Alain Bertaud on Cities, Planning, and Order Without Design
Jun 3 2019

Order-Without-Design-235x300.jpg Urbanist and author Alain Bertaud of NYU talks about his book Order without Design with EconTalk host Russ Roberts. Bertaud explores the role of zoning and planning alongside the emergent factors that affect the growth of cities. He emphasizes the importance of cities as places for people to work and looks at how preferences and choices shape cities. Bertaud also reflects upon the differing perspectives of urban planners and economists.

Explore audio highlights, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.

READER COMMENTS

Jason
Jun 3 2019 at 12:40pm

I’m in the middle of Robert Gordon’s book The Rise and Fall of American Growth. A key argument is that there are few sources of untapped growth. I think Bertaud gives us a big one here, though. The productivity potential of market-driven affordable housing seems (at least intuitively) very high to me.

Pete Miller
Jun 3 2019 at 3:48pm

Interesting episode, and I look forward to reading the book.  In my own Washington, DC neighborhood, there is a current dispute about a plan to put a multi-unit dwelling on land that has for a long time been held by a Masonic temple.  I feel like most of the arguments against it are the worst sort of “I’m in, close the door” thinking.  This (a nameless cluster of blocks between Dupont Circle and Shaw) is one of the finest urban neighborhoods anywhere.  I enjoy it thoroughly and feel it is churlish to deny a few hundred others the opportunity to share in it.  The project is scheduled to receive some form of tax abatement, which seems ridiculous to me given how much rent or condo resale is likely to be, but the basic concept of developing the building seems nothing but positive to me.  Your discussion gave me a lot of fresh perspectives on this dispute.

 

One thing I hope to find in the book that wasn’t discussed in the episode is the effect both on regulations and consumer expectations of the huge advertising and lobbying enterprise by automobile manufacturers, suburban developers, and road building contractors during the 20th century to sell the ideas that cities were dirty and dangerous and that each person needed a great deal of private indoor and outdoor area to live well.  I suspect many of the planners who want to eliminate single room occupancy urban dwellings and mandate minimum area standards for apartment units are acting on their honest beliefs about what it takes to lead a decent life, but that those beliefs were materially shaped by industrial advertising campaigns.  Who is really at fault when private enterprises strive to convince people that high density living is evil and those people subsequently go on to regulate for lower density?  I don’t really want a “fault” answer or to litigate the question, but the phenomenon of private enterprise promulgating a set of attitudes that then make their way into regulation and legislation is fascinating me as yet another pathway for unintended consequences.

 

Owning my priors on this:  I grew up in suburbs but have been an urban dweller my whole adult life.  I like cities.  I like rural areas. The isolation, ecological inefficiency, and car culture of the suburbs disgust me.  So there’s some salt to lick about my comment.

Josh Lumsden
Jun 9 2019 at 9:17pm

I think that, in America, there is a significant cultural barrier to urban living. There are certain stigmas about the poor that are quite prolific in America (briefly discussed in the recent show with Mauricio Miller). The misconstruction of the poor as lazy, unintelligent, or possibly devious amounts to a large portion of the public body that will do everything they can to insulate themselves from those of a lower socioeconomic class. Of course, the same goes for people of color and other minorities. Many Americans simply do not want to be associated with people who don’t look like they do, who make less than they do, and so on.

The above results in the overvaluation of so-called good or bad school districts to the extent of commuting 1.5 hours to work daily. How many school districts are so bad that they outweigh 3 hours of additional parenting time spent per day? Let alone the family vacation that could be financed with every year’s worth of fuel savings.

Mr. Bertaud suggests that city planners prioritize affordability and mobility. Perhaps a part of the “affordability” category could go toward the public goods that make urban life worthwhile. Bertaud’s example of living near central park highlights this. Whether it is a park that functions as a more entertaining, culturally rich equivalent of the suburban backyard, a basketball hoop in a parking lot, or a public library, common areas seem more necessary as housing units get smaller.

In short, I think that public sentiment has undoubtably been shaped intentionally (by the powers that be) and unintentionally into an unhealthy position that resists high density urban life. Removing restrictions on market-driven high-density housing would not only provide more people with affordable housing, but it would probably ease social tensions and contribute to recovery from our addiction to personal motorized transportation and unnecessary consumption.

 

Ajit
Jun 3 2019 at 7:21pm

Listening to this podcast while ironically driving through highway 101 to work put me in a kind of surreal mood. I feel like I live in the epicenter of zoning laws run amok.

The Bay area from an urban design standpoint is absolutely abysmal. Unlike other major cities, the bay area doesn’t have a truly central work location. Instead its spread out all over the place. In between work hubs are massive regions of housing where expanding highways or mass transit is next to impossible. The existing landowners have a natural incentive to block high density housing so the net result is a massive house price explosion and unbearable commute times(to say nothing about the environmental costs of having a large group of workers having to drive for miles every day to get to work and back).

I’m not quite sure how it got this bad, but I can’t imagine it was by design. I suspect the region resisted urban expansion at every turn but the draw for tech workers kept businesses coming in and so the region has limped on ever since. If I hadn’t grown up around here, I might have already left.

Paul R
Jun 3 2019 at 7:22pm

I wish that more US cities would simplify their zoning policies and unleash new development. Being realistic, the cities would not opt to remove zoning policies entirely. It is a shame that the most productive place in the US, the Silicon Valley/San Francisco area, has an artificial housing shortage and high rents. Imagine the increased economic output if the area were allowed to become as dense and populous as some Asian cities such as Seoul.

San Francisco recently blocked a new housing development for potentially casting a shadow for 42 minutes annually.

