Home is where the cartel is

Housing is a bitch.

A case can be made that divisive hot-button issues like inequality and immigration ultimately derive from housing dysfunction. Kevin Erdmann eloquently tells the tale. Matt Rognlie has famously argued that the increase in capital’s share of income, often blamed for inequality, is due largely to housing, once depreciation is taken into account. All of this reinforces the thesis of people like Ryan Avent, Edward Glaeser, and Matt Yglesias who have argued for years that housing supply constraints are to blame for high rents in powerhouse cities, and may constitute an important drag on productivity growth and a cause of macroeconomic stagnation. (See also Paul Krugman, quite recently.) Several of these writers argue that cities should eliminate restrictive zoning and other regulatory barriers to development, then let the free-market create housing supply. In a competitive marketplace, high prices are supposed to be their own cure. Zoning restrictions, urban permitting, and the de facto capacity of existing residents to veto new development are barriers to entry that prevent the magic of competition from taking hold and solving the problem.

My view is that the “market urbanist” diagnosis of the problem is more persuasive than its prescription for addressing it. As a positive matter, they just won’t win the political fights they propose. On normative grounds, I’m not sure that they should. The market urbanists present themselves as capitalist deregulators but I think they can be described with equal accuracy as radical redistributionists. The customary property rights surrounding homeownership in many cities and suburbs include much more than the use of a square of earth and whatever is built on it. Existing homeowners bought into particular neighborhoods in large part because of their “character”, which includes nice-sounding things like walkability or “charm”, as well as not-so-nice-sounding things like access to exclusionary education. Newer residents have bought and paid for those amenities, while older residents may feel they have earned them by helping to create them. Economists describe houses as a form of capital that provides a stream of services, rather than a cash flow, to owner-occupants. We should also describe the arrangement of neighborhoods as a form of capital that provides services people value. Property owners have disproportionate use of, and, informally, enjoy substantial control rights over this “neighborhood capital”, and these benefits have been capitalized into residential real-estate prices. (Location, location, location!) “Zoning reform” is an anodyne way to describe an expropriation of those customary rights. It amounts to diminishing residents’ ability to preserve or control the evolution of their neighborhoods, in order to challenge the exclusivity on which the value of existing neighborhood amenities may be based.

Market urbanists sometimes respond that eliminating restrictions should, in economic terms, be good for existing property owners. Suppose I own a plot of land, and today I’m only allowed to have a two story house on it. If tomorrow I suddenly have the right to build ten stories, but I can still keep the little house if that’s what I prefer, the new option can only improve my property’s value, right? Surely de-zoning would be a windfall for property owners, as land prices would include part of the capitalized stream of rents from the ten urban lofts that could now, potentially, be built there.

This is unpersuasive “partial-equilibrium” reasoning, which explains why homeowners are usually unpersuaded. Any given property owner rationally wants restrictions lifted on the use their own property, but lifting restrictions on neighbors’ use of their properties creates risks and costs. The ultimate effect of a general upzoning is hard to predict and may not be positive for incumbents, especially when potential impairment of existing amenities — “neighborhood capital” — is factored in. Far from being a sure gain to existing residents, upzoning is a form of risky investment, the proceeds of which will be shared with developers and new residents, the costs of which will be concentrated on people whose financial statements and human lives are deeply exposed, with little diversification, to the quality of their neighborhoods. Even if, in aggregate, land values increase, densification of an existing neighborhood creates risks for individual property owners they many not wish to bear. If an apartment block is built next door, my old neighbor may have gotten rich from selling, but my plot may not be suitable for putting up yet another tower, and my home may be worth less for its busy, unquaint new neighbor. People experience individual not aggregate outcomes, and individual outcomes are usually riskier than aggregate outcomes. Absent some insurance mechanism, it is rationally hard to persuade individuals to consent to policy changes that, in aggregate terms, would meet a return-to-risk hurdle but at an individual level might not. When market urbanists point to how much more productive and awesome the city as a whole might become, they are missing this point.

Finally, whatever economic gains might accrue to existing property owners from rezoning has to be traded off against a huge cost, the loss of existing monopoly rents. If you buy a home in San Francisco today, the last thing you want to happen is for the housing affordability problem to be solved next year. If apartment prices become reasonable, you’d find yourself with a huge financial loss and an underwater mortgage. Residential property is expensive in power cities because it includes the capitalized value of the large incomes streams one can earn from accepting tenants. (Now more than $5K/month for the median 2BR apartment in San Francisco I hate this city.) Making housing affordable means that value goes away. High rents are like poverty at the Brookings Institution, a problem we claim we desperately want to solve but don’t really want to solve because the things we would have to do to solve it would be costly and disruptive to the people whose interests get termed “we” in a sentence like this one. So we make other stuff up, hey, how about a little affordable housing requirement with a poor door you’ll have a 1/1600 chance of getting into? The home cartel is stable by virtue of regulatory coordination, which cannot be undone by adversarial political action because cartel members practically define the enfranchised municipal community.

Home is where the cartel is. I use the word “home” not “housing” advisedly. Homeowners understand their actions not as monopolizing the housing market but as protecting their homes and neighborhoods from the market. The libertarian “deregulatory” rhetoric by which market urbanists sometimes make their case is counterproductive. Telling people to think of their homes as a commodity upon which market forces should be brought to bear in order to ensure production of housing services at competitive prices is obtuse. People purchase property, rather than renting, largely to gain security and control, to escape the vicissitudes of the market. The worst place to emphasize “deregulation” is in dense urban environments, where almost every sort of action has spillovers. Construction in dense cities will always be heavily regulated, and should be. There can be good regulation and bad regulation, but talking about “deregulation” in an urban context is just self-branding. Dense cities in developed countries expand their housing stock as a policy choice, not because anonymous producers respond to price signals. Price signals — high market prices — give cities the option to expand their housing stock without financial subsidy by reregulating to attract developers. But nobody is dumb. You actually have to persuade an urban polity to choose to permit development, in a particular place, over the objections or with the consent of diverse stakeholders.

The deregulatory narrative not only fails to help, it very directly hurts. If you frame your solution as being about “freeing markets”, you are likely to oppose rent control on naive and misleading Econ 101 grounds. Price controls, you have been taught, create scarcity, by eliminating the incentive to produce up to the market-clearing quantity. But to claim “the rent is too damn high” implies directly that housing prices are already above the level that would inspire further production, if there weren’t other regulatory barriers. In the prosperous cities where we perceive housing crisis, market-rate housing is already priced at levels that would attract further development, if only the polity could be persuaded to allow it. New construction is market-rate housing: It is almost never subject to rent controls. The existence of rent controls on older buildings does suggest a danger that housing built today might someday be placed under rent controls too, sure. But that risk is already priced into market-rate development. If market-rate apartments sell for substantially more than their physical cost of replacement, then the market deems the risk of future value-impairing rent regulation to be sufficiently small, or sufficiently distant, or the present demand for housing to be sufficiently acute, as to cover that risk. The Econ 101 case against rent controls only holds if the threat of controls prevents the market value of newly produced rentable properties from substantially exceeding the cost of development after regulatory hurdles have been overcome. [1] This is not what we observe in real life. Impaired prices are simply not the binding constraint on new development. Market urbanists unnecessarily make enemies of a critical constituency, tenants in rent-stabilized apartments who have extraordinarily much to lose. Renters should be cities’ natural advocates for new supply. But when proposals to build come bundled with an ideology that would price people out of their current homes, renters’ enthusiasm is unsurprisingly muted. [2]

Market-centered narratives about homeownership are the source of housing supply problems at least as much as they might suggest solutions. As Daniel Hertz has observed (ht Ryan Cooper), there is a fundamental contradiction at the heart of housing capitalism. We encourage people to take on highly leveraged, undiversified exposure in homes with promises that they are good “investments”, meaning they will increase or at least retain their values over time. We also claim that housing is a consumption good that should be efficiently provided, a good for which competitive markets should expand supply to drive prices down to a technologically declining marginal cost of production. Housing cannot be both of those things at once. Much of the work we have to do if we wish to increase housing supply is to deemphasize the housing-as-investment narrative in favor of housing-as-consumption-good. Price ceilings would prevent windfall investment gains (and so investment-motivated purchases). Price ceilings would also new prevent buyers from becoming levered against much-higher-than-replacement-cost home values, and therefore lobbyists for housing scarcity. Surprisingly from an Econ 101 perspective, the best way to encourage housing supply might be to cap home prices, at a level sufficiently above physical construction cost to keep development profitable when consumption demand is strong, but no higher than that, to discourage the use of homes as speculative financial investments and to prevent scarcity rents from getting capitalized into prices.

