Unleash the growth machine! By Matthew Yglesias

Read time: 9 minutes

MATTHEW YGLESIAS

APR 03, 2024

Unleash the growth machine!

Cities facing budget crisis need to open their hearts to market-rate housing

I recently got one of my favorite kinds of mail: a notice from the Board of Zoning Adjustment that a nearby property owner wants to change a physical structure on their property and is asking the Board for permission to do so.

The Board, in their wisdom, chooses to consult with neighbors like me, giving us a chance to offer our opinion.

In this specific case, the person in question owns a row house. Behind the row house is a small yard, and behind the small yard is a small garage. It’s a slightly unusual setup in our neighborhood (though, coincidentally, the same as my own), because the garage violates the RF-1 zone’s minimum lot occupancy rules.1 Building a new garage requires either a variance or an existing structure grandfathered in from an earlier era.

At any rate, this person who is not quite my neighbor wants to demolish the garage and replace it with a new garage with a small accessory apartment on top of it.

I told the Board of Zoning Adjustment in my official comment on this matter that of course this should be allowed. But, while it’s not in their power to grant this, I also told them that the city should establish by right everyone’s ability to build a garage, or a garage plus ADU, or an ADU with no garage. There is a particular urgency around this, I think, not only because housing issues are important, but because DC is facing a huge budget crunch this year. The rise of remote work has dealt a big blow to our tax base. And the emergency fiscal assistance provided by the American Rescue Plan was very helpful, but instead of using that as bridge money to enact important reforms, the Council largely spent it imprudently while not thinking too hard about the future. And we are not alone — budget cuts are coming in Denver, Seattle, New York, and San Francisco, as well.

From the standpoint of the overall US economy, a little state and local fiscal austerity is probably not the worst thing in the world. But pro-growth reform is even better. And while there are plenty of cities for whom this won’t work well, there are plenty of cities — like DC — that even post-Covid feature tons of unmet housing demand.

The best thing, by far, that these places can do to alleviate their budget problems is to become dramatically more welcoming to market-rate housing construction.

Killing the growth machine

Before the great wave of NIMBYism that destroyed America swept across the land, Harvey Molotch developed an analysis in “The City as Growth Machine: Toward a Political Economy of Place.”

The way he saw it, municipal politics was bound to be dominated by a broad coalition of business and labor interests that would always want to err on the side of more real estate development. This was 1976, so naturally he saw this growth machine as a big problem (everyone in the 1970s was extremely weird about economic growth). And eventually, the Molotch analysis proved wrong, because cities instead developed a political economy of localism. The thing about the guy building an ADU a block from me is that the only real downside to this happening is very local — we might have more car traffic on our street. This is not so much of a concern in our neighborhood, but in some other in-demand parts of the city, people might also worry about it exacerbating crowding at the local public school.

These are not crazy concerns.

But as Molotch knew, they are pretty trivial compared to the citywide fiscal interest in more housing growth. The proposed small construction project in my neighborhood would directly create some jobs and income for the contractors doing the work. It would also increase the size of the city’s property tax base. DC has a progressive income tax that the new residents would pay. And beyond that, new residents would (one assumes) buy things in stores and get meals in restaurants, all of which would generate additional tax revenue. In a traditional interest group politics paradigm, the new housing is a no-brainer.

Imagine surveying the kinds of people who you’d expect to see lobbying any legislative body.

Does the restaurant association want this new ADU? Sure. The labor union representing librarians? Why not? The firefighters? Yes. All public employee unions receive small benefits from the increased population and tax base. Is there a trade association for people who own gyms and fitness centers? If so, they would want this. Everyone wants it, and they are going to run roughshod over poor Matt, sitting in his house a block away saying “I’m all for more housing, but why does it have to be right next to little old me who just cares about traffic on the specific street that I live on?”

The end of the growth machine was to shift land use politics away from something that was decided by legislatures considering the views of broad interest groups, and toward something that was decided on a discretionary basis with lots of local input.

Local input doesn’t block literally all change. When I wanted to put solar panels on my roof and needed to get Advisory Neighborhood Commission endorsement of the plan in order to get it approved by the DC Historic Preservation Review Board, I ultimately got my approval. But even a happy story like mine features months of delay and thousands of dollars in added costs. And oftentimes, of course, things do get blocked. The only reason this ADU-over-garage idea is even being entertained is that the change is completely invisible from the street.

And once you’re in the mindset of asking people for input, of course nobody wants to say “no, you shouldn’t consult me anymore.” But the upshot of killing the growth machine is less economic growth. During good times, that may seem fine or even comforting. But during bad times, it means you need some mix of painful tax increases or budget cuts. It’s much better to go for growth.

