Why the Minneapolis Mayor and
City Council Should Overturn Their
Appallingly Racist 2040 Plan
Appallingly Racist 2040 Plan
Dennis F. Paulaha, PhD
Copyright © 2020
by Dennis F. Paulaha
All rights reserved. In accordance with the U.S. Copyright Act of 1976, no portion of this book may be uploaded, reproduced, or transmitted in any form whatsoever, or by any means, electronic or mechanical, including printing or photocopy, without permission in writing from the publisher, except for short quotes in critical articles or reviews.
First published 2020 by
Dennis F. Paulaha
INTRODUCTION: THE DISMAL AND RACIST MINNEAPOLIS 2040 PLAN
To some, the Minneapolis 2040 Plan represents one of the greatest liberal victories in American history. To others, it means Minneapolis is ground zero in a nationwide plan to destroy American cities, one by one, by making the affordable housing problem worse, solving the racial inequity problem by forcing blacks and other minorities out of the city or onto the streets, and ramping up the city’s contribution to global warming.
The one undeniable truth is that the Plan’s overall goal is to eliminate the government’s role of protecting the city’s residents, businesses, and economy by turning the city over to developers, investors, and landlords who have little interest in anything other than their own profits.
Profits are good. But without government to provide things only government can provide and to protect people against lying, cheating, and stealing, the result is an inevitable destruction of both the middle class and the natural environment.
The worst part is that the Minneapolis 2040 Plan proves Mayor Frey, City Council President Lisa Bender, and the Minneapolis Planning Department have given up on trying to do good for anyone other than private developers and investors.
A few years ago, one of the most popular HBO series was The Newsroom. In the opening scene in episode one there is a rant by a cable news anchor (played by Jeff Daniels) that answers, or explains, to an audience of college students, a moderator, and two other people on a panel (one a conservative, the other a liberal), why America is no longer the greatest nation in the world.
After dismissing the fake idea of freedom from conservatives and pointing out the history of failure by liberals, he lists all the areas in which America is low on the list of worldwide achievements, from healthcare to education.
He then turns to the most gripping part of the speech, which is the sad reality that America has given up even trying to do great big good things.
Here is the piece of the speech where Daniels’ character laments America no longer being a great nation:
“We sure used to be. We stood up for what was right! We fought for moral reasons, we passed and struck down laws for moral reasons. We waged wars on poverty, not poor people. We sacrificed, we cared about our neighbors, we put our money where our mouths were, and we never beat our chest. We built great big things, made ungodly technological advances, explored the universe, cured diseases, and cultivated the world's greatest artists and the world's greatest economy. We reached for the stars, and we acted like men. We aspired to intelligence; we didn't belittle it; it didn't make us feel inferior. We didn't identify ourselves by who we voted for in the last election, and we didn't scare so easy. And we were able to be all these things and do all these things because we were informed. By great men, men who were revered. The first step in solving any problem is recognizing there is one—America is not the greatest country in the world anymore.”
Nothing can better describe what’s going on in Minneapolis right now.
The elected and unelected officials who are supposed to be doing great big good things for the city and its people and the economy and the natural environment are doing the opposite.
Instead of trying to help people buy homes, they envision a city where only the ultra rich can own single family homes and everyone else is destined to be renters for life, living in little three or four unit apartment buildings that replace possibly-affordable single-family homes, with no off street parking, lawns or trees, and no possibility of plugging in electric cars.
Instead of trying to increase incomes and wealth for African-Americans by getting rid of racism in the workplace, their plan is focused on increasing the profits of developers and real-estate investors.Instead of trying to make up for past racist actions, such as covenants and redlining that prevented blacks from buying homes, by doing something to increase home ownership, the Minneapolis 2040 Plan, by turning everything over to developers, will, given that 80 percent of black families are renters, force many out of the city when the homes they are renting are torn down or onto the streets if they cannot afford to pay the new higher rents. It’s gentrification on a massive scale, and it is going to destroy the diversity and culture of Minneapolis.