I don’t advocate trying to impose price ceilings on existing market-rate housing. That would be an expropriation at least as unfair and politically challenging as eliminating zoning restrictions. Plus, maximizing the quantity of housing supplied cannot be our sole, overriding objective. There is much to be said for encouraging “neighborhood capital” production, incentivized in part by the prospect of rising home values, as a means of increasing quality of life and sheer aesthetic joy, despite the “NIMBY-ism” it rationally provokes. There are trade-offs. However, when we build new neighborhoods, we might want to be open to new regulatory ideas. As long as builders and buyers know the rules of the game up front, anything is fair. Experimentation should be encouraged. “Deregulation” cannot be our touchstone. The word is meaningless (it sneaks in some definition of neutrality which is wholly arbitrary), and discourages creative thinking or even looking around to see what works.

I don’t know what will work. But, looking around a bit, I’d suggest we take a look at two particularly promising examples. The housing policies of Singapore and Germany couldn’t be more different. But both countries have been remarkably successful.

Singapore never solved the problem we are banging our head against, how to take existing prosperous neighborhoods and make them more dense. It never tried. Instead, Singapore expanded its housing supply, at remarkable speed and scale, by building out extremely dense but nevertheless green, livable, and attractive “new towns“. Rather than restricting our attention to putting more housing in existing desirable neighborhoods, why not follow Singapore and build new neighborhoods, and when we run out of space for those, new ring cities? Singapore has done a ton of experimenting, in regulation, architecture and urban design, in putting greenspaces around (and on) increasingly creative high-rise developments. Obviously, Singapore is very different, socially and politically, than the United States and other Western countries. Some things won’t (and shouldn’t) translate. But we still have a lot to learn from their experience. Are we really incapable of building new, compact, microcities without their becoming Cabrini-Green or the banlieues of Paris?

Germany’s virtues are less sexy than Singapore’s sci-fi eco-towers. But they are great virtues nonetheless. Somehow, Germany has managed to avoid the price booms that in so many countries (including the Scandinavians) have segregated society between those who were homeowners at just the right times and those who were not. Germany’s path is ideologically mixed. On the one hand, German property owners have a right to build within broad planning parameters. On the other hand, what we in the United States call rent controls are universal in Germany. (German leases are implicitly “rent stabilized”. Berlin has recently begun an experiment with old fashioned administered prices.) Lending for home buying is regulated and conservative in Germany, preventing joint credit/housing booms. (You’ll recall that German banks had to dive headlong into American junk housing securities and Southern European bonds to get themselves into trouble, since their own economy wouldn’t produce enough product.) Homeownership and renting are roughly balanced, and home prices have had no tendency to increase dramatically. Homes in Germany are what a naive economist might predict they should be, a very durable consumption good that provides a stream of housing services, not a ticket to financial gain at all. Germany’s cities are very affordable relative to their counterparts elsewhere in Europe and in the United States. Germany’s housing success seems boring, in the way that your chest might seem boring to a guy who has just been stabbed and is spurting blood from a ventricle. Boring, but wonderful.

Boring Germany, sci-fi Singapore, or something else entirely. Urban housing is a really hard problem. We’ll need lots of inspiration. That economics textbook might help a little, but don’t try to use it as a cookbook.

FD: I’m very grateful to live in a rent-stabilized apartment in San Francisco.

[1] One might be tempted to argue that regulatory hurdles are themselves a “cost”, so very high prices are necessary to incentivize developers to do the necessary lobbying and lawyering. If that were a good model, the housing problem in places like San Francisco and New York would already have been solved. There is no fixed cost of permission that high property values can overcome. The political process doesn’t set a price in lobbying and paperwork and bribery and then let the supply of permits and variances expand elastically once that price is met. A better approximation is that the political process fixes a quantity and uses price to ration permission, so that any additional willingness of developers to bear regulatory costs feeds into a bidding war that feeds lawyers and architects and bureaucrats (and generates free amenities to buy off the neighbors!) but does not greatly expand the number of permits granted, or, therefore, the quantity of dwellings supplied.

[2] There is one channel through which existing rent control really might discourage new supply in high market-price neighborhoods, and it has nothing to do with supply and demand diagrams. In order to increase the housing stock of an existing, well-utilized neighborhood, one often has to knock down buildings that exist in order to put up something denser and/or taller. The prospect of this sort of “redevelopment” is always going to anger humans, who sometimes grow attached to their homes. For people in rent controlled housing in very hot markets, the threat of redevelopment is existential. Rent control in America is mostly “second generation rent control” or “rent stabilization”. You rent at market rates, or even some premium to market rates, but thereafter rent increases are tied to some administrative measure of inflation. If the building that you’ve lived in for years gets torn down to build something new, the clock starts over and you have to rent at current market rates, even if you find a new rent stabilized apartment. Many (probably most) current residents of rent-stabilized apartments would not be able to afford to live in their neighborhoods at market rates, or even in their cities. “Affordable housing” programs (of which I have a low opinion) may offer sanctuary to some of the displaced, but they offer at best an uncertain prospect. Because the stakes are so high, residents of rent-stabilized apartments become a political constituency implacably opposed to redevelopment. The long-tenure rent-stabilized are a precise mirror image of property owners who prefer constrained supply to support prices. Both have rents (in the economist’s sense of the word) to protect, benefits that markets would compete away under a different set of regulations. Both perceive securing those rents not as cashing in, but as protecting their homes and their families. Both will work (in coalition with one another) to prevent redevelopment, densification, upzoning, etc. “Reduces the future flexibility of neighborhoods” may be a colorable reason to have opposed rent stabilization back in the day. You may be cruel enough to simply wish to end it abruptly now, on the theory if those people are kicked out anyway they’ll have nothing left to oppose. You may wish that, but if you are smart you will shut up about it.

Update History:

  • 25-August-2020, 1:30 p.m. EDT: “…when potential impairment of existing amenities…”

60 Responses to “Home is where the cartel is”

  1. Nick Bradley writes:

    This was one of the better pieces I’ve read in a while, so thanks.

    But one simple point I’d like to make is: why not land value taxes?

    just incentivize density and tax the rents!

    Even higher traditionally-structured property taxes would be great. California has low-to-middling property tax rates, and prop 13 makes older owners have almost no carrying costs.

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  3. Interesting and thoughtful post.

    I think one place where I would interject is to make a distinction between the high density core cities and other areas.

    In the other areas, you have some interesting points. In many cases, there are socioeconomic class issues, in that the restrictions will necessarily be related to the regulation and control of a community’s population, in ways that can have elements of classism or elitism. I agree with you that some control over development by legacy owners is reasonable, even if this is unavoidable to a certain extent. But, I think it is important to realize some of the implications of the defenses you are mounting.

    But, in the case of the core cities – Manhattan and surroundings, San Francisco, and a few other locations – I think there is much less justification for sclerotic housing policies. They are an unintended product of Western modern political sensibilities and semi-high density. But, fundamentally, these cities were built for density. Their legacy and their character are indelibly tied to immigration, opportunity, change, and growth. I view it as a sort of miracle that these cities, designed and laid out well before modern transportation and the skyscraper were conceived, have continued to be capable of being valuable, functional places. These places were a miracle of human planning, and they were designed for density. Density is what gives them value. The current residents who are standing in the way of density are betraying this legacy. (Note that commercial density is quite high. We just force workers to go to New Jersey and Modesto each night to sleep.)

    Manhattan has lost 700,000 residents over the last century. Net domestic migration from San Francisco and Manhattan are substantial, and is concentrated among the lowest income households. The current stagnant housing context in these cities does not represent stasis. It represents painful change. I agree that development-friendly policies are unlikely, but, at least in these places, it is the only feasible solution, and is the true legacy of the cities. Until we can somehow achieve that solution, these cities will have captured the highly skilled workers of the industries on the innovation frontier, limiting access to high income labor markets, limiting competition in the industries that will create future economic development, and creating stress in low income households that face ever-rising rents as those high income workers continue to flood in to capture those wages that are inflated by that limited access.

    Human history is defined by natural immigration from low income to high income places, as people strive to better their lives. We have reversed that flow. We now have migration from high income to low income cities. This is the core problem that has put a lid on economic growth and has created a divergence of wage incomes. Any policy, no matter how defensible, that doesn’t re-orient those migration flows to their natural direction will fail to cure the fundamental ailments of our economy.

