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Homing in on the housing conundrum

Oct 29 2016

Raj Chetty discusses poverty and housing policy with SIEPR Director Mark Duggan.

Credit: Norbert von der Groeben

We all need a roof over our heads. But how that shelter gets built — and where — often opens a complex set of policy challenges with far-reaching implications that affect the rich, the middle-class and the poor.

Housing is tightly woven into the fabric of education, employment, a region’s economic health — even a person's upward mobility. And several scholars at the Stanford Institute for Economic Policy Research are focusing on these issues.

SIEPR’s fall Policy Forum examined the connections and posed a question for its title: “Gentrification: Can Policy be the Key to Affordable Housing?” The answer that emerged from the dozen panelists — leading experts in academia, business and policy — was “yes.”

The tug-of-war dynamic between affordable housing and gentrification is decades old, and panelists discussed how the deepening lines of inequality and cumulative effects of government policies have exacerbated the housing crisis now facing the nation — and notably in the Bay Area.

The economists and government officials presented batches of sobering numbers — cuts in federal support, imbalances in the housing market, and more. The journalists pointed to the people affected by the numbers — teachers who can’t afford to live where they work, or people who live out of their cars.

Specifics on the types of policies that would help resolve affordable housing shortages, skyrocketing rents and homelessness would have to cut across a range of areas: federal, state and local taxes as well as government subsidies, transportation, land use, and property laws.

Many speakers echoed that political will — at every level of government — would need to be aligned. Further review of which programs would be most effective will also be needed, and panelists encouraged students in the audience to pursue such economic policy research.

One speaker, Amie Fishman, the executive director of the Non-Profit Housing Association of Northern California, summed it up this way: “There is no silver bullet. We need big game-changing strategies.”

The Policy Forum featured five sessions on different aspects of housing. You’ll find highlights — and opportunities to watch recordings of the sessions — below. And visit this page for more information on the speakers.

USING HOUSING POLICY TO COMBAT PERSISTENT POVERTY

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Stanford students and faculty joined policymakers, journalists and other experts on housing policy for the Policy Forum.

Credit: Norbert von der Groeben

Research detailing how poverty has inextricably gripped parts of America — and hampered upward mobility — set a fitting backdrop for the Policy Forum.

“I think housing policy issues and residential segregation are really at the centerpiece of understanding how to revive the American Dream and tackle growing inequality and poverty in the United States,” economics Professor Raj Chetty, a SIEPR senior fellow, said in the opening session.

Groundbreaking research by Chetty and his colleagues has found that chances of a low-income child becoming a high-earning adult are almost twice as high in Canada than in America, and the odds widely vary within the United States.

The research showed that zip codes matter and that every extra year of childhood spent in a better zip code resulted in markedly better educational and employment outcomes later.

Figuring out exactly why one city fares better than another  is an extremely difficult challenge, Chetty said. But housing issues are unequivocally part of the equation.

Five strong factors appear to lead to higher levels of upward mobility — better schools, a larger middle class, a more stable family structure, a more socially cohesive community and less residential segregation, he said.

One solution is giving low-income families subsidized housing vouchers to move to better areas. Compared to public housing projects, voucher programs could improve earnings and save taxpayer money.

The idea, however, is to not uproot settled families, Chetty noted. Since roughly 20 percent of low-income families already move every year, the voucher program would help redirect the flow.

At the same time, “we can’t move all of Harlem into the Bronx,” Chetty said, so investing in and improving existing communities through urban planning, zoning and transportation infrastructure are important. Another option would be issuing tax credits to encourage affordable housing construction in high-income neighborhoods, a policy also examined by SIEPR Faculty Fellow Rebecca Diamond.

What about concerns of spillover effects from a mixed-income neighborhood?

“As best we can tell, empirically in the data that we’ve looked at, we find that more integrated neighborhoods have, if anything, slightly better outcomes for children in richer families rather than worse outcomes,” Chetty said.

FEDERAL POLICY AND THE HOUSING MARKET

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Raphael Bostic (left) and Scott Croul discuss federal housing policy.

