Episode 18: Vacant Houses with Jake Wegmann

Shane Phillips 0:04
Hello, this is the UCLA Housing Voice podcast and I'm your host, Shane Phillips. Every two weeks we discuss a different housing research paper, translating it into non academic language to better understand how we can create more affordable and more accessible and equitable cities. Mike Manville is my co host, and our guest today is Professor Jake Wegmann, of the University of Texas at Austin. This week, we're talking about vacant housing, a topic that probably needs little introduction, you've seen vacant houses blamed for the housing crisis. You've heard we can solve homelessness by re-occupying them. And you may have heard rumblings about the need for a vacancy tax to stop them. Jake's paper is one of the first to take a really evidence-driven look at the scale and distribution of a specific kind of vacant house what he calls 'ghost dwellings', and we think it provides really important context that we're going to need if we're going to talk about this subject constructively. We always ask our guests to give us a tour of their city. But this time due to some audio problems, we had to cut it from a recording. Jake took us to two places though, one in Austin and another in his hometown of Edmonton, Alberta. In Austin, he recommends taco Mile, which I think speaks for itself. We also included an article about it in our show notes. And in Edmonton, on the University of Alberta campus, he suggested hub mall, which he described as a skyscraper turned on its side, or like a European walking street, but with a roof over it, which makes sense given the weather up there. The Mall, as he says, embodies a spirit of experimentation that we seem to have lost and that he wishes, that I wish we could bring back again. The Housing Voice Podcast is a production of the UCLA Louis Center for Regional Policy Studies. And you can contact me with questions or research paper ideas at Shanephillips@ucla.edu. Or you can reach me at Twitter @ShaneDPhillips. Here's Professor Jake Wegmann.

With us this time is Jake Wegmann, Associate Professor in the Community and Regional Planning Program at the University of Texas at Austin School of Architecture. And we're talking with him about housing vacancies, a topic that I myself have written about for the Lewis Center, and that many of our listeners are probably familiar with as a controversial topic in housing policy debates. Jake, we are glad to have you here to shed some light on the subject. Welcome to the housing voice podcast.

Jake Wegmann 2:35
Thanks for having me on. I'm a regular listener. So it's a lot of fun to be on the other side here

Shane Phillips 2:40
... And co-hosting with me this time on our rotating schedule is Professor Mike Manville. Hey, Mike.

Michael Manville 2:47
Hey, guys.

Shane Phillips 2:48
So your paper was published in the Journal of Urban Affairs in 2019, and it's titled 'Residences Without Residents: Assessing the Geography of Ghost Dwellings in big US Cities'. And it's really foundational research about the nature of housing vacancies in the US, particularly in high-cost housing markets, the kind of basic facts and context that are often missing, I think, in conversations about vacancies. And it's focused on a specific kind of vacant housing. And this is vacation homes second or third homes, pieds-a-terre, which I love saying, and other vacancies that all fall under the header of what you call 'ghost dwellings'. So an interesting thing about these ghost dwellings is that the familiar paradigm seems to have kind of reversed with vacation homes now seeming to concentrate in cities, rather than the country where we think of them traditionally. You write in the paper, "...although vacation dwellings are nothing new, what is arguably novel is that they are perceived to be appearing in increasing numbers within large cities. exactly the sorts of places that second-home dwellers might once have been assumed to be retreating from in favor of a bucolic rural getaway". So let's start here, how do you define a ghost dwelling and what makes it distinct from other kinds of housing vacancies?

Jake Wegmann 4:08
I started with a definition that I had seen being used in some research on Israel, where researchers were using a term called 'ghost apartments'. And so it's mostly the same thing as that, but I just tweaked it a little bit to be a ghost dwelling rather than a ghost apartment because, as you both know, the vast majority of housing in the United States including within large cities are our single-family houses so I didn't want to make it sound like these are these are only in apartments

Shane Phillips 4:37
Right

Jake Wegmann 4:37
And so really just you know, my definition here was just a seasonally recreationally or occasionally use dwelling, to use the censuses terminology, that's located one of the 51 largest cities in the United States, or excuse me, the 50 largest cities in the United States.

Shane Phillips 4:56
Okay, and how is that distinct from these other kinds of vacancies?

Jake Wegmann 5:01
So that is very different, for example, from a housing unit located in a large city that's vacant, because, you know, it's in the middle of being rented, you know, or it has just been completed, or someone is living there, but just moved out, and is trying to sell it. It's also very different from the kind of vacancy which, you know, rightly gets a lot of attention, which is long-term vacancy or abandonment that we expect to see. And you know, particularly in rustbelt situations, but you know, really that exists all over the country, or even in a hot market city, you might see a housing unit that is in some sort of a speculative freeze and the property owner is, you know, waiting for the right buyer to come along and just is keeping it vacant. So ghost dwelling wouldn't intersect with any of those other types of vacancy.

Shane Phillips 5:52
Got it. And so why are we thinking that these are.... what's the concern with them? Like, what harm are these doing or potentially doing?

Jake Wegmann 6:01
Well, I think, when I started this paper, part of my motivation was I wanted to see is this really, first of all, is this actually increasing? Like people, you know, seem to think that it is. I think it is very symbolically potent, you know, when I say the ultimate visual representation of this is probably, you know, think of the super tall skyscrapers, you know, right, next door. And, you know, sort of the paradigmatic image that someone would have would be maybe a Russian oligarch who was buying an enormous, you know, condo in one of these super tall buildings and is, you know, owning it through multiple layers of, you know, shell entities, so you can't trace back their ownership and might be using it to stash their money away. So I think there's often kind of a whiff of something nefarious with this sort of thing. But I think it's important to point out that there are much more prosaic examples, too. And, you know, we could walk through a couple of scenarios, just much more everyday things, I think, you know, to answer your question, what's the worry here? Some people are worried about a deadening of urban neighborhoods, if you have a neighborhood with a lot of housing units that are mostly not being lived in most of the time, even if you know, the housing market is hot, and you know, rents are high, and housing prices are high, at street level, there just aren't many people walking around. Maybe the local shops and restaurants are weathering, because there aren't people to support them. So I think that's one category of concerns. And then another category of concerns is that you have these people who kind of only live in a city part time, and if there are enough of them, you know, within a given area, then you begin to lose some sort of a character in that area, maybe just in the same way that you would, in neighborhoods that are flooded with tourism, right over tourism has been a big topic of conversation especially in Europe. But maybe you could get the same thing with these sorts of, you know, housing arrangements, even if it's not actually people staying in hotels, but, you know, maybe it's someone who's living in their pied-a-terre for, you know, three weeks out of the year, or something like that. You could have someone who's spending time there, but really isn't tied to the community in a meaningful way. And then, I guess the last set of concerns, I would, you know, bring up would be people are worried that this is putting upward pressure on the housing market, whether this is, you know, right, eating away at scarce housing stock, and so...

