Correcting some really idiotic thinking re development

Today we’re going to correct a damaging misperception about development.

Many people out there apparently believe that the price of single family homes in desirable neighborhoods like Silver Lake and Echo Park is being driven up by competition from developers. Check out this comment thread on the Eastsider for an example of this line of argumentation.


Developers are limited in what they can build by the zoning. The majority of lots in Silver Lake, Echo Park, etc. are zoned R-1 or R-2. No developer is interested in those lots, because you can’t really develop anything on them.

So, to the extent that “middle income” folks are being outbid, it is not by developers. So, who’s to blame?

Target #1 is “Flippers”, who buy run down old homes, upgrade them, and re-sell at a profit. But it’s important to understand that these guys need to make a profit… so, they’re generally buying the cheap, broken-down old homes that are too screwed up to live in. Your average middle income home buyer has neither the capital, the expertise, nor the desire to fix these homes. While flippers compete for homes at the lower end of the spectrum, they’re not really competition for most conventional home buyers, because there isn’t any profit available by flipping a move-in ready house.

Do you know who the real competition is? Other home buyers! That’s who’s pricing middle income buyers out of the market.

And do you know why the prices keep going up in desirable neighborhoods? Because anti-development zealots, many of them middle income folks themselves, try to block any project which adds supply to the market. Increasing demand plus stagnant supply equals higher prices, every single time.