Saturday, January 11, 2020

Affordable Housing and Government

(c) by Mark Dempsey

Hardly a day passes without some politician or concerned citizen writing an editorial or letter to the editor to say California can fix its affordable housing problem by deregulating. One contractor recently wrote (SN&R) to say "Every level of government is working to make housing as expensive as possible..."

And California regulations do sometimes require additional expenses, like steel straps on wood frames for earthquake resistance, but would we really rather build homes that collapse in earthquakes, even if the occupants are poor? What if government regulation is not really the biggest obstacle to affordability? After all, steel straps aren't that expensive. Fiddling with regulations may actually be like rearranging the deck chairs on the Titanic.

The larger truth: market conditions for real estate are so heavily influenced by government policies that no housing market would exist without them. The 30-year mortgage is a government invention. Building codes often have their roots in New Deal property standards.

That's true not just in the U.S.; and most of the world's governments subsidize housing to make it affordable. Putting an end to those subsidies in the U.S. has been a generations-long project. Nixon put a moratorium on building federally-funded affordable housing. As he was cutting taxes on the wealthy, Reagan also cut HUD's affordable housing budget by 75%.

Perhaps the policy change most damaging to affordability occured when Reagan's '86 tax law removed a subsidy for multifamily housing, retroactively removing limited partnerships' deduction for depreciation. As a consequence, scores of limited partnerships with apartments failed because their economic viability depended on that depreciation write-off.

California's Proposition 13 also influences affordability. Lower taxes on real estate means that speculators can keep vacant land off the market without a big tax bill, as they wait for market peaks. This is one reason the Sacramento region has 20 years of unbuilt infill, and land speculation is rampant.

How much does land speculation cost homeowners? Rethinking the Economics of Land and Housing (by Ryan-Collins, Lloyd and Macfarlane), concludes that 80% of the recent decades' increase in home prices comes from increases in land prices. So higher land taxes would actually discourage price gouging!

Finally, the consensus among the deregulators is that rent control would be a disincentive for affordable housing builders, but not even that is true. After he privatized trains and government insurance programs, Mussolini eliminated rent control...leading to an increase in Italian homelessness. J.W. Mason notes that  "In economists’ terms, the supply of housing ... is inelastic – it doesn’t respond very much to changes in price....there is a great deal of space to regulate the rents on existing housing without affecting the decision to build or not build.

"The bottom line is that rents in the everyday sense are often also economic rents … They come from a kind of monopoly, not from contributing real resources to production of housing. And one thing that almost all economists agree on is that removing economic rents does not have costs in terms of reduced output or efficiency."

So let's all take these dire warnings about government meddling adversely impacting affordability with at least a grain, if not a block, of salt.

Wednesday, January 8, 2020

Methane as a greenhouse gas

The climate impact of methane is roughly 23 times CO2:

Sources of methane:

It's worth noticing that livestock is one of the primary sources of those vegetarians may have a point!

Videos for this week: from profound to funny

Interview with Bernie:

Funny Golden Globes speech (Ricky Gervais)

Don't abbreviate 2020. It's for your own good. (avoid the scam)

Anand Giridharadas explores the limits of the "Win-Win" scenario

Saturday, December 21, 2019

Low Impact Development, High Impact Environmentalism

(c) by Mark Dempsey

Most environmentalists do not request the economy halt so no harm would come to the environment, instead advocating minimizing development impacts. It's possible to cut vehicle miles traveled, and wean ourselves off of the carbon emitted by congestion and long commutes even as the economy builds new homes and businesses. The following describes at least part of how to do it.

"Sustainable infill development" is a common request, but infill alone is not enough. According to the Southern California Association of Governments (SCAG), to address congestion, widening roads does not work. Road widenings simply attract more cars.

For significant congestion reductions, development needs to be mixed use (shops and offices mixed among the residences). In fact, according to SCAG's study, even double-decking freeways is less effective as a congestion remedy than mixed use. Thanks to the State of California, any new development must have "Complete Streets," so new development must be pedestrian-friendly. To minimize impacts, it must also be mixed use. Note that market acceptance of such traditional neighborhoods is very good indeed. The most valuable real estate, per square foot, in the region is the old neighborhood around McKinley park, which is mixed-use, and pedestrian-friendly.

