When Donald Sterling, the notoriously racist billionaire owner of the Los Angeles Clippers, was caught on tape saying hateful things about African Americans, it sparked a torrent of news coverage, and for good reason. The Clippers have long been one of the most abysmal teams in the NBA, yet they’re now fielding one of the best. Many wondered if the team’s predominantly black players would countenance playing in this year’s playoffs for a man almost universally regarded as despicable. Others have reflected on what makes Sterling so awful. So allow me to instead reflect on what has made Sterling so rich.
Sterling is what we colloquially call a “slumlord,” which is to say he’s a real-estate investor who has thrived by renting low-quality housing at high prices to low-income families in southern California. Los Angeles, like many cities across the United States, suffers from a dire shortage of affordable rental housing — a shortage that is particularly acute in liberal cities. And lo and behold, these shortages redound to the benefit of slumlords like Sterling, who can charge sky-high rents because development restrictions make it prohibitively expensive for real-estate developers to build multifamily housing.
In earlier eras, when entrenched social norms, discriminatory lending practices, and the threat of violence kept America’s neighborhoods racially segregated, cities had parallel housing markets: one for whites, in which the housing supply was plentiful and thus relatively inexpensive; and one for blacks, in which the housing supply was severely limited and thus relatively expensive, despite the fact that blacks tended to be poorer than whites. Unscrupulous slumlords — Sterling’s spiritual ancestors — made a mint off of poor blacks by exploiting this artificial scarcity.
Cities are far less racially segregated now than they were for most of the last century, and the terror tactics that kept African Americans concentrated in ghettos are a thing of the past. But slumlords continue to exploit artificial scarcity in the housing market to the detriment of poor people, a disproportionately large share of whom are nonwhite. Now, however, they do it with the complicity of liberal voters in big cities.
In 2011, UCLA economist Matthew Kahn drew on city-level data to determine whether the political leanings of a community had an impact on whether it issued new housing permits between 2000 and 2008. After comparing liberal cities to observationally identical non-liberal places in the same metropolitan areas, he found that the higher a city’s liberal vote share, the fewer housing permits it issues. And this remains true when you hold per capita income and education level and a number of other factors constant. There are many reasons why liberal voters might support development restrictions. The most obvious possibility is that they do so on environmentalist grounds. Whatever the reason, the results are not pretty for the poor.
#page#One of the ironies of Kahn’s finding is that several of California’s larger, liberal cities have passed living-wage ordinances or local minimum wages higher than the state minimum wage, or both, on the grounds that the cost of living is so high that low-wage workers can barely get by, even if they work full time. It really is a problem that the market wages of the poor aren’t high enough to allow them to secure decent housing within reasonable reach of employment opportunities. But of course a central reason the cost of living is so high in these cities is that liberal voters limit housing permits. We thus find ourselves in a strange loop.
Last fall, California passed a statewide increase of the minimum hourly wage to $9 this July and to $10 by the beginning of 2016. Even if we assume, generously, that this increase won’t decrease employment levels or job growth, there is the small problem that California’s low-wage workers will still have to find a place to live. And if, as is typical, these low-wage workers are in service jobs, in fast-food restaurants and the like, they’ll need to live within commuting distance of their middle- and high-income customers. Because low-wage workers tend to be asset-poor, they will almost certainly have to find rental housing. So guess who will capture a hefty chunk of their wage increase? That’s right — it will be slumlords like Donald Sterling, who profit from strict limits on new housing permits.
I don’t doubt that supporters of higher minimum wages are sincere in their desire to help low-wage workers. But by ignoring the way limits on new housing development punish low- and middle-income families, they’re missing an essential part of why so many Americans are struggling. Think about it. If high rents drive you farther and farther away from your job, you’re forced to work fewer hours and spend less time with your family. That means you earn a lower income, you accumulate less wealth, and, if you have children, you have less time for the demands of parenting.
It would be one thing if development restrictions were a problem only in California, but they’re not. A recent report from Harvard’s Joint Center for Housing Studies finds that in the wake of the housing bust, the share of U.S. households who are renters has gone from 31 percent in 2004 to 35 percent in 2012. And there is good reason to believe that this share will continue to increase. The trouble is that while the number of renter households has surged, construction of new rental units has not kept pace. Most of the new demand has been met by the migration of homes from the owner-occupied stock to the rental-housing stock as investors have snapped up foreclosed properties. Yet in high-cost cities, this migration hasn’t been enough to make rental housing affordable. It is true that the development of new multifamily properties is picking up. The problem is that it is picking up in right-leaning states such as Texas, where housing is already relatively affordable, more than in high-cost cities on the east and west coasts, where the lack of affordable rental housing has reached a crisis point.
Rather than focus on minimum-wage hikes, policymakers would do well to pay attention to housing supply. The best way to loosen the grip that slumlords like Donald Sterling have on rental markets in big cities across the country is to allow other real-estate developers to build, and to compete with one another on rents until their housing is within easy reach of low- and middle-income Americans. Better still, we might focus on attacking the cost of living in all kinds of domains — the cost of housing, but also the cost of commuting, groceries, medical care, and other essentials — as a more effective strategy than yielding to the siren song of a higher minimum wage.
It is all but inevitable that Donald Sterling will be forced to sell the Los Angeles Clippers, and some other billionaire will soon have the pleasure of buying the team at a discount. Wouldn’t it be nice if we could also do something for the low- and middle-income renters who have little choice but to rent Sterling’s apartments?