California also rejected SB 50, a proposal to ease height restrictions and parking requirements around transit stations. The chair of the California Senate Appropriations Committee delayed voting on the bill until 2020.

Bertaud made a great point in the podcast that a city functions as a large labor market. For the time being, the people who want to be a part of that market will be kept out, and they will have to settle for commuting in and out, for hours each day.

Ironically, the people who are most adamant about combating climate change are unwilling to accept the changes in their own neighborhood that would achieve what they claim to want.

City dwellers have smaller carbon footprints.

Ajit Kirpekar
Jun 4 2019 at 12:09pm

Making things worse for the bay Area is the work places themselves are all over the place. I visited NYC recently and marveled at how clustered their work centers are.

 

The Bay area by contrast has SF and Oakland as major work hubs but Google, Facebook are planted some 40 miles south of SF, causing traffic in all directions.

Alain Bertaud
Jun 6 2019 at 11:44am

I think that each city has its own physiology generated by its history, topography, and culture expressed through consumers demand.  Silicon Valley grew in faraway suburbs because 1) proximity to Stanford U. and to Xerox lab, and 2) because the land was much cheaper than in SF. It is not a legend that HP and Apple started in a garage, in violation of zoning laws. Fortunately, they got away with it!

Observing city development around the world, I think that transport systems have to adapt to the land use produced by history, not the other way around. If you are curious about the subject read my paper on Atlanta vs. Barcelona http://alainbertaud.com/wp-content/uploads/2013/06/AB_Clearing_The_Air_in-Atlanta_1.pdf

Henrik
Jun 10 2019 at 6:25pm

Very interesting article, thanks for that and a great conversation with Russ.

/Henrik (Swede in London, living in 4-story building in zone 1…)

philip
Jun 3 2019 at 7:24pm

Super interesting discussion, particularly on interplay between housing and labor markets. Very instructive lessons and insights. Many thanks to Russ and Alain.

Two points to offer for consideration:
– Listeners would benefit from hearing the other side (i.e., what are primary arguments of supporters of the codes/regs Bertaud takes down?). Consider linking to article that makes the case for city zoning regs limiting small units.
– Bertaud does not mention local/state energy/water codes that apply to new construction (e.g., requirements that walls are insulated to a certain level, windows of a certain rating, and the like). I hope listeners will not confuse energy/water codes for the kind of zoning regs targeted by Bertaud. I would suggest energy/water codes much better understood as preventing hidden defects.

Many thanks for giving us this wonderful podcast series — i love it.

Philip

Alain Bertaud
Jun 6 2019 at 12:08pm

Your first point about the other side opinion:

Yes, I am very much used to hear the other side when I work in cities as a consultant. And of course, their point of view needs to be heard. A city population is divided between those who want no change at all and those who want to accelerate changes, in addition, there are the silent potential newcomers who would like a job in New York or SF but cannot afford to leave there with an entry level salary! Do not forget that those who want no changes at all, once benefited from changes in land use. Modern zoning aims increasingly at slowing down land use changes, and in doing so, unfortunately, makes it extremely expensive to build any new structure, apartments, townhouses, or office buildings. When housing becomes completely unaffordable to households who hold jobs are indispensable to the good functioning of the city, such as school teachers, firemen, construction workers, it is time to reverse the trend and rebalance the rules in favor of those who want changes but cannot afford to pay expensive lawyers to eventually  obtain a land use change.

Your second point, some rules are necessary concerning fire hazard and sanitation:

I completely agree with you on that and I mention it in my book on several occasions. I propose floating rules only for what consumers can see by themselves: floor area, lot area, number of floors, shadow or sun, and location. The way a steel or concrete structure is built, unknowable to the consumer, should obey strict rules. The problem in markets is always caused by the assymetry of information. Real estate markets would benefit greatly with more information, for instance, earthquake resistance or flood plains should be compulsory displayed by sellers before all real estate transaction.

Samuel Staley
Jun 4 2019 at 4:18pm

A brilliant book by one of the most astute urbanists today. I’ve been following his work for years, and Bertaud does a first-rate job of pulling incredibly important insights from Hayek into cities and their growth. But the value is his practical, field approach to putting these theories into the right economic context. Rather than link to his working papers, I can finally assign his book in urban economics and land-use classes! I will also assign this podcast!

Nick Ronalds
Jun 4 2019 at 6:23pm

Brilliant discussion. Not only is it filled with insights about cities and how they (can) grow; the discussion, and doubtless the book, is a better education in economics than almost any series of courses in Econ, up to and including most graduate programs (IMHO).

Charles Fox
Jun 4 2019 at 7:23pm

Even if we agree that many zoning laws should be repealed, how should the transition be done?  Homeowners in Chelsea likely paid a premium to live in that style of neighborhood.  How would instability of the law influence future decisions?  Is it worthwhile to improve a home, if a neighbor might sell to a developer that reduces surrounding values?

 

Would you expect that in the absence of zoning laws, voluntary associations of which prohibit development would replace them?  Would their effectiveness be different?

Alain Bertaud
Jun 6 2019 at 2:53pm

You write: ” Is it worthwhile to improve a home if a neighbor might sell to a developer that reduces surrounding values?”

Well, if a neighbor sells to a developer it is most probably that the developer has been offering the neighbor a much higher value than if the property had remained under the current land use.  Adjacent properties would most probably fetch a similar higher value if sold. However, it is possible that in some cases, the current rental value under current land use might slightly decrease. You argue that the property owner has little incentive to invest in his/her property in this case. What investment are we talking about? an additional bathroom, a new porch? this seems very little investment compared to what would be invested by a developer under more intensive land use.