Shane Phillips 8:36
People are keeping a unit vacant that someone could be living in and the person who would be living in that is now living in some other housing instead and taking up space basically.

Jake Wegmann 8:45
Right, exactly. Yeah.

Shane Phillips 8:47
So in the paper, you note that the number of ghost dwellings is quite small, actually, but they're growing as a share of the overall housing stock. You analyze ghost dwelling data for the 50 largest cities in the US, as you said, and you found that they made up 0.7% of the housing stock in the year 2000, then 0.9%, in 2010, and by 2017, they shot up to 1.4%. So again, these aren't huge numbers, but a doubling in less than 20 years, certainly warrants some attention, I think, an investigation. And I think it also might help explain why vacancies have become of greater public interest over the last five years or so. It's often rates of change rather than absolute numbers that spur attention and controversy. And I think we've seen that actually with like immigration, for example.

Jake Wegmann 9:36
That's right.

Shane Phillips 9:37
So we still know very little about how these kinds of vacancies vary city by city or metro area by metro area or between neighborhoods, building types, ownership structures, and so on. And if we don't know that, then it's going to be hard to know how to respond appropriately. So as I said, your paper is helping to build that foundation and you started out by looking at these 50 largest It is what stood out to you from that part of the analysis.

Jake Wegmann 10:03
So in that part of the analysis, kind of like you were hinting at Shane, you know, I wanted to pay attention both to the, to the rate of growth, but also the absolute number. And then the third thing that I looked at was just the share of the total housing stock. And so I rank the 50 cities on the basis of those three things. And there were five cities that kind of were in the top 10 list for, you know, in all three criteria. And then there were two more that were on the two of the three top 10 lists. So the, I guess, the five ghost-dwelling capitals of America, if you will, where Austin, Atlanta, Miami, Las Vegas, and New Orleans. And then Francisco in New York were the two cities that were, you know, appeared in the top 10 list twice. Just to say a little something about, you know, that list of cities, you know, San Francisco, New York, Las Vegas, Miami, I found entirely unsurprising I was expecting them all beyond on that list. New Orleans, I found a little bit more surprising. But, you know, if you think about it, in terms of, in particular, the effects that the aftermath of Hurricane Katrina may have had, where you've had a lot of damaged housing units that maybe a lot of local people couldn't afford to fix, and you know, bring back to life, but maybe a lot of outsiders who are drawn to the culture and, you know, the general vibe of the city might be. So that one made a little bit more sense to me, once I thought about it. Austin Atlanta, I found a little bit more surprising. They're both hot market booming cities, I live in one of them. I live in Austin. And it's an exciting place to be but, you know, I don't generally think of either one is, you know, on anyone's list of global cities, and often, when we think of ghost dwellings, we're thinking of this kind of global phenomenon. But I think it's a good reminder that there's a lot going on here right? And in fact, one of the things I meant to mention earlier, in the definitional part of our discussion was the Israeli researchers specifically defined ghost apartments as foreign-owned mostly unoccupied. Yes. And, you know, for obvious reasons...

Only foreign people can be ghosts.

Yeah. And, you know, Israel is a very small country, and, you know, it's kind of like almost barely bigger than a very large, you know, metro area in the US. And in the US. It's, I don't think that criterion was relevant at all. So, you know, some of this could be globalization, but some of this could just be things that are happening, you know, inside of us.

Shane Phillips 12:43
I'm actually kind of curious about the Israel case, because it doesn't, it almost doesn't make sense to have a vacant apartment, you know, if you buy a condo, you know, maybe you're banking on it appreciating over time, and so you're not really going to lose your money. Or if you're a Russian oligarch, you know, maybe you don't really care about whether it appreciates, and you're just trying to like launder your money out of the country or something. But with an apartment, it's like it exists to be rented out. And if you're not going to live in it anyway, you might as well just rent it and make some money as opposed to keep it empty right, like, what's the harm?

Jake Wegmann 13:17
Yeah, there was a very specific context in one of the Israeli studies, I can't remember the names of the authors off the top of my head, but....

Shane Phillips 13:26
We'll be sure to include the paper in our show notes

Jake Wegmann 13:32
... these apartments that were referenced in one of the studies, they were in Jerusalem, and they were specifically for people, people from the Jewish Diaspora who wanted to travel to Jerusalem, to attend certain, you know, religious events. And that's really why they wanted those apartments.

Shane Phillips 13:52
Okay. And oh, and the other thing that came to mind was with New Orleans, I want to make sure we're distinguishing ghost dwellings from short term rentals, those are not the same thing, right? So I know that New Orleans has a lot of short-term rentals, and that's like, kind of a problem in the city. But these are not ghost dwellings don't fall under that category.

Jake Wegmann 14:13
Well, so, you know, to do this study, and I didn't really talk about this, but the reason I decided to do the study in the first place was because I was curious about the topic, but I just kind of thought, "well, how do you study this, you know?". (I) found data on this and I was looking into, you know, could I get utility data or you know, various things that people use, and then I realized that the census has this category of seasonal recreational and occasional occupancy, which weirdly enough, you know, those letters are SRO but it's, you know, totally irrelevant what we would normally talk about. And I, you know, I played around with the data and I became convinced, you know, I'm still open to being challenged, but I think that this SRO, this other kind of SRO maps pretty well under ghost dwellings, it is possible there could be some overlap perhaps with units that get short term rented out to some degree. But I've done other research on Airbnb rentals. And I found that the neighborhoods where that was at its peak, there was some overlap with the ghost-dwelling hotspots, but the ghost-filling hotspots were in a much more restricted set of overheads. So I'm pretty convinced that seasonal recreational occasional occupancy, that that is, you know, largely picking up ghost dwellings and you know, maybe there are some units that you know, flip back and forth you know, maybe someone owns a unit in Manhattan that they use it as a pied-a-terre, and every so often they Airbnb it out, perhaps there's some overlap. But of course, a lot of Airbnb units, you know, have someone living in them, some or all right, and so when the sample...