  4. Eli writes:

    Property owners have disproportionate use of, and, informally, enjoy substantial control rights over this “neighborhood capital”, and these benefits have been capitalized into residential real-estate prices. (Location, location, location!) “Zoning reform” is an anodyne way to describe an expropriation of those customary rights. It amounts to diminishing residents’ ability to preserve or control the evolution of their neighborhoods, in order to challenge the exclusivity on which the value of existing neighborhood amenities may be based.

    How smoothly you jump from “property owners” to “residents!” Of course, in the cities you are talking about (SF, NY, even my own comparatively cheap Chicago), most residents are not property owners (and many property owners are not residents). Most residents never had the ability to control the evolution of their neighborhood to begin with, yet bear the costs of the owners control (exercised in such a way as to drive up property values and also rents).

    It’s also not clear to me why the protection of incumbents at the expense of new residents is so important to you. Surely–especially in the case of the commercial rental properties which characterize the housing stock of these expensive cities–the incumbents are benefiting from rentierism in its most literal sense, and there is no social interest in preserving those privileges.

  5. Mitch writes:

    I’m surprised to see you defending the interests of wealthy landowners. Limiting homebuilding in economically dynamic areas has a huge welfare cost; does that matter at all to you, normatively?

    “Character” needs to be unpacked a little more. Walkability improves with increased density (all else equal). There are also threads of xenophobia and simple fear of change running through “character” arguments, and those aspects should be actively fought, from a social utilitarian POV. Plus: what is the deal with people who decide to live in a city, and then decide that they don’t like density? Hello! You live in a *city*!

    Speaking positively about the political angle, I think there has been tremendous misunderstanding about supply and demand, and I think that’s slowly shifting. And there’s room for some areas (like Redwood City or my own Emeryville, or maybe Mission Bay) to develop and show people the benefits of increased housing density (eventually, more walkability because there’s enough density to support locally-oriented retail and better transit).

  6. Jules Pitt writes:

    Even if one accepts the argument that governments must preserve monopoly rights they granted in the past (let us make no mention that the government is undermining the value of college degrees as it makes them more available) – there is a fundamental fiscal issue at stake here, which is to say that is not only do homeowners rely upon zoning to maintain their investment’s value, but they also require massive, unsustainable subsidies in infrastructure.

    The staggering inefficiency of even the most compact suburb means that the infrastructure capital expenditure and maintenance simply can not be repaid (in the long term) by a reasonable level of property taxes. Counterintuitively, urban parcels in some of our least successful cities are an order of magnitude higher in tax valuation per unit of area than their suburban counterparts.

    So either the taxes must be raised, or the home values need to artificially skyrocket, or the suburbs will need to urbanize – or some combination of all three.

    Point being that preservation of the status quo is not an option on the table for most places in the United States.

  7. Lewis writes:

    While I think you are right about winning these fights in terms of local politics, the market urbanism case is not unwinnable in general. The only path is judicial.
    Over the course of the 20th century, judicial precedent steadily expanded the interpretation of what municipalities could use their police power to regulate. Over the course of the 21st century, they could contract that. Regulations that are now part and parcel of the housing market could be seen as (a) overburdensome restrictions on property rights (b) harmful to civil rights or (c) infringements on the right of US citizens to freely move about the country. Different court cases have dealt with each of these arguments and, at times, used them to restrict municipalities’ “rights” to regulate the land they contain.
    As an analogy, plenty of US cities would gladly ban pornography, abortion or the right to bear arms. Plenty of states would gladly put tariffs on imports from other states or countries. But they are simply not allowed to, not matter how popular the electoral politics involved. In the same way, state and federal courts could say it is unconstitutional to, for example, keep multifamily housing out of a city. That is to some degree what the Mount Laurel doctrine tries to do. Perhaps there could be a precedent that, whenever the cost of construction is far below rents, and there are landowners willing to add floorspace at the margin, the city is impeding the freedom to move.
    My favorite idea in this direction is to more broadly interpret the definition of “general” in the “general welfare” clause, which is what land-use regulation has been built upon. Up to now, a city is supposed to be acting in the general welfare whenever it circumscribes land uses in a way favorable to its own residents. But what about non-residents? Perhaps a city would be held to an extraodinary standard of demonstrating that its regulations maximize state, national or global welfare. This would be a much tougher standard to meet and would invite an energetic lawsuit industry.
    So, on the whole, I think looking at the incentives of local homeowners is an entirely uninteresting line of thought on the issue. It will either be solved judicially or not at all.

  8. Sohier writes:

    The simplest step we can take is a corollary of your claim that eliminating existing zoning regulations is politically infeasible: ban the damned things where they don’t already exist. It’s tremendously important to nip the price spirals in the bud. No amount of suburban building will produce a new city if the suburbs simply ban density as soon as they incorporate their new towns!

  9. MossyBuddha writes:

    one of the best explanations of the dynamic in places like san francisco that i’ve seen. untying this knot will require a very deft touch, something that way too many developers and their political allies don’t usually have.

  10. Reilly writes:

    Excellent post, thanks.

    I’d recommend considering one more promising example: Japan, where the federal government has a lot of land use-related responsibilities that are typically handled municipally in North America. The devil is in the details, but moving land use regulation to a higher level of government, one that has obligations to a wider group of people than voters in municipal elections, has worked well there.

    The Making of Urban Japan covers this very well, although the author is more enthusiastic about Western-style municipal land use regulation than I am.

  11. I would add that market urbanism is basically the rule in 85% of the country. Houston and Atlanta don’t suffer from outrageous housing costs. The problem is generally limited to a few cities – the California cities, New York City, and Boston, with some cities at the crossroads – Seattle, Washington DC. The fact that most cities don’t have this problem suggests that there is nothing inherently unsolvable about it.

    It may be an accident of history, but it is pretty clear that the cities with the problem are cities with “blue” politics. The mass migration of low income households out of blue cities and to red cities is a rarely appreciated fact of modern US economic development. The verdict is in on high cost, limited access governance, and economically marginal households have voted with their feet. It seems to me that it isn’t the landlords and the high income migrants moving into those cities that are the obstacle. I don’t think the city council members in San Francisco, whose policies have created this problem, are secretly fronting for landlords and developers. The people vocally obstructing every new development honestly seem to think that harassing developers will produce affordable housing. It appears to be ideology to me, not self-interest. In the set of imaginable policies for those voters, there simply isn’t a category for functional outcomes that don’t include harassment of developers. A change will not come from reasoning with them. This is in the moral realm. It’s kind of like gay rights. Somehow improvement is happening, and it’s happening pretty quickly. But, it didn’t happen because moralists listened to reason. Somehow a social tipping point was reached. That will have to happen here. Maybe shaming is part of the answer. But, mostly it will just be about getting reasonable facts out and playing the long game.

    In the end, it will be the high cost cities that lose if they don’t change, because their competitive advantages will eventually be unable to keep up with the high costs they have created, and those costs will be sticky. Residents of Detroit used to share a lot of economic rents, too. It wasn’t that long ago. When favor tips toward, say Seoul, over Cupertino, the bottom will fall out.

  12. Lord writes:

    We do all seek to be shielded from the market. While policy benefits existing owners, it doesn’t prevent new entrants. The problem with rent stabilization is it preferentially benefits existing occupants over new entrants.

  13. Cameron writes:

    I liked the post but think you overlooked a few key fact that would transform the housing affordability debate into a debate a distribution. My post laying out how to think about this is here


    First, if the aggregate supply of housing was a problem, then we should be look rents, which reflect the actual demand for housing product, excluding the speculative demand for the land asset.

    Second, if we think there is an undersupply in aggregate for some reason, this should show up in average occupancy rates (persons/dwelling), and also in declining average size of dwellings.

    Third, the zoning story is idiotic. Private land markets are, by definition, a monopoly cartel. A private land market with some additional zoning is a very slightly tweaked cartel that limits types of uses in particular areas. But in reality the zoning doesn’t limit the total supply. We are not in a world where zoning is a binding constraint and no new houses can be built (a city like this may exist somewhere, but every one I’ve studied is not like this). In many cities there are thousands of lots zoned and approved to be developed but are being drip fed to the market to support prices. This is perfectly reasonable profit-maximising behaviour, but doesn’t necessarily align with social maximisation.