Pro housing policy is really simple

One of the weird downsides of some of the successes of the pro-housing movement over the past decades is that a lot of politicians now pay lip service to the concept without doing much about it. In the past, you had a small number of committed housing abundance champions and then a lot of people who were either opposed or didn’t care. Today, though, especially a “progressive” politician who basically favors the status quo is relatively likely to position themselves as a champion of housing affordability — likely through the cause of “affordable housing,” which is a category of regulations and subsidies and not the same thing as a broad effort to reduce housing costs.

But it is honestly not hard to look at a city’s land use regulations and identify rules that, if changed, would make it cheaper, faster, and easier to build housing.

The key is to pick some of those changes, make the changes, and then not offset the changes with new requirements around affordability, labor, or whatever else. The aim is to go from a situation in which there are a million anti-growth rules on the books strangling your city to a situation in which there are 999,999 anti-growth rules on the books strangling your city. It’s conceptually very, very simple, though of course figuring out which changes can pass is hard.

And I do think it’s very hard to get the relevant players in a jurisdiction into a frame of mind to have the right conversation, especially if it’s a deeply progressive jurisdiction, like most American cities are. You start talking about housing costs and someone calls it housing affordability and next thing you know you’re talking about “affordable housing,” and then you’re talking about tenants’ rights legislation, and you’ve lost sight of the original question, which is whether the city would benefit from more construction. This is why I think the fiscal question is such a potentially powerful lever. The teachers union doesn’t want to see the school budget cut. Neither do the cops or the firefighters or anyone else. But business doesn’t want to see taxes raised. There is an idea that reconciles all these conflicting interests and it is also compatible with what the “affordable housing” and tenants rights people want.

It’s not an “affordable housing” agenda, though — it’s an economic growth agenda. And that means really looking at two things.

One is the set of problems related to my neighbor and his ADU. Find out what kind of small-scale variances are, in fact, getting approved with reasonable frequency. Don’t infer from the existence of the variances that there’s no problem with the underlying rule. Uncertainty, delay, and lack of knowledge are very costly. Infer from the variances that the political support for the rule is, in fact, pretty weak and try to tear the rule down to unleash growth. The best candidates are probably going to be rules around lot occupancy, off-street parking, and ADUs — the kinds of things that individual property owners tackle on their own.

The other is the set of problems that big developers deal with. You need to shake off progressive qualms about business and actually engage with practitioners about what kinds of changes would make more projects pencil out and what kinds of changes would lead to projects including more units. Keep in mind that somewhat contrary to what NIMBYs think, real estate developers as a class tend to have mixed feelings about land use reform. A big part of their expertise is in navigating politicized systems, and easier rules could mean more competition. Still, real estate professionals know things, and a pro-growth mindset means prioritizing rule changes that unleash a lot of units rather than being super-precious about idealized development patterns.

Learning to love “luxury apartments”

One issue those of us advocating for growth are facing is that the current crop of urban politicians all came up during an era of structurally rising demand for city living, full of big concerns about gentrification and developers who were genuinely desperate to get new projects off the ground.

Under those circumstances, it became common to not only embrace various NIMBY ideas, but to be specifically derogatory about “cookie-cutter” buildings full of “luxury” one-bedroom apartments filled with obnoxious yuppies. To the extent that anyone wanted to think about encouraging more development, they wanted to encourage affordability or family-sized units, or incredibly lovely mixed-use developments full of vibrant street activities to create your idealized town square.

There is nothing wrong with any of those ideas.

Personally, I have a family and I like high-rise apartments, and if there were more big family-sized units available in DC, I think I’d like to live in one. Everybody would welcome more architectural flare and innovation — though, I would make the case that the way to get it isn’t with more layers of design review, it’s more regulatory flexibility.

That being said, from a pure fiscal viewpoint, is there anything better in the world than a bunch of one-bedroom luxury apartments? You’re talking about new residents who pay taxes and consume few, if any, public services. They’re not getting housing vouchers. They’re not sending kids to public school. If your city has a mass transit system, they may ride it occasionally, but that increases the agency’s revenue, not its cost structure. They’re probably not committing a lot of crimes. They probably spend a relatively large share of their income on things like restaurant meals and booze that are taxed at a relatively high rate. These may not be the projects that anyone is desperate to champion on an aesthetic level, but at a time when cities’ economies and budgets are under strain, there’s really something to be said for the least-common denominator.

Any time you can get another one of these buildings built — or even better, change the rules so the developer can go taller — you are doing a huge favor to everyone who does need local government services and benefits from the tax boost.

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