... whether you're renting a room versus the whole unit, that kind of thing.

Shane Phillips 16:06
Yeah, and the last thing with like, the entire city analysis I wanted to talk about briefly was with Mesa, the city of Mesa, and how that's more of the traditional, vacant home ghost dwelling scenario with snowbirds. You know, you know, your grandparents who go there during winter kind of thing. Can you tell us a little bit about that case, and actually the trend of kind of shrinking ghost dwellings in locations?

Jake Wegmann 16:33
That was an interesting one, one that I wasn't expecting, but first of all, fun fact, Mesa is one of the 50 biggest cities United States, or at least it was as of the 2013 through 2017 ACS data when I looked at it, so it was part of my 50 cities. And then yeah, it ranked first, according to one of my three criteria was first and the percentage of the housing units within the city that are ghost dwellings was 8%. But it was ranked dead last in the growth rate among the 50 cities. It had negative growth so ghost drawings were shrinking as time was going by. So my read on that is 50, 60, 70 years ago, you know, think of the era when Sun City developments were, you know, really coming into their own. And you know, the phenomenon of snowbirds is really picking up in the postwar era. Mesa is probably one of the places that a lot of people, you know, from the frost belt point too, and they probably have these seasonal migration patterns. And now that Mesa is a very large city. And, you know, as the Phoenix area grows like crazy, Mesa is probably transitioning to something quite different, and maybe more the snowbird activity, I'm just imagining is kind of increasingly found further away from the core of the metro. But that's my hypothesis for what's going on.

Shane Phillips 18:01
Yeah, and your point about how people are shifting toward maybe having these ghost dwellings in the cities, and maybe for the amenities and so forth, that are offered there. It sort of fits with the reduction in a place like Mesa, that's more suburban. And one last thing I did want to note here, since we are UCLA, Los Angeles did not make the list of the top seven in terms of ghost dwelling, frequency and absolute number and everything. We're actually below average in terms of ghost dwellings in that list. So you've said nationwide, we're about 1.4% of the total housing stock falls under this category. Los Angeles is about point 9%. So you know, two thirds, and that's also up from point 4%, in 2000. So it's also doubled, but from a lower base. So in terms of the data itself, you looked at a whole range of variables at the neighborhood level that includes a simple count of ghost dwellings, as well as things like changes in income, the non-Hispanic white share of the population, the share of the population age 65, or older population density and so on. You were trying to do some kind of loose testing of six common explanations or hypotheses for why ghost dwellings crop up in certain places. Could you quickly review what those hypotheses were and what kind of support you found, if any, for each of them?

Jake Wegmann 19:24
So yeah, so I scoured literature from around the United States and around the world, trying to see different ideas that people had about what might be driving the growth of those dwellings in different places. And I really converged on six that I thought that I could loosely test, like you said, with a sort of neighborhood scale data kind of within particular metros, and so the first one, I would call it, you know, really, it's just gentrification, the idea that you're going to find a lot of ghost dwellings in particular neighborhoods where median income is going up unusually fast. And then the second one is related to that but more of a static rather than a rate of change. And I call that one elite enclaves. So the idea being that people who are going to buy ghost dwellings like to be in, you know, elite areas in different ways. And one very know, the crude way that I operationalized that was neighborhoods that have an unusually high number of white people for the metro area that they are in. And then the third one was just the retirement idea, or the Snowbird or retirement ideas so areas that just have large concentrations of elderly 65 plus people. The fourth, I called amenity landscapes, lots of retail, basically, which I proxied for as lots of retail jobs within the census tract.

Okay,

The fifth one that this one's a little bit of a mouthful, but it's called the compensation hypothesis, and it came from some Spanish researchers. And their idea was that in picture very dense Spanish cities, you know, maybe you live in a small apartment right in the center of the city in a very dense area, you might have a greater desire to have a weekend home, which you go to on the weekends, it's too far to commute and commute from every day. So use it as a weekend home rather than live all the time. And maybe if that is your primary residence, then you know, you have this second home in the city.

Shane Phillips 21:33
Okay, yeah.

Jake Wegmann 21:34
And then and I proxy for that by lots of density within the neighborhood and unusual amount of population density or housing unit density within the neighborhood. And then the last one is also a little bit of a mouthful, but I call it market formation. And this comes from some of the financialization literature. Some researchers have written about how the kind of creative destruction that we've had from things like the Great Recession, which led to a foreclosure crisis, and, you know, the stock of foreclosed homes that were kind of easy pickins for investors to sort of snatch up. And you know, that was sort of the clay from which this new asset class, single-family rentals owned by institutional investors kind of was formed. And the idea here would be, "oh, well, maybe places where there were a lot of foreclosures and where the market was slow to recover", maybe those would be places where investors would swoop in and buy lots of second homes. And then just to kind of cut to the chase, the ones for which I found support, and I should say that, you know, some of these I found support in some areas and not in others, so I don't want to universalize anything, there probably a lot of different dynamics going on here. But I found pretty strong support for the elite enclave one. So unusually white neighborhoods seem to be, you know, correlated with larger numbers of ghost dwellings. I found strong support for the retirement explanation, and in five of the cities, you know, Las Vegas, Miami, New Orleans, New York City, San Francisco. And I would just point out that four of those five have, you know, pretty mild winters, which you would imagine might be attractive to a lot of retirees with a lot of money. The one that has to do with retail, I found modest support for that one in most of the cities, and then the others, I didn't really find a whole lot of support for. And you already said this Shane, but I just want to reiterate, you know, these are real loose tests here, you know, I'm not claiming that I'm, you know, finding the, you know, the one, and the true reason for why ghost dwellings appear where they do. This is just more in the spirit of exploration, you know, with these sorts of correlations.

Shane Phillips 23:56
Yeah, I think it's a good starting point. And I mean, I think you're what you just said about, there's just a lot of variation. And I'm not sure that there is one explanation for what's going on here. It's just different places have different contacts. And, you know, I think we'll talk about this here in the next question I have.