The minimum density for viable (unsubsidized) transit and those mixed-use shops and offices is 11 dwelling units per acre -- a low-density suburb would typically have two four-plexes on each block to achieve that density. Studies from Berkeley's Robert Cervero and the Urban Land Institute confirm the  demographic requirements for viable retail. Infrastructure in such denser development is not only about half as cheap to maintain as sprawl, it also addresses social justice concerns by creating more affordable housing, and enabling transit. Transit means not every driving-age adult must own a car--and car ownership is perhaps the most regressive "tax" of all.

Protecting outlying land ("greenfield") from development is a corollary to developing infill, and perhaps the most frequent of environmentalists' request. The problem is that such a request would deprive the land speculators of their profits. As long as speculators can buy agricultural land for a few thousand dollars an acre, then sell it to builders for 50 - 100 times more than they paid, simply forbidding land speculation and outlying development swims upstream against the dominant "anything for a buck" culture.

To prevent private profit from damaging the public realm, environmentalists must lobby to tax that "unearned increment"--the egregious 5,000% - 10,000% profit the speculators get from greenfield development--depriving speculators of income. Such a tax would be progressive, too, in contrast to the regressive increases in sales taxes, which is most of what's proposed now, never mind the regressive requirement that every driving age adult own an auto.

Alternatively, environmentalists could lobby for something like the German solution. In Germany, before they get entitlements to build, developers must sell the land to the local government at the agricultural land price, then re-purchase it at the upzoned price. All of the unearned increment accrues to the benefit of the public.

And public services in Germany are very good indeed. Their infrastructure and education system are first class. College tuition is free, even for foreigners, and the arts budget for the City of Berlin exceeds the National Endowment for the Arts for the U.S.of A.

On top of the built-in financial incentive for speculators, typical California planning practices prescribe uses (residences, commerce, offices, etc.) often decades in advance of actual development--an impossible goal, which de-legitimizes planning in general. Form-based planning--build big, medium, and small buildings, leaving uses for the market to discern--would avoid the futility of such speculative predictions, and permit genuine planning. At present, changes to use-based plans are often the rule, not the exception.

How widely ignored is local planning? At the height of the recent real estate bubble in 2004, more than 30,000 acres in the Sacramento region were proposed for rezone. Currently planning offers something that barely qualifies as a suggestion, much less a plan.

The City of Houston specifies minimum lot sizes, and road standards to guide its development. It has no planning department. So ineffective is current planning that few significant design differences exist between Houston, which has no planning, and Sacramento. Some politically-concerned friends noted: "But Houston flooded during the hurricanes!" That's true, but the flood risk Sacramento faces is second in the nation only to New Orleans, which suggests planning is not helpful in flood prevention here. After all, Sacramento developed North Natomas, a twenty-foot-under-water floodplain surrounded by weak levees.

Jane Jacobs' Life and Death of the Great American City says this: Modern planning is positively neurotic in its willingness to embrace what does not work and avoid what does....It's a form of advanced superstition, like 19th century medicine, when Doctors believed bleeding patients would heal them.

Unfortunately, many environmentalists are retired planners who spent their work lives practicing a designed-to-fail planning process. Consequently, advocating something other than participating in the current planning paradigm would be a stretch for some environmental organizations. Even if we ignore the way gentrification evicts the poor, the default of what's built in our region now has only slightly improved as Sacramento's City center gentrifies, despite decades of environmentalists' efforts. The predominant development locals propose is not environmentally-friendly, low-impact design, it's low-density, single-use, auto-centric sprawl.

Building Fees

Besides land speculation, environmentalists need to pay attention to the economics of land use reflected in building fees. Building fee amounts range all over the map for the region. Butte County's fees were roughly $10K per door more than a decade ago, while Folsom's building fees are $70K per door (Note: "per door" is a rough measurement, cited here to highlight the inter-jurisdictional comparison, and does not reflect the precise way fees are charged).

The price of infrastructure is not 700% higher in Folsom than in Chico (Butte County), but one thing Proposition 13 meant is that if a local government does not collect the cost of infrastructure in those fees, they will never get it. Butte County threatened bankruptcy when it charged those low fees because building fees did not cover the County's infrastructure expenses for new buildings.

What should building fees be? Who knows? Such fees are the subject of intense influence peddling, and the process of setting them is hardly transparent. Environmentalists could do us all a service by publishing the kinds of fees that would cover the public's costs. At least then we would know what development is subsidized, too--something that might actually support social justice, too.