    As you somewhat allude to, housing development is a real options problem for the landowner – when do I commit to building. Zoning can actually reduce the options and bring forward building in some areas because the gains to delaying in terms of potentially larger buildings or different uses are removed. From Sheridan Titman in the AER


    I quote

    “It is shown that the initiation of height restrictions, perhaps for the purpose of limiting growth in an area, may lead to an increase in building activity in the area because of the consequent decrease in uncertainty regarding the optimal height of the buildings, and thus has the immediate affect of increase in the number of building units in an area. ”

    Fourth, Houston has no “zoning” but a heap of land use regulations that are designed to achieve the same results

    Fifth, sprawling cities will appear to have cheaper housing if transport costs to the average home are higher, because these “accessibility costs” are subtracted from a household’s willingness to pay for a location. If you want a more complete view on affordability of housing + getting to and from the house, you need an index that captures both costs.

    There are a few available. Here’s one. http://htaindex.cnt.org . Here’s another http://www.locationaffordability.info

    It shows that the picture of affordability can change a lot when you take this into account. Which is obvious when you think about it. If you build thousands of new cheap houses out in the bush, the people that move there instead of close to the city have much higher transport costs. You decrease the average rental price, but increase the average transport cost.

    Finally, it is clear that much of the housing debate is about access to the land asset market becoming more concentrated, and the departure of the government from housing provision for the less well off. It is not that there aren’t enough dwellings in total. In Australia we have these exact same debates, yet the occupancy rate is heading down towards one house per person – yet prices still rise. Sydney prices are up 20% over the year. Clearly the price effects are not due to supply/demand, but to the institutional arrangements – access to finance and foreign direct investment, speculation in asset markets, reduce negotiating power of tenants, etc. And all this happens because the political class merely pretends to care about housing.

    One big difference you don’t mention about Germany is that more than half of households rent. This is a huge political boost to doing something that decreases home prices instead of increasing them. In Australia the ownership rate is 70% (though the share of these with large mortgages is rising over time). So 70% of people want prices and rents to go up, and 30% want them to go down. It’s political suicide to actually do anything effective.

    This is why there is such big support for zoning as an issue – it is a way to do nothing, increase the value of some houses, and appear to be addressing affordability. Yet giving more bargaining power to tenant through rental regulations (as in Germany), supplying social housing for the poor, limiting access to credit, and enacting land taxes to incentivise development on underutilises land, are all ignored.

    I’ve written extensively about this before here.


    Anyway, looking forward to more discussion.

  14. Hey there! It’s Stephen Smith, from Market Urbanism (formerly the blog, now mostly just the Twitter). This is a really long blog post that makes a bunch of different points (it’s like I’ve gone back in time!!), but I’ll respond randomly to some of the points.

    Market urbanists sometimes respond that eliminating restrictions should, in economic terms, be good for existing property owners.

    I’ve certainly never argued this. Owners of very high-value low-density property who are willing to sell (and don’t want to buy into the same market) will benefit from upzonings, but most people don’t own acre lots in Atherton next to the train station, so they’ll just get the increased competition and negative externalities, without any redevelopment potential.

    Market-centered narratives about homeownership are the source of housing supply problems at least as much as they might suggest solutions.

    Who is pushing market-centered narratives about homeownership? Not me. Widespread homeownership would likely not happen in the market urbanist utopia, since there would never have been federal mortgage insurance, mortgage interest deduction, no taxation of imputed rent, etc., etc.

    Instead, Singapore expanded its housing supply, at remarkable speed and scale…

    Singapore is a much weirder market (“market”) than you’re giving it credit for. Singapore has more public housing than any non-communist country on earth – something like 85%, if I recall correctly. It’s basically a dual market – one with public housing for Singaporeans, another with absurdly high market-rate prices for foreigners.

    As for the “new town” stuff, that means different things to different people, but in Singapore, it’s basically greenfield suburban growth. To San Francisco, this would be the equivalent of building up Silicon Valley, the East Bay, South Bay and North Bay. What’s the equivalent in the US? Our metro areas aren’t filled with greenfield sites like postwar Singapore. (And when they were, we were building them up!)

    And it’s not like cities across the US haven’t tried to redirect growth from desirable areas to undesirable areas. NYC has spent billions in tax subsidies to try to shift Midtown’s growth from the east side to the west. Downtown San Jose has been trying, mostly without success, to capture the office growth that places like downtown SF and Silicon Valley proper are rejecting. Agglomeration economies are real, and you can’t just saying, “Don’t build here, build there” and expect developers to necessarily do it.

    Finally, I think you’re not giving us enough credit for thinking through the political challenges to urban land use deregulation. I’m well aware of the entrenched interests opposing it, and the most promising solution I’ve seen is to shift the level of governance upwards. Washington and Oregon have much stronger state-level planning laws than California, and permit about twice as much housing as a result, with much lower urban housing prices. Ontario also has strong provincial planning, and Toronto has a torrential housing stock growth rate and very low housing prices compared to similar US cities. And in Japan, the central government has a huge hand in land use regulation and localities are relatively powerless, and Japan is literally the market urbanist promised land, which a mind-blowing housing stock growth rate in Tokyo, to the point where their private railroads are profitable and one is able to undertake an incredible capital expansion project, practically without subsidies.

  15. Morgan Warstler writes:

    I’m pretty sure this will be one of the first pieces you recant :)

    You are defending Blue NIMBY cities as if rents are not crushing and destroying their competitiveness.

    Young wealthy renters in Tech / Finance which props up this model, and ore importantly their employers, are realizing their GIANT SALARY isn’t buying them the life they have been promised.

    The same salary is possible in Austin, Houston, Dallas, etc.

    This is one of those competitive plays you can’t keep from occurring.

    What’s funny is that WHEN (not if) SF and NYC go full Texas, TX is going to shit.

  16. Morgan Warstler writes:

    I think of reducing land rents / relying mostly on LVT kind like Open Source / Linux – it simply takes over everything for precisely the same reasons.

  17. Nicholas Weininger writes:

    I call strawman on the rent control thing: AIUI actually existing phaseouts of rent control have grandfathered in existing tenants to avoid just the opposition you describe and sympathize with. Moreover, it is curious that you defend the “customary rights” of NIMBYs even while decrying the very similar stagnationist control that “median influencers” (who are often the same people!) exercise over economic policy.

    As others point out, a successful deregulation of SF housing would probably involve a grand bargain at a state or federal level that would include a weakening or repeal of Prop 13, which was the original justification for SF rent control. Fwiw I own a house in SF and so would lose a substantial chunk of my net worth if this ever happened, but I support it anyway.

  18. Bryan Willman writes:

    Likely the best post on this blog. It misses (I think) two other key items (both at least partially addressed in the comments.)

    1. Cities are governed by entities whose authority largely ends at the city line. But jobs, traffic flows, etc. are not. What’s more, experience in various places in the US show that attempts to extend that influence are likely to fail. Seattle decides to allow lots of multi-family housing in the low-political-power-neigbhorhoods? More price appreciation in the suburbs! Given the way city boundaries are set (at least in WA) the constraints on say Seattle may be worse than those faced by Singapore.

    2. It’s been pointed out that if the unpolitical “let’s allow multi-family everywhere” tactic was actually tried in Seattle, only low-rent areas would be affected. Partly because the pricing in the fancy neighborhoods is too rich for developers even if they were allowed, but also because of complicated interlocking restrictive covenants. My city can say they allow multi-family on my lot, it does not matter, the neighbors could (and would) assert covenant rights to stop it. Think of the exclusionary powers of things like the Dakota hotel in NY. And SO – “housing reform” will always end up being shafting the 20th to 40th percentils for the sake of the 10th to 20th.

    Why is it claimed (in the comments) that suburbs are unable to support adequate service levels? I see this nonsense over and over again. The suburb I live in now is much denser than the small midwestern town I grew up in, that small town still exists, and has always had adequate service levels. It may be that suburbs don’t support redistributionist/progressive/socialist services and levels, but then neither did/do the small towns that still exist in large swaths of the US. Is this just a plank of urbanist belief? (That everybody should be force to live by urbanist rules?)

    Finally, there’s a nasty sub-point which shows up in the brookings paper, in the fancy condos with a small number of “low rent” units with separate doors, etc. We’re talking about status and its perks, and those aren’t going away in American society any time soon, and maybe not ever.

  19. Brett writes:

    Reilly beat me to it. Here’s a blog post that goes into detail about how Japan does zoning at the national level, and just generally keeps a lot of the policymaking regarding city density and construction above the level of city governments.

    You actually have to persuade an urban polity to choose to permit development, in a particular place, over the objections or with the consent of diverse stakeholders.

    In places where housing “works”, you don’t – you go above the heads of the stakeholders in the city to pass policies that allow for greater density, even if it means that stakeholders don’t get to capture as much in the form of monetary and non-monetary “rents”. Reilly and I have brought up Japan, but Seattle offers an interesting example of this as well – Yglesias just wrote an article pointing out that rent price increases have partially slowed or stagnated in Seattle because more of the decision-making is handled above the city level, unlike San Francisco.

