 12.4% vacancy rate indicates a problem.
We need to think about how commodities function under capitalism to understand how supply and demand impacts housing policy. I’ll use shoes for an example.
The reason a shoe company makes shoes is because it generates profit. The capitalists invest money into the items used to produce shoes, then hire people to make them, in order to make more money. The reason consumers buy shoes is because they protect our feet.
This means that, at the root of capitalist commodity production, there are contradictions. We, the consumers, buy things to use them. The capitalists, however, don’t produce things to satisfy that need, they produce things to accumulate capital. Sometimes, the desire to accumulate capital aligns with what consumers want, because that means there’s a demand, and the aspiring capitalist would be glad to fulfill the supply. But a lot of times, the things consumers have a use for aren’t profitable for the capitalist class, and things that are profitable to the capitalist class aren’t beneficial to the consumer, or working class (which greatly overlaps).
Let’s say a $20 pair of shoes costs about fifty cents to make. Then you pay about one dollar per pair for shipping costs, and about a dollar in employee wages, and a dollar for random business expenses. When the commodity process is finished, the pair of shoes is sold for $20, and makes $16.50 of it is profit.
However, let’s imagine a reality where, even though there’s a demand for shoes to protect our feet, there’s more value in using the shoes for other purposes. Maybe, there’s a scarcity of shoes, so it becomes more economically safe to horde the shoes. Maybe, something is valuable about the shoes, so it could be more valuable to save the shoes to sell later for more. Maybe, you realize that you can make more money from renting shoes rather than selling them.
In this situation, shoes as a commodity are no longer just an object that fulfills a demand, it becomes something more like a pseudo-commodity, or a commodity currency. If people are holding onto shoes because of market speculation, they are treating the shoes as a form of stock investment. If people are renting out shoes, this is an example of people leveraging their private ownership against those who don’t own.
In other words, shoes are no longer being produced as a supply to meet a demand. They are now being produced as objects that concentrate capital.
This is why supply and demand has less of an impact on housing than it’s made out to have. Housing is a supply that meets multiple demands. It doesn’t only exist to give people a place to live. It often exists as a rental, which adds a landlord in the chain of capitalist accumulation. But the housing unit can also be an airbnb, converting a single unit of housing into a hotel room, which, with minor upkeep, creates a larger profit margin. Not only that, but the housing unit could be bought for speculative reasons, assuming the value of the unit will increase over time, functionally turning a housing unit into a unit of stock that occupies physical space.
Housing in a capitalist context faces much deeper and irreconcilable problems than other economic systems. For example, under feudalism, land had a more universal value, like the way capital does under capitalism. When you owned land, you received the fruits of labor performed on that land. The peasants who worked on your land produced things for you. This made the use of land more universally beneficial, because the owner of land wanted to maximize its use as much as possible.
But once capital becomes the primary currency – the currency that motivates our economy – then sometimes land is more valuable not being occupied than it is being occupied, if it may generate more capital – which housing can and often does. This makes some housing outside the realm of supply and demand, the forces driving the market.
Make LA more like Seoul, not like New York
So far, I think I’ve explained how SB50 wouldn’t save the housing crisis in California. But, I want to propose a better solution, and I have several ideas. The problem is, the main solution is a political impossibility, barring a revolution: housing needs to be decommodified, and landlords as a class needs to be abolished. Like most solutions to our societal ails, it would require a radical restructuring. I’m trying to be more pragmatic, so my solution is ambitious, but also realistic (not materially realistic, but politically realistic).
And even having said that, my solution is still completely unrealistic, and would probably require some type of revolution to even institue this level of change.
First, the US government needs to calculate how much housing is needed, and where. Scott Wiener frequently cites a statistic that the State of California is short 3.5 million housing units. This is especially a problem when you look again at Los Angeles. Pretty much all of Los Angeles and its widely spreading suburbs are utilized. LA might have a less densely populated urban core compared to New York, but it has little land that is not occupied. LA suburbs, for example, are more densely populated, and the county at large is much more consistently dense, than other urban areas.