Credit: Norbert von der Groeben

Follow the money, and it will be evident where the federal government sets its priorities when it comes to housing.

That’s what Raphael Bostic and  Scott Croul, discussed in the second panel.

Bostic is the Judith and John Bedrosian Chair in Governance and the Public Enterprise at the University of Southern California’s Price School of Public Policy. Croul is the Senior Managing Director of Multifamily Production and Sales for Freddie Mac’s Western Region.

Federal policy has long skewed toward home ownership, Bostic said, and it might be time for policymakers to consider the question of shifting more expenditures toward the rental market.

The federal government spends almost three times as much on mortgage interest deductions and property tax deductions than in rental and public housing support, said Bostic, who served three years of the Obama administration as an official in the Department of Housing and Urban Development.

“The tax code is really how we do our housing policy,” Bostic said.

What’s more, those tax-financing methods typically end up helping the affluent buy more homes, rather than ushering in new first-time homeowners, he said.

Croul contended higher-density developments are the only solution to meet housing demands, but building transportation infrastructure should go hand-in-hand with that.

Much of the nation’s affordable housing was built 30 to 40 years ago, Croul said, and even though multifamily housing construction is increasing, such options still fall far behind the need.

Bostic agreed. “We're down tens of thousands of units, and we can’t do it the single-family housing way,” he said.

Yet, he added, “we shouldn’t think of the feds as being the only game in town.” State and local housing policies affecting land use and the rental market are critical to the overall solution as well, Bostic and Croul said.

But finding agreement among policymakers isn’t easy.

“Much of the gray hair on my head was from trying to referee some of these policy discussions on this,” Bostic said. “It gets heated because we have a finite amount of resources. Everyone uses zero sum.”

WHAT’S HAPPENING IN CALIFORNIA

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Enrico Moretti shared highlights of his research relating to California housing policy.

Credit: Norbert von der Groeben

The housing crisis hurts the state of California, panelists in the third session said.

The growth of the tech industry has increased jobs, but housing has not kept pace, resulting in incredibly high prices, especially in the Bay Area.

“It doesn’t take a degree in economics to know if demand is strong and supply is weak, then pricing is going to go up,” said Enrico Moretti, a professor of economics at the University of California-Berkeley and former Vic Trione Visiting Professor of Economics at SIEPR.

The state’s economy also takes a hit in foregone output because people are squeezed out of the job market from inaccessible housing, according to Moretti’s research. And much of the generated wealth is not captured by the majority of workers but by incumbent property owners.

“Most of the problem is self-inflicted,” Moretti explained. Culprits include density and land use restrictions and the California Environmental Quality Act (CEQA), which often delays or stymies affordable housing construction.

The Bay Area has the third most stringent regulatory environment among 649 regions surveyed, Moretti noted, citing the Wharton Residential Land Use Regulatory Index. As a result, it experienced its second largest average rent increase from 2011 to 2015.

By comparison, Seattle actually had higher job growth than the Bay Area but a stronger housing supply. Seattle’s average rent increase was 31 percent less.

The best solution is to increase supply, but state intervention is critical, Moretti contended.

An elephant in the room was Proposition 13, a 1978 ballot measure that capped property taxes in California.

Linda Wheaton, a state housing official, followed Moretti’s presentation, warning that she wasn’t even going to broach the subject, given how no politicians have dared tinker with it.

Wheaton agreed about the jobs-and-housing imbalance and said it would have been better if the state had taken incremental steps to support fair share housing requirements. “Arguably, we have failed miserably,” said Wheaton, the assistant director for intergovernmental affairs at the California Department of Housing and Community Development.

The statewide housing plan of 2005 had already projected a significant undersupply of housing, she said. “We attributed it to lack of political will and local resistance.”

Real people are affected by these policies, explained Stephanie Martin Taylor, a news anchor and reporter who covers housing issues for KQED.

Recently, Taylor witnessed 6,000 people showing up at a lottery for 77 units of housing for the elderly.

“Look at the desperation on people’s faces,” Taylor said. “Those of you who are studying these issues — you’ve got your work cut out for you.”