So you found that ghost dwellings are highly concentrated. That's another feature here within a pretty small number of neighborhoods within a city, but that the types of neighborhoods look very different from city to city. So this seems to be pretty common theme. There isn't just one model for a city or neighborhood with relatively high shares of ghost dwellings, that local context seems to really matter. So whereas ghost dwellings in Miami, might be concentrated in high rise towers near the beach, and many of them own maybe by expatriates from Latin America or the Caribbean. Ghost dwellings in Atlanta might be concentrated in kind of a posh suburban single=family neighborhood with very different ownership profile. So what else should we know about where ghost dwellings are found and concentrated? Because this concentration seems like a really important factor as well.

Jake Wegmann 25:06
Yeah, well, I think you really covered it there Shane, you know, I think takeway number one is that they're intensely concentrated. And one way that I measured that is, what percentage of the county's population lives in census tracts that contains 75% of all the ghost belongings within (the) county. And in Miami Dade County, which was the most concentrated of the seven that I looked at, it was 8%. So just to say that again, you know, three-quarters of the ghost dwellings are within census tracts that only 8% of Miami Dade residents live in. So that's very concentrated. And then I think the least concentrated was San Francisco, and even that was, you know, a quarter of the population of San Francisco lives in census tracts that contain three-quarters of the ghost dwellings. So yeah, it could be concentration. That's the first thing that I would say. And then the second thing that I would say is, if you know, a city that has a lot of ghost dwellings, and you're familiar with it, and you kind of think about what kinds of places you would imagine them being in, chances are, those are the places where they are...

Shane Phillips 26:17
Right

Jake Wegmann 26:17
... you know, the places that you would imagine are attractive to people from the outside, right? So, like you said, in Miami, there's a lot in Miami Beach. Now, that's not in the city of Miami but for this analysis, I was looking at the whole county a lot in downtown Miami, which is not by the beach, but you know, is downtown and has lots of high-rise housing. There's also a lot and this is maybe less expected, at least to people who don't know Miami, but there's a suburb called Doral, which is close to the airport and is known as a big hub of the Venezuelan immigrant and expat and, you know, maybe partially resident community. In Austin, it's the downtown. So where I live, it's intensely concentrated into downtown and just, you know, the Airbnb belt of Austin extends a lot further away from where those dwellings are located. But in Austin, really, the ghost dwellings are, you know, very tightly packed within, you know, the city's CBD. So yeah, like you said, it's different from city to city.

Shane Phillips 27:25
For the sort of last part of the analysis, you're looking at building level data, so different buildings that share certain characteristics within a city but across the city. And so you were looking at things like condo ownership structure, single- unit dwellings versus multifamily, you know, if it's more concentrated among housing built before 1950, or housing over six stories tall, what did you find in that part of the analysis?

Jake Wegmann 27:54
Yeah, and I should just preface this by making a little bit of a... it's a little bit of a wonky point but it's an important point for this analysis, which is that I was relying on microdata which is sampled data. And, you know, when you're looking at ghost dwellings, you're looking at a subset of a subset, right, so you're getting down to a pretty tiny slice of the housing market. So as a result, when you analyze data that way, you get these pretty large error bars, right? So, you know, things have to be pretty different for you to say, I'm statistically quite confident that there's a real 'there there' with the pattern.

Shane Phillips 28:32
So you're starting with a city with 300,000 homes, maybe, and it's only 1% of those are ghost dwellings of any kind, and then you're looking well, only the ghost dwellings that are built before 1950, for example, it's getting pretty narrow.

Jake Wegmann 28:46
If you don't look at the error bars, then you run the risk of finding some specious trends that are really just you know... So when you kind of look at the error bars, you know, I only found a few kind of cases where ghost dwelling building characteristics seem to significantly differ from the housing stock as a whole. But, you know, the ones that I found at least some of them, you know, I think probably fit with what you would expect. So for example, in Las Vegas, and especially in Miami, and New York, ghost dwellings are significantly more likely to be in tall buildings which I define is taller than six storeys, than the housing stock as a whole. And then also regarding condos, more ghost dwellings are in condos than is the case for the overall housing stock and Las Vegas, Miami, and New York. And so again, I think a lot of people would expect that.

Shane Phillips 29:44
Yeah, I mean, given the given the error bars, given the how small this sample is, it's kind of surprising you found any significant results here.

Jake Wegmann 29:55
It was perhaps a somewhat marginal analysis, but you know, it turned up those things returns which confirm, I think a lot of what a lot of us would suspect.

Shane Phillips 30:04
Yeah, and I want to talk about condos a little more here. So I think in a way condos makes sense as ghost dwellings, in part because you always have someone watching over them for you, you have like a property manager or whoever. And most of the upkeep is also taken care of by the HOA, you do still have to take care of the inside of the unit yourself that you could probably hire someone for it. But that's really where regular upkeep is probably most or probably least important, especially if you're not living there very often. On the other hand, HOA fees can be really large in Miami, it's actually especially surprising in some ways, because homeowners insurance there is really high, too. It's about 1% of the property's value each year, just in insurance costs. So you have HOA fees, you have taxes, you have insurance, these should all be deterrence in some way to long-term vacancy, because, you know, unlike what you're paying for your mortgage, which is helping build wealth, these other things are just kind of money down the drain. Can you talk a little bit more about condo ownership, just generally, what role it plays? You know, I'm thinking about this... a concern I have, I guess is in the US, we have almost a nationwide problem. Miami is unique in this regard that it builds a lot of condos. But almost everywhere else, most new multifamily housing is rentals, and very few condos are being built. And so it worries me if people see condos as these like safe boxes in the sky that no one actually lives in, and they're just being built for oligarchs, and so forth.

