Can We Make Flophouses Great Again? And Should We?
The government destroyed the last century's privately provided housing safety net. Bringing it back is harder than you might think.
Happy Tuesday, and welcome to another edition of Rent Free.
This week's newsletter includes more than its fair share of rent control content. We cover a new lawsuit challenging New York's rent caps on vacant units as well as the Los Angeles City Council's vote to lower allowable rent increases on 650,000 rent-stabilized units.
Rent Free Newsletter by Christian Britschgi. Get more of Christian's urban regulation, development, and zoning coverage.
But first, our lead item riffs off a recent essay by Ryan Puzycki on the government's successful war on flophouses. Puzycki describes how regulations destroyed what was once a thriving private market in very-low-cost housing. I provide some additional thoughts about whether we could, and should, try to revive the "banished bottom" of the last century's housing market.
Reviving the 'Banished Bottom' of the Housing Market
Over at the City of Yes Substack, Puzycki has a very interesting, detailed essay on the disappearance of single-room occupancy (SRO) hotels—known colloquially as rooming houses, boarding homes, or (somewhat pejoratively) flophouses.
From the late 19th through the mid-20th century, SROs were a cheap, private housing option for people at the bottom of the economic ladder. For a couple of hundred bucks in today's money, a single person with very limited means could rent a room to sleep in a facility where they'd share bathrooms and kitchens with the other occupants.
Some old SROs still exist. But today you're most likely to see them in midcentury cultural products. I've lately been watching a lot of old Twilight Zone episodes. If the week's episode features a down-on-their-luck protagonist, they're likely living in a small SRO unit.
Puzycki, with heavy reference to Paul Groth's book Living Downtown, charts the steady fall of SROs from a ubiquitous, privately provided safety net (once estimated to make up some 10 percent of the housing stock in New York City) to a banished anachronism.
Part of the disappearance of SROs can be chalked up to economic changes that shifted people and jobs out of cities. But Puzycki primarily blames regulation.
Early building codes and health and safety rules effectively banned the cheapest version of SROs—sometimes by requiring something as basic as plumbing fixtures.
Exclusionary zoning and urban renewal also played a major role. Occupancy limits, single-family and single-use zoning, new hotel bans, and slum clearance policies (carried out with the liberal use of eminent domain) destroyed existing SROs and made it impossible to build new ones.
Writes Puzycki: "Once [the SRO] market was dismantled, the result was predictable: the homelessness wave of the late 1970s and 1980s followed directly from the destruction of SROs. Today's crisis—nearly 800,000 unhoused people in 2024—is the long tail of that loss, compounded by decades of underbuilding in expensive cities and soaring rents."
The above is a pretty libertarian story that is still playing out today. Back in 2017, I covered a story in San Francisco where the city was forcing a landlord to dismantle a single-family home-turned-SRO and evict the veterans she was renting to.
Those kinds of examples are why I'm all in favor of regulatory reforms that would enable SROs, coliving developments, or whatever else one wants to call it again. If these were legal in more places, I'm sure that there would be more of them.
Nevertheless, there is reason to be skeptical, for both political and practical reasons, that we'll ever see a real revival of this specific type of privately provided, low-cost housing.
The Political Barriers to an SRO Revival
On the political side, SROs are a relic from a much less regulated time that is now over. Attempts to relegalize them now typically come with a lot of strings attached that would prevent them from being built at scale and/or serving the poorest renters.
When Minneapolis relegalized SROs, the city included the requirement that any new SROs be operated by a nonprofit or government entity. Clearly, the idea was not to let the private sector loose on providing the cheapest possible housing.
Washington's statewide liberalization of SROs was more robust, although it still did include parking minimums for developments that are more than half a mile away from transit.
When signing the city-level implementation of Washington's state law, Seattle Mayor Bruce Harrell said that newly deregulated microapartments could rent for as little as $850 to $900 a month. That's a good deal in an expensive city like Seattle. That price point is still not low enough to serve the poorest renters.
Beyond clearly superfluous zoning regulations, much less controversial building codes and health and safety regulations also drive up the costs of coliving spaces. Libertarians might be willing to jettison those regulations too, but I doubt most others would.
As a few people pointed out on X in response to Puzycki's essay, more liberal jurisdictions' tenant protections would also make it impractical to operate an SRO today. It would be exceptionally hard to provide a coliving space with shared bathrooms and kitchens if it takes weeks or months to remove a disruptive or delinquent tenant.
The Economic Barriers to an SRO Revival
Putting aside the political difficulties in reviving SROs, economic reality would also prevent a return of boarding homes to their former prominence.
The odds are that in most areas where rents are high enough to justify new SRO developments, the most profitable thing to build is not an SRO, but rather more traditional condos or apartments that would fetch a lot more money per unit.
Indeed, we've seen this with a lot of zoning reforms that allow for "missing middle" housing, like duplexes and triplexes, in single-family areas.
These tend to produce few new net units. A lot of that can be chalked up to these reforms being pretty modest in nature. It's also true that the economics of real estate development often favor building a larger single-family home instead of a new triplex.
When Pew's Alex Horowitz took an extensive look at whether vacant office buildings could be converted to SROs, he found that it would generally require public subsidies to make these conversions viable.