THE BAY AREA’S HOUSING DILEMMA

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Kim-Mai Cutler (left) talks about housing affordability in the Bay Area with Karen Chapple (center) and Amie Fishman.

Credit: Norbert von der Groeben

Karen Chapple, professor of city and regional planning at the University of California- Berkeley, veered in opinion from her colleague and earlier panelist, Enrico Moretti, contending that supply is not the problem.

“In reality, we’re not underbuilding — we’re building in the wrong place for the wrong people,” Chapple said. “The problem is not supply per se, but the rules of the game and rising inequality.”

Her research has shown how the housing crunch was even more extreme during the tech boom of 2000. “The housing crisis has been here all along,” she said. “Tech is just a symptom; it exacerbates the housing crisis at the peaks and troughs.”

Chapple stressed, however, “this is a very different housing crisis that is coming about because of the evisceration of the middle-class in America.”

Kim-Mai Cutler, a technology journalist and columnist at TechCrunch, discussed the impact of the emergence of Silicon Valley and attributed the housing crisis to Proposition 13 and the slow-growth movement that started in the 1970s, leading to restrictive zoning and land use controls.

A house in Palo Alto that sold for $9,400 in the 1950s will now cost at least $2 million, she said.

“A public school teacher can’t live anywhere remotely near Palo Alto,” Cutler said, as she showed charts of the region’s skyrocketing rents and median housing prices.

“If we don’t do anything,” she added, “I don’t know what we’re going to do for the middle-class people here.”

Amie Fishman, the executive director of the Non-Profit Housing Association of Northern California, said affordable homes are the foundation for healthy, equitable, and thriving communities.

We need the longitudinal studies that show how affordable housing, mixed-income communities and diversity has benefits, Fishman said in a nod to research by Raj Chetty, an earlier panelist.

Housing is often considered a private good, but it’s not, Fishman said. “It’s a fundamental part of the (infrastructure) just like roads and schools.”

In the meantime, half of California’s low-income renters spend over two-thirds of their paychecks for housing, Fishman said.

“Rent control is an imperfect tool, but we need it today so that more families aren’t evicted,” Fishman said. “It’s unconscionable that you can double someone’s rent overnight.”

A SPOTLIGHT ON THE HOMELESS

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Igor Popov talked about the causes and consequences of homelessness.

Credit: Norbert von der Groeben

Similar to other pressing housing challenges, resolving the issue of homelessness will require a massive joint effort, panelists said during the Policy Forum’s final session.

“Homelessness doesn’t exist in a vacuum,” said Igor Popov, an economist at Airbnb who recently received his PhD in economics from Stanford. “It’s the last layer of what’s actually quite a broad and interesting social safety net.”

Popov, whose research dispelled some of the misconceptions surrounding homeless service programs, said there are big differences between public perception and reality.

One common misconception is that the homeless population stems from the deinstitutionalization of mental health services, thus leading to the stereotypical picture of a grizzled old man or veteran. But, Popov said, the reality is more complex: one in five homeless people are children.

Another incorrect assumption is that homeless people do not want to work. Popov cited how one of his studies found that 45 percent of the homeless were employed in the last 30 days, and 41 percent of the families checking into a shelter in Santa Clara County were employed at the time of check-in.

More research about the homeless is needed to help inform policy, Popov contended. At the moment, there’s a clear dearth, he said, pointing to how the topic comprises less than 1 percent of the volumes of published economic research papers.

“We’re not going to solve homelessness at the local level,” said Jeff Kositsky, director of the Department of Homelessness and Supportive Housing for the city of San Francisco.

There are major systemic problems in the United States that contribute to homelessness, he said. Until those are addressed, homelessness will persist.

California ranks 48th out of all 50 states in terms of spending on family homeless services, while the federal budget for housing today is only 20 percent of what it was in 1978, Kositsky said.

“That tells us where our priorities are as a country,” Kositsky said.

“Homelessness was created by the design of housing policies,” Kositsky said. “The good news is that anything that was designed can be redesigned.”

When it comes to addressing homelessness and gentrification, education and preserving the middle class, “housing should be viewed as a human right,” Kositsky continued, “and federal policy and spending should reflect this.”

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