And speaking of finance, some builders actually want to build low-impact, environmentally-friendly development, but to do so they need the lenders' support. Since commercial banking is notoriously conservative, and reluctant to lend for anything but the most conventional design, a publicly-owned local or regional bank that would lend on environmentally-friendly projects would be an obvious solution. Not only could such a bank fund environmentally-responsible projects, like affordable housing above the retail in our shopping centers--and such "lifestyle centers" reportedly are more profitable than the single-use commerce in the suburbs--it could recycle its profits into the local public realm.

Impoverishing the public realm remans an overarching neoliberal goal. Costs in large projects are typically at least half financing. Keeping that money local rather than sending it to Wall Street could make environmentally responsible development possible, and could empower environmentally responsible builders in ways not currently available.

Best Practice

Often, the best environmentalists, dedicated attorneys and retired planners are busy finding fault with specific projects, filing petitions, commenting on environmental impact reports, practically to the point of burnout. They need to step back a moment and include the vision of the alternative--and the financing for it--or they're missing the boat.

Assumptions and Rent Control

The following comes from Mike, the Mad Biologist's blog. One significant omission: neoclassical economics, the variety currently in the ascendant, no longer includes land as an input of production, folding it into Capital as one of the two inputs. The neoclassicals also assert that an economy is essentially one of barter, and money makes no difference. It's not much of an accident that an enormous economic event--the subprime/derivatives Global Financial Crisis--at the confluence of credit and land was not part of their calculations...and was missed entirely by them.

December 18, 2019 by mikethemadbiologist

In an excellent piece of public testimony by economist J.W. Mason about why the assumption that rent control will lead to bad economic outcomes, one of the key things he does is challenge the assumptions of the argument (boldface mine):

…rent regulations in general affect only increases in rents. When a new property comes on the market, landlords can charge whatever the market will bear. And when they make major improvements, again, most existing rent regulations, including the current Jersey City law, allow them to recapture those costs via higher rents. So what rent control is limiting are the rent increases that are not the result of anything the landlord has done — the rent increases that result from the increased desirability of a particular area, or of a broader regional shortage of housing relative to demand. There is no reason that limiting these windfall gains should affect the supply of housing.
…in many high-cost areas, housing supply is relatively fixed. The reason that existing homes in many large cities cost multiple times more than the costs of construction, is that the ability to add new housing in these areas is very limited, by some mix of regulatory barriers like zoning, and physical or economic barriers. In economists’ terms, the supply of housing in these areas is inelastic – it doesn’t respond very much to changes in price. This fact is widely recognized, but its implications for rent regulation are not. In a setting where the supply of new housing is already limited by other factors – whether land-use policy or the capacity of existing infrastructure or sheer physical limits on construction – rent regulation will have little or no additional effect on housing supply. Instead, it will simply reduce the monopoly profits enjoyed by owners of existing housing.

…housing is very long-lived. According to the Bureau of Economic Analysis, the average age of a tenant-occupied residential structure in the US is 42 years. In much of the northeast and in older cities, the average age will be greater. The fact that housing lasts this long has important implications. No one constructing new housing is thinking about returns that far out. Most business investment is expected to repay its costs in less than 10 years. Housing construction may have a longer payback period — as we know, much construction is financed with 30-year mortgages. But the rents 40 or more years in the future are simply not a factor in the construction of new housing. This means that there is a great deal of space to regulate the rents on existing housing without affecting the decision to build or not build.
The bottom line is that rents in the everyday sense are often also economic rents… They come from a kind of monopoly, not from contributing real resources to production of housing. And one thing that almost all economists agree on is that removing economic rents does not have costs in terms of reduced output or efficiency.

It’s mindboggling how many economists (and others) seem to ignore this bit of urban natural history. Mason also challenges an important normative assumption–the supposed primacy of owners over renters:

…these arguments misunderstand the goal of rent regulation. In part, it is to preserve the supply of affordable housing. But it also recognizes the legitimate interest of long-term tenants in remaining in their homes. A rented house or apartment is still a family’s home, which they have a reasonable expectation of remaining in on terms similar to those they have enjoyed in the past. Just as we have a legal principle that people cannot be arbitrarily deprived of their property, and just as many local governments put limits on how rapidly property taxes can increase, a goal of rent control is to give people similar protection from being forced out of their homes by rent increases.