In New York, one of the major neighbors’ arguments against the development of high rise condominiums along Avenues is that it will render free parking around the adjacent streets more scarce.  This is an abuse of private property right exerted on public space. On-street parking should be abolished in most dense cities and replace by private market priced subterranean parking on private plots. The curb space along streets should be entirely reserved for loading or unloading passengers from buses, taxis, Uber-like vehicles, and loading freight unloading freight!

It is ironic that your hypothetical property owner is arguing against his neighbor right to selling to a developer is in fact arguing for a restriction of his neighbor’s property right in the name of his claim for an extension of his own property right over his neighbor property! The very essence of NYMBYism!

Dede
Jun 9 2019 at 2:27am

Refreshing to discover a Frenchman with decent understanding of the beauty of the market.

Still looking for one who did not have to emigrate to get this, unfortunately…

John Von Achen
Jun 4 2019 at 8:16pm

 

I started listening to Econ talk in the last year and find it fascinating. I have always enjoyed economics and to apply its lessons to a diverse range of subject is very satisfying. I share episodes often.
This episode struck a chord with me which did not resonate. I am not a planner, just a volunteer on my suburban planning board. I do not want to represent the points made in the podcast, but I got the impression zoning was an absolute failure. I on the other hand see zoning as a mechanism for stability which encourages investment.
In this way real estate purchases for most people represents a significant commitment. With that commitment they will study the community and learn about their past behaviors try to understand trends. Wealthy investors would do the same. If this transaction does not come with a certain amount of security that things will stay relatively similar such an investment would not be wise. Without zoning your neighbor could choose to make an installation which causes the loss of value in your real estate. In this way zoning regulations which help to make communities more predictable and safe encourage investment. Few of us would appreciate a neighbor selling their home to a mining operation.
Certainly there are zoning regulations which have become too precise. In my town we identified zone constructed for a very specific purpose which no longer exists, or zones which only differentiate by small nuances. We are in the course of simplifying. I am also working to establish more fluid multi-use zones which allow some flexing between retail/office/residential. I heard good arguments describing where regulations had become too restrictive, but excess of regulation does not make regulation bad, it is the excess which is bad.
As I was considering my argument for the positive aspects of zoning, I forced myself to consider a world where we did not use real estate as an investment; where real estate was merely a consumable. I considered how housing would be different. Would people invest time and money to preserve their home or is the home more like a car to replace periodically? Would people care about their community if they were just going to throw it away after its use was over? How would utilities, roads, and schools be able justify their costs? It seems to me property is a cornerstone of our society and regulating it creates the stability for thriving communities.

Nick Ronalds
Jun 5 2019 at 9:52pm

John Von Achen, You state that “In this way zoning regulations which help to make communities more predictable and safe encourage investment,” which is pretty much the usual justification for zoning regulations, and at first blush seems persuasive. But one underlying theme of the podcast discussion is: At what cost? As Bertaud says, communities and cities are constantly changing, and the physical environment needs to be flexible enough to change with it. Inflexible zoning can make changing the housing stock expensive or impossible. Plus there’s the fact that the justification for many of the zoning rules are just wrong to begin with, as Bertaud’s anecdote about his first job illustrates. Those rules could be based on assumptions that turn out to be false (such as growth projections for the neighborhood or city that are wrong), that are culturally inappropriate, that ignore tastes and/or costs. Yes, it’s wonderful for every family to have 200 square meters of living space. But if few families can afford it, making that a minimum size for apartments and condos is hardly socially enlightened.

Regarding your speculation about what it would be like if real estate were “merely a consumable”, like a car. Well, it is a consumable much like a car. Most people enjoy living in their homes but eventually move out. Perhaps their families grow, their incomes change, their tastes change—or their families shrink (think empty nesters). Does that mean they wouldn’t want to maintain their property? Why would it? Most of us live in more than one home over a lifetime, and own more than one car. When you decide it’s time for a new car, do you trash the old one, or drive it over a cliff? More likely, you keep it in decent shape and take it to the dealer/buyer looking as good as possible so you can get the best trade-in deal. Is that so different from selling a house?

Utilities, roads, and schools justify their costs by making similar calculations as businesses assessing the market for their product. How big is the potential market for my product? How can I keep my product attractive? How can I improve it attract more buyers? If my market is shrinking, does it make sense for me to invest more into my business? These are questions and decisions required in a dynamic environment for housing, consumables, or services of almost any kind.

Matt
Jun 4 2019 at 9:02pm

I enjoyed the episode and agree with most of Bertaud’s views, as an urban planner who works to chip away and modify zoning regulations. Unit size is a big one, as well as occupancy regulations, and numerous others.

I find that there is another major constraint which is born in a changed world view post WW2 that has halted the growth of new cities in the west. China, the Middle East and other places have begun to build cities anew but everywhere else it has been at a stand still. Similarly the many mid-sized cities around are held back by 1950’s zoning and its permutations that followed.

I’ve often wondered about the economic implications of movement from multiple markets that are express diversity more so geographically than locally to fewer cities geographically which may internally be more diverse.