Instead of trying to do something to reverse global warming, such as making it easier for people to buy and operate and plug in electric cars, possibly with city subsidies or parking preferences, or educating people about renewable energy, or subsidizing alternate energy installations, or requiring the apartment buildings they want to replace existing single-family homes to meet green standards for both construction and use, the city made up a massive lie, claiming that by intentionally increasing the population and population density of Minneapolis, they will decrease the city’s carbon footprint. Only a climate denier would dare push such an incredibly bogus lie. And few would consider a plan to destroy government, harm the environment, push minorities out of the city, and advance the destruction of America‘s middle class to be some sort of victory for liberals.
Which is why the Minneapolis 2040 Plan is the most disgusting and depressing plan anyone could put together.
It is a plan that gives up on the future of Minneapolis by offering absolutely nothing to make the city better and the residents healthier, wealthier, and wiser.
It is a plan intended to eliminate cars and have people ride bicycles and use public transit to go back and forth to downtown jobs, which is great for some people (especially if they live on a mass transit line and work downtown). But not everyone works downtown, and for most people, there is more to life than going back-and-forth to work.
Not everyone wants to give up shopping, entertainment, bringing kids to sports events, and so on, or to ride a bicycle or take a bus to the Guthrie or a movie or a park or the grocery store or to and from all the other cultural and life enhancing activities the city of Minneapolis has to offer.
It’s not easy to haul groceries or anything else you buy at a store on a bicycle or on a city bus or on light rail, or to carry things, especially babies, a block or more when it is raining or thirty degrees below zero because your apartment does not have off-street parking, or to have your car constantly at risk of vandalism, or to go out in snowstorms in the middle of the night to move it during snow emergencies so it will not be towed. The truth is, the closest thing the plan approaches is the movie vision of the old Soviet Union.
It is, at its core, a dark, gray, gut-wrenching, life-denying plan.
And it is depressing to watch elected and unelected city officials working together to destroy government in order to destroy what they were elected to protect and support--the people and businesses of the City of Minneapolis.
The big question everyone should be asking is: Why aren’t the mayor, the Minneapolis City Council, and the Planning Department doing everything they can to come up with a plan that will do great big good things for the city of Minneapolis?
Anyone who reads the Minneapolis 2040 Plan and envisions what it will lead to should be sitting in a room crying, because the unbearable sadness of the Minneapolis 2040 Plan is that it is a Plan that has given up on what Minneapolis is and could be.
It ignores the fact that Minneapolis is already a great city.
It gives no recognition or credit to what was responsible for creating one of the world’s greatest cities.
It focuses instead on the fact that there are problems
Of course there are problems.
There are always problems. Everywhere.
But the biggest problem for Minneapolis is that the solution the City Council, the mayor, and the Planning Department came up with is to offer false promises to cover their plan to destroy the city.
What other explanation is there?
If not everyone can afford to buy a single-family home, let developers burn down as many single-family houses as they can.
If racial covenants and redlining by the FHA and banks (not single-family zoning) prevented blacks from buying homes in the past, and racism and bigotry continue to cause racial inequities, let developers bulldoze the houses blacks are renting and force them out of the city.
If greenhouse gasses are causing global warming, let us intentionally increase the population and population density of Minneapolis to increase the city’s carbon footprint and make global warming even worse.
Instead of at least trying to come up with a Plan that might do great big good things to increase incomes, fight racial inequity, do something about the affordable housing problem, fight global warming, and make Minneapolis better, their plan is to bring Minneapolis back to its pre WW I days (when the United States was ranked as the thirteenth most powerful nation in the world), or even to the good old days of the Industrial Revolution when workers worked and owners owned and all but the very rich lived lives on the edge, trying to survive in rented living units with little or no prospect of accumulating wealth or owning much of anything and not much hope for their children
TALKING GOOD IS NOT THE ANSWER
The racism embedded in the Minneapolis 2040 Plan was made clear in a public statement by Heather Worthington, who was one of the architects of the Plan when she was part of the Minneapolis City Planning Department.