This lack of unused space makes it hard to build more housing in LA without upzoning other areas. It’s also not very viable to build hyper-dense housing in a distant place where no one lives, like the outskirts of San Fernando Valley. As mentioned earlier, housing markets are highly localized, and that’s very true for LA. For example, if you grew up, live, and work in Santa Monica, and rent gets more expensive, then moving to somewhere like Northridge or East LA is about as practical as moving to Philadelphia and working in NYC. By that I mean, it’s something people do, and can do, but the commute is so immense that it’s only worth it if you’re making good money.
This leaves few solutions. If we aren’t upzoning housing, and we aren’t able to build hyper dense housing complexes dotting the outskirts of the massive LA metro area, then what?
My solution does involve upzoning, but not upzoning residential areas like Wiener, but upzoning commercial areas. A big issue in LA (and most of the US) is not only the single-family home low-density, but also how low density commerce are. Most businesses take up one floor, with no housing units above them. Because of this, I would find specific commercial hotspots in the city that aren’t being best utilized, and build up.
Or to put it in other terms, the Scott Wiener types – California neoliberals who resent not being New York – want SB50 because it’s upzoning would look more like New York. But my proposal is taking inspiration more from Seoul. I studied abroad in Seoul, loved it, and love how disparate its urban layout was from American cities.
The main marker of experiencing LA is traveling through it. There’s no conventional “urban core” the way that Midtown (or downtown) is. And, although Seoul is more dense than NYC, it has a similar experience of “being-there” to LA. By that I mean, in NYC, one has a sense of place in relation to the urban core. Neighborhoods in Manhattan are named in relation to the urban core, and virtually all the subways pass through the core parts of Manhattan, even if they’re go from Brooklyn to Queens.
However, LA and Seoul are both similar in the sense that they’re decentralized. They both have some type of urban core – LA has downtown LA, Seoul has Jongno. But neither of these are the monolithic center of the city. There are people who live in both cities who never go near these areas, and have their “own” core.
Another way to conceptualize LA like this, is that it’s several small cores forming a web with housing in between. Dorothy Parker famously described it as “72 suburbs in search of a city”.
The layout of Seoul feels like large concentrations of businesses and points of interest around subway stops. These areas are extremely dense with pedestrians. But If you were to walk half-way between two subway stops, then turn off the main street, you would begin seeing much more housing.
In other words, the way urban geography feels in Seoul is like a web of hubs and main thoroughfares, with housing, and more quiet areas, filling in the space between these. This is similar to how the urban geography of Los Angeles feels, albeit LA is much more sparse and suburban, of course.
This can be juxtaposed with NYC, especially Manhattan, where for the most part, businesses and housing are haphazardly distributed. There are specific streets, or stretches of street, that are all businesses, all offices, or all apartments. But there’s also many streets that are a hodgepodge of all of these things, and it’s hard to recognize what specific zoning policies apply, and to where.
Scott Wiener’s SB50 is functionally a plan to make LA more like NYC. Most of the city would become rezoned, and these upzoned building would be sprinkled throughout neighborhoods of residential, single-house, detached homes. However, this is trying to fit a square pig through a round hole. Los Angeles is not, and was never, designed to accommodate this type of eclectic zoning.
The way I would make LA more dense is to complement the infrastructure they already have. I would hyper-upscale the main thoroughfares and transit hubs. I would completely upzone the few block radius around subway stops.
In Seoul, it’s quite common to have multi-floor businesses. For example, here’s a screenshot from Google Maps Streetview [link to Google Maps]:
The bottom five floors of this seven floor building are all businesses. The second and third floor are the same businesses, so four businesses in one building. The top two floors may also be businesses as well – like nondescript PC bangs – but it also could be offices, or potentially even housing units. This type of density in business districts is pretty unheard of in North America, and as far as I know, is only somewhat common in Manhattan.
To make a comparison, of how this type of dense commerce district could be implemented in LA, I found a good area of LA for comparison – the intersection of Vermont and Beverley [like to Google Maps], which looks like this:
This intersection is worth examining because: 1. it’s right off of the 101, 2. it’s an intersection with a subway stop, 3. it’s centrally located in general, and 4. it’s underdeveloped, all things considered. To begin my redesign, I took the same image, and outlined every parking lot or empty lot, to show the amount of land not being utilized (it may not be 100% right – I did it just based on looking at it).
