Profile of Edward Glaeser

Last Sunday’s New York Times Magazine had, to me, a
fascinating profile by Jon Gertner
about the economist Edward Glaeser and his
views about urban development, real estate prices, and zoning restrictions.

Gertner wrote that Glaeser recently completed a study on the Boston metro residential real estate market between 1980 in 2000, and that he considered two
potential theories. The first was build-out: that there was no more land left
to build housing on, so the increase in real estate prices was due entirely
demand exceeding supply. The second was that building permits were scarce, not
land, suggesting that supply was being restricted by legislation.

Glaeser concluded it was the second: that governments had actually created the supply problem.

But why would any municipality set up a regulatory regime that
would artificially inflate prices, making it more and more difficult for the
young and the middle-class to enter the housing market? (As Glaeser points out,
"A healthy city is one that has a healthy mix of demographic groups.
Shutting out your 25-to-40 year-olds? That feels like a bad strategy for urban

Glaeser’s answer: "lack of affordable housing isn’t a
problem to homeowners. The thing you want most is to make sure that your home
is not affordable if you own it."

Glaeser makes comparison to 1920s Manhattan:
"New York in the 1920s is a pretty developed place. But they’re
producing 100,000 units a
year. They’re tearing up swaths of Manhattan and build higher
buildings." Gertner writes that this would be legally and politically
impossible today, but Glaeser alleges that it is precisely these
regulations that have driven up real estate values in Manhattan.

Anyway, this article made me think about both the town where
I grew up in New Jersey, and the city I have lived in for five of the last
seven years–the city that I would like to be my home for the rest of my life, but know I can’t afford.

The underlying political theme in my hometown–besides
being a bastion of liberalism–was a deep sense of conservatism regarding the character
of the town itself, architectural and otherwise. For example, no building can
be built taller than the tower on one particular Oxbridge-style building that was built
a century ago. There is no impulse or principal behind this zoning
restriction other than the desire to prevent certain kinds of development.
Likewise, the town went into an uproar recently when a developer tore down a small,
ugly, 1950s-era ranch-style home, and replaced it with a classy-looking duplex a couple stories
higher. Ultimately, transplanted residents of this town (and there are almost
no natives) have a picture of what they think the town was like in the 1960s and
1970s, and they don’t want it to change at all.

So what changes is the character of the towns surrounding it,
which, even in the 1980s, were farmland or undeveloped forests and
field. Those
farms and fields are now office parks with buildings taller than that
particular Oxbridge-style tower, strip malls, and dense condominium
tracts. My
hometown is still the economic and cultural center of the entire
region, but
instead of gaining new real-estate tax ratables (replacing smaller,
less dense,
less taxable buildings), it gains huge traffic and parking problems
with the
tax base needed to address them going into the coffers of neighboring
communities. Those rapidly growing municipalities, mind you, have to
spend these new taxes on adding vast amounts of public infrastructure
like sewers and electric lines, as well as building new public schools
(when excess elementary school buildings in my hometown have been
closed for decades).

And, of course, when the town built a big new parking
garage next to the public library, residents rebelled because they felt it
would change the character of the town.

San Francisco actually has a similar force: neighborhood associations. Just about every
neighborhood in San Francisco has an association that is dedicated to influencing real estate and development
decisions within its sphere of influence.

For example, the SOMA/Natoma Neighborhood Association "promotes
economic development between Brannan and Mission
streets and Fourth and Eighth streets."

The Nob Hill association, however, "is dedicated to the
preservation and improvement of the Nob Hill neighborhood… and to the
enhancement of public understanding, appreciation and enjoyment of this
historically significant area of San Francisco."

The point here is that with the value of land underlying
properties so high, developers have huge incentive to purchase blocks of one
and two-story homes, and replace those homes with four-, five-, or even
six-story condominium or loft blocks. The math is simple: a freestanding home
may sell for $1,000,000, but could be replaced with between three (2BR) and eight
(1BR) units of more dense housing (at costing $80-$90k each to construct) that would
sell for $600,000 apiece. To take a conservative scenario: replacing a
single-family home with three, two-bedroom apartments. Profit would equal sales
revenue minus the cost of the existing property minus the construction cost of
the new building, which in this case is $600k*3 – $90k*3 – $1,000k = $530k. That’s
a nice fat profit. So why isn’t that happening everywhere in the City, and not
just in SOMA and Potrero Hill? Regulatory hurdles established by the city and
county is only part of the answer, because this kind of development is
occurring in those neighborhoods where the city encourages development. It’s
not happening, because that profit is being consumed, not only by the regulatory
regime, but by the political hurdles thrown up by the neighborhood associations
that want to protect the unaffordability of their homes.

In other words, CAVE dwellers.

This isn’t to say that I advocate Texas-style unregulated
development, but like Glaeser, I think there has to be some middle ground
between the two models.

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