One distinction I would suggest is important in the conversation is Bertaud’s discussion of urban sprawl. The term has changed over time certainly, and been addressed in many ways. Many of us fighting excessive regulation still strive to avoid suburban sprawl, which is akin to that mentioned of Houston and Atlanta, but not urban sprawl which is related to the agglomerated metropolis like the New York region. The disdain for suburban sprawl is that the system breeds social isolation and forces people to use personal automobiles for transport. It was born through regulations, a product of post-ww2 planning ideals and federal policies. Much of the anti-suburban sprawl is a hope to remove those policies that created suburban sprawl, and remain in place today. As a form it is also difficult to evolve and grow, locking in cities both by regulation and lack of adaptable structure. Urban sprawl is distinct, and related more to the pre-ww2 growth of industrial cities like London, which tended to be in a form that is able to evolve. So the anti-sprawl sentiment so common today is related to a set of regulations, which are of the same “book” as the other standards discussed.

Another key area of reform for cities is in engineering and public works standards. It is especially difficult to change these, while they have a profound impact on the city. Recent popular movements to reduce traffic speed in order to save pedestrian lives have been met with significant resistance from the engineering world.

From a housing standpoint we’ve seen that most new construction in the US over the past 30 years or so has been in a narrow range of market segments. While much of this is restricted by zoning, it has also become ingrained in development practice through both material manufacturing and the elusive and broad propaganda influencing the idea of success.

In all a good discussion, I’d certainly love to hear more urban economics discussions.

Nick Ronalds
Jun 6 2019 at 9:09pm

Yes, China is a rich environment for studying urban growth. Some cities are more-or-less artificial, in that much construction has been in anticipation of future demand. How will that pan out? Smaller cities, because they’re less important politically, have probably been allowed to grow more organically. Perhaps there’s grist there to find out what works and what doesn’t.

Adam
Jun 5 2019 at 11:10am

I’m glad that I don’t work in building departments anymore.

There’s something about being surrounded by people whose job it is to find newer, more creative, and more esoteric ways of saying “No”, that is not fulfilling.

The reality I observed of how zoning code sausage is made is that one property owner irks some politico, and then the zoning code gets changed to derail the plans of the property owner.  Then its another owner and another politico, then another, then another, and you finally end up with a whole city that has to abide by a collection of arbitrary rules that don’t make any sense as a whole, and nobody remembers how it got that way.

Then every 10-15 years the city pays an Architectural/Planning firm (politically connected of course) an unholy sum of money in a no-bid professional services contract to untangle the whole mess and rewrite the whole zoning code and urban plan.

Lather, rinse, repeat.  Then move to the country.

Michael Pettengill
Jun 6 2019 at 7:42am

I was surprised Russ was not constantly objection to the coded tax hike and spend advocacy of Alain Bertaud.

Eg, “providing transportation”.

As an engineer in the computer engineer, I helped develop lots of rules to control how things get built. The biggest challenge was dealing with existing hardware and software. You seldom have the luxury of starting from scratch.

Likewise, for cities, few start from scratch. I can’t think of any significant city built from scratch on bare land in the past half century. Before then, major cities were built from scratch, for example, EPCOT city, designed by Walt Disney shortly before he died.

Instead, we start with a city like Boston, much built on rumble like many major cities. With many historic buildings, plus new buildings designed at great expense to be built on land with poor surface structure. (San Francisco is even worse, with one recent building failing to consider the rubble/sediment soil to cut cost, and now tilting – other buildings spend the money  to put foundations on bedrock.)

Building transportation in Boston has been done two ways.

In the 50s, pick losers, the working class housing, bulldoze though ccommunities and make them undesirable so the working class moves out at significabt loss, and poor people move in. The transport is badly ddesigned to bypass the wealthy, so highways have sharp turns, or stop dead.

In the 90s, after decades of argument, tax hikes were finally agreed to to fund a very expense Big Dig. The cost was under estimated to make the tax hikes lower, while the project promised to not damage existing property. Thus, the soil problems caused many design changes, much cost increases, lots of delays, lots of finger pointing, but eventually it was completed for several times the promised cost, and the added taxes to pay for it are still being argued over.

I am very sensitive to tax hike issues and zoning, living in NH. Back in the 50s and 60s, lots of Boston area development happened in NH, done cheaply because NH had simple zoning and building codes. Then as thousands of homes, and businesses, built each year in NH on the Mass border, the hidden costs became visible, and tax hikes were needed. Existing NH residents who had profits from the influx of residents, started objecting to all the tax hikes to pay for transportstion, water and sewer, but most loudly for schools. Even with zoning changes to ensure houses cost a lot more and thus paid high taxes, the new housing plus existing housing from before zoning changes, required investing a hundred million dollars for just the high school, actually turning one into two bigger high schools. Earlier grades also required tens of millions on new schools. And of course, many more teachers must be paid, plus the busing costs from the spread out city requiring cars because walking, biking, and public transit were eliminated by “market forces”, eg, developers did not spend building sidewalks, because every customer had a car or they couldn’t afford to buy what was housing far cheaper than metro Boston.

To argue the market can provide affordable housing without government because anyone can create a school that charges tuition that can be afforded by the low wage workers living in small living spaces with low rents, but no government supplied services, is to argue Africa and Asia have fantastic schools supplied by the free market charging tuitionn to the low income people with children.

I’m guessing if you had asked about schools, your guest would have simply added that to the function of city  planner, just like he emphasized the important role of providing suitable transport infrastructure.

But none of that is free. Especially when you have a big city that is taking in the children of those in West Virgina, Ohio, Indiana, etc cities. There are cities in the US Midwest, with most having plenty of housing, but lacking infrastructure, mostly transportation, due to cutting spending to cut taxes, the cities lose businesses and industries, often because they can’t get good workers because the skilled young workers want better housing, better transportation, better Internet, better schools for their kids. Hundreds of thriving Midwest cities have shrunk since I grew up in the Midwest in the 60s, with boomers and kids moving to “big cities” like Chicago with much higher housing costs, taxes, etc.