    . . . . And yes, I’m fully aware of the potential ugliness possible with such regimes in the US. About how minority neighborhoods get dumped on often in such a system, whether with toxic waste or transportation infrastructure. I know about the “harlem of the west”. But some stuff has to be done at a higher level, and has to be done over the objections of local dignitaries, otherwise tons of socially necessary infrastructure would simply never get built.

  20. Prakash writes:

    @Stephen, I had read a piece on how liberal japan’s land zoning policy was and was really surprised about the how the land bubble happened there. Any pointers to an article reconciling those 2 would be great.

    I support the LVT, but as SRW puts it, there are too many current stakeholders to make any kind of drastic changes. The solution might be to formalise the current thicket of rights and make them tradeable.

    Impose a land tax that is especially steep from the current average value onwards. Give residents 3 tier of shares – Local, State and Central/Federal – which give the people a per capita share of the land value captured. Also, give a special allocation to the owners, to prevent a new boston tea party revolt happening. The current stock’s price is reduced. The special allocations are paid off to the banks to compensate for the underwater mortgages. Some land owners will suffer, but they may not be politically numerous enough.

    As people seek to make moves, they can buy shares of the new town and sell shares of the old one. Hopefully this starts the move towards housing being a consumption good and the shared land value gains to all being the basis of the wealth of individual persons. The gains of land value with reduced risk.

  21. […] Home is where the cartel is – interfluidity […]

  22. lopati writes:

    Yet giving more bargaining power to tenant through rental regulations (as in Germany), supplying social housing for the poor, limiting access to credit, and enacting land taxes to incentivise development on underutilises land, are all ignored.

    the last few iirc are what singapore has done (and china is increasingly doing) and, from what i understand, singapore’s land authority restricts ownership in deference to the ‘public good’: “The compulsory acquisition of land by the government was effective in keeping the costs of building houses and industrial premises affordable.”

    speaking of bargaining power, jw mason has a post up for CT’s piketty seminar titled, It’s bargaining power all the way down, which touches on germany’s low levels of homeownership, with this added observation: “one reason household wealth is low in Germany is because German households exercise more of their claims on the business sector as workers rather than as wealth owners… this sort of story about the strength of shareholder claims under different institutional arrangements probably has more to say about the actual evolution of the capital share than the whole apparatus of growth theory.”

    also just let me add to the chorus in support of a LVT — to fund a UBI? — as a ( relatively) more workable alternative to a global wealth tax.

  23. […] Home is where the cartel is Interfluidity […]

  24. maynardGkeynes writes:

    When Matt Yglesias pays top dollar for a two or three floor row house in cozy DuPont Circle or Adams Morgan, I am sure he will welcome the grotesque 8-story pop up some money-grubbing flipper builds next to him.

  25. Larson writes:

    Please read “Progress and Poverty” by Henry George. The speculative advance of real estate prices in developed areas was noted by Henry George in the 1800’s. In an era of zero percent interest rates this process has been accelerated.

    Only by preventing land purchases for speculative purposes or highly taxing such purchases can cure the problem be solved.


  26. […] Interfluidity on why it is hard to deregulate housing.  And the political views of Matthew Belmonte, main personal page […]

  27. Jules Pitt writes:

    @Bryan Willman,

    Why is it claimed (in the comments) that suburbs are unable to support adequate service levels? I see this nonsense over and over again. The suburb I live in now is much denser than the small midwestern town I grew up in, that small town still exists, and has always had adequate service levels.

    What I was speaking of was long-term solvency, not present service levels. Obviously, plenty of suburbs are running smoothly.

    But should a suburb decide it won’t be built out anymore, and/or can’t take on any more debt – it can not maintain and ultimately replace the infrastructure it relied on in the first place to be able to grow. At that point it becomes obvious that the return on investment in tax revenue hasn’t materialized and won’t.

  28. New Visitor writes:

    is making your page unreadable unless I shrink the size of my viewing window. You may want to adjust the parameters. I will not be visiting again. 0 stars.

  29. yo writes:

    I find it notable that you’re not mentioning public transport (reliable, cheap, fast, universal where it matters) in your discussion of Germany. You don’t like high housing prices? Well, just move three U-Bahn stops further away! The result is a large undercaste of “Extreme Commuters” but that is largely their own choice. The second result is that you find luxury suburbs and rush hour traffic jams in unexpected places.
    And don’t forget that in Germany, moving away from the cities into suburbia is heavily subsidized (a tax credit that easily offsets all of the higher carbon taxes, usually called “Pendlerpauschale”).
    In some places, commuters majoritarily use public transport (Ruhr, Munich, Frankfurt, Berlin), in other places (Baden-Württemberg, Hamburg, Hannover and Franconia) they tend to drive around a lot (not as much as Americans but still).
    I’ve lived in small-town BaWü for years, it’s all heavily NIMBY. In Stuttgart, Munich, Freiburg, Tübingen, Heidelberg and other cities, even the “Greens” partnered up with local landlords to discourage further development, the result being high housing prices, and students and workers who will commute insane distances. I’ve also known cities like Frankfurt, who are very friendly to new development. It’s hard to tell which model is more successful economically.
    Also don’t forget the taxes. Housing tax credits and state-owned housing were phased out or privatized concurrently on a massive scale during the 2000s. Together with bad demographics and a financial crisis, the result was underdevelopment for a decade. We’re trying to repair this now but in the meantime prices are increasing fast.
    In addition, foreign investors see the rising prices and contribute their own by buying in. In the view of many Germans, they’re fools. They expect to rent the new places out, but tend to notice after a while that Germany is extremely friendly to renters. You can live in your place for years, and neither pay rent not get evicted.

  30. ennui writes:

    it’s telling that no one talks about “deregulating” the most basic form of rent control: property law. As an example, Germany has a whole host of tenant laws that would strike landlords in the US as an extreme abrogation of their property rights: you can only raise the rent if you can use the police to evict residents when they won’t pay. And it’s not simply about whether you can raise the rent, but what right the property owner has to restrict the right of the tenant to use that property in what way they see fit.

    It’s no surprise then that, when credit is easily obtained (by some), investors look to arbitrage the strong asset protections modern capitalist states grant to real property (even in Germany) to generate returns, inflate values, and then sell to realize capital gains. Philosophical discussions of “supply and demand” ignore the reality that real estate in SF and NYC has become a speculative asset in a global investment market. Answer the question why real estate bubbles are tied so intimately to “credit” bubbles….

    But, if the price of real estate as an investment is tied to property law and property customs, it’s clear that solving the social problem created by an inflate price for that asset can only be done by changing basic relations to property… a political, not technocratic problem.

  31. You don’t want to make SF more dangerous to earthquake risk than it already is by messing with zoning. Rent controls are appropriate. I know what a major earthquake is like. If you have never been in one you are unqualified to be pushing redistricting in an earthquake prone city.

  32. Spencer writes:

    Though I put myself in the “liberal market urbanist” camp with Yglesias, I never thought the Free Markets qua Free Markets rhetoric was helpful, and we should probably avoid that. I’ve also long been supportive of experimental policies like Singapore (I didn’t know much about Germany’s before this, thanks for that), because I honestly don’t have a stake in the “how”; I’m much more interested in outcomes. Part of the reason for the focus on the MU narrative here in the US is that it at least seems *possible* to its advocates, whereas adopting approaches from other countries just don’t, but I’d love to be proved wrong. It’s the same (wrongheaded, IMO) thinking that went into Obamacare and the politics of the possible even though what we got was incredibly weak (when what we really needed was Single Payer or something equivalent that we “couldn’t” get politically.)

    One thing I take issue with in this piece is the privileging of rent {controlled|stabilized} tenants over market ones, and here’s why: some of us are natives of those some neighborhoods who are/were just as much a part of building up their capital, but have not been lucky enough to get a controlled or stabilized apartment. In this case, our interests (lower rents) are completely out the window.

    If I was a native of Wiliamsburg, Brooklyn (I’m not, I was born in Bay Ridge, Brooklyn, which hasn’t seen the crazy price appreciation yet, so Williamsburg works better as an example), and I couldn’t score a controlled or stabilized apartment, I would be very mad at my fellow natives who blocked densification and the accompanying lower rents, because my say should mean just as much as theirs, but right now it doesn’t. When the rents spike, *I* have to move and *they don’t.* Why exactly do their interests trump mine in that case? Remember, we’re not talking about transplants moving in or foreign buyers stashing their pilfered wealth, we’re talking about market-rate natives vs. non-market rate ones. This post implicitly gives the non-markets a bigger say.