Jake Wegmann 31:39
Yeah. You know, as I was reflecting further on this paper to, you know, the last few days to kind of get ready for this interview, I was thinking, you know, why has this issue, arguably been more prominent, you know, in some places outside the US than in the US? And I think some of it Shane goes back to what you were saying that, you know, in the recent, last 10-15 years, a big share of new multifamily housing in United States has been rental rather than ownership. And if you go to some other countries, that's completely the opposite. And you know, I think it was the Sightline Institute has contrasted Vancouver and Seattle, which are, you know, pretty similar places, pretty close to each other, maybe not entirely similar economies, but have some similarities in their economies. And yet, in Seattle, it's all rentals all the time in terms of what's being built. And exactly, you know, some people are worried that there aren't enough condos to provide homeownership opportunities for people who'd like to stay in the city, we would like to buy something that's not a million-plus single-family house. And in Vancouver, it's almost the opposite problem, where practically nothing but condos gets built unless it's subsidized. And in fact, government policy tries to intervene to build what they call more 'purpose-built rentals', they actually have that term. And we don't have that term in the United States, because it's not a problem. The market, you know, produces purpose-built rentals, you know, all day long. So I think, maybe the ghost dwellings conversation would loom larger in this country if more condos were being built, but with that being said, when they do get built, often I've noticed condos are kind of castigated as "Oh, well, those are just condos", you know, there's sort of a whiff of them being luxury housing. But you know, as you and your listeners know very well, in a lot of hot market cities, it's single-family houses that are the real luxury housing and, you know, condos might be some of the few, you know, lower priced ownership options that are around. So I think it would be a big problem if condos get sort of tarred with this brush, with this ghost-dwelling brush.

Shane Phillips 33:56
Yeah, I mean, in terms of why we produce so much rental housing versus condos. I think we should do an episode on that in the future, actually. And I think there's a lot of reasons, you hear a lot about, like, construction warranty, or construction defects, insurance, this kind of thing. But it does seem, you know, based on our conversation with Jiro Yoshida last month on Japanese housing policy, it seems like the tax incentives and these other things play a really big role as well.

Michael Manville 34:26
I mean, I think this it's such an interesting paper to me. And I think it's such a challenging thing to study. And one reason for that is just because the determinants of a ghost dwelling, or a concentration of ghost dwellings don't, almost by definition, don't show up where you're looking at the dwelling itself, right? Like the fact that these are concentrated means that census data as they become more concentrated becomes less useful because a greater proportion of the housing units in that area are just owned by people who don't live there. Right and so you can, you can examine one of these neighborhoods for median income or demographics. But if it's 40% ghost dwellings, the census is actually not telling you very much. And that's a huge obstacle to studying this. And a very formative experience of mine is I used to live, my first job out of college, I was a newspaper reporter on Nantucket Island, which is mostly ghost dwellings, it's 70% according to the census of vacancies no use. One of the most startling things about it is that the census tells you very little about Nantucket, right? And Nantucket, according to the census, and it's true for eight months of the year, you know, a sort of mid to low-income working-class community of about 1000 people, it's probably more like 11 now; this was a long time ago, and I was there. But it's actually if you go there in July, it's full of billionaires, right? And the determinants of when people buy ghost dwellings in Nantucket have nothing to do, to a great extent, with what's happening on Nantucket, they have to do with what's happening on Wall Street. And I think, you know, Jake has said this a couple times, but I really want to emphasize it that a lot of what's going on is quite prosaic in the sense of there's really only so many Russian oligarchs in the world. You know, we can probably all agree there's too many, right? But like, not enough to explain this. But the fact is that baby boomers who did alright, right, and that's not necessarily the majority of them, but it's a non-trivial minority, and there's a lot of them; in the last 10 or 15 years, the combination of their accumulated savings, and a dynamic of economic growth that has been unequal has left them with a lot of money. And so it's not outlandish that, you know, their financial, their retirement advisor says to them, "you've got plenty of money in bonds and stocks, is there a place you can buy, you know, do you want to buy a place near your kids?" And so I'm not terribly surprised to see Austin on the list, it's surprising I agree but it's the capital of a geographically vast state. And if you have to go to the Capitol on a regular basis, and you have a bunch of money, and you work in some sort of government consulting, which has become much more lucrative in the last 20 years, well, maybe you don't want to do a hotel all the time. Maybe you just snap up a condo or a house. And the other place I've lived where the census tells you virtually nothing about is Ithaca, New York, which is a college town. When I worked at Cornell, and the story there is sort of a, it's a way of looking at this kind of in reverse. You know, the old-timers at Cornell would always tell us a newer faculty that Cornell thrived when New York was a bit of a basket case. You know, because faculty wanted to avoid the urban crisis and, and have a nice house in a college town. But while I was there, the faculty who were sort of progressing toward retirement and doing well in you know, in departments that paid better than city planning, they were buying pied-a-terres in New York. And these are guys who, and women, although they're mostly guys, a certain generation of professors, yeah, they were quite well off but they weren't billionaires. Or they're just people who had a good paying job for a long time. And they were reaching sort of three-quarters of the way into their career, and they just had extra money. And now New York's a nice place right, and they just bought a house there. And I really do think that, you know, explains a lot of what's going on, right? It's just like people have always had vacation homes. But now a small segment of people have much more money.

Shane Phillips 38:35
Yeah, and they're not people that you can easily like cast as villains, I don't think. And just as one more example that I have, I have a close friend who, their parents, you know, the mom worked part-time most of her career, the dad is an engineer, I don't know what they make maybe... they're still working in their late 50s, early 60s making probably 150,000 a year - 200,000 a year, and have made decent money all their lives. They own a home up in Los Angeles that they raised their children in, but now they live in San Diego, but they still have that home in Los Angeles, and they just visit it on weekends sometimes, it's worth at least a million dollars. But like, why sell it, especially with Prop 13, they're paying such low taxes on it. You know, they just see more benefit from keeping it than getting rid of it. And like, I would prefer that people like that just sell their homes but it's not an oligarchy; it is very prosaic in that way.

Michael Manville 39:32
And I guess the one last thing I'd say, you know, but back to this sort of the villain thing is, you know, even if they sold it, like the demand is there clearly for people to sometimes keep an empty house in these places. And so they probably sell it to someone who did the same thing right? I think there's places where this was a huge issue on Nantucket, right? Where it's not a very big place and and of course it's 30 miles at the sea, right, it was hard to get your labor force to Nantucket if they didn't live there. And so the fact that 70% of the housing was reserved for seasonal use, sort of manifested as a real pinch for people who lived there. But, you know, and this is gonna play out less in less extent in New York or San Francisco, but it wasn't the kind of thing where you could say, "Well, I wish these people would do that" right, because it was the whole economy.