What Bertaud slips by with phrases about providing transportation is extremely expensive, unless the spending has been high all along. Many US cities need higher taxes because spending was cut in the 70s, 80s, … to cut taxes. Promises the market would innovate and solve problems cheaper have clearly failed to deliver.

Kevin English
Jun 6 2019 at 10:25am

This was a good discussion but Alain Bertaud’s claim that family’s trade off size, location and distance from work when choosing a house misses two important things (for Americans): 1) Schools 2) Safety.

Anecdotally, I have met people who will drive an hour and half  to work to keep their kids in a good school district. More recently, I have met a few couples with small children that have moved out of downtown San Diego into the “boring” suburbs because of the rising homeless population. They will sacrifice driving farther and having fewer craft beer and burger places nearby so that on a Saturday they can go to a neighbor park that does not have 100s of homeless people living in it.

Alain Bertaud
Jun 6 2019 at 6:06pm

Yes, of course, I completely agree! I could not list all the things diverse people are interested in finding in the neighborhood they live in. Some people want to live next to their mother in law if she proposes to babysit! That the reason we moved from urban Washington to suburban New Jersey (my wife was the mother in law who babysit our grandchildren!). Of course, the weight they give to these characteristics are idiosyncratic and no planner can ever come close to knowing them. Conclusion: transport systems should adapt to demand driven land use, not the other way around!

Andrew Hatfield
Jun 7 2019 at 8:03am

Hi, superb discussion.

Can I raise Alain’s claim, that from a minimum wage he was able to support non-working wife and child in Manhattan?!

This seems like a fantasy world to me by the current standard! Bringing that idea to the modern, especially with transport improvements, surely immigration (or even within USA migration) would surge if such living standards were achievable from a minimum wage.

With population growth over the years, wouldn’t there need to be almost doubling/ re-doubling of supply in order to achieve this?

To me I think this is a quirk of history rather than something that could be realistically recaptured, but would love to hear someone argue otherwise

Cheers,

 

Alain Bertaud
Jun 7 2019 at 5:55pm

Andrew, you probably do not realize how the United States has changed since the 60s! I will go at length to document my claim because it is essential to show how different the life of a young immigrant in a large US city was compared to what it might be now. The following is only anecdotal evidence, of course, but real case studies are giving flesh to statistics.

My claim that I could support a wife and a child in Manhattan on a low salary:

My wife Marie-Agnes, our seven months old son Yann, and I emigrated from Paris to New York in January 1968 just after graduating from the Ecole des Beaux-Arts as Architect DPLG in June 1967.

I had a job with Philip Johnson, who was at the time one of the most well-known architects in the world. I could find this dream job (which proved instructive but quite unchallenging in reality) through an institution called Atlantic that tried to match young European graduates in architecture and engineering with prominent American firms and did the same service for young American graduates to find jobs in Europe. Having a French university degree entitled my entire family and me to have a green card right away, which allowed me to change jobs three times in the first two and a half year we spent in New York. This job mobility would not be possible now with the kind of visa a young foreign architect would be able to obtain in 2019!

I distinctly remember my first weekly paycheck of $ 104 after tax or $120 before tax. That was a salary of $3.00 an hour. In New York, in 1968, the minimum wage was $ 1.60, so admittedly, I was earning a little less than twice the minimum salary to cover the expenses for a household of three persons. My low pay was probably reflecting my low initial productivity as an architect used to the metric system and obliged to make drawings using bewildering feet and inches!

After a week in New York, we found an old hotel that rented a furnished room for $290 per month. That was 64% of my salary after tax! The hotel was going to be transformed into a condominium and was in deplorable conditions. Looking at our fellow tenants, it seems a bit like skid row. I learned the word flophouse from our American friends when they came to visit us for a drink. A piece of plywood had replaced the broken glass door entrance from the street. We found every morning little pieces of plaster that had fallen from the ceiling. There were fire alarms during the night about once a week due to short circuits and fire in the incinerator. Yes, a flophouse in skid row, but so convenient in our circumstances!

The location was wonderful, eighty-first street and Columbus, close to Central Park and the Planetarium and at 20 minutes from my job in the Seagram Building on Park Avenue. But the neighborhood at the time had not been gentrified as it is now. There were police raids at night, and we could see from our windows police officers entering in adjacent buildings with their guns out of their holsters.  One morning, while my wife was walking toward Central Park with our baby in a stroller, a man was gun down in front of her.

However, the trade-off was terrific, and we never regretted our choice: I was close to my job and could get back to my family early. Marie-Agnes could walk with our baby to the South part of Central Park and see the most exciting part of Manhattan! We could meet our work colleagues socially during weekends and established a social network that allows me to change jobs later. That was a significant change from Paris, where social relations with fellow workers were always so long to establish.

After three months, we found a one-room studio in an Old Law Tenement on the Upper East Side with lower rent representing only 40% of my salary.  I changed jobs three times in two and a half years that we spent in New York, each time with an increase in pay. From the studio on the Upper East Side, we moved to a two bedroom apartment in a Brownstone in Brooklyn Heights for a rent that was only 30% of my increased salary and quite close to my new job as an urban planner in the Urban Design Group at the New York City Planning Commission.