In an October 3, 2017 article posted on the minneapolismn.gov site:
“Heather Worthington ‘…is committed to seeking authentic community engagement and leading racial equity efforts to strengthen communities that have experienced disparities and disinvestment.’”
As always, the words to cover up institutional racism sound good.
The Plan, however, speaks for itself, given that the elimination of single-family zoning will, without question, weaken communities, increase disparities and disinvestment in the very communities Worthington claimed the 2040 Plan will help, and benefit only developers and investors who are free to gut the city for profit.
THE QUESTION IS: WHY?
It is difficult to know why anyone would think an acceptable “solution” to the affordable housing problem and the racial inequity problem in any city is to let private developers tear down single-family homes and replace them with apartment buildings with no grass and no off-street parking.
Or support a blatant attempt to force the most vulnerable individuals and families out of the city or into homelessness.
Or support diminished opportunities for all but the very rich to purchase homes and build wealth.
Or knowingly support an increase in income and wealth inequality.
Because by not only allowing, but encouraging, developers to destroy massive quantities of single-family homes, that is exactly what the Minneapolis 2040 Plan intends to do.
It intends to reduce the quantity of single family homes and sentence a large percentage of the city’s population to a life of renting with little or no possibility of ever purchasing their own homes.
It intends to cause irreversible destruction to healthy neighborhoods.
And it intends to, without question, usher in one of the largest privatization, gentrification, and transfer of wealth schemes ever put into a city plan.
As a letter by Ron Feldman and Mark Wright from the Minneapolis Federal Reserve Bank published in the Star Tribune, explains: “To be absolutely clear: The private sector cannot solve all of our housing problems. State and local government support will remain necessary. Even massive increases in supply won’t make housing affordable for families in extreme poverty. The problem for these families is poverty itself; the solution is income support for housing and other needs.”
Unfortunately, Mayor Frey and City Council President Bender have made it absolutely clear they are more interested in adding to the profits of developers and landlords than in supporting, protecting, and improving the incomes, wealth, and quality of life of residents, as well as the businesses, economy, and natural environment of the city.
Regardless of how loudly Mayor Frey, all but one Minneapolis City Council Member, Council President Bender, and the Minneapolis Planning Department proclaim their plan to eliminate single-family zoning is a plan to attack racism, the truth is, their decision to let developers gut the city of Minneapolis, increase the affordable housing problem, increase the costs of running the city, increase taxes, do greater harm to the natural environment, destroy home equity for all but the wealthiest families, force low income people and families (especially minorities) out of the city or into homelessness, and increase income and wealth inequality, is nothing but institutional racism.
Racial covenants that prevented minorities from buying or renting houses in white neighborhoods began showing up early in the twentieth century. The covenants, which were included in deeds, first appeared in Minneapolis in 1910 when the deed for a house sold in South Minneapolis stated that the "premises shall not at any time be conveyed, mortgaged or leased to any person or persons of Chinese, Japanese, Moorish, Turkish, Negro, Mongolian or African blood or descent.” The seller of that house was a real estate developer and, once initiated, such covenants were soon included in thousands of deeds throughout the city.
Instead of raising red flags with government, racial covenants were backed by public officials who claimed they protected neighborhood values. Even federal housing administrators approved, and by the 1930s went so far as to require racial covenants for federally-backed projects. Banks used the same argument for private loans and the standard language became: “That the said land or buildings thereon shall never be rented, leased or sold, transferred or conveyed to, nor shall same be occupied exclusively by person or persons other than of the Caucasian race.”
Then came redlining, which began in 1934 when the National Housing Act created the Federal Housing Administration that used redlining to prevent African-Americans from buying homes. The FHA did not use those words. Instead, the FHA implemented a policy that refused to insure mortgages in what they called “high-risk” areas, knowing banks would then refuse to issue mortgages in those areas. It was called redlining, because the areas excluded from FHA insurance were defined by drawing red lines on maps. They didn’t draw lines around white neighborhoods; those neighborhoods were already segregated and protected with racial covenants. They drew lines around black neighborhoods to prevent all but a few African-Americans from being able to purchase homes.
