The Housing Policy Implications of Taylor Swift

Happy Tuesday and welcome to another edition of Rent Free.

Since state legislatures are winding down their sessions—thus reducing the churn of state housing policy battles that are this newsletter's bread and butter—I figure I'd change the format of this week's Rent Free up just a little bit.

For our lead story, I'm taking advantage of the slower news cycle to write about an unfair Taylor Swift smear and what it might teach us about the dynamics of rising housing demand and constrained housing supply.

Following that opening act is a Q&A with this year's YIMBY pop sensation, Colorado Gov. Jared Polis, who spoke with Reason about all the housing bills he's signed this year, and what (if anything) should be done about Homeowners Associations (HOAs).

Enjoy! (And check back next week for more regular programming.)

On Smeared Swifties and Housing Supply

This past week, headlines were abuzz with the news that the homeless population of Edinburgh, Scotland, had been expelled from the city to make way for thousands of adoring Taylor Swift fans flooding into town for the singer's three days of performances.

The more complicated, less scandalous reality (detailed in many of the above articles, if not their headlines) is a local government program that places homeless people in hotel rooms started to refer people to hotels outside the city after incoming Swift fans snatched up many of the vacant rooms that had been available.

Edinburgh officials have stressed that none of the homeless who'd already been placed in hotel rooms were forced to vacate them.

The whole episode seems quite overblown in this context.

But before we file away these most recent unflattering headlines in the same folder with the past accusations that Taylor Swift is a secret Nazi and/or a Biden campaign plant, we might as well extract what few lessons we can about housing.

Fixed Supply, Rising Demand

The first lesson from the Edinburgh episode is that rising demand and constrained housing supply inevitably lead to some people being displaced from their homes.

Obviously, in the very short term, a city's supply of hotel rooms is fixed. When there's a sudden spike in demand, prices for that finite number of rooms shoot up.

When this happened in Edinburgh, Scottish Swifties had two options; spend more of their income on now-higher-priced hotels or economize on hotel costs by staying at a lower-quality hotel.

Some of them will opt for the lower-quality rooms, raising prices for those too and giving budget tourists with more limited means the same options: pay up or downgrade.

Play this scenario out a few more times and you get to the bottom of the market where there's no longer an option to move into lower-quality hotels. The poorest consumers have to either spend more of their limited income on their current housing or pack up and move to a cheaper market. Or they could take the most extreme option of finding free accommodations on the street.

In the Edinburgh case, the government spending on hotel rooms for the homeless opted not to get into a bidding war with tourists. Instead, they sent people to cheaper markets out of town. Many of the homeless who didn't accept that offer likely ended up in shelters or on the street.

Housing Policy as a Never-Ending Eras Tour

Normal housing isn't quite as supply-constrained as hotel rooms in Edinburgh right before a Taylor Swift show. But in highly regulated places (like Scotland, the U.K. more generally, and the United States) supply is constrained enough that it can't grow to meet all rising demand.

Over a longer timeframe, that same dynamic of displacement plays out. Rising demand (born of rising wages and in-migration) will push prices for a relatively fixed supply of housing up. Some will pay higher prices, others will move into less desirable, lower-priced housing, and the poorest consumers will either spend more and more staying in place or head for greener, cheaper pastures.

Housing writer Kevin Erdmann has done a great job using data to show that this is exactly the kind of dynamic we see in high-cost, "closed-access" cities like Los Angeles, New York, and San Francisco.

In these supply-constrained housing markets, we see rising prices (particularly in poorer neighborhoods), increased emigration to cheaper markets, lower-income residents spending an increasing share of their income on housing, and a higher percentage of residents ending up homeless.

It's one never-ending Eras Tour (in the worst possible way).

Compare this to cities that allow more housing production. There, price growth is moderate (and even falling), populations are growing, residents at all income levels are spending about the same share of their income on housing (with richer consumers trading up to higher quality housing), and lower rates of homelessness.

Build More Homes or Crush Demand?

The most straightforward solution to rising prices and increasing displacement in supply-constrained markets is to build more housing. In a free market, builders would rush to do that.

The reality is that removing regulatory barriers to housing supply is often politically impractical for any number of reasons.

People who don't want to increase housing supply will instead argue that we should attempt to squeeze out some of the demand that's pushing up housing prices. Doing so requires deciding who really "deserves" a fixed supply of units.

The negative headlines about Taylor Swift fans kicking the homeless out of the city by renting hotel rooms are predicated on the notion that their housing demand is somehow illegitimate.

For starters, that's a bad attitude. There's nothing wrong with someone traveling to a city to see a show. Few would argue it would be appropriate to ban a Taylor Swift show to keep hotel prices down.

Still, governments the Western world over have taken this basic approach to avoid addressing their self-imposed limits on new supply.

