August 16, 2021 - From the August, 2021 issue

USC’s Dowell Myers on Housing Demographics: Linkage of Renter Mobility & Housing Affordability

TPR shares this recent interview of professor and noted housing demographer Dowell Myers, director of the Population Dynamics Research Group at USC Sol Price School of Public Policy. This interview builds on the recent publication of his research on housing demographic trends. Professor Myers here specifically focuses on the impacts of millennials—now in need of their own housing—on renter mobility, housing supply, and affordability.

Dowell Myers

“You can't make money building affordable housing. So, you have to build market rate housing in spades, like tons of market rate housing. Filtering proceeds immediately...I did a study for the National Multi Housing Council over the last few years on filtering. We looked at 100 metros and what we find is that within one decade, (the low-income share of housing opportunities) starts to grow at about 7 percent per decade."—Dowell Myers

As Professor of Policy, Planning and Demography at the Sol Price School of Public Policy at USC and a recognized expert on the changing demographics in both California & the United States, your scholarship focuses on how housing demographics influence housing markets, urban planning,  and ultimately policymaking. Please share with our readers your recent published findings on renter mobility and the latter’s impact on housing affordability, especially in coastal California.


Allow me to emphasize that I am a housing demographer; it's a rare specialty. There's very few of us in the nation, and I'm staying in LA for my career because this is a great playpen. There are demographic trends happening here first, and I think people just don't realize the innovations that are happening here.

One of the big trends in demographics or in housing, both, is that there's been a declining mobility rate. Geographic mobilities have been falling since 1985. It used to be that the average American family moved every five years, and 20 percent moved each year. That was the old truism for the ‘50s, ‘60s, and ‘70s. After 1985, it ended; and, it's been declining steadily.

What's new is that a major twist has happened post-2010. I should say that I've done a series of studies since 2014 on recovery from the Great Recession and the growing alarm I have about the housing crisis. A lot of things are all pointing to 2010 as this major turning point. Something happened with the financial crisis that messed up a lot of things in America and not just housing. Housing markets haven't gone back to normal, and now we're in the next recession, an even stranger recession. It's a very crazy time.

I've been looking under the hood of all these indicators to see how they really work. It’s not like it was a decade before; the previous decade, people were not migrating across country for jobs, like they weren't coming to the Bay Area for Silicon Valley jobs and the like. That was a big crisis people thought. There’s lots of literature still being written about that. But after 2010, that decline ceased and the rate of long-distance mobility has held steady. Short distance mobility has now plunged. This is the rate at which local people change residence. That's what's driving the trend down now, and it's almost all in the rental market, which was unheralded. Experts and professionals didn't really recognize that there had been a change since before the Great Recession and that something different was now causing local mobility to plunge. So, we wrote that article, which is really the first in the US or the world to try to assess this new downturn in mobility.


Summarize your report’s findings for our readers.


The short findings are that housing shortages are at the root of it all, and that they are really constricting opportunities for people—not just making housing more expensive, so that you have to pay more, but you can't even find a place to move into. And that shortage has an interesting dynamic of its own.

Every housing unit that's built creates a vacancy chain. In other words, the first person who moves in moves out of another place and that makes another vacancy. Until you have a cascade of vacancies that’s been triggered by one, newly built unit. It doesn’t just benefit that new occupant, but many people in the market, and those chains tend to trickle downhill to toward lower cost units from the newly built ones that are usually more expensive.

 We looked at 100 metros and compared them statistically to see what were the driving factors and how much weight they had. It's crucial to get local people to move into new units, not just people from out of town because they don't have a vacancy chain they can offer. You want new homegrown people to move into a new unit, so they turn over their old unit, and that's how we get the big benefits.

Along with that, we looked at affordability and how big a factor that was on mobility. It turns out to be a small additional factor, because in markets that are less affordable, people won't move out of their house or their apartment. They're afraid to move out because they know in an open market it’s going to be more expensive. So, then that vacancy chain freezes up. If one person doesn't move, the next person can't move in. What we have, essentially, is growing gridlock in the housing market. People cannot find a place to move to and so they don't move out.

 In addition, we have a couple of twists that are really interesting. If you have more home buying going on, you can increase renter mobility. How so? Well, because homeowners, half of them, on average, give up a rental unit to become first-time owners. And when they give up the rental unit, that creates a vacancy chain. In LA we've had suppressed homeownership, suppressed home buying, which further constricts opportunities for renters.