Mobility was a key feature of our first stay in New York as a young emigrant household: moving from house to house without high transaction costs, moving from job to job without being penalized as an unstable person! Short commuting allowing for social time spent with family and friends. Not quite a Horatio Algier story, but coming close

This long autobiographical story to explain why it is so essential to allow consumers to make their own choice.  Well-intentioned persons would have been tempted to make different choices for us to increase our comfort: a cheaper and larger apartment in far away from Brooklyn with one hour and a half commute. This wrong trade-off would have prevented us from enjoying the excitement of living in Manhattan and having a social life, even if we could not afford to take a taxi or eat in a restaurant! The 26 square meters  Old Law Tenement, where we lived on the Upper East Side, could not be legally built in New York now. The kind of visa I could obtain in 2019 in a similar situation will not allow me to change job without high transaction costs and uncertainty.

The recent work of Moretti shows us that mobility is decreasing in the US. America is still, in my opinion, the most open and tolerant society in the world, but it is changing and possibly the trade-off we did as young emigrants would not be possible now.

 

Charles Hickenlooper
Jun 8 2019 at 11:14am

According to the Inflation Calculator found at dollartimes.com $3.00 in 1968 is equivalent to $22.23 in 2019. The annual inflation during that time was 4.01%.

Andrew Hatfield
Jun 9 2019 at 6:49am

Hi again, thanks both for the replies. Fascinating insight, and Alain, thanks for your detailed reply – really has helped me understand the trade-offs and choices facing a mobile immigrant. All the best

Jenny
Jun 11 2019 at 1:31am

Great episode, and I think Alain Bertaud is my new housing hero. As a SF Bay Area resident who has been ranting against zoning for a long time, I was very sympathetic to Alain’s perspective. I couldn’t agree more that cities should be dynamic and that there’s something broken when teachers can’t afford to live within 30 minutes of their schools.  The conversation on what makes a labour market is so obvious when explained, but not something I had fully appreciated prior.

Kevin Ryan
Jun 11 2019 at 2:39pm

I’ve only just listened to this podcast as I’ve been driving in mainland Europe on vacation.  (Ironically, although I’m not sure it’s that relevant, I am now in Berlin – a city that has had much rebuilding of various types over the last 75 or so years).

However what struck me was the part of the conversation that started with Chelsea and the New York brownstones, and has been on my mind since some critical comments by Russ on Portland in a podcast a few years ago.

The question that this raises with me is whether people agree or disagree with the notion that ‘residents’ have a right to keep their ‘neighbourhood’ the way it is at the moment and/or decide on how it should be further developed.

I think this is a pretty basic issue and is in principle the same one that applies to immigration from abroad.  Do existing residents/citizens have rights that allow them to ignore the preferences of others?  Even though this is likely to be ‘selfish’.  Or do people believe in an open borders world where those who are currently outsiders, but would like to participate in the life of a neighbourhood/city/country, have similar rights that have to be taken into account?

Would welcome any comments if I am not too late

Alain C Bertaud
Jun 11 2019 at 5:00pm

Kevin,

You write: “Do existing residents/citizens have rights that allow them to ignore the preferences of others?  ”

I agree that your question raises a fundamental issue for the development of cities:

Cities success are dependent on their Darwinian adaption to exogenous changes. Few cities, like Venice and Williamsburg (VA), manage to survive by staying the same!

The resident of Chelsea (Manhattan) who wants to protect her neighborhood against changes is most probably living in a structure that was rebuilt many times and is much larger, denser and higher than the buildings that preceded it.  When is the right time to freeze urban land use to preserve the interest of current residents against newcomers? By the way, most likely newcomers are most probably not immigrants but residents from other neighborhoods.

A paper by William Easterly, Laura Freschi, and Steven Pennings “A Long History of a Short Block:
Four Centuries of Development Surprises on a Single Stretch of a New York City Street” (2016)  provides an entertaining but scholarly history of successive land use changes that have shaped Green Street in Soho, Manhattan.

This paper Fig 11 provides the following list of the dominant land use in Green Street between 1830 and 2016 (together with the change in real estate prices) :

1839-Upper-class residential neighborhood; 1860- Sex work, 1880 – Garment boom, 1910 -Industrial decline, 1960; Moses vs. Jacobs battle, 1990; Artists and art galleries; 2016, Luxury retail and upper-class residential neighborhood.

Should this evolution have been stopped somewhere in time? I am sure that the upper-class residents around 1850 were not too thrilled to see their neighbors’ townhouses progressively transformed into brothels! To preserve their jobs, the garment workers of 1930 might have wanted to have the city take an ordinance preventing the transformation of garment sweatshops into apartments. And so on… When is the right time to freeze urban land use?

My answer is never! The only concession I will make is for the preservation of architectural heritage. For instance, in the case of Green Street, that would involve preserving the Cast Iron Buildings that were built for the garment industry sweatshop. However, that does not mean freezing land use, it means only protecting buildings and allowing the type of land use that would best preserve the integrity of the architecture.

Your question might be answered in terms of property rights: do the property right of a resident expands beyond the boundaries of his property into the adjacent properties –in the absence of definite nuisance like noise, smell, pollution, etc.? what about two residents of nearby properties? One wants to sell his current grocery shop to, say, a luxury shop selling Prada bags and retires to Florida with the proceeds. Her neighbor, think that the transformation of a neighborhood grocery shop into a Prada shop would unacceptably change the “character” of the neighborhood and with a small coalition of neighbors manages to block the change. Is that right? Does it benefit the welfare of New Yorkers?

You will notice that the extension of property rights beyond one’s property is not symmetrical. I can prevent my neighbor from changing her land use, but I cannot force a change that I deemed desirable. For instance, in my case, rather than a Prada shop, I would rather have my neighbor lot transformed into a new bakery producing fresh croissants every morning. However, I can’t do that, my property rights extension allows me only to block the Prada shop, not to promote positive changes (from my own culturally biased viewpoint, of course).