Shane Phillips 40:30
Yeah

Michael Manville 40:30
And so I think it's sort of we've talked about this a lot on this show that a lot of these conversations start to if you if you follow them down a particular path enough, they just start to implicitly embrace this mindset of scarcity. Like, we're only going to have so many housing units. And so if someone buys one and keeps it empty, they have sort of struck a blow at us in this zero-sum way. And that's more defensible if you live on a small island, that's mostly conservation land, and you're out to sea. And almost all of your selling point is this idea that it's not crowded. But if you're in New York City, like, the obvious solution to this is just to build some more housing. And if rich people want to buy something, keep it empty, like, "well, God loved them". I mean, you know, it's not because that's a great thing to do, I mean, I'm not gonna lose any sleep for these folks but um, how do you stop them really?

Shane Phillips 41:28
Yeah, and we, we will get to, I think, one or two possibilities for that. I did want to add one more data point that, you know, is not the focus of your paper, but I think is really important, which is that even as the national share of ghost dwellings has increased from 0.7 to 1.4%, over this 20-year period. Overall, vacancies are pretty stable over that time I looked it up, it's about 12%, in both in 2000 and 2017, or around then, and vacancies in big cities are actually at historic lows. So even with the increase in hgost dwellings accounting for that, so put aside COVID impacts, so using numbers that are a little earlier, but just for a few examples, Los Angeles vacancy rate for all of 2019, or 2005-2019 so Los Angeles went from 4.4, to 4.0% so a slight decrease. New York went from 5.1% to 4.3%, San Francisco went from 8% to 3.8%. Seattle, which is probably built more housing per capita than any coastal city in the US over the past decade, actually dropped from 7% to 4.4%. Even Houston, which always builds a ton of housing, and has a much higher kind of natural vacancy rate, or just consistent vacancy rate went from 15% to 11.4% over that period; other cities saw similar trends. So, you know, with all of that in mind, what do you make of that, of this recent evidence? Or maybe we can just talk about how vacancies overall have shifted. You know, we've talked about this enough, I'll show my cards here, and just say, I think residential vacancies overall, are, I think, at best, like a tertiary problem compared to all the other barriers to housing production and housing stability. But I also see benefits to like taxing or otherwise discouraging these kinds of things. So just want to kind of open this up for discussion about like, what's going on here and these different countervailing trends?

Jake Wegmann 43:31
Well, my take is pretty similar to what you were just outlining their Shane. But, you know, we could get into, you know, what might be a couple of policy responses if, in fact, we even think one is needed. But yeah, just back to the scarcity mindset, that Mike brought up, you know, in a way, if you're worried that people are buying housing units as a speculative investment, because they think they're gonna make so much money by investing that housing unit, that it'll be a good investment for them, even though, you know, they're not running it out and barely living in it for a period of many years. You know, the best way to stick it to them would be to make their investment less valuable by building more housing.

Michael Manville 44:14
Right right

Jake Wegmann 44:15
I'm just really agreeing with what you're kind of both hinting at. But should we get into a little a couple of policy ideas?

Shane Phillips 44:23
Yeah, yeah, I think you mentioned near the end of your paper, I think, or at some point in there, that several years ago, there was a 15% transaction tax imposed on foreign real estate buyers in Vancouver or Toronto and Sydney. What was the effect of that? I have a just fundamental concern that there's a xenophobic element to this. And it's also just, you know, relatively untargeted. But beyond that, my understanding was (that) it caused maybe a temporary dip in prices and they just kind of surged right back. Do you know what the experience was with that approach?

Jake Wegmann 44:59
I haven't looked deeply into it. I did just read up a little bit on what's been happening in the Vancouver region, so we can just extend it out a little bit. So the province of British Columbia adopted a vacancy tax about three years ago. And it applies only in four areas Greater Vancouver, Victoria, Nanaimo, which is, you know, beautiful area of Vancouver Island, and then Kelowna, which is a kind of interior resort area. And under that tax, foreign owners pay a higher rate. So there's a vacancy tax across the board. But there is this element that you could view as xenophobic, where foreign owners pay a still higher rate.

Shane Phillips 45:39
I feel like when it's specifically tied to vacancy, it doesn't bother me quite as much. I think there's also like a 15% tax on just any kind of foreign purchase, even if they're going to live in the unit full time.

Jake Wegmann 45:49
Well, so it's confusing, because and obviously, the Canadian federal system and authority over levying taxes is totally different from ours here in the US, but the city, at this exact same time concurrently with the province, the city of Vancouver added its own vacancy tax plus a foreign buyers tax. And, you know, report just came out. And, you know, the BC Ministry of Finance was, you know, their claim was that the provincial tax was a success. And their evidence for that was that 18,000 rental units within Greater Vancouver, over those three years had been added back to the long- term rental market as a result. And, you know, again, you know, that's a big issue of public concern. They're just not enough, you know, as they call them 'purpose-built rental' housing units. But, you know, there seems to be a real lack of consensus among people who follow that market closely. Was this because of these taxes or was it because of other factors, you know, COVID has probably, you know, dampened some of the demand to, you know, buy pied-de-terre that you can't really go visit if you live overseas, right? Or, you know, even traveling within Canada during COVID was extremely difficult, you know, like, long periods, you couldn't really go to other cities, at least, not without skirting some rules. So it's hard to know exactly what's going, I wouldn't say there's a real clear story about exactly what these taxes do or don't do.

Shane Phillips 47:24
Yeah. And I found myself occupying this weird space, where I'm, like, very skeptical of people who are saying vacancies are a big problem, but also totally fine with a vacancy tax, like, partly just to like, have people shut up. And like, move on to something more important, although I'm not sure it actually accomplishes that. But also just like, yeah, vacancies, I would rather not have them and it would raise some revenue.

Look like a million dollars Canadian to...

Jake Wegmann 47:54
Yeah, yeah.

Some money, I wouldn't call that an earth-shattering amount of money.

Shane Phillips 48:00
Well, in Vancouver, I think I think this is just the city, I looked at a 2018 report, I'm sure they have more recent ones. But the number of vacancies from 2017 to 2018 units that were reported vacant, dropped by something like 500 units in that year, which the city has like 300,000 units so it wasn't a huge number, but like, so be it, that's fine. But it also did raise like $40 million. And I think an important thing to note in all of this is that the average value of the units that were reported long-term vacant for condos was 1.4 million, it's already very high. For single-family homes, which are about a quarter of the vacant units, it was 3.4 million. And so there's this part of it where even if these go back on the market, they are very expensive housing, and it's still you know, it's better to have them occupied long term than not, but on the other hand, they're paying a tax of I think it's about 1% of the value. So like that single-family home is paying $34,00, I mean vacant, and I kind of feel like we could do more with that money, the benefit you could get out of spending that money on rental assistance or subsidizing construction cause that's every year, far exceeds the benefit you're getting from actually, you know, somehow forcing that unit to be reoccupied by a rich household.