That will burn a lot of owners up–if you’ve ever been to a city’s local board meeting (or ANC’s in D.C., etc.), there is an implicit assumption, if not an explicit statement, that owners are better stewards of a neighborhood than renters, even though, in most large urban areas, the majority are renters.

As the kids used to say, read the whole thing.

Tuesday, December 10, 2019

The Economy of Evil

(From -Michael Parenti, Blackshirts and Reds

The Political Economy under Fascism should scare us. It is all too familiar.

They say little if anything about the class policies of fascist Italy and Nazi Germany. How did these regimes deal with social services, taxes, business, and the conditions of labor? For whose benefit and at whose expense?

The Hannover Unemployment Office in 1930s

It's time to talk about the Banality of Evil. The Nazis didn't start with genocide. Heck, they didn't even start with the Nuremberg Laws. Our education system and popular media focus on the most horrific, the most dramatic, and the most apparent aspects of Fascism. However, Fascism begins in a much less dramatic fashion. In the beginning,Fascism is banal, and to many of us, it is oddly familiar.

Before the rise of Fascism, both Italy and Germany had a robust social safety net and public services. In Italy, the trains were nationalized, and they ran on time while serving rural villages in 1861. The telecom industry was nationalized in 1901. Phone lines and public telephone services were universally available. In 1908, the life insurance industry was nationalized. For the first time, even poor Italians could ensure that their family could be taken care of if they died a premature death.

Between 1919 and 1921, Italy went through a time of worker liberation that has been dubbed as Bienno Rosso. Italian workers had formed factory co-ops where they shared the profits. Large landlords were replaced by cooperative farming. Workers received many concessions: higher wages, fewer hours, and safer workplace conditions.

Factory Worker Occupation during the Bienne Rosso

Similarly, in Germany, Otto von Bismarck nationalized healthcare, making it available to all Germans in 1871. Bismarck also provided old-age pensions as public social security. Under Otto Von Bismarck, child labor was abolished, as well as providing public schools to all children. Germany inherited a national railway system from the Prussian empire. Germany's Social Democratic Party grew strong during 1890s. In response, the Kaiser implemented worker protection laws in 1890. After World War I, the Social Democrats' influence was strong. Germany had an active union membership. This created a robust safety net: "Decree on Collective Agreements, Worker and Employees Committees and the Settlement of Labor disputes" allowed for collective bargaining, legal enforcement of labor contracts as well as social security for disabled veterans, widows, and dependents. In 1918, unemployment benefits were given to all workers in Germany.
Policies of Fascism

Benito Mussolini became Prime Minister in October 1922. Nazis rose to power in 1933 in Germany. Mussolini convened a meeting of his cabinet and immediately decided to privatize all the public enterprises. On December 3, 1922, they passed a law where they promised to reduce the size and function of the government, reform tax laws and also reduce spending. This was followed by mass privatization. He privatized the post office, railroads, telephone companies, and even the state life insurance companies. Afterward, the two firms that had lobbied the hardest: Assicurazioni Generali (AG) and Adriatica di Sicurtà (AS), became a de-facto oligopoly. They became for-profit enterprises. The premiums increased, and poor people had their coverage removed.

In January 1923, Mussolini eliminated rent-control laws. His reasoning ought to be familiar since that is the same reasoning used in many contemporary editorials against rent control laws. He claimed rent control laws prevent landlords from building new housing. When tenants protested, he eliminated tenants' unions. As a result, rent prices increased wildly in Rome, and many families became homeless. Some went to live in caves.

Once more, these policies allowed landlords to increase their profit and holdings while they severely hurt the poor.

To remove "government waste," Mussolini removed the federal government from remote areas in Italy. This meant that rural farmers, peasants, and workers no longer had the protection of the federal government against abuse from agribusiness. Instead, they were entirely under the mercy of big businesses.

Hitler's economic policy was Mussolini's policy on steroids. In the 1920s, the NSDAP was a minor party. In the 1932 elections, the Nazi Party did not have an outright majority. According to the Nuremberg Trial transcripts, on January 4, 1933, bankers and industrialists had a secret backroom deal with with then Chancellor Hindenberg to make Hitler the Chancellor of Germany in a coalition.