  33. Richard H. Serlin writes:

    Important stuff. I’m just starting to read this post, and this stream on rents’ importance in the inequality explosion. But for now I’ll say this: Rents are clearly horrible, and have gotten much worse over the generation of right wing dominance, but a huge issue, that may really take off, is AI/robot revolution. If housing drops to even $100/month for a nice home, it just doesn’t keep you from homelessness if you can’t get a job, and the safety net runs out. Please see my recent post, which was in Mark Thoma’s links:


  34. mulp writes:

    Not mentioned are the costs of building a high rise in a residential zoned area:

    Water and sewer was sized for the maximum demand of the maximum population of residential housing of a certain density. Put up a few high rises and the water and sewer must be redone for the zone. Once done, the land it self is more valuable because every lot passed with bigger service can potentially support a high rise. If the entire upgrade cost is placed on the first high rise developer, the cost is too high. If the cost is spread out among all the possible future owners of high rises, they are paying a lot more for something they did not want or need.

    The same applies to roads, power lines, telco, schools, police, fire,…

    No need for a ladder truck if no structure is bigger than a two story house. Put in a ten story or shopping mall and insurers will raise rates for all if the fire department does not spend hundreds of thousands on new fire trucks and train crews in their use.

    Cities became relatively expensive compared to rural farm communities for that reason, so city dwellers fled to cheap housing, which then created the nedd for all the expensive city services, leading to various tactics to not provide them, or to get others to pay for them. One solution is figure out the costs of upgrading everything if a housing development is built and then demand payment up front before the subdivision is allowed. That leads to fewer units on bigger lots to cut the fees, building bigger more expensive housing to reduce the fraction of the price that’s in the fees.

    Basically, this is another manifestation of the Paradox of Thrift. Trying to keep housing cheap, thrift denies investment, the lack of investment less to scarcity, leads to higher prices, and it’s the prices that make housing costly. To make housing cheaper, taxes need to be higher to pay for much more investment in “socialism” the infrastructure shared by the entire community. Economies of scale apply so that lots of investment allows greater capacity which then lowers unit costs in the long run.

  35. jseliger writes:

    This is among the most interesting posts I’ve ever read on the topic, and I’ve been mulling it since I read it a couple days ago. I finally realized one of the things that bothered me: Extreme zoning seems to have really gotten started in the ’70s or early ’80s. One reason NYC is still so dense is that people from the seventeenth century up until the ’70s had a fairly easy time replacing existing buildings more or less when they felt like doing so.

    One can see this in places like Seattle. Both Capitol Hill and the U-District had, for decades, a single twenty-something story building each, which were almost landmarks. They were built just before Seattle comprehensively banned high-rises—a ban that lasted until the 2000s.

    What changed in urban planning and/or city politics in the ’70s? That to me is a key question and one I can’t really answer. The diffusion of Jane Jacobs’s ideas is one possible answer, but her answer still found fertile political and legal soil.

    Up until the Petaluma City Plan, growth was (relatively) unconstrained, especially in cities. After Petaluma, it wasn’t. In many parts of what we now think of as high-cost cities, the city feels frozen in time since… the ’70s.

    Cities have always had rich neighborhoods and poor neighborhoods, but freezing cities seems to have occurred relatively recently. So has the most vociferous talk of gentrification. I wonder why.

  36. S writes:

    I think there’s one other political ray of hope for the market urbanists. Right now existing owners tend to view rising housing prices as an unalloyed good. I think people will come to realize that it’s wealth you can only make liquid by paying a high social cost/moving to a less expensive (presumably distant) location. Consider folks who are sitting on property in silicon valley. They’re all millionaires, but very few of them will be able to grow old near their loved ones. It’s not easy to find a retirement home in Silicon Valley and they sure as hell aren’t building many more given current land prices. As for seeing the grandkids? Well, they’re probably being raised a thousand miles away in a more affordable location. My girlfriend’s parents asked us to move close to them in the heart of Silicon Valley and it was a very short conversation. We won’t because we can’t afford to. Telling people you care about that they’re going to to lose access to either their children or all of their friends makes for a very sad day.

    I know that it’s normal for people to live far away from their relatives in America, but in this age of social isolation I think it’s a real tragedy when people lose out on even the option of staying together. Housing bubbles literally tear families apart, even (especially?) families who benefited from a boom. It just takes a very long time to play out.

  37. S writes:

    jseliger- you asked what changed in the 70’s. My guess? Zoning laws were part of white flight, and a response to the civil rights movement success in making it illegal to discriminate explictly on racial terms. Before the suburbs started to have poor people in them, which is a pretty recent development, restrictions on dense development served to divide cities by socieeconomic status… which was the same as racial status at the time. The entire point of zoning is to keep some people out, and I’d be shocked if it wasn’t ‘those people’ originally. Remember, the USA had explictly racist zoning laws starting in the early 1900s.

    Just look around the bay area and ask yourself who’s getting hurt by today’s system. It’s not the white people leaving the mission. The white people aren’t getting priced out of Oakland. For a progressive area, they sure are screwing over a lot of minorities.

  38. […] “Home is where the cartel is” discusses a topic that you’ve seen referenced many times on this blog: “A case can be made that divisive hot-button issues like inequality and immigration ultimately derive from housing dysfunction.” Yet Waldman points out that the prescription many commentators, including this one, want—housing market rationalization—is unlikely to be attractive to the mass of existing owners/voters. The piece is not easily excerpted and should really be read in full before you continue, but here is one important point: […]

  39. Nathanael writes:

    Zoning is a government action. If local homeowners think they have some sort of “right” to their neighborhood zoning — well, they do not. They have no property rights in it and they never have.

    If you want an actual property right over your neighbor’s ability to redevelop his property, you have to buy an easement. And people actually DO buy such easements.

    If you’ve used zoning to do it, you haven’t put a penny in and you deserve nothing. If the rest of the city decides to rezone your neighbor’s house as a steel mill, you need to suck it up and deal, because you never bothered to pay for an easement on your neighbor’s property.

    “The customary property rights surrounding homeownership in many cities and suburbs include much more than the use of a square of earth and whatever is built on it. ”

    No. They don’t. Anyone who thinks they do? Deluding themselves.

    We have a legal system of easements for a reason. If you don’t have an easement, you don’t have a property right over your neighbor’s property.

  40. Chris Mealy writes:

    Oh all the NIMBYs really care about is being able to park in front of their house. Just let them pay for exclusive access to it and most of the anti-development forces go away.

  41. […] “Home is where the cartel is,” on the politics of housing, inequality, and many other topics of interest, and perhaps […]

  42. Eric writes:

    I liked this article a lot because it brought some realism to the urbanist idea. Notably lacking was any discussion of infrastructure, however.

    I live in an absurdly overpriced part of the Bay Area. If we “deregulated” everything as Yglacias and others would have, the population of the town would easily double in 10 years. The infrastructure bill for this, just to maintain some semblance of normal would be substantially in excess of 2 billion. Why should this bill fall on current residents? Being realistic, I’m not going to vote to tax myself to build up infrastructure for other people. If you’d like to move from ranting on the internet towards actually realistic solutions, a plan to externally fund or fund from the developers new schools, parks, water, sewer, and most of all roads and transit.

    These things need to be planned and definitely can’t be resolved by saying “deregulate everything and let the market work it out yea!”

    Re: Nick “why not land value taxes? California has low-to-middling property tax rates, and prop 13 makes older owners have almost no carrying costs.” In practice, in the areas we are talking about, there’s not much of a difference between land value and property taxes. Property is generally built up to the maximum economically useful use that is permitted by zoning. I know there’s like one parking lot in NYC that supposedly is only viable because the property tax is much lower then a land value tax…. but that’s pretty rare. There’s nowhere near the level of support in California it would take to revise prop 13 in a drastic way. Basically you want it to bite hard enough to change peoples land use decisions. There’s not any space between that and “tax grannie out of her home”, and there’s just not a constituency for that.

    Re: Jules “homeowners require massive, unsustainable subsidies in infrastructure.” I don’t know why you think this is the case or where you get your numbers. The infrastructure in my city was largely built with local taxes and assessments, and is mostly paid off. If anything, they keep taxing us to pay for commuter rail that goes from nowhere near us to somewhere there aren’t even really many jobs. It’s a giant boondoggle, and the only thing it has going for it is that High Speed Rail is coming down the tracks to make everybody forget what a terrible idea the BART extension is for Santa Clara County. We are easily capable of maintaining our own infrastructure. We only need very very large investments in new infrastructure if we are going to take on a large number of new residents.