Even the World War II G.I. Bill that gave veterans the opportunity for a free college education and to buy one house at a below-market mortgage rate was written to allow white colleges and home builders to discriminate against black veterans. Which means the G.I. Bill that helped create America’s golden age, created a golden age for whites, not blacks.
In 1948, the Supreme Court ruled that racial covenants were illegal. In 1953, the Minnesota Legislature outlawed them. And in 1968, The Fair Housing Act banned both racial covenants and redlining on a national level.
Then “they” introduced the up-zoning scheme.
THE INSTITUTIONAL RACISM BEHIND THE ELIMINATION OF SINGLE-FAMILY ZONING
The latest scheme in the long history of institutional racism in America is to eliminate single-family zoning.
In most cities, the idea, or plan, goes by the classy public relations name of up-zoning. But make no mistake, classy name or not, the elimination of single family zoning is gentrification on steroids, because such plans offer only three possible outcomes for African-Americans: Keep African-American families trapped as renters, force African-Americans out of cities, push African-Americans and other minorities into homelessness.
The scheme, which is being sold as a progressive attack on racism, is built on the false premise that it was single-family zoning, not covenants, redlining, and the WWII GI Bill, that is to blame for the low rate of black homeownership. If the premise were true, eliminating single-family zoning would, indeed, be an attack on racism. But because the premise is a lie, up-zoning is, in reality, one more installation of institutional racism, one more step that makes it even more difficult for black individuals and families to own rather than rent.
THE LIBERAL MEDIA HAS NOT
DONE ITS HOMEWORK
DONE ITS HOMEWORK
In Minneapolis, which is considered to be one of America’s most progressive cities, Democratic politicians used the single-family zoning lie to justify one of the most racist city plans ever devised.
Dismissing history and facts, Minneapolis politicians and planners had the nerve to claim, with the help of a PR firm, that “Single-family zoning is a racist policy, therefore eliminating single-family zoning is an attack on racism.”
And because single-family zoning was not the cause of the black home ownership problem, eliminating it cannot solve the problem.
In fact, by falsely claiming private developers and investors can solve the affordable housing problem and the racial inequity problem in Minneapolis by giving them the freedom to get rich tearing down any and all single family homes and replacing them with apartment building with no lot-line setbacks and no off-street parking, Minneapolis officials have guaranteed to make the problems they promised to solve worse.
As simple as that reality is, the liberal media throughout the country has gone overboard in holding up the mayor of Minneapolis, the Minneapolis City Council, and the Minneapolis Planning Department as liberal heroes for eliminating single-family zoning.
Based on what?
Based on a lie.
ELIMINATING SINGLE-FAMILY ZONING
IS A MASSIVE ATTACK ON EQUITY
The single most important cause of racial inequality in Minneapolis, and in America, is the long-standing, ongoing, and intentional effort to keep African-Americans stuck in a rent-for-life downward spiral.
That is the ugly reality of institutional racism Minneapolis and America must understand and change.
According to a recent Brookings Institution study, racism and discrimination cause home prices to appreciate at lower rates in black neighborhoods than in white neighborhoods, and the resulting difference in home equity is even more important than racism in the workplace when identifying the cause of generational disparities between blacks and whites.
Of course, that is just the tip of the iceberg. Brookings explained how the difference in home equity is responsible for the financial disparity between black and white homeowners, the educational disparity between black and white children and adults, and how financial and educational disparities create generational inequalities. As unsettling as that conclusion is, the Brookings’ study compared homeowners to homeowners. It did not address the fact that in Minneapolis, for example, 80 percent of black families have no home equity at all, having been forced into being renters-for-life, while 80 percent of white families are homeowners. Which means the disparity between an African American family that rents versus a white family that owns is even worse than the Brookings’ conclusions based on black versus white homeowners.