Bans, restrictions, and/or taxes on short-term rentals, investor-owned housing, foreign-national-owned housing, vacant homes, and new job centers are all based on the idea that some person or group has less of a right to buy or rent a home than someone else.

But these policies only serve to restrict benign sources of housing demand. That's bad by itself. It's also a strategy that's prone to failure. Even the most interventionist governments have a very hard time stopping people from buying something they want.

A Better Way

Supply-constrained cities that go down the road of demand-suppression are likely to just end up with some legal restrictions on Airbnb, the same stubbornly high prices, and all the displacement that comes with them.

The Edinburgh homeless service provider that initially complained about the homeless being sent out of the city actually groks this pretty well. The head of that organization didn't blame Taylor Swift.

She instead blamed the city's lack of investment in public housing. With more subsidized units, the homeless would not have had to compete with Taylor Swift fans for housing in the first place, she said.

One needn't support publicly provided housing to see the wisdom in this analysis. At its root, this is an argument for housing supply generally.

If Edinburgh had fewer regulations on new homes, the city would have more privately provided housing units, more currently homeless people would be housed in traditional housing, and no one would care about Swifties paying temporarily inflated hotel prices to see their idol.

Another Q&A With Colorado Gov. Jared Polis

Last year, the Colorado Legislature tried and failed to pass a big package of zoning reforms that would have required local governments to allow more types of housing. In this year's "Colorado Comeback," lawmakers passed a number of reforms allowing accessory dwelling units (ADUs) in single-family neighborhoods and apartments near transit.

The state also ended "occupancy limits" on unrelated people living together, passed a "good cause" eviction bill that restricts landlords' ability to not renew leases, and put some limits on HOAs' ability to ban home businesses.

Reason interviewed Colorado Gov. Jared Polis when these bills were first proposed. The governor talked to me again about why he thinks this year's reforms succeeded, the ways the new laws will enhance property rights, and whether HOA rules are worthy target of state preemption.

Q: Why did housing reform pass this year, where it failed last year?

A: Number one, we ran a number of bills separately instead of in a big omnibus bill. And that allowed for different coalitions, including bipartisan coalitions, for instance, to deliver on accessory dwelling units by right in most of our state.

That's a very basic property right. People should be able to build a detached or attached unit, a granny flat, mother-in-law law flat, or whatever you call it, and not have to go through years of paperwork and hassle or even being denied the ability to build another unit on your own property.

Then we got rid of occupancy limits, which were really bad policy where basically the government defined who your family was.

Can you have six of you living there? Oh, are you cousins? Are you lovers? What's your relationship? That's none of the government's business. We got them out of that.

Q: The bill you signed that's gotten YIMBYs most excited is the transit-oriented development bill, which allows apartments near transit lines in urban areas. Can you explain that policy?

Transit is inherently inner-jurisdictional. Many people commute across a number of jurisdictions, some take transit, some drive their car. In the Denver metro area, there are around 30 municipalities and an average person might live in one and commute across six others to get to their job and it's still only a 15-minute commute.

So, what we did is we said near transit, there has to be an allowed use of multifamily and duplexes and quadplexes. More people should be allowed to develop and live near transit if they choose to. And, obviously, no one says you have to build that. It's what the market merits.

Q: Let's talk about the "good cause" eviction bill that puts limits on landlords' ability to not renew a lease with a current tenant. Some YIMBYs say more housing supply and more tenant protections go hand-in-hand. On the other hand, if you limit landlords' ability to pick their tenants, fewer will likely rent out their homes. How do you strike a balance there?

In Colorado, if you are not paying your rent or are late on your rent, this bill did not impact our eviction process around that one bit.

We do not have the same policies around squatters or non-paying renters as other states do. Those drive-up rent for everybody and are very concerning to landlords.

Within that context, obviously, there's a discussion around protecting renters that our legislators were very interested in having. As long as the costs of tenant protections are smaller than the supply side changes we're implementing by reducing restrictions on building housing, it should overall lead to a net reduction in housing costs.

Q: Colorado also limited HOAs' ability to flatly ban home businesses. Is that not a restriction on private property owners' right to set their own voluntary rules in their neighborhoods?

I signed a bill that I love and I think the libertarian community would be split on but hopefully, more of them would like it than not.

It got rid of the ability of an HOA to say you can't run a home-based business. The HOAs can still restrict retail businesses and regulate car flow.

HOAs are not exactly local government but they have attributes of government and they are enforced by government that empowers them to do what they do. They're at the juncture between being just private associations and government. They kind of have some attributes of both.

But I think their ability to prevent people from running home-based businesses that could put them out of covenant on their debt or their insurance was a very, very damaging to the entrepreneurial ecosystem of our state.

So just as a real-world, small business, pro-entrepreneurship step, that was huge, and I hope other states move that way too.

This interview has been condensed and edited for style and clarity.