The extension of property rights from one’s lot to an entire neighborhood can have only a very negative impact on the evolution of a city land use. When we want to regulate land use, we have to get back to the fundamental: preventing clear, measurable negative externalities. Exerting personal preferences on our neighbors’ land use, for instance, requiring a bakery shop rather than a beer hall is not an acceptable use of zoning power.

However, the property rights of existing residents have to be strongly protected against nonfree market land use transformations, such as abusive eminent domain acquisition, or urban renewal projects. The tragic Supreme Court case of Kelo v. City of New London, (2005) is an example of property right abuse in the name of an arbitrary common good decided by planners.

 

 

Leonid Limonov
Jun 12 2019 at 4:42pm

thank you, Alain,

I enjoyed the reading very much! It is true that planners don’t think in terms of market and usually have “socialist” or very utopian views on the city and on the society in general, exaggerating the role of the state regulation based on “norms”. Interesting that in developing (underdeveloped) countries planning regulation is not efficient or doesn’t work at all, even if these countries are “socialist” or with dominated public ownership on land and other properties! In complex interplay of different interest groups, which include state officials as well planning regulations and norms are only some tools, which may be used in these straggle or violated or neglected or revised! Result of even a very strict and detailed regulation may be the same or even worse than in case of a total absence of any regulation at all! The state is not “benevolent and enlighted” absolute monarch, thinking only about the public good, but a legion of small and big officials – each with her or his own interests. So, planning is not informing of the society or the benevolent monarch on the best solutions to benefit the society in the best way! That’s why many areas after construction looks very different from how it was prescribed by the initial plans.

I think that the book of Alain may be used also for teaching! My students last year read some chapters of it and prepared their presentations for discussions in class. It gives very good vision and understanding of basic things for young planners and urban economists.

congratulations, Alain, that you managed to collect your views, knowledge and experience in a book, which gives a very clear peacture of real driving forces of urban development!

Katrin Leinweber
Jun 13 2019 at 3:30pm

There is absolutely no reason for … a lot of numbers which are buried in the zoning code.

About this point: If such regulation was version-controlled like any modern software source code, there would be a trail that one could follow. See the website link above for a list of talks by experts who are prototyping this approach.

Alain Bertaud
Jun 13 2019 at 9:00pm

Thanks, but I cannot see the link!

[The link Katrin refers to is that her name is a clickable link. The link leads to her personal website.–Econlib Ed.]

Alain Bertaud
Jun 15 2019 at 12:33pm

Thanks! I get it!

Kian Tajbakhsh
Jun 13 2019 at 11:15pm

One of the commentators offered a defense of zoning: “I see zoning as a mechanism for stability which encourages investment.”  This brings to my mind the argument of economist William Fischel who offers what, I think, may be a slightly different way to think about zoning than Alain. Fischel’s basic argument is that zoning emerged in the US (he only deals with the US) as a “bottom-up” and demand-driven regulatory institution (growth controls, exclusionary zoning) by homeowners to protect the value of their property (And not, as the comment noted, primarily to increase investment in the neighborhood. While local economic development might be the objective of some planners, other planners can be often anti-market.) Fischel contrasts this with the view that sees zoning as a top-down policy advanced by planners. A couple of quotations summarize the thesis: “Zoning was the product of bottom-up demand for protection of residential neighborhoods from the inroads of businesses and apartments whose developers were made footloose by the self-propelled motor truck and bus.” “Zoning is a popular institution, not something handed down by government officials who were out of touch with public opinion. Zoning’s most acute advocates are not planners but homeowners.” [From: William A. Fischel. “Zoning Rules!: The Economics of Land Use Regulation.”] This desire to protect home values through exclusionary zoning intensified in the 1970s when inflation caused home values to become a much larger proportion of a households total assets. This made homeowners much more sensitive to potential loss of value.

The commenter also wonder how things would be different if “real estate was merely a consumable” and not an investment. But in Fischel’s argument, for most homeowners it already is only a consumable since their primary interest is “quiet enjoyment” (while keeping the property value from declining) and not a development or enterprise use of their property. In the end Fischel agrees with Alain that over-regulation is detrimental but the bottom-up understanding of zoning leads to reforms to modify the demand for zoning (such as reducing the mortgage interest deduction) rather than the supply of it, by for example trying to reform local or state politics. If I have understood the arguments this might be a difference in implications for regulation reform of two different ways of understanding the political economy of zoning.

I should say confess that I’ve learned almost everything worthwhile I know about urbanism from Alain, so I am eager to hear his response or from anyone else.

Alain Bertaud
Jun 14 2019 at 3:56pm

Kian,

I agree with you and Fishel that often a grassroots movement generates zoning (at least in the US, where housing values are monitored carefully as “net worth”).  In my book, I warned that I often take a shortcut by naming “planners” as the authors of misguided regulations, when often they are only the designers and enforcers of regulations generated by a legitimate political process. I am still speaking about the US, this political legitimacy is rarely existing in developing countries, or in countries with a strong centralized technocratic tradition like France, for instance).  

However, city dwellers are divided between people who want changes–the school teacher who cannot afford a dwelling within 45 minutes commute from his school–and the people who consider that any change may upset the delicate balance between their current city taxes and expenditures.  For instance, an earlier commentator complained about the additional tax borne by his neighborhood because of the necessity of expanding the schools to accommodate the children of newcomers. Once, participating in the zoning board meeting of my town in NJ, a board member suggested modifying existing residential zoning to bar households with more than two children, as they would contribute to an increase in the taxes allocated to school funding!