Given that home equity has historically been the most significant part of the average family’s wealth, few things are as financially destructive to a family than being forced to rent rather than own. Homeowners gain equity as they pay off their mortgages and also as the value of their homes increase. Renters do not accumulate equity. Renters pay rents that never end and are virtually guaranteed to rise year after year, while monthly mortgage payments remain constant and have a fixed term, after which the family has much more disposable income.
Terry Gross explained the rent-versus-own reality in a May 3, 2017 discussion on NPR: “Today African-American incomes on average are about 60 percent of average white incomes. But African-American wealth is about 5 percent of white wealth. Most middle-class families in this country gain their wealth from the equity they have in their homes. So this enormous difference between a 60 percent income ratio and a 5 percent wealth ratio is almost entirely attributable to federal housing policy implemented through the 20th century.”
ELIMINATING SINGLE-FAMILY ZONING
VIOLATES THE FAIR HOUSING ACT
The elimination of single-family zoning in the Minneapolis 2040 Plan violates both federal and state fair housing laws, because allowing developers to destroy single-family homes and replace them with multi-unit rental buildings treats people differently by race.
The Fair Housing Act, that applies to both renters and potential owners says: “It is illegal to treat you differently in housing because of your race, color, creed, religion, national origin, sex, marital status, disability, public assistance, sexual orientation, or familial status.”
When a homeowner sells their house, either to another family or to a developer, it is their choice. It is a voluntary decision that normally includes having a plan for the future and with equity from the sale to use for new housing, retirement, or to help their children financially.
Renters do not have a choice. When single-family houses occupied by renters are sold to developers to be demolished and replaced either by more expensive new houses or by multi-unit rental buildings, renters have no choice but to move, whether or not they are prepared to do so, and whether or not doing so incurs short-term and long-term personal, employment, and financial damages. And because renters do not have home equity to be used for new housing, or retirement, or to help their children financially, the financial burden they bear is likely to affect not only their own short-term and long-term well-being, but also their retirement and their children’s and grandchildren’s educational and financial future.
As such, the elimination of single-family zoning treats renters differently from homeowners. And because home-ownership rates vary significantly by race (in Minneapolis, about 80 percent for whites to less than 20 percent for blacks, with Asians, American Indians, and Hispanics in between), the elimination of single-family zoning treats people differently by race.
Which means the elimination of single-family zoning in the Minneapolis 2040 Plan violates both federal and state fair housing laws.
All of which leads to the conclusion that the nationwide interest in eliminating single-family zoning is nothing more than support for the latest example of institutional racism.
EPILOGUE: THE ONE-PERCENT SOLUTION BY WILLIAM ULRICH AND DENNIS PAULAHA
It is unconscionable to claim the affordable housing problem and the racial inequity problem can be solved by forcing more and more people to be renters for life and by taking away the opportunity to build wealth with home ownership for all but the very wealthy.
It is also unconscionable to limit the solution to what a city can do on its own.
Ron Feldman and Mark Wright from the Minneapolis Federal Reserve Bank made it clear that the private sector cannot solve all our housing problems, why it is necessary to have government help, and why the bigger problem is poverty.
The truth is, the affordable housing problem in general and the solution to institutional racism in home ownership, in particular, needs help from all levels of government, from local to federal.
Which is why William Ulrich and I have been working on a home-ownership solution to America’s current and long-term economic problems based on giving millions of American citizens hundreds of dollars a month to spend or save, year after year.
Of course, the US government can’t just give everyone money month after month. But it can give you a 30-year mortgage on either a new or existing primary residence at a fixed 1% mortgage rate.
If you have an existing $400,000 mortgage with a 4.1 percent mortgage rate, refinancing it at one percent puts an extra $660 a month of disposable income in your pocket.
That is just the beginning. The more disposable income you have, the more you can save and spend. The more you spend, the more you add to business profits. As sales and profits increase, companies increase employment, wages, and investment. And that’s it. Thanks to you, the economy is back on track.