 And then one last thing: the impact of the millennials is a really big surprise. I've been studying the millennials in different ways, and this was a surprise to me. Millennials are young, in their 20s and 30s, which are the prime ages for moving. If you have more millennials, you’d expect to have higher mobility because there are more young people ready to move; except it works the opposite. The cities that have a higher concentration of millennials actually have slower mobility, because of all these young people looking for places to live. The turnover is too low, competition leads to gridlock, and then pretty soon, nobody can move.

Austin, Texas, for example, has a greater decline in mobility because it has all these millennials compared to Pittsburgh, which has relatively few millennials. All of these things are intertwined. It's very complicated to sort out, but it does suggest some pathways to make things better: first off, build more apartments; second of all, increase home buying. That may seem a paradox, but if you increase home buying, that will then free up rental units. And then add subsidized housing for the people with worst case housing needs. But the mass solutons for our housing crisis are going to come through an ample supply of market rate housing (which will all be more affordable when scarcity is not driving up rents).


Let’s go back to your mention of 2010 as a significant pivot, which follows the 2008 financial collapse and crisis. The underlying land ownership in South Los Angeles has changed by 60 percent in this last decade, and the largest owners of residential real estate in the five largest markets of California are now Blackstone and its subsidiaries and other Wall Street investment firms that are likewise buying up and holding housing as rental properties. Is that a material factor in your opinion?


I think it disrupts the normal flow of exchange of units among households where you have investor owners who have a profit motive, which is a conflict of interest also because their profit motive is basically to enhance scarcity.  Individual homeowners oftentimes have that same conflict. Who needs more housing if you have scarcity and your asset, your property, is appreciating rapidly? The thing about the investors in single family rentals, they get the appreciation and the property, but they also are able to reap higher rents, because of the shortage of housing opportunities for people to move up and out. These higher income young households are thrown back into renting and have to rent a single-family unit they would have purchased otherwise, but it’s not available for purchase. They are a captive market to exploit.

It's interesting, and they're not the only problem. You can throw Airbnb in there too. Airbnb is also a disruption that takes good rental units and turns them into hotel units. It's equivalent to a demolition of housing. I mean, these are all happening this decade and for different reasons. A lot of which is coordinated by the digital revolution, but I don't think the Blackstone investor revolution is part of that—Airbnb is, and also apartment listings going digital. This all coincided with the arrival of the millennials who are very significant.

I've been called a champion for millennials following my interview I had on CBS News in March. They have had it very rough with two major recessions in their early adulthood. Boomers never had these challenges. But the thing that's crucial about Millennials and housing— and as a demographer speaking, economists just don't get it; they think it's just people with income—but no, it depends on how old you are. If you're a certain age you’ve got to act. If you're 45, you're not acting. If you're 30, you are at the cusp of your adult career, and you are in rapid transition. You're moving away from those roommates and you’re partnering up. Gay or straight, you're partnering up, and you're moving into your own separate quarters. And that's happening with some urgency—you may be also contemplating having kids, so the clock is ticking on that.

 Age 30 is this magic age. Peak millennial has just crossed age 30. Peak millennial was born in 1990, so they're 30, turning 31 this year, and it's an urgent driver in the housing market. The millennials were also 32 percent more numerous than the cohort born 12 to 15 years earlier, Gen X, which was an undersized generation compared to the baby boomers. As a result we got used to having few young people. Now they're replaced by Millennials in young adult ages and the housing market has just been caught flat footed, unprepared. This  explosion in apartment demand in close-in neighborhoods was very foreseeable. The housing industry was really disabled by the financial crisis, and they weren't prepared to ramp up supply quickly when the millennials came along. Our backlog of pent-up demand still keeps intensifying, erupting even during the pandemic recession.


You're a recognized expert on housing demography, no one questions that; but you keep using the term “housing market” as if it's a static concept. Yet you just referenced that in 2008, 2009, 2010 those markets had to evolve because of the financial crash. And you have some research peers, i.e. Michael Storper at UCLA and writer Richard Florida, who both have asserted that merely increasing new supply in economically desirable cities may actually exacerbate local affordability challenges given the economics of land & housing prices. Are they dead wrong?


