This thought comes to mind in reading the Horrible Housing blunder in the Economist. The Economist calls housing "The west's biggest policy mistake." And, the ray of hope, even the progressive left in California is beginning to wake up and think about somewhat sensible reform.
...just as pernicious is the creeping dysfunction that housing has created over decades: vibrant cities without space to grow; ageing homeowners sitting in half-empty homes who are keen to protect their view; and a generation of young people who cannot easily afford to rent or buy and think capitalism has let them down. ... much of the blame lies with warped housing policies that date back to the second world war and which are intertwined with an infatuation with home ownership. They have caused one of the rich world’s most serious and longest-running economic failures. A fresh architecture is urgently needed.
At the root of that failure is a lack of building, especially near the thriving cities in which jobs are plentiful. From Sydney to Sydenham, fiddly regulations protect an elite of existing homeowners and prevent developers from building the skyscrapers and flats that the modern economy demands. The resulting high rents and house prices make it hard for workers to move to where the most productive jobs are, and have slowed growth. Overall housing costs in America absorb 11% of gdp, up from 8% in the 1970s. If just three big cities—New York, San Francisco and San Jose—relaxed planning rules, America’s gdp could be 4% higher. That is an enormous prize.To put that into perspective, the worst-case scenarios from climate change, now called the "climate crisis" are 10% of GDP in the year 2100. 4% is a lot!
The economist places much blame on subsidies for (highly leveraged) homeownership, and points out the lack of evidence that it has the civic and political benefits alleged. It does not go on, that highly leveraged homeownership is likely a part of reduced dynamism. People do not get up and move from bad areas, because they own an underwater house there. Renting is a fine contract for mobile people, who change jobs more than in the 1950s, and an economy with shifting opportunities. Landlords also have incentives to keep up property, and often do a better job than indebted homeowners who can send the keys to the bank.
s it possible to escape the home-ownership fetish? Few governments today can ignore the anger over housing shortages and intergenerational unfairness. Some have responded with bad ideas like rent controls or even more mortgage subsidies. Yet there has been some progress. America has capped its tax break for mortgage-interest payments. Britain has banned murky upfront fees from rental contracts and curbed risky mortgage lending. A fledgling yimby—“yes in my backyard”—movement has sprung up in many successful cities to promote construction.Yes, even in San Francisco. Of course we are also the land of rent control, subsidized housing, impossible zoning and permitting. But there are cracks in the wall. That the Economist, generally center-left consensus, has caught on is good news.
John - an interesting book on the topic of housing is "Rethinking the economics of land and housing" which was recently released by three economists.
ReplyDeleteThey claim that treating land just like other forms of capital is a failure of modern economic thinking. Mainly due to its scarcity and that fact that we can't make more of it to meet demand (unlike housing). This nuance is very important and one they claim has created all sorts of distortions in the economy - especially rent seeking behaviour that doesn't really create wealth, just re-distributes it.
Whilst the authors like the idea of increasing more regulation to fix the problem, I think the simplest solution they mention is a land tax. This I think can be framed as a consumption tax and would lead to much more efficient use of land, and encourage people to create real wealth by starting businesses rather than rent-seeking behaviour.
Do you have a view on this?
Thanks,
Tim Mort
The free market types need to show some conviction. Call for an abolition of property zoning.
ReplyDeleteBut there are no atheists in foxholes and there are no Libertarians when neighborhood property zoning is under review.
After spending 18 months in and out of homeless shelters for veterans that is EXACTLY what I am calling for. I have testified to City Hall and had letters to the editor printed on the need for laissez faire, essentially. I phrase it urban planning reform: no minimum wage laws, housing ordinances, occupational licensing, and more, so ALL the people can prosper and especially so we can end rapacious government "help for the homeless."
DeleteYou know, I always agree with the identified cure in these housing pieces (i.e., build more housing, particularly multi-family housing, especially in fast-growing cities), but usually not the diagnosis (i.e., too much regulation).
ReplyDeleteZoning law is better designed than most people appreciate, and FAR superior to any other property use regime that existed prior to its invention (at least that I'm familiar with). The trouble is not the zoning laws themselves, voluminous though they can be at times, but rather that those who administer them have very different values than you and I. The only way we can fix this is to join our local zoning boards (or try to convince others with similar values to do so). You could propose less zoning board discretion of course, but that was tried in the U.S. for centuries and the outcome was even worse (if you think San Francisco area zoning is bad now, you should do a bit of reading on the old "nuisance law" regime that it replaced). Most of the mandatory zoning approvals that do exist -- though seemingly logical and well-intentioned -- usually do more harm than good.
I agree property use in the U.S. is badly broken in many places. So everyone who cares should stop ceding control of their local zoning boards to those whose primary objective is NIMBY! There's no law that can do it for you, no magic set of policies that can fix the problem... the only solution is to get involved.
Land use (zoning) is solely under state law per the constitution. Property taxes are likewise taxes levied at the state and local government levels exclusively. Before you go arguing over whether zoning bylaws and property taxes need to given over to Congress and the president, you need to provide a constitutional argument why this should fall under federal jurisdiction rather than under the states' constitutions. You'd be hard pressed to make that case stick.
ReplyDeleteThere have been numerous cases in the U.S. where city or local governments have condemned whole neighborhoods and expropriated the property of existing residents to make way for new development by property speculators (developers). Generally, those neighborhoods were older and the owners were poorer than the average resident of the city or local government's population. Often, if not exclusively, the expropriate properties were occupied by people of color.
ReplyDeleteFollowing several high profile cases where expropriation under the principle of eminent domain was a key feature of the city or local government seizure of properties, several states altered their legislation to bring an end to this pernicious usage of eminent domain.
Economic rent exists everywhere in business activity. Rent-seeking behavior drives economic activity. Without it, you wouldn't have Edison, IBM, Apple Inc., Google or Alphabet, or Microsoft.
ReplyDeleteThe idea that The Economist advances that economic rent in real estate is inherently bad and needs to be eliminated is one of the fundamental tenets of Marxism. It exists in all second- and third-rate undergraduate text-books, features prominently in "progressive" political circles (excepting, of course, their own perfectly legitimate rent-seeking behavior as politicians).
No, it is a fundamental tenet of free-market capitalism that markets function best when free from unnecessary interference. The U.S. housing supply is not resource constrained, it is only politically constrained. Everywhere you look there are political limits on housing for the young: no-students-allowed housing, 65+ only housing, zoning restrictions that prevent high capacity housing, parking mandates on new construction, favorable tax treatment of existing properties, historic preservation regulations, etc.
DeleteThe American housing market is rigged to sustain high prices and prevent competition from new construction.
This is a kinda non-problem. When businesses find it too expensive to recruit workers in NYC or SF or LA, they will move elsewhere. It's not like some smaller US cities haven't been growing. Microsoft put
ReplyDeleteSeattle on the map. The new locations need not be close to NYC or SF or LA,
That applies to the US and other decentralized countries, such as Germany. It does not apply to centralized countries like France and the UK, where central government tends to prefer the center over the periphery. Why does Heathrow have to expand and why does London deserve a Crossrail? Congestion pricing would do the trick, and real resources could be invested in the periphery.
ReplyDelete