Pur Autre Vie

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Tuesday, September 25, 2018

Are Political Incentives Congenial to Upzoning?

Are the politics of upzoning easy or hard? I got into a debate with a friend about this, and I was surprised by his insistence that the politics are easy or, to be more precise, that the politics would be easy if politicians could accurately predict the political consequences of passing legislation calling for massive upzoning. (Throughout the post I use the term "upzoning" to refer not just to a literal upzoning, but also to eliminating historical districts, overuse of landmark status, and other barriers to development.)

This post will explain why I think the politics are hard. I'll use New York City as my example, though I think most of my arguments would apply equally to other jurisdictions. To be clear, I support a certain amount of upzoning. I just don't think the politics are easy.

Briefly, the argument that enacting a big upzoning would be popular rests on the idea that people reward incumbents when things are good and they punish incumbents when things are bad. Incumbents, the theory goes, should do everything in their power to make circumstances better, regardless of what voters purport to want. Since upzoning will make a lot of people better off, politicians should vote for it, and the reason they don't is that they are bad at predicting the consequences of their actions.

I think this is the wrong way to think about politics. I also think it's wrong on its own terms.

I think voting behavior is a function of a lot of different things, many of which are unpredictable enough that from a politician's perspective they might as well be random. There is nevertheless a strong incumbency bias, but I don't think that's because incumbents are rewarded much for people's lives improving. I think incumbents tend to get knocked off when voters are susceptible to being mobilized around a particularly salient issue. So my political advice to an incumbent would not be to maximize the rate of improvement in voters' lives, but rather to be risk-averse, and particularly risk-averse in areas where voters can be mobilized because of their strong sentiments.

I am not talking about executive performance. So for instance, Bilandic definitely paid a price for Chicago's disastrous response to the snowstorms of 1979. And in extreme cases, the same logic can certainly apply to legislators. You don't want a depression to happen while you are an incumbent (although the politics of Obama's stimulus package are not encouraging). But at the margin, I don't think it's often politically smart to vote for policy X, which will improve many lives by some small amount, but will be offensive to a small but vocal group of voters.

That brings us to the improvements to be expected from upzoning. Unfortunately, I don't think those benefits would be large enough to be differentiated from overall noise, and the benefits would be distributed in such a way that incumbents are unlikely to benefit.

First, who benefits from upzoning? Primarily market-price renters. Market renters are a minority in New York City. About half of people live in rent-stabilized apartments, many are homeowners, and of course some live in public housing. Market renters are still an important constituency, but a relatively small one. A majority of New Yorkers would see no direct benefit from falling rents. And of course plenty of New Yorkers would experience a loss proportional to the drop in rents.

Second, a lot of the beneficiaries of upzoning would be people who are "priced in" to the city, that is, new residents. Although in principle they should be grateful to the incumbent legislators for opening this opportunity, in practice new residents are actually among the most anti-incumbent voters. (This was clearly visible in recent wins by Alexandria Ocasio-Cortez and Julia Salazar.) A smart incumbent should almost never want a flood of new residents in his or her district, particularly where the incumbent enjoys an advantage from the existing ethnic/racial mix (not uncommon in New York City).

Finally, I think it's unrealistic to expect upzoning to lead to very many people having the subjective experience of paying less in rent. I'll note that when rents fell during the financial crisis, they mostly seemed to fall for new leases. I am unaware of any landlord who lowered rent when renewing an existing lease. This is admittedly anecdotal, but I am pretty sure most renters would get a rent decrease either (A) when they move, or (B) over time as inflation reduces their real rental expenses. In neither case would I expect the renter to experience the lower rent as a life improvement significant enough to call for rewarding the incumbent legislature.

Also, demand for New York real estate seems very inelastic to me. There are a lot of people who want to move to the city but are priced out. When the land is upzoned, those people will start moving into the city, blunting the fall in rents. The same thing goes for people leaving the city for cheaper cities—more of them will stay if rents are lower, boosting demand and again blunting the fall in rents. (I admit that in this case incumbents would benefit by keeping voters where they are.)

So in other words I would expect upzoning to be experienced as a small fall in rents and a large increase in population. That is probably a very good thing, but it is not subjectively experienced as a particularly good thing by existing voters. I'll note that it's conceivable that in the medium run rents would actually go up, since a denser, larger city is likely to be a more attractive place to live. (Admittedly, cutting against this, the destruction of beautiful old buildings and the elimination of large street trees will make some neighborhoods a lot less attractive.)

Meanwhile the opponents of upzoning are certain to mobilize against anyone who voted for it. The downsides of the policy (the destruction of beautiful old trees and buildings, the loss of sunlight, construction noise) are highly visible, and the benefits are both diffuse (slightly lower rent) and confined to a minority of voters, as described above. Affluent homeowners are highly active in local politics, and it is trivially easy to make anti-development politics seem egalitarian. (For instance the DSA generally opposes upzoning on the grounds that it would involve allocating scarce resources through the market system.) The developers would be used as scapegoats and the new developments would be derided as "luxury" buildings benefiting only their affluent residents. (I am not straining my imagination to come up with these arguments, by the way. This rhetoric is highly visible in present-day New York.)

For all these reasons, while I think upzoning would be good (in moderation), I don't think the politics are easy, and I certainly don't think incumbents are foolish or self-defeating when they choose to oppose upzoning. In fact I think they are self-serving in a way that suggests the problem is nearly intractable as a political matter.

4 Comments:

Anonymous Anonymous said...

You write this as someone who has the good fortune to live in a landmarked historic district that wouldn’t be subject to up zoning. If you spent a considerable amount of time in a neighborhood where up zoning was actually currently taking place (e.g. downbtown Brooklyn) you would not say “developers would be used as scapegoats and the new developments would be derided as "luxury" buildings”.

The buildings are in fact luxury buildings. You can tell they are luxury by checking prices. You can tell they are luxury by going inside and pretending to be looking to rent an apartment or buy a condo and asking for a tour (or at least you can if you match the target demographic, which I do).

These buildings are completely unaffordable to longtime residents and to anyone in the same industries or social class as longtime residents. The people who move into the new buildings, tend to be jerks. When you encounter them at the grocery store, they tend to act like jerks. Many local businesses are not patronized by the new residents. The new residents, with their higher incomes drive up, commercial rents of nearby stores and so local stores close and are replaced by new stores. The employees of the olds stores are left unemployed and are replaced by different new employees. The new employees of the new stores are often of different races and social classes than the displaced employees.
I won’t deny that, after everyone has been displaced, that the new equilibrium makes a larger contribution to GDP, and has higher real estate values and larger property tax contributions. To someone whose job is managing those aggregate values, this is positive. But it’s not all roses to the displaced peoples.

This is why the political dynamic is not a tug of war between a small number of housing incumbents and a large number of potential tenants. It is between a large number of potentially displaced people who support a politician with their votes, and a single digit number of wealthy developers who support a politician with their dollars. And where that ends up is going to be determined by a highly complex interplay of many factors.

By the way, I am typically pro development outside of genuinely historically valuable landmarked districts, but I think it’s important to have some consideration for its costs and for the people who pay them.

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