Blogging Bayport Alameda

November 4, 2015

Gimme shelter

Filed under: Alameda — Lauren Do @ 6:04 am

Kim Mai Cutler may be one of my favorite long form writers on any issue dealing with housing policy.  Particularly Bay Area housing issues.  Yesterday she published a long form piece about two of the most hotly contested San Francisco propositions but she threw in a little bone that is relevant to Alameda’s rent crisis discussion tonight.  Particularly around rent control and structural problems with California (and honestly the United States’) housing policies.

Before I start though, I’ll point out that I am a beneficiary of mortgage deductions and the whole bundle, before someone (ahem) decides to ask me if I would be willing to not take my deduction now in order to prove a point, I’ll say: “hell to the no.”  Just because I believe it’s a boon that grossly benefits one segment of the population doesn’t mean that I’m stupid enough to not take advantage of something that is being offered to me.  It’s like not taking free samples at Costco.  Or not taking home the shampoo from a hotel. It’s patently unAmerican.

Anyway, highlights, but a reading of the whole thing is worth your time:

A majority of economists deride rent control because it can disincentivize production of new housing.

However if you oppose rent control because it is a market distortion, at least consider the other major market distortions in the American housing system.

The American approach to housing is laced with an incredible amount of contradictions. The U.S. has the weakest tenant protections of all the OECD countries but has the world’s largest socialized mortgage market with government-sponsored enterprises handling 95 percent of mortgage securitizations.

Then, the ideal of the detached single-family home is based on self-sufficiency and individual property rights, but it is reliant on an enormous and submerged structure of tax subsidies. Moreover, single-family zoning is very much about controlling what other people can do with their property. In the U.S., the right to own property has been separated from the legal right to develop it for about a century.

From the perspective of global housing markets, the 30-year fixed-rate mortgage is a financial instrument that is largely unique to the United States and Denmark. Most other countries have shorter-term, flexible rate mortgages because there is too much credit, interest-rate and early repayment risk associated with such a long duration. The only reason 30-year fixed-rate mortgages exist so widely is because they are backstopped by the GSEs or government-sponsored enterprises, Fannie Mae and Freddie Mac, which guarantee $5 trillion in home mortgage debt. Their existence has amounted to an enormous and unquantifiable subsidy in borrowing costs to homeowners over the past 80 years since the Great Depression.

Then, if you look at tax subsidies, federal housing policy is regressive. The U.S. federal government spends more than twice as much on tax deductions for middle- and upper-income homeowners than it does on subsidies for lower-income Americans.

Californians make up a little more than 10 percent of the U.S. population, but they receive about one-fifth of the benefits of the mortgage interest tax deduction. That’s because the more expensive or larger a home you buy, the bigger your tax deduction becomes. The mortgage interest tax deduction ends up subsidizing Californians buying more expensive homes than they would otherwise buy.

[…] Proposition 13, but that in turn cemented all other kinds of inequities in the state’s property system. The tax savings ended up being capitalized into even higher home prices. In 1980, a UC Berkeley study found that each dollar decrease in property taxes resulted in a seven dollar increase in property values.

Today, there are huge imbalances as newer homeowners subsidize the cost of public services for older homeowners. In Silicon Valley’s original home of Santa Clara County, homeowners who bought their homes after 1999 cover 78 percent of the county’s residential property tax assessments.

More than 70 percent of the parcels in San Francisco are for single-family homes. Because single-family homes are considered sacred and untouchable, that means that the burden of new housing development falls on the multi-family neighborhoods in the city’s Eastern neighborhoods, which are historically lower-income and have larger minority populations.

But Most Importantly…

The ideal of homeownership was not offered equitably in the many decades after World War II. It was deliberately cut off for minorities in policies that still leave a footprint today in disparate homeownership rates and household wealth levels between blacks, Latinos and whites.

If that’s not enough Kim Mai Cutler points out that with the exception of the US and Great Britain, other countries do not conflate shelter with wealth building:

The very capitalism-friendly city-state of Singapore is 80 percent public housing. In Japan, the building codes change with successive earthquakes, so property owners have to continuously tear down their buildings and reconstruct them to keep up with the law. This creates a culture where home values actually depreciate like cars. An interesting byproduct of this is that the country can sustain a much number level of architects per capita. Because Japanese homeowners don’t have to worry about re-sale value, they can construct weird, radically expressive homes.

Germany doesn’t subsidize homeownership so its rate is around 40 percent, compared to the 63.4 percent homeownership rate in the United States. It has incredibly strong tenant protections, which behave like rent control. But Germany also balances this out with a right-to-build embedded in the Constitution, a standard set of zoning codes across the entire nation and a municipal financing system that allocates more capital as a region’s population grows. As a result, they’ve had relatively stable housing prices over the last 25 years.

Just so you know, the links aren’t embedded here, go read the whole thing, but most of the points are hyperlinked.



  1. Notes & thoughts in random order:

    -GSE dominance of the mortgage market is a relatively new thing in the US. FNMA was created in the 30’s but was a fairly small portion of the mortgage market until the 70’s. FHLMC was created in 1970, and like Fannie, started growing a few years later. The really big increase for both came in the ’08 meltdown, when the Feds formally backstopped both and for a few years they were almost the only source of mortgage credit. It was a damned-if-you-do/don’t situation. Such a massive federalization has many downsides, especially the crowding out of private funding, but the alternative, complete laissez-faire, would have brought us 1932 levels of unemployment and a far deeper depression that what we had. Anyway, the point is that such dominance is more recent than the excerpt suggests.

    -As for Californians’ outsize share of the mortgage deduction, it should be noted that Californians are also outsize payers of the AMT, and the state is a substantial net payer of Federal taxes, as opposed to other states which are net receivers.