  43. […] urbanist” position criticized (Steve Randy Waldman) and defended (Jeff […]

  44. some idiot writes:

    1. Increased housing stock (and the benefits to landowners competent enough to profit from weakening zoning regulations) is more important than access to neighborhood character or than exclusionary public schooling to the extent they are dependent on zoning regulations.

    2. The problems with rent control and hypothetical caps on rent princes and the shortages they create is not that the rent is too damn high. The problems are (a) potential residents are unable to live in their preferred neighborhood despite being able to afford it and (b) landowners are discouraged from making improvements. As far as the idea that caps on housing costs would increase supply by allowing landowners to profit from making housing available but not so high landowners would get a windfall benefit from tight housing supply ignores that profit in any investment is also about the opportunity cost of what other investments (presumably uncapped) a landowner could be making instead of making housing available.

  45. jsn writes:

    Jules is talking about suburbs: between the massive subsidies to oil and auto companies and the Federal and State investments in Interstates and Highways, suburban development is obviously unsustainable. If you give environmental impacts any credence at all, the implicit subsidies in legal externalities even make high rise cities un-sustainable. The walk up cities of the 5000 years leading up to the oil era will be the future if we don’t fry ourselves trying to get there.

  46. Phil Hayward writes:

    Germany’s housing affordability is an interesting example of multiple factors in combination.

    Besides rent controls, they have generous tax concessions for anyone providing rental housing, which helps overcome the unintended consequence that rent controls lead to a shortage.

    Autobahns and highways on which very high speeds can be driven, in multiple directions from most cities, effectively adds exponentially more exurban towns to any functioning urban area’s property market as a kind of “pressure vent” effect. Exurban development is not “banned” like in ultra-fundamentalist conservation-planning markets like the UK. If you work out the combined effect of exurban housing supply and “permitted driving speeds”, the very high permitted driving speeds turn Germany’s urban housing markets into something mathematically a lot closer to the USA’s affordable auto-based-sprawl cities. The added speed is multiplied by “pi” and “squared” in terms of the effective exurban land supply surrounding a city.

    Germany also has small-size rural land holdings due to a historical absence of primogeniture (which is an Anglo tradition). This results in far greater “competition between land vendors” than a “growth plan” in an Anglo nation that hands a monopoly on greenfields land supply to 2 or 3 lucky owners of large ranches or estates.

    Germany also has government powers of compulsory acquisition of land (eminent domain) which most of the time is a deterrent to “holdout” site owners; but the near-certainty that these powers will be exercised against unreasonable holdouts, is essential. There is no equivalent of this effect in any Anglo property market.

    These factors need to be included in any real understanding of German housing markets, otherwise mistaken assumptions can be made and one or two policies adopted without combined benefit of the other factors, with unintended consequences. For example, rent controls usually lead to shortages of rental accommodation; and tax breaks to landlords in Australia, for example, are blamed for feeding their now-massive property bubble.

  47. Rob writes:

    I’m a radical redistributionist and happy about it. The world would be a much worse place today if the past had chosen to preserve all of the protectionist rackets that existed then.

  48. jsn writes:

    Phil Hayward,
    Yes, but its not just the autobahns: public transit and infrastructure in general don’t suffer Anglo/American prejudices either in Germany.

  49. BK writes:

    If cartels were homeowners “protect their homes from the market” we would have seen (for example) a market grow around communities where homeowners come together and use covenants to (say) organize and buy a neighborhood-wide easement for say 99 years of development rights in exchange for all the rise in property values above the rate of inflation at the end of that period.

    These communities would be defined by this common interest rather than class or race.

    But there is exactly not of this.

    That’s because cartels are how homeowners have used covenants and continue to use exclusionary zoning to “protect their homes from poor people and minorities” not “the market.”

  50. Phil Hayward writes:

    jsn: public transit routes do not reduce the cost of urban land (and hence housing) like automobility does. Public transit routes provide access to very small amounts of land because that land is in ribbon patterns only. It is impossible to demonstrate any public transit effect anywhere at any time, in reducing urban land rents like automobility and automobile based development, which as I am pointing out, add to urban land supply in 360 degrees of direction. Attempts to add “enough” supply of land via public transit, collapse under the reality that by the time you have added “enough” land in a ribbon layout, the distances are so massive as to be impractical (the USSR’s transport planners committed this absurd error). Anthony Downs in “New Visions for Metropolitan America” uses the term “pie-shaped gaps” – between radial transit routes – to describe just how much land was added to supply for the urban economy when automobile based development began.

    Germany has “good” transit but this does not contribute to their housing affordability. But their whole system also does something that Anglo cities never do: it “prices in” residents to transit routes rather than pricing them “out”. Another unique factor in Germany is that automobile ownership and driver licensing is very costly and standards are highly demanding, which effectively denies automobility to a significant cohort of the population, creating a captive constituency for transit (and bicycle mode share is also impressive in Germany). In contrast in the Anglo New World especially, cars and driving seem to be regarded as a kind of “right” for all, including lower income people; any attempts to make it too costly to drive are met with howls of protest from the political representatives of “the poor”. Ironic, when so much transit subsidies are excused in terms of “providing mobility for the carless” – and because of the way Anglo property markets work, “the poor” are priced out of the locations best served by transit anyway and subsidies are largely captured by such sectors as Wall St, Manhattan.

  51. hermanubis writes:

    The reason the US can’t follow Singapore’s example is its size. Singapore is small enough that moving to a newly constructed town is doable while still seeing friends/family who stayed behind easily on weekends and even after work. The only thing that would do that in the US is ring cities, but where would you propose a ring city be constructed in the bay area that’s not already zoned?

  52. trash master writes:

    This was a well written but poorly thought out article. please consider who will be running and setting the price caps. As well as the obvious fact that larger gov = more taxes for every homeowner in the area.

    Enjoyed the thought, but totally disconnected with how local real estate markets play out. too much theory.

  53. reason writes:

    I live in Germany and perhaps can give a bit of an input as to why things work as they do in Germany. One point though – Munich is an exception, a city which is pricing people out.

    I think the secret in Germany has been to some extent strict zoning and slow and carefully controlled release of new building land, and to some extent also compact groups of medium sized towns joined together in networks. You will often see in Germany separate towns, which are separated by a single field. So that multiple towns work as a single city. This allows the infrastructure to be built to some extent “outside” of the town. You will also see quite often railway stations on the edge of – or even completely outside of towns.

    In part this is historical – the Holy Roman Empire had a decentralised administration, and this structure has to some extent been retained.

    Added to that, is as was mentioned restrictive lending rules and highly regulated building rules (which increase the price and quality of houses but PUSH DOWN the price of land). Plus low population growth (if you don’t count refugees – first from the Balkans and now from the Middle East).

  54. Phil Hayward writes:

    Good further points about Germany, “reason”.

    The ability to build infrastructure on land that is still greenfields, is highly relevant. Ironically, this could be regarded by some as “sprawl”, but we need to get beyond pejorative labels and simply work out what is “good design” and “bad design”. Shlomo Angel et al and Alain Bertaud et al have been arguing in papers in recent years, that urban “planning” is really only good at “correcting for market failure” in the particular role of averting excessive costs of infrastructure expansion and upgrading later, in the case that the locations have been allowed to become “built out”.

    Planning has failed to do this in most developing countries today, and overwhelmingly also in Anglo nations in recent decades. Partly because of too much faith in “markets” and partly because “planners” now seem to see their role as enforcers of “intensification”, and they are in confusion about the difference between intelligent intensification and planning for it, and “cramming buildings and people in”. The latter is the default approach for so much planning (in “smart growth” cities etc) and the ironic unintended consequence is that the needed infrastructure expansion and even routine maintenance, is made excessively costly due to locations being “built out” and congested, not to mention inflated land costs and local protesters hampering progress.

    Bertaud and Angel both point out, for example, that the best-functioning first-world high density cities, have MORE surface area devoted to street space (which space was set aside by intelligent planners decades ago or sometimes more than 100 years ago), and the space devoted to buildings is more built “UP”. In contrast, cities like Auckland (New Zealand) that have allowed buildings to be built on much more of the surface area and there is an actual lack of street space and connectivity, suffer a problem that planners do not yet understand, “intensification” is mysteriously difficult; it is excessively costly and causes the city to very quickly choke on street congestion long before intensification has gone very far towards the planners desired goals. Buildings are often on narrow and deep sites with only a single narrow front onto the street – in contrast, much of Manhattan and Tokyo and Kong Kong has small blocks with 4 buildings on them, each of which is on a “corner” and has two street frontages. All floors tend to have a more spacious and airy feeling due to windows on two sides with relatively more of an “outlook”.

