Looking for Cheap Digs? Try Palmdale
At every turn, we are warned of a “housing crisis” in Southern California. The projection is that millions will move here over the next two decades and that we are ill prepared to accommodate this growth.
This makes no sense. If housing is expensive, immigration will surely slow. Just because the birthrate exceeds the death rate, we are not condemned to congestion: People can and will move elsewhere.
In the context of the supposed housing crisis, the scarcity of affordable housing is often mentioned. It is thought to be crucial to business expansion. Los Angeles has responded by creating a housing trust fund for affordable senior housing, low-income housing and first-time homeownership, among other things.
However, housing cannot be affordable in Los Angeles. Because of the agglomeration of industrial and commercial activities in this area, land here is expensive. Housing can be affordable in Palmdale or Riverside County, but not in Los Angeles. It is impossible for Los Angeles to accommodate all comers, to offer a house to every family, no matter how poor.
The housing market is just that -- a market. It works best when it is left alone to determine the appropriate prices based on supply and demand. When people try to alter the market, by building units that are not desired or lowering prices artificially, things get out of whack.
Housing prices and rental rates reflect what people are willing to pay to occupy residential space. Renters and those searching for homes bid up prices, which don’t rise magically. The force behind the upward movement of rents and home prices is affluence and economic opportunity.
Only where the economy is doing well will you see stiff competition for housing, causing purchase prices and rental rates to increase. Housing can be made affordable to a subset of lucky individuals who receive a subsidy (through a rent voucher or developers forced to set aside units for low-income families). But those units are then not available to people for whom living locally has a high value.
Housing subsidies help only a few individuals; they do not solve the problem. They tighten the housing market by artificially increasing demand.
Alternatively, as housing prices rise, developers face strong incentives to build, accommodating greater numbers of residents.
Rising residential prices serve a function in allocating land in the city. Some people value living in Los Angeles more than others; they value the proximity to work and other amenities. People who don’t value the proximity will not be the highest bidder for residential property, and they are the ones who will choose to live elsewhere.
This applies to both poor and rich individuals. It all depends on what they can earn here relative to what they can earn elsewhere. Some poor people will find the city an attractive option, as will some wealthy individuals. But many of both income levels will not, and they won’t move to the city.
Wages in big cities are higher than elsewhere, reflecting the high cost of land and housing. Firms that choose to locate in Los Angeles will pay higher wages to unskilled workers. In the same vein, it is common for seniors to move away from the city as their attachment to the labor force ends. It doesn’t make sense to work against this trend with subsidies that encourage seniors to stay put.
Money in the city’s housing fund would be better, and more equitably, spent cleaning streets, reducing crime and improving education in our poorest communities. Of course, if we improve living conditions, housing prices and rental rates will rise even more. Perhaps the city does have an effective “affordable housing” policy after all.