THE ONE-PERCENT SOLUTION
It’s trickle-up textbook economics. We can’t fix the economy with policies that help big business and ignore basic economic facts. And the one thing economists know, and politicians like to ignore, is that the engine that drives every free production and exchange economy in the world is consumer spending. Which means the best way to get the economy rolling again is to give consumers like you more disposable income.
The One-Percent Solution should be available to all financially qualified US citizens, but with a $500,000 home-value limit, and in order to prevent abuse and profiteering, the mortgages cannot be assumed by anyone other than an immediate family member.
That is the plan. And the numbers backing it up are convincing. The average mortgage rate for outstanding mortgages is about 4.1%. The average value of outstanding mortgages is $205,000. So every $205,000 mortgage refinanced at a 1% rate adds a little over $331 a month to the homeowner’s disposable income, or about $4,000 per year. The total value of mortgages held by financial institutions is about $10 trillion. If they were all refinanced at a 1% mortgage rate, it would add almost $200 billion to consumers’ disposable income. And because economists know money spent is re-spent and re-spent, the extra $200 billion could add as much as $2 trillion to total spending, year after year. Even if only half are refinanced, it can add about $1 trillion to total spending. Which they say is what we need to pull the economy out of the hole it is in.
The increased spending from the increase in disposable income is a solution to the short-term crisis. Long term, the One-Percent Solution does even more. It creates wealth through equity. A 1% mortgage rate lets more families move from renting to owning, giving more families an opportunity to accumulate wealth for retirement or for their children’s education. A homeowner accumulates equity in a home as the principle is paid off year by year and also as the value of the property increases. Mortgage payments end when the mortgage is paid off. Rent payments never end. When mortgage payments end, the homeowner has even more disposable income, and also equity in the house. Renters do not have that accumulated wealth. And because rents are virtually guaranteed to increase over time, the difference between a homeowner and a renter in retirement is massive. That’s why we need more people to be owners, not renters, if we want to increase incomes, profits, and economic growth over time.
We know there are financial experts out there who claim renters can also build wealth by investing the difference between rents and mortgage payments that include property taxes and insurance. But that argument assumes rents, which also include property taxes and insurance, will be lower for comparable properties and will not increase over time. And there is absolutely no data to support that assumption. Even if it were true at a point in time, it will not be true over time, because mortgage payments are locked in and have an end in sight while rents just keep increasing.
Most important is that the rent versus own argument only applies to wealthy families. We want to make it as clear as we can that this plan is a way to bring disenfranchised people and families into the mainstream economy. There is no way moderate income families can accumulate and benefit from generational wealth if they are trapped in a rent-for-life downward spiral. It is why the study by Brookings Institution concluded that the single most important factor in explaining generational income, wealth, and education disparities between blacks and whites is the difference in home equity caused by prejudice that keeps home values increasing at lower rates in black neighborhoods.
And the actual inequalities are even greater than those identified by Brookings, because they compared black and white homeowners, when the fact is 80 percent of black families are renters with zero equity while 80 percent of white families are owners. That is what has to change. Not by hurting current homeowners, but by helping more families of all colors become homeowners.
WHERE WILL THE FUNDS COME FROM
This is not giving money away. It is lending money that will be repaid. And as economic growth increases, so will tax revenues from the rising profits, employment, wages, and salaries. The Federal Reserve has been giving loans to banks at 0% interest, knowing some loans the banks make will not be repaid. We think it’s time for government and the Federal Reserve to help the people. If large banks and corporations can receive loans at 0%, why not 1% mortgages for people?
The end result is as good as it gets: It will help reverse the current economic decline. It will support home prices. It will let everyone save and spend more. It will increase credit availability as existing mortgages are paid off. It will create jobs. It will increase tax revenues. It will not increase the deficit. It can be implemented immediately. And it is a practical solution to begin addressing the growing problem of racial inequity.
