Stanford Politics

How a change in housing and socioeconomic environment alters later life earnings

by Julian Alvarez

Raj Chetty, Professor of Economics and SIEPR Senior Fellow at Stanford, opened the SIEPR Housing Summit by proposing that economic opportunity in America can be analyzed from a developmental angle by looking at the environment in which children grow up. After studying county-by-county data, Chetty claimed that the variation in upward mobility is in large part caused by variation in childhood environment and by five factors in particular. Specifically, families with children in areas with a larger middle class, more social capital, better schools, more stable families, and less neighborhood segregation see their children earning higher incomes once they enter the workforce. Chetty considers these characteristics of areas with higher upward mobility.

This income earning benefit can be realized when parents with children in an area with less upward mobility move their families to an area with more of these characteristics of higher upward mobility. Additionally, how much more their children earn as a result of a move to a higher-opportunity area is strongly correlated with how young those children are when their parents make the move. In other words, the earlier a child is exposed to a higher upward mobility area, the greater the benefit he or she will derive in the future.

Along these lines, Chetty proposes that the best way to further economic advancement on a national level is to give families housing vouchers to move to “better” areas, as well as changing zoning laws and tax codes to facilitate this movement. Chetty’s findings fill a gap identified by scholars like Prudence Carter and Sean Reardon, who in 2014 called for a deeper investigation of inequality of opportunity as opposed to research on inequality of outcome.

Chetty’s findings are a welcome focus on the critical age for socioeconomic mobility intervention; yet, for years, scholars have argued that children who grow up in wealthier environments have more resources and earn more later in life than those who do not. Chetty’s findings, then, still leaves questions like: can policy target a specific age group for relocation? If so, how? Is it realistic to expect Congress or state governments to design and implement a policy that does so? How does a focus on a specific age group change the current apathy for equalizing public education in the United States?

Federal housing policy as a cause and preserver of socioeconomic inequity

by Gerardo Sanz

The second session featured Dr. Rafael Bostic, from the University of Southern California, and Scott Croul, Managing Director of Production and Sales for Freddie Mac Multifamily’s Western Region. The most striking figure presented during this session demonstrated how current national housing policy increases inequality.

In this graph, the yellow bars represent the dollar-value increase in income thanks to housing subsidies. Households in the lowest percentiles of income benefitted most from direct housing subsidies. Blue bars represent the dollar-value increase in income thanks to the mortgage interest deduction and the real estate tax deduction. Households in the highest percentiles of income benefit most from this housing policy tax structure, and thus benefit the most from federal expenditures on housing, even though lower-income households receive more direct assistance.

Bostic argued that the current national inequality in housing subsidy is largely a structural issue. Due to the generosity of the mortgage interest and real estate tax deductions, which are disproportionately claimed by wealthy homeowners, those in higher income brackets claim the majority of federal housing assistance dollars. The shortage in budgetary allocations to the Department of Housing and Urban Development, on the other hand, limit the government’s ability to provide assistance to those in the bottom of the income ladder. As a result, lower income families in need of rental assistance often spend months, if not years, on affordable housing waiting lists.

Researchers like Bostic could investigate how a change in the tax structure would change the revenue available to low-income families, outlining specific dollar amounts for relevant income brackets. Their publications could then serve to inform policymakers on how a policy change would impact specific numbers of families in realizable ways.

California’s housing policy has fueled the state’s housing crisis

by Jason Lopata

The third session, focusing specifically on the State of California, featured Enrico Moretti, a professor at UC Berkeley and Visiting Scholar at the Federal Reserve Bank of San Francisco; Linda Wheaton, an Assistant Director at the California Department of Housing and Community Development; and Stephanie Martin Taylor, a reporter and anchor with KQED. Moretti spoke from an academic perspective, Wheaton discussed current state government initiatives intended to address the housing shortage, and Taylor gave personal testimony on the effects of the housing shortage.

Among these panelists, it was Enrico Moretti who offered the most compelling macro explanation for the current housing shortage. Moretti presented the Bay Area’s housing crisis as fundamentally a problem of stagnant supply in the face of exploding demand. For example, in 2015 San Francisco alone added more than 20,000 new jobs, but only granted permits for 2,548 new housing units. Communities across practically the entire Bay Area report similar statistics. It is little surprise, then, that the cost of housing is bid up substantially.

