Regular readers know why. I never lack for opportunities to riff on that phenomenon, though, particularly when people who think they have the answers neglect the laws of conservation in economics. "
For decades, a misleading narrative about mental illness among the unhoused obscured the true source of the crisis: hyper-commodified housing." That's Ben McCarthy in
The (Misnamed) Progressive. As is often the case, the problem is not too much "
commodification," it is too little.
[E]lected officials and the coalition of policy advocates behind them argue that untreated mental illness and substance use are a core cause—if not the core cause—of skyrocketing homelessness in the United States. Unhoused people, the narrative goes, are primarily homeless because they have failed to accept treatment and can no longer be easily forced into it. In fact, the primary cause of homelessness is a nationwide shortage of affordable housing. Millions of units of government-subsidized housing from decades past have been lost even as market-rate housing grows astronomically more expensive.
In casting the problem as an epidemic of individual pathology rather than one of political economy, these leaders have ignored the obvious economic reality: The rise of homelessness has resulted primarily from the hyper commodification of housing. In New York City and much of the United States, urban studies scholars Peter Marcuse and David Madden write in their book In Defense of Housing, “housing is becoming ever less an infrastructure for living and ever more an instrument for financial accumulation.”
The truth is that [New York mayor Eric] Adams’s and others’ rhetoric surrounding mental illness and homelessness stems from a decades-old misleading narrative that has fundamentally distorted the public discourse around both housing and mental illness alike. As private equity firms have purchased hundreds of thousands of rent-stabilized apartments in New York City over the past twenty-five years, this false narrative has served the interests of a political class beholden to the entire real estate industry. In doing so, it has caused real harm to some of the most vulnerable New Yorkers by attempting to decouple their material conditions from the economic and political forces that shape them.
Look, this is not difficult. Note, there is no shortage of housing
per se, there is what the authors refer to as a shortage of "affordable housing," and they persist in their delusion that if you pass a law that makes housing "affordable," there will be affordable housing. Sorry, no. On Manhattan, and in San Francisco, and anyplace else where there are serious agglomeration economies favoring high-value-added work, the real estate on which those rent-stabilized apartments sit
will be seriously expensive.
Two principles of land use immediately emerge. First, [the highest value added activities]have a ceteris paribus advantage in bidding for any parcel of land. Second, activities that encounter higher transportation costs lose advantage at greater distances. Thus, in the two-century old model, dairy products command a high price and spoil (we're before mechanical refrigeration or railroads, recall) quickly, thus those will be closest to the city, but dairies will be out-bid by timbering or cornfields or ranching.
Introduce mechanical refrigeration and railroads and motor trucks, and the highest bidders for land might be factories or restaurants or households. The principle is the same, though, the value of a parcel of land will be one at which a householder is indifferent between locating there, or locating somewhere else. The model as modified still predicts falling land values at distances from the city center. Thus, we'll see additional margins along which people might substitute, such as suffering the transportation costs but being able to live in a bigger house: easier for a faculty member at Cornell than it might be at Northwestern or at Stanford, where faculty qualify for housing subsidies. The underlying principle is the same: in equilibrium a householder will be indifferent among the bundles of location and housing type offered. Because that equilibrating tendency leads to similar houses clustered together, providing temptations for builders to put down cookie-cutter developments, Wise Experts think they can dictate neighborhood form with zoning codes. That works until new price incentives emerge.
But will we ever see a central business district that generates so much in the form of locational rents, in the presence of so small a transportation cost, for knowledge or financial industries (and there are reasons to suspect that it will be knowledge or financial industries, not manufacturing) that the service businesses get priced out, and the only land devoted to housing of any kind is at a distance, as appears to be happening in San Francisco, but not yet in Chicago?
If I remember correctly, New York's "rent stabilized" apartments stabilize the rents for the duration of the tenancy or until the property changes hands. Thus, the current residents of those apartments might be people who landed on Central Park West and thought they were Aaron Judge, and they're making a good living in finance or broadcasting or entertainment,
squatting, if you will, on the affordably priced rentals. The logic of the land rent gradient, though, suggests that at the passing of those tenants, or at sale, those properties are worth a lot more than the capitalized value of those stabilized rents.
Isn't rent control marvellous? In stabilizing the rents in the face of locational agglomeration economies, public policy makes the buildings themselves so valuable that only private equity can buy them.
