It’s the mantra of pro-developer pundits who self-describe as “YIMBY,” or “Yes in My Back Yard,” that anyone who opposes their agenda of total deregulation on land use as a prerequisite for creating affordable housing simply doesn’t understand “supply and demand’” — or as they put it: “Economics 101.”
If the problem is people need affordable housing, then we just need to allow a “free market,” unconstrained by regulation, to supply whatever housing it wants in order to meet that demand. Then at the convergence of the lines on the magical graph that results, we will have achieved it.
But this is a fundamental misrepresentation of the housing market and development in general, and of providing affordable housing in particular.
It presupposes that any unregulated market produces anything that is “affordable” that doesn’t pay for its production and takes in enough profit to be considered worthwhile.
And after all the millions in taxpayer subsidies our electeds keep throwing at developers to “incentivize” them to produce affordable housing yielding ever more diminishing returns, it should be clear the market isn’t the answer.
Or at least not a market one can understand if they stop at Econ 101.
Because as Ray Kroc of McDonald’s famously realized, he wasn’t in the hamburger business — he was in the real estate business: “The only reason we sell 15-cent hamburgers is because they are the greatest producer of revenue, from which our tenants can pay us our rent.”
Let’s rewind a bit.
Developers and their related real estate investment trusts, management companies, private equity funds and financial underwriters are businesses. And like every enterprise, their business is producing capital. It only seems like they produce housing, because that’s what you see on the ground around you and where you pay to live.
But as far as they are concerned, whether a parcel of physical land contains X number of actual houses or apartments per acre or is allowed for them to be built is literally immaterial. For them, a parcel is no more than a concatenation of its entitlements, deeds, debts and rents — substantial or speculative.
And that is what developers build, buy and sell: abstract financial instruments nominally attached to land.
Which is why if there is existing housing on a parcel that is naturally occurring affordable or historical yet doesn’t deliver “highest and best use,” that is, return on investment, it gets bulldozed for something that does or left to rot until it could.
It’s why those who kept a neglected neighborhood alive are displaced once it becomes “opportunity rich” enough for “urban renewal.”
Or the rent for an apartment in an unimproved decades-old building is raised when a new high-rise goes in nearby or the area it’s in is upzoned for more density. And why apartments in that new high-rise, if built under an affordable housing density bonus, include no more than the absolute minimum number of units necessary for it to “pencil out.”
It explains how in all of San Diego between 2010 and 2020, only 37 new units were built by the market for those earning between 80% and 150% of the area median income — and why those same market representatives tasked for fixing this won’t.
It even impacts those who own their homes outright — thanks to the elimination of single-family zoning, short-term vacation rentals, ADUs, transit oriented development and other schemes to extract ever more capital at the expense of community.
This is the real “housing” market: parking for capital, not homes for people. And as George Carlin said: “It’s a big club, and you ain’t in it.”
Going back to the example of McDonald’s: They supply a product for their franchisees to pay for their rents, along with shared standards, corporate support and integration into the community — such as it is. It’s paternalistic and problematic to be sure, but at least there’s a vested interest in their restaurants’ success — a “win-win” situation, if you will.
But supplying housing isn’t like that. If McDonald’s kicked its hamburgers and all the rest to the curb, they’d be no different than any other landlord. Developers have no concern for how “our tenants can pay us our rent,” which is why we see the carnage of precarity, displacement and homelessness increasing all around us.
In other words, it is YIMBYs who either do not understand economics, or they intentionally mischaracterize the actual relations that a market system such as “housing” entails in order to increase the returns on developers’ investment in their organizations.
As in every industry, each deregulation of the housing market has resulted in a worsening of the housing crisis.
Two weeks ago today, Mayor Todd Gloria wrote an opinion piece for CalMatters in favor of Assembly Bill 2097, which would mandate statewide the same elimination of parking requirements for new developments that the City of San Diego implemented in 2019.
The horse trading over providing affordable housing in lieu of parking was a clunky but reliable way to ensure new multi-family projects included affordable units. But after 2019, there was no longer any reason to include either. And worse, it did so with no obligation to pass along the cost savings — which he tagged at $30,000 to $90,000 per stall — directly into developers’ pockets.
The results have been decreased production of affordable relative to higher end housing, and increased misery for the 86% of people in San Diego who don’t or can’t walk, bike or use transit to commute.
And the mayor had the gall to justify this by repeating the divisive and false YIMBY argument that we must choose between people or parking, glossing over that it is people who drive cars, so it is people who need parking.
We need to elect leaders who meet the demands of voters not supplies to their donors. That’s Political Economics 101.