The “Supply-Side” Arguments, and Why Geography, Scale, and Migration Matter

Posted by Peter Cohen on March 31, 2016

Rick Jacobus' article, "Why We Must Build," published here on Shelterforce a couple of weeks ago has created quite a buzz. Jacobus is smart, and has been writing on the topic of affordable housing and land trusts for a while. The supply-siders have wishfully interpreted the piece as unquestionably supporting their “build, baby, build” agenda, with BeyondChron going so far as to share the piece, saying: "Why building housing reduces displacement." That isn't the simplistic argument Jacobus’ article makes—even if he positions himself as a bit of a market rationalist, he clearly didn’t write this long and thoughtful piece to simply be a booster for market-rate development, and his article shouldn't be interpreted as such. A few parts of his article make this clear and deserve further attention, while others are troubling and in need of correction.

Geography and Scale
Jacobus’ piece offers refreshing insight in the way he explains the implications of market-rate development at a neighborhood scale versus a regional scale, providing strong reinforcement to the argument that in “hot markets” like the Mission district (or other front-line neighborhoods) in San Francisco, a simplistic supply-side housing policy will not resolve a local affordability crisis and in fact may make it worse. He says this:

“New development may lower prices regionally even while it raises prices in a specific neighborhood."

Market-rate "supply" has a very different effect at a local scale and in a hot market (like the Mission) than at a regional scale and/or in a less heated local real estate location. Intuitively and empirically, this makes a lot of sense—that's what we've all been seeing, and it’s why few people at the ground level believe the supply-side argument has much merit for, say, the Mission District. But taken at a regional scale, large-scale developments out in Pleasanton, down in Mountain View, or over in Fremont might have a different local effect and certainly might have a regional effect on stabilizing housing prices. This argument supports the fact that, when it comes to housing, supply and demand isn’t as simple as it seems (or as simple as some boosters would like us to believe). A supply-side strategy will not work in every context to address affordability problems—including the hot neighborhoods of San Francisco.

Migration Trends
Jacobus makes another important point that is often lost in the current argument over supply and "who is to blame" for our housing affordability crisis:

“We are in the middle of a once in a lifetime tectonic shift in consumer preferences regarding urban living. ...There has been a shift, and now a growing share of the powerful prefer the center. But where the edges were occupied by farmland, the center of most of our regions is today occupied by the same low-income and minority communities that were excluded from late 20th-century suburbia.”

In other words, we're now dealing with a near-reversal of "white flight" (Neil Smith's "revanchist city" articles weren't so crazy after all!) that is overloading the capacity of local urban resources, policy, and political organizing to absorb that "tectonic shift" gracefully.

The disruption to working class and poor communities has been rapid and unrepentant, and the solutions are not as aggressive as the economic forces that are driving that migration shift. This is quickly resulting in the reversal of urban segregation. A 2012 Federal Reserve study started to reveal this trend and trigger discussion about the new "suburbanization of poverty," which is a clear symptom of the tectonic shift that Jacobus refers to. Perhaps it should be called a "titanic" shift, as many people are drowning in this process.

All of this means that the same supply-side solutions that may have worked in the past won’t necessarily work in the here and now. We are trying to “build, build, build” in inner city neighborhoods where people already live, live, live; not out in the greenfields of suburban growth for the last 50 years.

Neighborhood Stabilization (Or, Mistakenly Viewing the Mission through a Tenderloin Lens)
Another big point Jacobus makes is that ownership of land and community control are key elements of stabilization/anti-gentrification. For sure, taking land and housing off the speculative market is a core tenet of the affordable housing work we do. It is hard, slow, and not inexpensive, but it is the essential long-term strategy to maintain an affordable city. 