I think I know the debate you're referring to, and they're not dead wrong, but they're wrong in this context. They haven't seen my paper on the rental mobility and turnover. What people fear in cities is that as we build luxury housing it will create a fad of really luxury housing all over a neighborhood, which will then eliminate low-income opportunities.


Isn't that what's happened in the last seven years? Downtown LA, which had no resistance from neighbors, has produced very, very little affordable housing but thousands of luxury units.


You can't make money building affordable housing. So, you have to build market rate housing, which we need in spades, tons of market rate housing like we built in earlier decades.


How many decades does it take, then, for the production of market rate housing to create more affordable units?

Filtering proceeds immediately. But we’re running behind this shortage and until you build more houses than you have households, you won’t have any filtering. If you build a surplus of luxury housing, what happens? They can't rent the last unit. So, what do they do with the last unit? They discount it. That's where it starts right away, but they're not going to build a surplus.

If you don't build housing for the people who are higher incomes, those people will come and cannibalize your working-class housing.


How long will it take for new luxury housing supply to filter down?


I recently completed a study for the National Multi Housing Council on filtering since 1980. We looked at 100 metros and what we find is that apartment housing starts to grow low income occupancy at about 7 percent per decade.


And for the next decade, are you suggesting the other 95 percent experience the cannibalization of existing working-class units?


 Well, in the meantime you're hoping that this new housing also is stopping that cannibalization and absorbing this new demand. Typically, until 2010 when it reversed into gentrification, there was a steady cumulative increase in lower income occupancy.


The University of Southern California, which you are a distinguished tenured faculty member of, is arguably the largest landowning developer in metropolitan Los Angeles. It's two campuses—the university campus and its east side health campus are each 3 million square feet plus and each impacts, as they build out and densify, the neighborhoods. Are you comfortable with USC’s current planning and development processes related to housing ? Do they encourage the solutions for homeownership you favor?



First, let me just say I'm really proud of the 3,000 beds that were built on campus. Pulling those students out of the neighborhoods in close is a smart idea. It’s taken a lot of student demand pressure off the neighborhoods and also has replaced a lot of cars commuting in. Instead, we've had a force of bicycles take over campus as a result. It's really had a big impact. For faculty, they also have a small development of townhouses that are about 20-years-old that are right near campus for purchase. They could do a lot more with that and build a much stronger campus community. I don't know if the trustees feel like that's their business to do and that and they shouldn't get involved in the private sector. But the lack of housing is a severe tjhreat to USC’s successful competition for young faculty. I think the UC Irvine model is pretty good, where price is discounted by capping the appreciation rate. You have to sell it back to the association and they then recycle it to new faculty buyers. It's a way to get people into ownership in an affordable manner, because faculty salaries aren't high enough to compete.


Are USC Faculty today able to live near USC?

It's miserable what's happened to new assistant professors. When I came in the late ‘80s, it was a terrible time; it was the peak of the boom then. But then came the slump in the ‘90s and anybody who arrived in the early ‘90s was king. They could come in and really get a good deal. But ever since ’95, it's been a steady rise, save 5 years around the Great Recession, and that means that each year the new recruits have a harder and harder time finding housing that they can purchase. There's some ad hoc assistance for individuals, but it's temporary. I think when I came, I got assistance for three years that was just a little sweetener that didn't really do a lot, but it was a token recognition. But I don't think USC has a systematic plan on how to how to handle this challenge that is going to make it impossible for USC to compete for faculty going forward.



Surveying USC’s surrounding communities, which for decades have housed low income residents, have you observed the development of much affordable housing?


I’ve been speaking about whole metropolitan areas. The neighborhoods within can change dramatically. USC has changed from Black to Latino to Yuppified, which is a good thing in some respects, because it really cut down on traffic. It draws the students in closer to campus as opposed to commuting from Playa Vista or Culver City.

But we need to provide housing for everybody. You can't do everybody in the same neighborhood necessarily, and USC is not going to move; it's there. And their workers and students need to be housed. Our failure to build the 1990s is what's haunting us now. That was our affordable housing today. We did not build it.


As you well know, California local Redevelopment Agencies historically and thru the first decade of 21st Century insured that a portion of “added value” created by redevelopment and the up-zoning of properties was reinvested by local affordable housing in affordable and homeless housing production. With CRA’s having been abolished in 2011, don’t local jurisdictions need more than ever a vehicle for value capture that meet the needs of those who cannot afford today’s market rate housing?

