The great economist John Maynard Keynes wrote: “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”
Newton is attempting to revolutionize its zoning to increase its potential housing stock by 30% or more, even though the population here, and in the state, has been declining for several years. (“Potential” meaning what could be built, not necessarily what will be built.) Given the dramatic scope of these changes and the political power of economic ideas, it is important to assess their validity.
City Council President Susan Albright has been recommending that people read the book, Fixer Upper by Jenny Schuetz (or to listen to the New York Times podcast interview by Ezra Klein with that author), a book which is apparently highly regarded in development circles. The book’s argument is largely based on assumptions from Econ 101, i.e., that given a certain level of demand, increasing housing supply will necessarily drive down prices in well-functioning markets, even in popular, wealthy coastal cities. Conversely, inadequate construction of new housing, often due to zoning restrictions constraining supply, interrupts the process of downward “filtering,” preventing middle- and lower-income families from moving into better housing that would otherwise be vacated by wealthier households.
Luxury developments tend to be built in non-affluent neighborhoods. When asked whether too much luxury housing might displace or make housing too expensive for the less affluent, Ms. Schuetz claims: “What we’ve seen from some of the recent academic literature is that in neighborhoods where you get big new construction projects, that actually helps keep the rents down.” She cited no sources for this point. Her book, too, makes this important point, but with little depth, citing two articles.
But she appears to be wrong on this. A meta-study by scholars at the London School of Economics, drawing on roughly 100 previous studies, found that building more densely in wealthy cities generally drove up neighborhood rents.
As for the articles she cited, the more comprehensive one looked at a dozen cities in which buildings in low-income areas were burnt down by fires and replaced with numerous new housing complexes (50+ units each). This led to a drop of 5%-7% in area rents after they opened. How much good would it do here to reduce rents by 5 to 7%, when they have been going up twice that fast in each of the last two years? Would it be worth so much construction if naturally affordable housing and open and green space had to be sacrificed to build it?
The other study found that increasing housing stock reduced rents in San Francisco. But it ignored that according to opinion polls huge numbers of its residents wanted to leave, and that roughly 60,000 (7%) have moved out since 2019, driving down demand and confounding the author’s hypothesis.
A similar lack of evidence-based assumptions undermines Fixer-Upper’s analysis recommending “missing middle” housing. For instance, the book asserts that 11 condos, selling for $500,000 each, could be built on each of several one-half acre lots near the Wellesley Hills MBTA station, and that these would be affordable to families making as little as $93,000 per year. The assumption that land there would sell for $1.5 million per acre, however, seriously flaws this proposal. At the time, all available land advertised in Wellesley was selling for at least $2 million per acre. And the only parcel near the Wellesley Hills MBTA was selling for $3.3 million per acre.
Likewise, in Newton, for example, 77 Court Street is close to the Commuter Rail. Thirty-six units of housing (27 market-rate, 9 affordable at 80% of AMI) were built in 2017 on land costing roughly $3 million per acre, even though it was purchased in 2013 and would have cost much more if purchased in 2022 or 2020 when Fixer Upper, or its predecessor article, Zoned Out, were published. Today, land costs in Newton, especially those for lots close to transit and easily developable, generally range between $5 million per acre and $7 million per acre. Land in Wellesley is similarly expensive.
Today, the smaller (1400-1600 square foot) market-rate condos at 77 Court Street, are valued at ~$950,000. Following the same parameters as the Schuetz / Brookings model, with more accurate and current land prices ($5 million per acre), interest rates more than twice as high (7.2%), and construction costs one-third higher than 2019’s, these “$500,000 condos” would now sell for roughly $745,000. That’s about the same price per square foot as the comparable Court Street condos ($633 per square foot versus $621per square foot). Condos at $950,000 and $745,000 are affordable to households with incomes of $252,357 and $206,865 respectively, not the $93,000 Brookings foresaw.
Newtonville’s large new complexes, 28 Austin Street and Trio, also exemplify gentrification that contradicts Fixer Upper’s argument. Since these developments have been open for years, they serve as critical cases that could show much of Newton its future, especially in zones facilitating such large complexes. Last fall, for instance, median prices for one-bedroom and two-bedroom apartments in Trio and 28 Austin were about $3200 and $5100 per month, respectively. One-bedrooms were 70% and two-bedrooms almost twice as expensive as our naturally occurring affordable housing.
Including charges for parking and utilities, last fall’s one-bedroom apartments were affordable to households making about $140,000 per year or roughly the same as Newtonville’s median income. But to afford two-bedrooms, households needed more than $215,000. This gentrifying effect is only modestly offset by the fact that 20% of these units (Trio’s combined with 28 Austin’s) are affordable by state standards, with another 14 “workforce housing” units at Trio being affordable to households making up to 110% of AMI. On the other hand, Trio’s construction entailed the destruction of approximately 20 naturally affordable units, roughly the same number as were newly built.
I worry that our planners and most of the City Councilors are leading the city into a whirlpool of overdevelopment and gentrification based on Fixer-Upper’s faulty ideas.
A version of this op-ed, annotated with endnotes, is here.