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How to fix America's housing crisis
by rd95

    As I explain with Peter Gowen, social housing is strictly superior to private development for addressing the housing crisis along almost every metric. That's because state and even local governments have a much smaller cost of capital than private developers, most cities have a lot of suitable land they already own (meaning zero acquisition costs in many cases), they require no profit margin, and crucially, such projects can be aimed directly at the middle and bottom of the housing market. The problem with private developers in red-hot housing markets is they naturally build where the big profits are: in the luxury market. In recent years, that is where the vast majority of new construction has gone across the country.

    Luxury developments can create local rent increases and displacement even if they reduce overall rents relative to where they would be without the development, and it's not surprising that tenant groups tend to resist simple upzoning. What's more, they are wasteful of resources and space, since luxury units are much larger and tend to have a lot of square footage-eating amenities. Inclusionary zoning (mandating some percentage of affordable units in new building) is an improvement, but doesn't generally create remotely enough units to satisfy demand.

    Upzoning advocates argue that if we simply went on a wild private building spree, we'd eventually burn through all the luxury demand and actually reduce the price of midrange and affordable units (as opposed to only slowing the rate of increase). But that could take easily take decades, if it even works at all.