That's a big factor that’s missing today. It ended in the desperate fiscal situation following the Great Recession. Something like it would be really helpful today.

But there appears presently nothing in the bills (ie. SB 9 & 10) before the legislature that takes value capture into account to finance more affordable housing? And UCLA Professor Manville, a leading YIMBY advocate, argues that “Value Capture” ought not be included in state housing legislations. 

I'm talking about, in total, in the ‘90’s, the total quantity of housing was way down. But you're right, the redevelopment agencies were really the silver lining to that.

Another factor may well be the riot in LA in ’92 and an economic recession in the first half of the decade. 

We lost 300,000 jobs too, so it makes sense that we didn't build it. But here’s my point about the 1990’s: if we had built it, those houses will be filtered down for us to use today.

The second point is: don't make that mistake again. Do not under-build housing today because then we’re under-building the affordable housing for tomorrow once more. Can we learn from the past? Can we learn from the ‘90s and see what we lost? Can we avoid doing that again today? There's a gap in our housing supply that wasn't built for whatever reason, and now it's haunting us. 

Might a bigger learning challenge be that the largest owners of residential real estate in California largest Metros today are real-estate investment funds?

I don't know, if you see the graph of the big hole in it the way I draw it, it has more of a gut impact. It's hard to visualize these other things. But if you can't build your way out of it, you also have to then prevent the cannibalization. If you starve the housing supply, guess who gets housing? High dollar goes first, low dollar goes last. In fact, low dollar goes on the street. So, you must provide housing for the high end. 

That assumes there’s value capture in the land ownership market you’re describing. Is there a public mechanism in place now to recapture value and facilitate reinvestment by the public sector in the affordability of housing?

The value goes to Wall Street purely. It's not held in the community. The housing market is totally changing. It’s an arena where things get worked out. But you’re right, the public role has been subtracted.

So now, the King on high, the governor, decrees 3.5 million is the shortage based on a flimsy McKinsey study using New Jersey and New York data, but I can get to 2.8 million with all California data, which is a pretty big number. We’re not going to build 2.8 million either, but you can’t just decree it. You have to get the voters to buy into it, and this is a real problem because voters do have a self-interest that’s conflicted. Seventy percent are homeowners, but you say housing affordability and they go, “what problem?” 

Finally, if the goal is to create renter mobility through the production of more housing, let's pivot back to your suggested solutions and highlight them again for our readers.

So, there's building directly for the first tenant, but the multiplier effect has to be recognized and the vacancy chain that follows that—building for people from out of town doesn't help you. You want to build for people in town, but you can't avoid that some of it's going to go to outsiders who purchase or who rent.  That's the first step.

The second, beyond simple construction, is to promote more homeownership and get people out of renting. There are too many high dollar renters now who would be owning, but it takes too much time and effort for them to find a place or it costs too much. I call these diverted homeowners, and they’re pancaked in on top of the housing market —on top of the real renters— and they're crushing them. So, we need to get them out of there by promoting more homebuying.

Now, what does that take? There's a problem on the condo side with construction liabilities that stops people from building for-sale condos, and that's a problem. On the single-family construction side, it’s a problem of land assembly. What do we do there and how do we do it? We've got to figure out strategies to make this work.

One way is to help older homeowners who are entrenched in their current neighborhoods to find an even better place to live and help them move to the next stage of life. I call it Shangri La Estates, but whatever it is, it's designed to be an upgrade, something romantic and appealing. But it is a relocation, and older people don't like to move so mobility rates grind down. They have too much stuff to move. There's lots of inertia. We need something that will help them.

But a lot of our policies actually do the opposite. They entrench them in place with tax benefits that are frozen in the past.  If we can figure out how to turn over more of the homes occupied by older owners, those can be recycled to young people and get them out of the rental units. You’ve got to build new housing for somebody, and I think you build it for the older folks. Build something really new and let them design it. Ask what kind of small complex would be really ideally located? Where and how would we do this? That's one idea.

Candidly, we have to build a lot of housing, and build it directly for low-income individuals, and I think worst case needs deserve to be met, but to build directly is very expensive, very slow, and we're not leveraging the market the way we could. People have a right to retire from working and stay in their large single-family homes, but then we really need to build more housing for the new workers. It’s the only sensible thing to do.


© 2024 The Planning Report | David Abel, Publisher, ABL, Inc.