Jake Wegmann 49:24
Yeah, I mean, I guess like the good news to return to by empirical results for a moment was, you know, since I didn't really and again, this is a loose analysis, but I didn't really find any support for the idea that ghost dwellings are, you know, tied to gentrification or to rapid increases in income within a neighborhood. I mean, that makes sense to me. Like, I would imagine most people who are buying ghost dwellings, they have a lot of money, they are buying in some city that they don't live in, they're probably not going to be you know, the risk-taking gentrifiers who are going to take a chance on some on the edge neighborhood, right?

Shane Phillips 50:04
So there's a type who, you know, when they visit, they just want everything taken care of for them, they don't want to deal with fixing things up or worrying about security when they're gone. That kind of stuff.

Jake Wegmann 50:14
That's my sense. And you know, I haven't done qualitative research. So I don't want to get out over my skis, and make comments about things that I haven't properly looked at. But I mean, that makes sense to me right? The the value case, and so if that is the case, then yeah, I mean, a lot of this is probably just a case of very affluent neighborhoods, you know, having even more upward pressure put on their markets, because of, you know, ghost dwelling buyers wanting to, to buy units there. And maybe there are ways to harness that for the good and, you know, a vacancy tax. Sure, maybe that's the way to do it. Another way to do it might be and, you know, inclusionary zoning is a whole other, you know, vast topic. But, you know, maybe if you are trying to target your tailor inclusionary zoning to where it's most effective, maybe you get more aggressive in areas where there's a lot of ghost dwellings, because there's a lot of value to be captured, and maybe a lot of people buying condos who are not terribly price sensitive. And then you you know, either bake in some affordability, you know, right in that area, or you generally generate a lot of in lieu fees, which can be used for affordable housing in the city.

Michael Manville 51:22
Is that is that assuming that the ghost dwellings are being built from the ground up?

Jake Wegmann 51:26
Yeah, I mean, it would have to be right, because yeah, obviously included that only, you're only capturing a slice of new housing.

Michael Manville 51:33
Yeah, I mean, the difficulty there is this, you, you, you rebound back on this idea that, you know, the the the proper target of intervention is people who build housing, and that's not most ghost dwellings, right. I mean, it's just the most visible is the new tower that goes up and you suspect it's empty. But, you know, there's just walk down some streets in Manhattan, and there's some sprinkled throughout those buildings, which are built in the 1930s and 20s, are cars and ghost dwellings. And you let that off the hook, if it's something you're concerned about. I mean, I think, you know, with respect to a vacancy tax, you know, you always think when you think about a tax, you're like, "well, you know, there's always this this twin purpose, you can raise revenue, or you can get a behavior change",

Shane Phillips 52:15
Right.

Michael Manville 52:15
And it seems to me, as you guys have said, that the tax rate for vacancy tax to actually push it into a different purpose of the market would have to be extremely high. You already have all the evidence, as Jake has mentioned, of a very low elasticity of demand with respect to price, you have people who are buying a very expensive asset, and paying taxes and fees on it every year, even though they probably aren't going to use it, which is, you know, strongly suspect that adding another, you know, kind of incremental fee is going to get you money. And that's good.

Shane Phillips 52:52
Yeah, kind of free money in that sense.

Michael Manville 52:54
Yeah, it isn't going to, to free up the house. And then as Shane points out, that even if you do free up the house, you have freed up an expensive housing unit. And that's, again, better than nothing but not going to do what I think some people think it will sort of, you know, find a reliable shelter for a precariously housed person. So, in that respect, you know, my sense on vacancy taxes is probably similar to your guys, which is they're harmless enough. They're progressive, right, in the sense that these tend to be taxes that fall on high-value properties that are owned by high income people. And they probably don't have a lot of excess burden, because for those reasons, the people just write the check. And honestly, yeah, I do think when we study this, we can, you know, a big city is different from a vacation place, but we can learn from vacation places because they're the ones who contended with ghost dwellings for the longest time and where the ghost dwellings are most prevalent. And one undeniable advantage of all the ghost dwellings on Nantucket, for all the problems they caused, was that they were just a runway to tax exporting. Right that like huge amounts of Nantucket public services were just financed by people who not only didn't live there but couldn't vote.

Jake Wegmann 54:13
And don't use the services

Michael Manville 54:14
And don't use most of the services.

Jake Wegmann 54:16
Don't go to the schools.

Michael Manville 54:18
Yeah, and that's, you know, obviously, that's an exceptional case - 70% of the housing is empty, right, but at the same time, one way to think about a vacancy tax is to just think about, you know, from a public choice angle, here's a runway to tax exporting. If you want, you know, to soak the rich, here's a simple place to start. And you just have to keep in mind it probably doesn't do that much for your housing problem. But if you just need money, right, well, here's a good place as any to start.

Shane Phillips 54:50
Yeah, I mean, I think if you're one of the few places in the world that is desirable enough that people want to have a ghost dwelling in your city, like take advantage.

Jake Wegmann 55:02
It could be like the housing equivalent of the taxes on rental cars, you know, or hotel taxes, right?

Michael Manville 55:08
Yeah, exactly.

Shane Phillips 55:11
Yeah, hotel tax is a very good analogy. I do want to like note that, you know, there's a lot of embodied energy energy in building a home. And so building a home just to keep it vacant, when we're facing climate change, there is an issue there. And like, I don't want to totally dismiss that. I still suspect that like a 6000 square foot penthouse that throws off $50,000 a year in taxes to the city, or just fees on a vacancy tax might still be more good than bad. But I do want to acknowledge that.