That’s a lot of parking space that could easily be maximized. You could, in theory, fit 20 different buildings, of varying sizes, into the red space. Some of those buildings could be huge; for example, the parking lot by the track and field is just as big as the track. You could fit a large, mix-used building, with a large parking garage inside it, into that parking lot, as well as a ton of housing, business, etc.
If you filled those empty lots with seven floor (or more), mix-use buildings, then this relatively undeveloped, car-centric intersection turns into a busy, bustling, lively urban area.
The most interesting thing about this Google Map photo, however, is the residential areas in the image have little to no empty space. So LA does have a large amount of low-density housing, but they’re at least occupied. The commercial areas have tons of gaps and unused spaces. This highlights one of the original issues I had with SB50 to begin with – it upzones entire neighborhoods, without regard to what they’re currently zoned for.
It would be more efficient to heavily increase density in highly concentrated, precise, currently underutilized, but centrally located areas.
Two models from Canada to follow
I’m looking to Seoul for my inspiration of making hyper-dense locations with housing nestled between it. But I also have no illusion that LA could ever be like a large East Asian city, because there’s too much low-density housing to work with. In LA, residential neighborhoods dominate, rather than sink into the background.
Because of this, I wanted to use two North American examples, both from Canada. The first will be Downtown Vancouver, and the second will be North York Centre in Toronto.
Downtown Vancouver is heavily associated with the urban planning approach Vancouverism. This type of planning entails: mid- to high-density housing in an urban core, integration of mass transit, buildings with commercial bases and tall, narrow apartment towers above them, and lots of integrated greenery.
Here is an example of what that looks like:
Imagine if five towers like that were built around the intersection of Vermont and Beverley. It would transform the subway station entirely. Two thousand or so apartments would become available at this intersection, and probably a dozen businesses or some type of relevant public places.
Currently, the station is a convenience for people without a car, or going a short distance. It doesn’t feel like there’s any reason to go to that subway station itself, except to get elsewhere nearby. But if that station had more development, it would turn the semi-arbitrarily chosen intersection that happens to have a subway station, into an actual destination in itself. Not only that, but it wouldn’t even have to intrude into the prized, detached home neighborhoods.
The other example I’m using is North York Centre in Toronto. This area developed in the 80s, after the North York Centre station was announced to open. This created a 2.4 km (1.5 mile) stretch between the North York Centre station and the already running Finch Station.
The city of North York, which at that point was separate from the City of Toronto, encouraged businesses to move to the stretch of Yonge Street between these two stations. This led to large-scale, mixed-use development.
When Toronto annexed North York, North York Centre turned from a suburban city center into Toronto’s equivalent of a midtown. It looks like this:
You may also notice that North York Centre is surrounded on all sides for miles with suburban-style housing, showing that this construction, although not ideal, can be compatible with LA’s detached, suburban-style housing.
Imagine if some limited stretches of Los Angeles were this densely developed, with lots of apartments and office space above the commerce on the first floor. This wouldn’t be too difficult in LA, with it’s wide blocks and mostly single-floor commerce. There’s already the basic infrastructure needed to build up along major streets. Simply build residential towers above what would otherwise be a single story strip mall.
The problems of my policy – and the true solution
You might be thinking my solutions – to build high density buildings along transit passageways and around subway entrances – is similar to Scott Wiener’s idea. On some level, my idea is similar.
However, there are differences. My version is a lot more centralized. It requires direct planning in specific areas. Wiener’s idea is laissez-faire and rezones indiscriminately, letting private capitalists do with it as they will.
I will highlight the issues that my idea has as well. For one, the Vancouverist style I’m suggesting is also used hand-in-hand with exclusionary housing politics. It’s not a style of development on the frontlines of gentrification, because buildings like this don’t pop up in poor neighborhoods. But, developments that resemble Downtown Vancouver indicate an influx of development and rising rents in general.
For example, take the South Waterfront in Portland, OR:
The South Waterfront is similar to Downtown Vancouver with its tall narrow glass towers, mixed-use units taking up the whole block on the first few floors, parks, greenery etc.
The South Waterfront, however, isn’t your “average” site of gentrification. It was a giant patch of unused land, adjacent to downtown Portland. It didn’t force anyone out of their homes, except maybe a few eclectic suburban style houses from zoning eras of yore.