But here is where Jacobus goes wrong, however, in citing the Tenderloin as somehow the model for other contemporary neighborhoods battling gentrification. He suggests that, for unexplained reasons, the Mission District has been less successful than the Tenderloin. In reality, Jacobus is comparing an apple to an orange and mistakenly viewing the Mission through a Tenderloin lens. He writes:

“While it may be right that the Tenderloin has been saved by the community’s refusal to allow “upscale” development, the Mission has also mostly resisted the kind of high-end, high-rise development that transformed SOMA, but Mission rents and home prices have skyrocketed nonetheless. Even with rent control, relentless tenant education, and advocacy and nonstop neighborhood organizing, if you didn’t allow any new building, you can’t stop private property owners from cashing in on the fact that the area is desirable to people with a lot of money. Even in the Mission!”

What he misunderstands is that the Tenderloin's rezoning and strict property controls were a lot more aggressive than the Mission's Eastern Neighborhoods Plan—in fact, the latter was designed to promote market-rate development (in a kind of upzoning-for-public-benefits-value-recapture concept, that in hindsight is proving to have been quite weak). The Tenderloin was not rezoned to promote development, but rather to discourage development and prevent market conversions of existing buildings. The Tenderloin Plan (and the Chinatown Plan, which is also from that earlier era) are the envy of many current "front-line" neighborhoods—the Mission District, SoMa, the Western Addition, even The Bayview, that are getting rocked by development, but have very weak zoning controls and limited mechanisms for community control of land. The Mission District isn’t an example of the futility or even detriment of community resistance to market-rate development, but rather an example of community resistance to gentrification that has been hamstrung to some extent by weak land-use controls in the face of massive market pressures.

For all its success, the Tenderloin model is not likely replicable in the current context of that "tectonic shift" in migration that Jacobus writes about. Nor is there currently the political will to put in place the kind of strong zoning that helped the Tenderloin. Nevertheless, the answer today shouldn’t be to discourage communities from fighting for self-determination or berate them for not throwing arms open to “the market”—there are a host of policies that could be put into place now that focus on stabilization and prevent displacement.

Affordable Housing Activists United (Or, Make No Mistake About a “Split”)
And lastly, in what is otherwise a thoughtful article, Jacobus makes a curious assertion that last November's ballot measure to temporarily pause development in San Francisco's Mission District—which had lost 177 housing units to no-fault evictions from 2012 to 2014, had a 27 percent decline in Latino residents between 2000 and 2013, and had lost 26 percent of its households with children in that same decade—in some way "split the housing advocacy community" and that, "many committed advocates succeeded in convincing San Francisco voters that the moratorium would only make things worse by further restricting supply."

Let's correct that. Proposition 1 did not "split" the affordable housing activist community. But it did split affordable housing advocates from market-rate housing advocates. It was very clear all along that Proposition 1 was not a solution, per se, to the urgent crisis, but a pause to give time to develop and implement solutions.  Affordable housing activists were on the same side of support for that measure and were aligned with community advocates who were not looking just for a "technical" solution but also an organizing response to the disruption caused by the real estate market at ground-level. Jacobus mistakenly lumps together all "housing advocates" – whether affordable housing activists or market-rate advocates—in that landscape and thus inaccurately asserts that there was a "split."

Where the distinction between affordable housing activists and market-rate development advocates becomes clear is in the increasingly dramatized argument about supply-side housing policy (which is now called "filtering" in the new think-tank literature, as "trickle-down" is evidently passé). We affordable housing activists say more supply at the affordability level is needed; market-rate advocates (sometimes claiming to be on the side of affordable housing) say more supply at any affordability level and everything will filter/trickle down. It's a simple contrast, but stark and ideological.

Overall, though Jacobus may end his article in support of building more market-rate housing—he is a market rationalist after all—he also lays the foundation for why a supply-side approach to the affordability crisis doesn’t necessarily work, and certainly doesn’t work in every place. Perhaps his most important line, in the middle of the piece, is:

“The first step is to let go of the idea that the market is going to offer neighborhoods that are both highly desirable and economically diverse.”