I wrote the following article, which was published in the Minneapolis Star-Tribune on July 23, 2018, assuming the Mayor, City Planners, and City Council members were actually looking for a solution to the affordable housing problem and the racial inequity problem. It turned out to be a bad assumption. The truth is, the up-zoning plan in Minneapolis is part of a nationwide effort to eliminate zoning laws that restrict developers and investors from gutting cities for profit, while increasing inequality, racial disparities, and global warming.
The supply and demand fallacy
behind the Minneapolis 2040 Plan
Dennis Paulaha, PhD Economist
The argument behind up-zoning in the Minneapolis 2040 Plan is that if the quantity of housing units is increased by removing or relaxing building standards and allowing single-family tear-downs to be replaced with duplexes, fourplexes, and commercial buildings in neighborhoods currently zoned for single-family homes, the increase in supply will stabilize or reduce prices.
The problem is, quantity is not the same as supply. And we can be in the supply and demand business only if all housing units are identical, buyers do not care which house they buy, and all houses sell for the exact same equilibrium market price.
And because none of that is true, we are not in the supply and demand business.
We are in the quantity business.
And one of the best examples of increasing the quantity of housing units and the population density in a city is the massive condominium complex recently completed in Wayzata. Did low-income and middle-income people rush to buy the new units, given that, without traffic, they are only 10 or 15 minutes from downtown? No. Because units start at $1 million each.
In the real world, developers build houses and condos they think will give them the greatest profits, which does not mean, the more they build, the lower the price.
In Minneapolis, builders have been tearing down single-family homes they buy for $350,000 to $400,000, and replacing them with million dollar houses. Why? Because it’s profitable. And when they do, the quantity of houses (or what the Plan mistakenly calls supply) stays the same, but the price goes up. The tear-down builders make profits while making the neighborhood even less affordable.
In other words, if someone wants to claim increasing the quantity of housing units in a neighborhood or city lowers prices, they can look at Wayzata, Uptown, downtown, Edina, the north loop, or anywhere else large condo developments are taking place. They can also look at new houses being built in the suburbs. Does building new houses in Edina or Minnetonka mean prices go down? No. Prices are up to the builder, and may be affected by some negotiating with the buyer. But no builder is going to think that because the house he just completed adds to the quantity of houses in the neighborhood, or the city, he will have to sell it for a lower price. That’s absurd.
Am I saying house prices are not affected by the number available for sale and the number of buyers at any point in time? No. I am saying the price of any house is not the result of supply and demand determining an equilibrium market price. It’s one house or housing unit at a time, sold by a builder or an owner, and the more buyers there are, and the more money buyers have, and the fewer houses there are for sale, and the lower mortgage rates are, the higher the negotiated price is likely to be. But that is not the same as the textbook idea of supply and demand, where all units are identical.
Finally, if a three bedroom, two bath single family house is torn down and replaced by a building with four apartments or condos, and the price of each condo unit is less than the now destroyed single-family home, can we say prices have fallen? Not if we want to be truthful, because we are talking about apples and oranges. The price of a condo unit that is smaller than the single-family house that was torn down and which, according to the 2040 Plan, will have a smaller (and shared) yard and will not have off street parking, cannot be compared to the price of the now-gone single-family house.
You are not getting the same thing for less money. You are getting something different for less money. And you can’t use those numbers to say prices went down. We should also not fool ourselves into thinking builders will buy houses for $400,000, tear them down, and build fourplexes with units that sell for less than $200,000 anyway. Even if they could, they wouldn’t want to, because that would mean giving up profits. The most likely outcome of up-zoning is that single-family houses will be replaced with condo units that sell for more than the single-family houses that were torn down to build them.
All of which explains why up-zoning is more likely to increase, not decrease, prices, and why it will not increase either affordable housing or diversity in upscale neighborhoods.
Dennis F. Paulaha received B.S. and M.A. degrees in economics from the University of Minnesota and a Ph.D. in economics from the University of Washington. As a college and university professor, he taught macroeconomic and microeconomic theory at the principles, intermediate, advanced, and graduate level, monetary theory and policy, environmental economics, and special issues courses.