    -As for the “regressive” nature of the deduction, that is simply a result of progressive marginal tax rates.

    -The points about Singapore & Japan are very interesting, I’ll read the longform when time allows.

    Comment by dave — November 4, 2015 @ 6:31 am

  2. Mortgage tax deductions in Britain were abolished in 2000, so apparently it can be done.

    Re. 1 : It’s regressive both because of progressive tax rates and that the better off tend to have mortgages, and larger ones the richer they are.

    This post about the welter of distortions in the housing market reminds me of an important theory in economics, the theory of second best: Basically, if you have any distortion in place (e.g., planning controls), it’s not a foregone conclusion that more restrictions (e.g., rent control) make things worse in an economic-welfare sense. They could make things worse, but it cannot be assumed.

    Comment by BC — November 4, 2015 @ 10:32 am

  3. watching the meeting. Trish has run rough shod over EVERYBODY. Totally rude to consultant. She pushed for one minute per speaker and got it, but nobody is able to abide and when they blatantly ignore it she isn’t doing anything. She did a quick “Oops! Maybe we should have said 90 seconds”, but the meeting rolled on. Lots of mom and pops. All anecdotal. Most compelling. It is occurring to me that many of the people who own multiple units for income are Measure A supporters. How ironic is that? One of those, Karen Lucas was just beginning to speak when the the meeting was suspended because of a disruption which sounded like a large group of chanting people on the move. Torch and pitch fork time. I have to say that I find most of the rental property owners compelling, but there are lots of stories about spending thousands while not raising rents, which don’t smell right, and everybody is praising toothless RRAC as having been so wonderfully effective while at the same time claiming the new rules have not had time to take effect. I can see how the mere mention of rent control would be incentive for many to raise rents ASAP but people who are crying about a sixty day moratorium are off the wall. One property owner who spoke at length with time ceded by others said she and the people she was speaking for were in favor sixty days. Here here. One way or the other these rental property owners have made a go of it over the decades through ups and downs, but now when rents are really sky rocketing it’s not any of these good people at fault. One property owner actually said, she believed “most of the evictions have already already happened”. How’s that for tone deaf ? Several long minutes and the meeting has not commenced. Even if you assume that a lot of tenants are hysterical over there personal situations and vilify all landlords, things have got to be serious because I can’t recall a meeting of any kind being interrupted by an angry mob.

    Comment by MI — November 4, 2015 @ 7:28 pm

  4. #3 Entertaining summary, gave me a chuckle imagining the rent mob. You should start live blogging city council.

    Comment by AJ — November 4, 2015 @ 9:25 pm

  5. Blood reported, makes “Gimme Shelter” seem eerily prescient….

    Comment by dave — November 4, 2015 @ 9:32 pm

  6. Watched it from home and glad that I did. That whole meeting was a hot mess. The sad incident in the hall could have been prevented. In the videos one can clearly hear one strident voice egging people on, yelling F*** the police! Police brutality! and other stuff meant to raise the heat of the crowd. I am not saying that the renters were at fault, but crowd control and meeting management were certainly poor and contributed to the ugliness. People need to feel that they are being treated fairly and with respect, no matter what side of an issue they are on. Evidently, the renters did not understand the strategy of arriving early, putting in your slip early, and staking out your seat in the Chamber, and the landlords did. This is not a new thing. So many questions of the renters and none of the landlords; all resulting in inflaming an already bad situation.

    Comment by Kate Quick — November 5, 2015 @ 7:30 am

  7. For the record, the renters did understand the concept of getting there early and those that could- did but the landlords has already packed the room. One woman even admitted to some renters that she had been paid to get there early and take up a seat- has only lived in Alameda 1 week . One person (who they did not know was a renter in the room) even heard some of the property owners snickering about what they had done. Put that together with letting landlords run on and on and asking no questions of them and then asking renters if their rent was current before they could speak- bad situation got much worse. I was there and I believe that I watched the birth of a political force in Alameda that many did not expect. It was pretty obvious that the council was “surprised” to say the least and there was enough anger to go around several times – Sadly, the great landlords (like Kate) are being over shadowed by the greedy or dishonest ones.

    Comment by librarycat — November 5, 2015 @ 8:02 am

  8. The landlords’ tactic of packing the Council Chambers early last night–including paying people to “reserve” seats, which ought to be illegal–is reminiscent of their refusal to engage with renters on any level regarding rent stabilization during the community dialogue process or subsequent City Council meetings. It appears that they feel entitled to use (abuse?) their land ownership privilege in any way they see fit in order to maintain the status quo, regardless of the costs of destabilization ion Alameda that are all around them.

    Every time I raised the possibility of a collaborative effort between the “mom and pop” (“good”) landlords and renters to develop legislative policies that would stop egregious rent increases (20 to 35 per cent per year at some large complexes) during those meetings, I was met with absolute resistance. The answer was always “rent control will kill us and we will always oppose it,” or words to that effect.

    We renters have tried repeatedly to engage with landlords to work on solutions for Alameda that avoid the pitfalls of other jurisdictions, but it is impossible to compromise with someone who refuses to talk to you. The City Council meeting last night–disruptive and poorly led inside and badly handled in the hallway–was the result. Now we have a meaningless 8 per cent cap on rent increases for 65 days and the likelihood that a good rent stabilization ordinance will be achieved despite the non-contributions of some of our elected officials, not because of them. We can–and must–do much better than we have legislatively.

    Comment by Jon Spangler — November 5, 2015 @ 10:05 am

  9. If the moratorium is “meaningless” I’d be interested in hearing what you think is meaningful. What — specifically — do you propose instead?

    Comment by dave — November 5, 2015 @ 10:19 am

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