Cities in the United States — including Seattle — have been rapidly changing in the past decade or two. Industrial areas with well-paying jobs have been redeveloped for high-end housing or technology companies; affordable residential areas have disappeared. Mainstream economists see this as a natural process, guided by the invisible hand of the market.
Not so, says Samuel Stein in “Capital City.” The growth and redevelopment of cities in a capitalist economy is driven by the way cities are planned and by the incentive structure provided by the government, which generally aims to increase profits or property values.
Working people in the 19th- and 20th-century city, to some extent, benefited from industry’s support for affordable housing for its workers, which counteracted the demand by real estate capitalists for rising property values. As manufacturing left the central city, this check on financial interests has forced city governments to cater to companies whose main interest is in pushing property values up.
Stein uses three generations of Trumps as a case study in how real estate interests have depended on government support to make their profits. Friedrich Trump, Donald’s grandfather, made his initial money running restaurants, hotels and brothels in Canada and Seattle, then bought and sold railway land grants from the U.S. government and used a federal mining claim to (illegally) develop a hotel and brothel in a mining town in the Cascades. Fred Trump, Donald’s father, leveraged Federal Housing Administration (FHA) loans to build huge, segregated suburban housing developments. With the federal government getting out of public housing, Donald Trump switched to hotels and luxury apartments, pressuring New York City’s government to rezone cheap industrial land for high-rises, then guaranteed his profits by securing tax abatements in Atlantic City and New York.
Skewing land-use policy toward what’s profitable at the expense of what benefits poor and working people is a given in the “real estate state.” Local governments are supported by property and sales taxes and are dependent on corporations to invest in their cities to generate those taxes. In Seattle, all it took was a modest tax to cause Amazon to threaten to leave, causing a panicked reversal by the City Council.
Stein acknowledges that local governments, as well as working-class neighborhoods, are in a difficult position. Providing amenities — parks, streets, police protection — and encouraging property owners to fix up buildings or build new housing takes money. Unlike 50 years ago, the federal government is out of the business of housing poor people, and the subsidies it provides to private landlords mostly go into those landlords’ pockets.
Many cities have tried to condition new development on provision of affordable housing. One problem has been that the new “affordable” housing is not really affordable for low-wage workers or people without jobs, even if it’s below market rate. In addition, as we’ve seen in Seattle, new developments raise property values around them, pricing more low-income people out of neighborhoods than are housed in the “affordable” units in the new developments.
Stein isn’t against making cities safer, more pedestrian-friendly, less oriented to cars and with amenities like parks and public spaces. But poor neighborhoods are implicitly given the choice of accepting amenities and seeing property values rise — causing displacement of the people and businesses that are already there — or resisting amenities and living in run-down, unsafe, unpleasant neighborhoods.
What could change? Stein suggests that upzoning and inclusionary zoning — which allows upzoning in residential neighborhoods when certain affordable housing targets are met — be used only in rich white neighborhoods and never in neighborhoods at risk of gentrification. This would help to integrate the wealthiest parts of the city without putting poorer neighborhoods at risk. He suggests that there be special “planned community preservation districts” in poorer neighborhoods, where “any demolition or construction must go through a public approval process and obtain a special permit.” This would allow neighborhoods to be improved without displacing the people who are there.
Rent control is important, as is increasing public trust land — where the public controls the underlying land and decides who can develop it, who can live on it and how much they pay. Taking land out of the private market would be expensive, but tax foreclosures or closures of public facilities could be opportunities. Stein also suggests that vacant apartments, buildings and land, as well as bank foreclosures, be taxed at a high rate to discourage displacement, warehousing and money laundering; owners of luxury apartments could be assessed special fees to make high-end housing less attractive to buy and, therefore, develop.
Stein points out that we’re so used to thinking of the rights of private property as absolute that we don’t recognize how much of the value of land comes from the surrounding community and public infrastructure, which are created by the people living and working in the city, not by rich property owners. The taxes cities receive in return are only a fraction of the profits that the wealthy and the businesses they own reap from being in the city. It’s time we got some of that value back.
Read more in the Apr. 1-7, 2020 issue.