The debate about getting local housing policy right will be ongoing, and we will continue to see serious fault lines of disagreement. Rick Jacobus’ article adds more fodder and some useful nuance to that debate. And the supply-siders just got brought down a notch or two.

(Photo credit: Red Hot Market by Damien D., via flickr, CC BY-SA 2.0)

About the author more »

Peter is co-director of the San Francisco Council of Community Housing Organizations and was the former policy director at East Bay Housing Organizations. He is an urban geographer by training who has been involved in a variety of land use, housing policy and planning initiatives in San Francisco and other parts of the Bay Area.

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COMMENTS

Jake Wegmann
3 Apr 16, 12:10 am

“supply-side housing policy (which is now called “filtering” in the new think-tank literature, as “trickle-down” is evidently passé)”

Sorry, that’s just incorrect. The concept has been called “filtering” in peer-reviewed, academic—not just think tank—literature for over half a century.

“Trickle-down” is an intellectually dishonest substitute term for filtering. It tries to associate filtering—by this point a foundational concept in housing economics, generally accepted by economists from across the ideological spectrum—with now thoroughly empirically discredited “supply side” and “trickle-down” economic theories that underpinned the Reagan administration’s economic agenda of cutting income and capital gains taxes to boost economic growth and reduce budget deficits. Not even remotely the same thing as the theory that new market rate housing, if built in sufficient quantities, eventually becomes affordable to lower-income households over time. 

Filtering is what it’s called, period. If the author doesn’t think that it works in San Francisco, that’s fine, but he should not mischaracterize it with pejorative labels. Attempts to use guilt by association are not helpful for people who are trying to make sense of this already supercharged debate.

Peter Cohen
4 Apr 16, 2:40 pm

Jake,
I won’t challenge your expertise on the accuracy of the term and the
theory of filtering. Unfortunately the use of the term in current
debate is often charged with political ideology. In the political
discourse of housing policy in San Francisco, most every term can
become intellectually dishonest. Even “affordable housing” is used in
intellectually dishonest ways at times.

You do make an interesting statement, which I’d like to hear more
about. You said, “...now thoroughly empirically discredited “supply
side” ... theories.” Can you elaborate on how supply-side theory has
been discredited? That would be informative to our local debates.

Regards,
Peter Cohen

Aaron Priven
4 Apr 16, 3:20 pm

They both involve the word “supply,” but supply-side economics and housing supply economics have nothing to do with each other.

Supply-side economics is a theory that the best way to grow the entire economy is to have more capital in the economy. (It is opposition to demand-side theory, which suggests that the way to grow the economy is to stimulate demand.) It is part of macroeconomics, the study of whole economies (national or global economies).

The idea that increasing the supply of housing will lower prices is different. It makes no prediction about the growth of the entire economy, just about this one good, housing. It is part of microeconomics, the study of parts of the economy.

There are certainly arguments that can be made that increasing the supply of housing won’t help, but to confuse these two things is at best misguided and at worst deceptive.

Alex Lantsberg
5 Apr 16, 5:58 pm

Peter and I have had this long running albeit friendly argument and its nice to see him putting it down on (virtual) paper.

This is a bit simplistic, but I think the argument essentially comes down to answering the question “Are pricing rising because developers are building in particular highly desirable (by people with money) neighborhoods or there are developers building in these desirable neighborhoods because prices are rising?”

One’s view on SF’s housing crisis and the appropriate response depends largely on how they answer this question. I tend to think the evidence is overwhelming that its far more of the latter than the former (though there is certainly some of that). I’ll go out on a short limb to say that Peter believes the opposite.

What Peter and allies have never been able to answer satisfactorily is what would happen if we shut off new supply for the monied classes, which is the consequence of the policies they’re proposing. Considering the massive supply-demand imbalance in SF and the rest of the Bay Area I think we’re already seeing it…aggressive displacement, gentrification of desirable areas, higher rent levels throughout the region, and homelessness.

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