    Frank Lloyd Wright actually had a strongly held opinion that tall buildings should each “stand in isolated grandeur” with their own interactive surface space surrounding them.

  55. Vin writes:

    Phil: I question your assertion about German autobahns, for two reasons. First, the sections of the German autobahn running through the most densely-populated ares – which would also have the highest job density – generally do have speed limits. Second, if the autobahns encouraged exurban development and long-range car commuting to the extent that you say, this would induce lots of demand and create congestion on the autobahns. Nobody can drive very fast in a traffic jam.

    It is quite possible that the high-quality German transportation network – both public transit and autobahns – does contribute to a “flattening” effect re: home prices, but dismissing public transit’s role in this seems misguided. Of particular note in this regard is that, as reason noted, Germany has lots of small-to-mid-size cities and towns, and even small cities of a few hundred thousand often have well-developed transit networks. The level of integration between different networks, and between local, regional, and national networks is also startling. I think it’s probably far easier to get from Point A to Point B by pretty much any mode in Germany than it is in the U.S., which could very well make home prices less spiky. But it’s not all about autobahns.

    Finally, to your point about small blocks: this manifestly not true in Manhattan (I don’t know about Hong Kong or Tokyo). Manhattan’s grid is actually quite renowned for its unusually long, rectangular blocks, which are far longer east-to-west than north-to-south. Even in densest Midtown, the average block has far more than four buildings on it. Lower Manhattan, where the grid breaks down, tends to have smaller blocks, but that’s not most of the island.

    I neither agree nor disagree with your overall point about street space, but Manhattan is assuredly not a good example of a place with small blocks.

  56. Phil Hayward writes:


    Dispersion of employment (and other trip generators) dilutes the effect of “induced demand” on highways and autobahns. The assumption that congestion will eliminate the advantage of higher speeds and higher capacity, requires all traffic to be converging on a single central location.

    In fact in real life there is hardly a “wronger” myth, than the one that induced traffic negates the gains from investments in road lane-miles, especially if these lane-miles are added sprawl rather than “expansion of existing core networks”. If you could plot the actual data for highway and arterial lane-miles per capita against congestion, the trend would be powerfully in the direction of lower congestion for higher lane-miles per capita.

    If you want some glaring “case study” examples, compare Wellington, New Zealand (pop. 500,000) with typical US cities of similar population (Wichita, Boise, Provo-Orem); and Auckland, New Zealand (pop. 1,000,000) with typical US cities of similar population (Indianapolis, Nashville, Salt Lake City). The New Zealand cities are outliers on the low side for lack of highway and arterial lane-miles, falling well short of even typical European cities of comparable population, and something like 65% to 80% short of the US cities of comparable population. According to the myth of induced demand, New Zealand cities should have the world’s lowest traffic congestion delays. In fact both Auckland and even tiny Wellington have delays measured by TomTom, of 45 minutes + per 1 hour at peak – when Indy/Nashville/SLC score around 15 minutes and Wichita/Boise/Provo around 5 minutes.

    Even for central city street network, the UN Habitat Program Report “Streets as Public Space and Drivers of Urban Prosperity” rates Auckland down the bottom with Moscow, St Petersburg, and Communist and Third-world cities, for sheer lack of surface area devoted to streets. Manhattan, Tokyo, HK, Toronto and Amsterdam top the tables, with something like 3 times the space of the bottom-rated cities. My comment about “4 buildings per block” may have been an exaggeration, but the general point I am making is strongly supported by data. It is all relative – if you think Manhattan is “bad”, you need to look at some more cities on Google Earth, and be grateful for Manhattan! But Prof Alex Anas (SUNY Buffalo) did calculate once that notwithstanding that the city fathers devoted a whole 33% of the surface space to streets (and the highest in the world), 50% would be “optimum”.

    I think the point I am arguing is important, that planners mistake “cramming buildings onto the surface area instead of allowing public space” (which public space they see as “wasted”, especially roads for cars) as an objective in place of actual “density”. The highest recorded “densities” of all are nevertheless in places like Kowloon Walled City (now demolished), Dhaka and Lagos – and this is associated with cramming of low-rise buildings and appalling insanitary crowding of people, and lack of street space; but evolution to equivalents of dynamic first-world cities is impossible. The evolution required the set-aside of well-planned public space, as a precondition.

  57. Phil Hayward writes:

    Others have made excellent points about the real reasons for relatively affordable housing in Singapore; I am still reeling in disbelief that any analysis used Singapore as an exemplar of “greenfields growth”…!!

    Actually for greenfields growth to guarantee housing affordability, there needs to be considerable and superabundant supplies of greenfields land on which development is allowed. The USA’s affordable cities are excellent illustrators of this point; master planned communities and whole “new cities” can be developed almost anywhere. If it is not possible to do something like “The Woodlands” (near Houston) then you almost certainly won’t have a systemically affordable housing market (without other factors like compulsory acquisition and actual government ownership of urban land, and minimal property rights).

    A common fallacy of planners, is exemplified in Portland – they draw a boundary with “20 years supply of land” inside it and think this is plenty; yet prices of land started to inflate just 4 years after the imposition of the boundary. This is because that “20 years supply of land” is NOT “all for sale”!!! In fact because developments take time, and developers like to secure sites for their next project before completing their current one, something like 7 years worth of “land supply” is normally taken in a normally functioning land market; as soon as regulatory delays are introduced, this figure rises; and given that only a minority of land owners are ever “thinking of selling anyway”, of course a restrictive boundary results in developers having to bid against each other for sites, and persuade reluctant sellers of land, and ultimately, compete against speculators and land-bankers who might as well be dealing in gold and bullion, for all they care about functioning urban property markets and housing affordability!

    The failure to understand just “how much” greenfields land is needed to guarantee affordability, also results in “experts” mis-identifying Phoenix and Las Vegas as urban land markets that had price bubbles “in spite of lassez-faire sprawl”. In fact both these cities are surrounded by government-owned land that is not for sale – and because this land is at some distance, “experts” think it is not significant, assuming like Portland’s planners that “the land inside the (de facto) boundary is enough”. It is not enough.

    This phenomenon does apply to the Bay Area with its geographic limitations, but there can be “market vent” effects if development is allowed “beyond the obstacles”. William Fischel’s books describe how California for decades, had sufficient “free-growth” areas to take the pressure off the more restricted ones, but by the 1999-2006 era, there was no longer enough of these free-growth areas and prices bubbled like never before. The Bay Area with free-growth “vent” markets elsewhere in CA would probably hit cycle-top median multiples of 6 to 7 rather than the 12+ that is now typical.

    Singapore of course has absolutely no such “vent” areas at all with the possible exception of a now fast-developing Malaysian “new city” just across the strait.

    China is a better example of what happens when urban growth is strictly controlled and land prices inflated to “extractive” levels (they do not use Singaporean approaches to keeping housing affordable, preferring to maximise government revenue from land sales). There is no reason apart from political modus operandi, that Hong Kong could not have “vent” markets inland, the transport connections are good. But government at various levels, controls the development inland to such an extent that the prices gouged for land and housing are almost as bad as HK itself. In fact this is a massive problem all over fast-growing China, that has to end disastrously in a crash eventually.

  58. reason writes:

    Relevant to the point of dispersal of traffic, I think another point in Germany’s favour is the at first sight rather odd feature that most local revenue is raised via “Bewerbungssteuer” – i.e. business tax rather than tax on residential land. This means that each medium sized town has a business park which spreads employment around and stops purely dormitory towns from developing.

  59. reason writes:

    None the less, traffic jams are not unknown in Germany. In fact “Stau” is one of the first words foreigners learn in German.

  60. reason writes:

    by the way, thanks for a very interesting contribution. I’m actually rather partial to the Rhein-Main, Randstad model and I have lived in Sydney and London. I remember being very impressed when I was in Germany and stayed with somebody in Darmstadt and they went out to dinner in Heidelberg – and it took less time to travel there and back than it would have taken one way from the North of Sydney to the South. Similarly, I remember that once I was late for a cricket match that was about 5 miles from where I lived having left to drive there more than an hour before (that was on a Saturday morning – but in London traffic is worst on a weekend – people mostly take the tube during the week).