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Monday, March 30, 2015

Housing and Inequality

Greg Ferenstein writes at
Wealthy tech founders and the automation of middle-class jobs are often blamed for increasing concentrations of wealth in fewer hands. But, a 26-year-old MIT graduate student, Matthew Rognlie, is making waves for an alternative theory of inequality: the problem is housing [PDF].
Rognlie is attacking the idea that rich capitalists have an unfair ability to turn their current wealth into a lazy dynasty of self-reinforcing investments. This theory, made famous by French economist Thomas Piketty, argues that wealth is concentrating in the 1% because more money can be made by investing in machines and land (capital) than paying people to perform work (wages). Because capital is worth more than wages, those with an advantage to invest now in capital become the source of long-term dynasties of wealth and inequality.
California's Legislative Analyst Office reports:
Housing in California has long been more expensive than most of the rest of the country. Beginning in about 1970, however, the gap between California’s home prices and those in the rest country started to widen. Between 1970 and 1980, California home prices went from 30 percent above U.S. levels to more than 80 percent higher. This trend has continued. Today, an average California home costs $440,000, about two-and-a-half times the average national home price ($180,000). Also, California’s average monthly rent is about $1,240, 50 percent higher than the rest of the country ($840 per month).
California’s home prices and rents have risen because housing developers in California’s coastal areas have not responded to economic signals to increase the supply of housing and build housing at higher densities. A collection of factors inhibit developers from doing so. The most significant factors are:
Community Resistance to New Housing. Local communities make most decisions about housing development. Because of the importance of cities and counties in determining development patterns, how local residents feel about new housing is important. When residents are concerned about new housing, they can use the community’s land use authority to slow or stop housing from being built or require it to be built at lower densities.
• Environmental Reviews Can Be Used to Stop or Limit Housing Development. The California Environmental Quality Act (CEQA) requires local governments to conduct a detailed review of the potential environmental effects of new housing construction (and most other types of development) prior to approving it. The information in these reports sometimes results in the city or county denying proposals to develop housing or approving fewer housing units than the developer proposed. In addition, CEQA’s complicated procedural requirements give development opponents significant opportunities to continue challenging housing projects after local governments have approved them.