Why hasn’t the housing stock expanded to meet this new demand? Moretti identifies the primary culprits as coming from within our legal and regulatory system. Municipal zoning codes often restrict density to levels designated decades ago, when the populations of California cities were a fraction of what they are today, and state environmental legislation (specifically CEQA, the California Environmental Quality Act, which mandates that agencies identify, avoid, and mitigate environmental impacts) makes development projects vulnerable to lengthy court challenges.

Moretti acknowledges that the guiding principles of these regulations are sound, in that they are meant to address concerns about inappropriate placement of industrial installations, an example of which might be constructing an industrial waste facility next to an elementary school. Yet Moretti contends that these principles are too often misapplied today in a manner that makes it extremely challenging to meet our housing needs. Projects intended to fill in underutilized land in dense urban centers are challenged on the same environmental grounds, and existing landowners are able to maintain artificially high rents by exerting political power within municipalities to restrict supply.

To help make housing more affordable at the state-level, Moretti argues that the California state government should more actively intervene to curtail municipalities’ anti-development activity, and it should also reform its own set of restrictions, freeing developers to satisfy this newfound housing demand. California’s current building regime was laid out largely between the 1940s and 1970s. We have clearly come a long way since then. In the 1940s, when many major zoning codes were established, the codes were set for a state population that was under 10 million people. In the 1970s, when CEQA came into effect, that population was about 21 million people. Today, there are 40 million people in California, and that population is expected to reach 60 million by 2050. Those numbers should instill fear in any rent-paying Californian, unless we learn to build up.

Affordability and Gentrification: How past policies have set the Bay Area up to fail

by Micaela Suminski

The fourth session brought together Kim-Mai Cutler, technology journalist and columnist for TechCrunch; Karen Chapple, Professor of City and Regional Planning at UC Berkeley; and Amie Fishman, Executive Director of Nonprofit Housing Association of Northern California, to discuss housing affordability and gentrification in the Bay Area.

These three women articulated the difficulty of policymaking when it comes to housing, and proposed that we should attempt to tackle complex, broad social challenges which stem from extensive histories of oppressive policies. For example, Cutler pointed toward growth control proliferation during the 1970s, when housing policymakers used restrictive zoning to decrease the number of living units available and thus prevent more people from moving into a community. She also referenced the effect of Proposition 13, a 1978 proposition which reduced property tax rates and instituted new system of tax evaluation based on acquisition history rather than annual assessment. This law, which fuels socioeconomic bifurcation, benefits wealthy households most.

Likewise, Fishman pointed to the issue of segregation in the country, as well as a philosophical dilemma: is housing a right that all people should be guaranteed? Usually, the words “Bay Area gentrification” are grouped in the same sentence as “tech industry.” But Fishman and Cutler agreed that the problem is more nuanced than “evil young tech workers.” Rather, it is the policy and history that caused these conditions that offers the best route for solutions.

In terms of policy, Chapple argued that housing production might not reduce forces that pressure residents out of their homes (rising rent costs, for example) in a neighborhood. In this debate over housing production, which constituted a significant portion of the conference, experts differed: Fishman argued that we should build housing based on need, while experts like Moretti argued that we should also build housing for the highest earners so that those high-income people don’t take the lower cost homes, leaving those lower cost homes for others with a smaller paycheck.

It is difficult to know where to go from here: research like Matthew Desmond’s underscores Chapple’s idea that even when enough housing units exist, other factors like lost jobs, health bills, or domestic abuse force tenants out of their homes. On top of this, when market forces alone determine housing, low-income tenants suffer, because wealthier tenants always win out thanks to their ability to pay more. It thus seems clear that if people are serious about providing subsidized housing for low-income people, there is no more room for debate: municipalities or private actors must dedicate land to affordable housing structures, the units must be built and reserved as subsidized units, and governments (whether local, state, or federal) must allocate the necessary money to low-income individuals and families for these units.

Cutler pointed out that it is far too common for young people to spend 50% or more of their income on housing, raising the question: how will devoting more income to housing affect personal assets and generational wealth moving forward? Will the housing crisis exacerbate generational socioeconomic disparities we see today? Cutler’s observation also calls into question whether policy-makers should devise more aggressive rent control policies, or if we must fix other aspects of the market so that rent affordability falls into place. Based on the current political climate, rent subsidies seem more likely than rent-control.