Getting displacement policies right
San Jose policymakers are in the preliminary stage of formulating anti-displacement policy. The broad goal of new policy is to produce, protect, and preserve existing housing units and renters. Displacement is the phenomenon of new housing development forcing out incumbent renters within a city. Displacement can be a problem for cities undergoing growth, but, as discussed in a previous Opportunity Now piece, its prevalence in modern American urbanization is overstated. Although the proposals the city is considering vary in scope and method, they share one defining aspect: they tend to be top-down, one-size-fits-all policies that are frustrated by a market system. Here are a few principles cities in Silicon Valley and the United States writ large could consider to guide policy as their housing markets change:
1. Avoid empowering rent-seekers and NIMBYs (proponents of “not in my backyard” housing policies). While considering the input of current residents is of course common-sense governance, this practice, when taken to extremes, incents residents to support halting development at the expense of growth—all so the status quo remains artificially upheld. Historically, when city governments gave a disproportionate say in housing decisions to citizens already residing in its jurisdiction, housing production slowed. This occurred because people are rational actors in markets: when given the chance to artificially increase the value of their homes by reducing housing supply, voters gladly took the government up on their offer and gave input in new housing projects. An artificially small supply of housing will cause an increase in housing prices. The housing shortages plaguing American cities is an apt example of these market forces.
Moreover, when businesses seek permission to invest in a locality, seeking open-ended special interest input can lead to unethical pressure on governments to provide counterproductive subsidies, fees, taxes, or giveaway. This happened to Google in the Diridon district and Amazon in New York earlier this year.
2. Race-based subsidies can backfire by creating unintended market consequences. The city of San Jose—inspired by Portland, OR—is considering offering a displaced racial minorities a “right to return” to affordable housing. The policy called for building affordable housing in gentrified neighborhoods earmarked displaced minority groups. Irrespective of its legality, a “right to return” law would create a host of distortive market incentives. Minority renters would be incented to take on riskier rents if affordable housing was guaranteed for them.
Additionally, throughout American history, the empowerment of local governments to control housing markets directly led to race-based segregation. This was not merely an accident; it was the product of local policymakers subverting the market to perpetuate Jim Crow. Slotting affordable housing solely for racial minorities could continue segregation, even if that is not lawmakers’ intention. Put simply, free markets are an integrative force and are in conflict with racially patterned government policies.
3. The government should not remove housing from a market. Local governments have flirted with the idea of removing housing from the market altogether. Instead of having land and housing units dictated by market forces, the government would put housing into a publicly-run trust and distribute land based on the needs of its constituents. This proposal would be difficult to enact and enforce since it would require landowners to cede their land to a communal housing trust. Getting majority, if not universal buy-in will vex lawmakers. Even if all of San Jose’s housing was theoretically given to a community-owned land trust, someone, somewhere, would approach the trust and offer them money in exchange for some of the land. And the trust would have price, exorbitant as it may be.
4. Rent control raises prices overall. Rent control destroys the incentive to build new housing and disincents needed development. By implementing this policy, the government favors the preservation and protection of entrenched renters over production of housing. If a housing shortage is something to be desired, then there may be no better policy to achieving that goal than rent control.
Knowing that markets will persist with or without the government’s permission, local policymakers can fix the local housing crisis with policies that acknowledge the power of the spontaneous order, not ignore it. Focusing on the “three P’s” of housing policy—production, protection, and preservation—San Jose’s government may ignore market forces at its own peril, exacerbating the housing crisis.
--by Simon Gilbert, Opportunity Now Web Editor and sophomore at Claremont McKenna College, where he studies history.