However, South Waterfront, although not causing gentrification itself, did work hand-in-hand, and consequently signifies, Portland’s gentrification issue. It represents the city’s concentration of capital in the form of development, that also manifests itself in new developments in other neighborhoods – more direct gentrification.
My argument also isn’t helped by the fact that rent has skyrocketed in both Vancouver and Toronto, although that’s true with Canada (and the US) in general.
Another issue with my proposal is called Brusselization. Brusselization is when there’s unsystematic high-rises in neighborhoods that don’t typically have tall buildings. This creates a random patchwork of high-rises in random places. This especially happens in gentrifying or gentrified neighborhoods.
However, Brusselization is usually a consequence of lax zoning laws. So it’s not as common as one would think. Lax zoning laws are associated with capitalism, but at the same time, most capitalist political economies have other interests as well. Building a single commercial skyscraper in the middle of a suburban development would not be tolerated by the snooty middle class who occupies those neighborhoods, and the capitalist system is obligated to meet the middle class’s needs.
It’s usually more beneficial to concentrate capital together. That’s why capital historically flourished in cities, and where capitalism developed to begin with. It’s useful for capitalism to function if corporate office jobs are concentrated in many skyscrapers in an urban core, rather than dispersed in a hodgepodge patchwork across the city.
While Brusselization is something that happens, it wouldn’t happen with my plan, because it’s a consequence of lax urban planning. I’m advocating for top-down, centrally planned, specific developments. Wiener’s plan, on the other hand, could result in Brusselization. The reason is, Wiener’s plan doesn’t have a plan. The plan is upzone most the city and sit back to see what happens.
Ultimately, the real solution to the problem is changing policy, like actual housing policy, rather than the policy of what to build, and where. The simple truth is the entire underlying political infrastructure of American housing laws are broken. As for how to fix that: I could give ideas, but I’m not in a place to present myself as an expert.
This has been a long post, so let me wrap all of these disparate parts together.
Scott Wiener’s much-maligned housing bill SB50 would make California even more inhospitable to poor people, because it will result in leveling black and Latino neighborhoods to build condos.
The problem is, Wiener isn’t an outlier – he’s the quintessential California politician. He’s socially liberal in the sense of civil rights, but he’s socially conservative in his exclusionary, suburban, neighborhood watch mentality. He’s fiscally liberal because he wants to tweak capitalism to help people in need. But he’s fiscally conservative because he uses capitalism, or elements of the capitalist apparatus, to “solve” problems created by capitalism itself.
Senate Bill 50 demonstrates an optimistic ignorance about how capitalism works and the directions capital flows. It rezones most of Los Angeles and San Francisco. The reason this is optimistically ignorant, is because Wiener purposefully ignores the political power that rich people have. Rich people will never allow they’re neighborhoods to be bulldozed for high-density housing.
Similarly, no developer will want to bulldoze low-density housing for the poor to build high-density housing for the poor – they’ll build it for the rich. There’s much less economic incentive building housing for the poor, even if the housing units remain unoccupied.
We can look at 2020 presidential candidate Pete Buttigeig’s duty as mayor of South Bend. Buttigeig instituted a policy similar to Wiener’s idea. It was touted as a wonky, technocratic solution to a problem. But the policy resulted in black families losing their home. Capitalism is an unwieldy, hands-off economic system, that our government simply nudges and tweaks.
Then, I offered some personal urban planning ideas to help remedy this situation in a better way than Wiener’s plan. My plans include looking to Seoul, Vancouver, and Toronto.
Seoul’s layout has large clusters of dense commerce forming a web, with housing pocketed between. Downtown Vancouver’s layout includes building large residential towers on top of single floor commerce. Toronto’s stretch of Yonge Street through North York, is a large midtown, surrounded by suburban style housing developments. All of these techniques could improve California’s housing problems, without drastically upzoning and displacing people.
But to emphasize again, none of these problems will be fixed as long as there’s capitalism. Capitalism depends on scarcity of housing, or at least, a homeless population whether there’s housing available or not. Policies within capitalism could definitely help mitigate it, and SB50 may fix some, minor housing issues, but it also creates more, and accelerates new problems in the US.