And office buildings are one of the best options for SRO conversions, given that their large floor plans make them difficult to convert to apartments.
As both Puzycki and Horowitz argue, jurisdictions could stretch affordable housing dollars further by subsidizing SROs instead of traditional apartment buildings. There's every reason to support more efficient spending of public housing dollars.
Even so, there's reason to be skeptical that an "SRO-first" housing policy would make a significant dent in the homeless populations of the most high-cost cities.
San Francisco, for instance, has allocated some $400 million in recent years to converting existing housing (often hotels) into SRO-like permanent supportive housing for the formerly homeless. Per unit, this is a lot cheaper than building new affordable housing.
Nevertheless, the city's homeless population has continued to grow. Housing costs are just so high that more people are becoming homeless than the city can plausibly expect to house.
Houston, in contrast, has had a lot more success at reducing homelessness by moving people into subsidized apartments and hotellike housing. That's because Houston builds a lot more housing, and so the costs of any housing option are just much lower.
Ultimately, the solution to homelessness isn't necessarily a targeted effort at reviving SROs but rather a general drive to deregulate home construction. The more new housing is built, the more the price of existing housing falls.
As the story of SROs proves, regulators have done a lot of damage to housing affordability by making the perfect the enemy of the good.
Expecting More From Modern Free Markets
Nevertheless, I can't help but wonder if trying to make SROs great again betrays a lack of imagination about what would be possible in a world where housing generally was much less regulated and much less expensive.
The price of so many things—from clothes to food to electronics—has fallen while quality has risen. This is what one should expect of capitalism. Housing is one of the goods that has stubbornly resisted this trend.
The construction sector has witnessed frustratingly little productivity growth over time. That lack of productivity growth is obviously not unrelated to the fact that we've vastly overregulated housing.
If we lifted those regulations, and saw supply increase and the cost of construction fall, we shouldn't necessarily expect that the market will return to building the type of housing that provided the floor of the market in the 1920s.
One would expect, and indeed hope, that even the lowest-income renters, earning much more than low-income renters a century ago, could afford something better than a single room with access to a shared bathroom and kitchen.
This is in no way to argue against the relegalization of coliving spaces. Surely some additional SROs would be built if they were allowed. The fact that SROs might not be the privately provided safety net they once were is no reason not to lift regulations on them.
Puzycki acknowledges the limits of what relegalizing SROs can do. His essay stresses the need to build more housing generally.
Still, the path to generally affordable housing is general deregulation. More production and innovation will bring down the costs of all housing, and open up a variety of options for currently cost-burdened, choice-constrained renters and homebuyers.
The drive to lift regulations on SROs is correct, as is the drive to lift regulations on triplexes, starter homes, and apartments near transit stops. But a selective focus on deregulating certain types of housing can, however, miss the forest for the trees.
In a world of liberalized housing markets, we shouldn't necessarily expect the cheapest housing of tomorrow to look like the cheapest housing of the past.
A New Challenge to New York Rent Regs Might Have a Shot
As I wrote about last week, New York landlords are once again suing the city over its rent regulations.
This is the latest in a long line of lawsuits that have challenged the 2019 changes to New York's rent stabilization law made by the state Legislature that year. Lower courts ruled against property owners in all those cases, and the U.S. Supreme Court declined to take up their petitions.
This latest lawsuit, which is being litigated by the Institute for Justice, likely has a better chance of success by focusing its challenge on the post-2019 rent caps on vacant apartments.
Plaintiffs argue that these caps have made it impossible for them to perform legally mandated repairs necessary to put vacant units back on the market. By completely destroying their ability to profit off their vacant units, the plaintiffs argue that this amounts to an unconstitutional, uncompensated taking of their property.
Time will tell whether that argument fares better in the courts.
Los Angeles Tightens Rent Stabilization Rules
Also, this past week, the Los Angeles City Council voted to tighten its own rent regulations on some 650,000 apartments in the city.
Under the old rules, landlords could increase rents by between 3 percent to 8 percent each year, depending on annual inflation. The new rules allow for increases of only 1 percent to 4 percent.
Tenant advocates say the new rules are necessary to contain rising costs in an already expensive city. Property owners counter that the new caps are severe enough to reduce investment in rent-stabilized properties.
The research on rent control suggests that both sides are right. Tenants in rent-stabilized units will benefit from slower rent growth. The city as a whole will suffer declining investment in housing, resulting in falling housing quality and falling housing production.
Quick Links
- As if we didn't have enough rent control content, The New York Times has published a new op-ed from Stanford professor Neale Mahoney and former Biden administration official Bharat Ramamurti on rent and price controls. The two argue that temporary price controls can reduce costs while new supply comes online. I wrote an extended rebuttal to a similar argument a few weeks ago. I'll leave it to Stanford economist John Cochrane to argue against the Times op-ed this time.
- Politico covers Los Angeles' efforts to kneecap a new state law requiring it to allow apartments near major transit stops.
- In San Francisco, one supervisor looks to exempt his wealthy district from a proposed citywide upzoning plan being championed by Mayor Daniel Lurie.
- The Center for American Progress, a liberal think tank, has a new paper arguing that a YIMBY agenda is an effective anti-Trump agenda as well.
- A new paper argues that federal urban planning assistance helped turn smaller jurisdictions into NIMBY strongholds.