Michael Manville 55:45
Well, I think that I think that's exactly right. And I think that can be addressed with, you know, cities do have the ability to at least strongly encourage covenants that say, like, if you're going to build in this in this neighborhood, you know, we want people living here. I think they're difficult to enforce. But you can make that clear. But I just you know, I totally agree with what you said. But the rejoinder here just so we don't create any misinterpretations. It's like, you anyone's been in New Orleans knows that. This is not new housing there, right? Like these, these ghost dwellings are old. And again, even in New York City, like the super towels are very evident. But like, there just aren't that many of them, rich people buy existing buildings and keep them empty, if they just want to have a place to go.

Shane Phillips 56:31
Yeah, yeah. Well, my last vacancy related question, actually relates to use this phrase in the paper "vacancy amidst prosperity" to describe ghost dwellings. And it reminded me of the Henry George concept of poverty, and its progress. So we'll make the obligatory note here that, yes, a land value tax would solve this. But it also made me think about the role of property taxes in all of this. And, you know, I kind of talked about this with the Miami example. But the lower the property taxes someone is paying, the lower the costs of leaving that home unoccupied, and sort of speculating on future appreciation, assuming that's what someone is doing, which is probably not always the case. I always point to Vancouver, here, we've been using it a lot as an example, because it's one of the most expensive cities in North America. But I think more importantly, it also has probably the lowest property tax rate, it's under point 0.3%. California's property tax rate is about 1.1%. The US average is in the ballpark of one and a half percent, and there are many states that have taxes are more around 2% a year, often places that rely less on income taxes. So even though it's not in the paper, did you make any attempts to look at how variation in property taxes effects ghost dwelling concentration or frequency? I know Mike had a question also about tourism, and if that plays any role,

Jake Wegmann 57:59
No, I did not. I did not look at that. I would just point out that one of my, you know, seven big city ghost dwellings, you know, capitals, if you will, Austin, is a city that has some of the highest property taxes of any big city in the US, definitely 2.1 or 2.2%, depending on exactly where you are in the city,

Michael Manville 58:17
It's really hard to do a cross-city comparison like that because the effective property tax rate is a mess to actually make in a creative cross-sectional way. You know, I think it's probably true that a higher property tax rate would deter some of this, but again, you know, you're just not talking about price sensitive people. You know, I think that is the big issue, and so you would be pushing for property tax rates that, that it to the American I would probably look confiscatory, if you really wanted to change these uses.

Shane Phillips 58:55
Yeah. Okay. Well, Jake, is there anything important we missed that you want to cover? And whether yes or no, after the responding to that you can tell us what else you're up to.

Jake Wegmann 59:06
Okay. This is, you know, I think we covered a lot of ground. Just one thing I just wanted to mention, just as a curiosity, something I learned about just in the last couple of years is this phenomenon of 'Game Day' house. Have you either have you heard of those?

Shane Phillips 59:21
I haven't heard the phrase, but I know the concept, I think,

Jake Wegmann 59:24
Yeah, so you know, for the listeners who don't live in Texas or college football fans, there's this phenomenon and you know, you could find it in College Station or in Tuscaloosa or, you know, maybe also in large cities, maybe it's happening in Austin for all I know, but just people will buy a house that's located close to the football stadium for the big you know, for a football season. And then you can get there the night before, you don't have to deal with the traffic morass on your way there. You can have a good time and you know, drink lots of margaritas or whatever you're going to do and then walk over the game afterwards. And I think that's just a good reminder that there are these complicated, you know, and evolving consumption patterns that are, you know, behind a lot of this sort of thing, in addition to all the things that we talked about, like speculative investment and so forth. So I just think there's a lot going on here. There's a lot to unpack and, you know, like you said, this, this paper is just exploratory, and it's just sort of like a first cut of what's going on here.

Michael Manville 1:00:25
I mean, that's a great point, bringing up the gameday stuff. And I think it reinforces what we talked about earlier about how prosaic some of this is, and just the idea that there's a segment of our population that just has a lot more money now. Because, you know, 30 years ago, if you were a big Notre Dame fan, you'd come to town for the game, but you find a hotel room in South Bend. But now you're a Notre Dame graduate, and you've been in the law firm for 20 years, and you're well off guy, you're no one's idea of a billionaire, but you can buy a house there. And you do and it's not necessarily an investment. it's a reflection of the fact that you have a lot of money and you really like Notre Dame football.

Shane Phillips 1:01:10
It's really a luxury in like the purest sense

Michael Manville 1:01:13
Yeah. And so it is, I mean, I do think a lot of things we see in the housing market that we get upset about, because they are upsetting are symptoms of this tremendous inequality. Yeah, that we've seen develop. And I think the game the houses are just a great example of that. Like, I mean, you know, my goodness, it's just when I was growing up, it would be unheard of that someone would buy a house just so you know, 10 days a year, they go watch a football game. People do that now.

Shane Phillips 1:01:40
Any any hints on things you're working on coming up?

Jake Wegmann 1:01:43
Oh things I'm working on Yeah, I am lucky.

Shane Phillips 1:01:47
We promise not to scoop you.

Jake Wegmann 1:01:48
Yeah, no, I'm lucky to have a semester on leave right now. And so I'm trying to make hay while the sun shines and get embarked on a book project. And my book project is going to be all to do with, I'm not going to say that the debate over single-family zoning has been, you know, won by those of us like, you know, all three of us who think that it should be undone. I don't want to say that. But the book is really more about what are some of the different things that you could replace single-family zoning with after you repeal it? Because I think, again, it's not that there's consensus on this, but it is starting to happen really fast, and in a lot of different places. I mean, to an extent that I would not have believed even three or four years ago,

Yeah, we're ready for that conversation of 'now what'

The 'now what' because I think there's a lot of different directions, and there's some really different visions. And I think you can catch glimpses of them and different places, and so that's what the book is intended to be about. So I'm going to be working on that for a good while now.

Shane Phillips 1:02:59
Great. Well, we'll look forward to that. Professor Jake Wegmann. Thanks for being on the show.

Thanks for having me, a lot of fun.

That is it for this one. You can read more about Professor Wegmann's research and find our show notes and a transcript of the interviewer at our website. lewis.ucla.edu UCLA Lewis Center is on Facebook and Twitter. I am on Twitter @ShaneDPhillips and Mike is there @MichaelManvill6. If you've been enjoying the show, please be sure to share it with your friends and colleagues. And let us know what you think we love to hear from listeners. Thank you for listening. Thanks for subscribing, and we'll see you next time.

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