IG Farben Executives tried for War Crimes at Nuremberg

In February 1933, as Chancellor, Hitler met with the leading German industrialists at the home of Hermann Goring. There were representatives from IG Farben, AG Siemens, BMW, coal mining magnates, Theissen Corp, AG Krupp, as well as a locust of Bankers, investors, and other Germans belonging to the top 1%. During this meeting, Hitler said, "Private enterprise cannot be maintained in the age of democracy."

In 1934, Nazis outlined their plan to revitalize the German economy. It involved reprivatization of significant industries: railways, public works project, construction, steel, and banking. On top of that, Hitler guaranteed profits for the private sector, and so, many American industrialists and bankers gleefully flocked to Germany to invest.

The Nazis had a thorough plan for deregulation. The Nazi's economist, stated," The first thing German business needs is peace and quiet. It must have a feeling of absolute legal security and must know that work and its return are guaranteed. The interferences In a business which occurred at first, perhaps as a result of too much zeal, have become intolerable."

Germany had the most robust social-democratic movement, and consequently, the best worker protections in Europe codified by law. This was a significant impediment to businesses "operating freely without interference."

The Nazis ensured that businesses weren't hampered by too much "regulation." On May 2, 1933, Adolf Hitler sent his Brown Shirts to all union headquarters. Union leaders were beaten, and sent to prison or concentration camps. On top of that, the Nazi party, expropriated union funds (money workers paid for union membership). The union leadership was replaced by Hitler's goons, who were inherently unsympathetic to unions to help bargain away all collective bargaining rights.

On January 20, 1934, the Nazis passed the Law Regulating National Labor. The act explicitly took power away from the government to set minimum wages and working conditions. The act stated, "The leader of the enterprise makes the decisions for the employees and laborers in all matters concerning the enterprise, as far as they are regulated by this law." Employers lowered wages and benefits. Workers were banned from striking or engaging in other collective bargaining rights. Worker conditions were so deteriorated that with the head of the AFL visited Nazi Germany in 1938, he compared the life of an average worker to that of a slave. Workers in Nazi Germany worked longer hours for lower wages.

Hitler repeatedly cut social provisions, which included food rations to the poor under the guise of combating "idolatry." In 1934, the homeless were rounded-up en-masse and sent to concentration camps as a way of getting rid of “public nuisance.

Nazis also privatized medicine. In fact, one of Hitler's economists was the head of a private insurance company. These private for-profit health insurance companies immediately started to profit from anti-semitism. In 1934, they eliminated reimbursements for Jewish physicians, which allowed them to profit.

Of course, many of these industrialists, who were tried in Nuremberg, claimed that they were "afraid" of Hitler. Still, evidence during the trial showed that these industrialists weren't merely complicit in Hitler's worst atrocities, but they actively campaigned for and lobbied for it. In Hitler, they found a willing partner who would let them profit at any cost.

Fascism isn't the merger of corporations and government that is too vague, and too easy to confuse. Fascism is government functions being replaced by private corporations. Fascism is when the public good is replaced by private profit.

In spite of all this overwhelming, first-hand evidence, which is freely available under the Nuremberg Trial Transcripts in English, why does this myth of "government-overreach" persist? Many unions had independent media and news services. Many of them did not survive McCarthyism. Therefore, we are deprived of a first-hand account of the horrors of Fascism. The industrialists who benefited from Hitler hired PR companies to spin Hitler's deeds in the best possible light. For example, IG Farben hired Lee Ivy, the father of PR, to whitewash the deeds of Nazis in the American corporate press. Of course, providing positive public relations for Fascism, was an industry that flourished in the US all on its own after World War 2.

As Corey Robin wrote in The Reactionary Mind, “Every once in a while, however, the subordinates of this world contest their fates. They protest their conditions, write letters and petitions, join movements, and make demands. Their goals may be minimal and discrete-better safety guards on factory machines, an end to marital rape-but in voicing them, they raise the specter of a more fundamental change in power. They cease to be servants or supplicants and become agents, speaking and acting on their own behalf. More than the reforms themselves, it is this assertion of agency by the subject class-the appearance of an insistent and independent voice of demand-that vexes their superiors.”

Perhaps, structurally, that is the best way to understand the truth about Fascism.

Affordable Housing and Government

(c) by Mark Dempsey Hardly a day passes without some politician or concerned citizen writing an editorial or letter to the editor to say ...