 

The fact that an idea has broad popular support does not make it legitimate. The concept of democracy, in particular in the US, is that a majority should not be able to oppress a minority (households with more than two children, or with a lower income than current residents, for instance).  We have then to get back to property rights (Fishel does that quite often in his books). The property right of the newcomers (the school teacher, or the household with many children) against the property right of the “settled,” and possibly retired resident.

My way of dealing with these potentially conflicting rights is to get back to the rights attached to the physical boundaries of properties. We should maximize the rights existing within the property boundaries, but be suspicious of any right expanding outside it, which decreases the rights of others within their property boundaries. An extension of my property rights outside my property boundaries that would prevent the building of a nightclub or a slaughterhouse next to my house could be a legitimate right as it would prevent an obvious negative externality.  The same type of right extension, forbidding the construction of a townhouse next to a detached house would not be legitimate, in my opinion.

Most zoning considers that any differences from current use (or by extension from current users) constitute an unacceptable negative externality: a slight income difference, a larger or smaller house, etc.  This type of zoning freezes current land use to what it had been in the past. We have no reasons to think that this original use has been and still is optimum. We know that cities thrive when they adapt to external economic and demographic shocks. For a city, referring to its past as a revered “golden age”  is a sure path to economic and social ruin.

Preserving architectural heritage is a different issue. The preservation concerns the structure appearance itself, not its use, or its users.

Arde
Jun 14 2019 at 6:14am

Excellent discussion! I will vote for this as one of my favourites of the year 2019.

I would like to add one more reason why I dislike many housing regulations. These regulations are a huge source for corruption. It is no coincidence that construction sector is the most corrupt economic sector according to Transparency International, and at the same time it is one of the most regulated one.

I had a short work experience in real estate business and what I experienced there disgusted me. What I saw was that the businesses earning the highest profits were not the ones who built the best houses and had the best business ideas. The road to quick profits was having good access to the regulator to tailor the regulation to one’s needs. For example, a developer buys a land plot very cheaply because according to the zoning rules one cannot really do there anything. In the extreme case it is some kind of nature protection area where all you can do is to watch flowers grow. Then by using the connections, the zoning is changed say to residential area and the value of the land plot increases many times. The developers could build houses there or sometimes even that was not necessary. They just sold the plot, pocketed the difference between the buying and selling price minus the cost of bribes, and they were still left with huge profits.

Alain Bertaud
Jun 14 2019 at 4:33pm

Arde,

I Completely agree with you on that subject. In a city like New York, the complexity of regulations makes it nearly impossible to value urban land without employing a very specialized lawyer who would evaluate the type of use and the area of floor space that will be allowed. The lawyer not only evaluates the kind of use and floor space permissible under current zoning, but also how long it would take and how much it would cost to obtain either a variance or a zoning change that would completely alter what is permissible under current zoning and by extension reveal the hidden market value of the land parcel. Typically, in New York, the cost of a plot of land is not measured by its dollars per square foot of land, but by the dollars per square foot of floor space that the current zoning allows. The implicit assumption is that the current zoning allows much less floor space than the current demand, and that therefore any zoning change would increase land value.

There is, therefore, a complete asymmetry of information between seller and buyer, unless both have access to the most expensive lawyers. These lawyers services are costly precisely because they can generate hidden land value through their knowledge of regulations and of their potential for change.

The land value generated by the use of lawyers is very different from the value created by a structural engineer or architect that can cause increased value by inventing a new type of foundation or a more rational type of floor design. The incentive for a developer is not to build a more efficient and technologically advanced building but a building that would through zoning change create a value that is currently hidden by the zoning regulations!

Arde
Jun 17 2019 at 8:10am

Thank you very much for this information. Very interesting to know how this is happening in New York. In the country I worked, it looked more like corruption, and that what happens in New York could be characterized more as rent seeking. Both are ugly ways of gaining something for oneself without giving any value added to the society.

I don’t know if you are doing it, but I think it would be very good if you participated in public discussions on these topics by media appearances, opinion pieces in newspapers. Your arguments very much make sense and I suspect that general population will appreciate them more than government officials and urban planners who have different mind-sets and who are not used to the economic way of thinking. Most people are commuters and rent or mortgage payers and they do care a lot about ways of reducing these costs.
Thank you again for the interesting conversation. I put your book on my reading list.

Kevin Ryan
Jun 18 2019 at 4:20am

I live in the south east of the UK and have a slightly different take on this.  Here there are contentious ‘green belt’ regulations that in particular aim to prevent building on agricultural land, while also we have a housing shortfall/housing too expensive narrative.

My assertion, not backed up by any analysis, is that the price/value of agricultural land is its value in its present use plus that of an option for its conversion into use for residential building.  That option is more valuable/costly the greater the chances of a given plot getting permission for a change of use – and which increases for example with its closeness to other residential land.

This therefore means that it is uneconomical to buy/use such high option value land for agricultural use and it is there is a chance is will just be underused/not used until eventually the change of use is allowed.  In this way residential land slowly expands and farmland slowly reduces

Alain C Bertaud
Jun 20 2019 at 4:09pm

Kevin,

There are, of course, many variations on the way the cost of possible zoning changes is reflected in the land price under current use.  The case you describe and your assumptions are most probably correct. In this case, the impact of the green belt is to slow down land use conversion and makes buildable land more expensive, while as you point out, making agricultural land unaffordable for agriculture. This case illustrates my argument about many zoning regulations perfectly: they fail to meet their original objectives–in the case of the green belt, preserve agricultural land and provide recreational space–while making urban land supply inelastic to demand and therefore unaffordable to many. In this, they fail twice.  Time to reevaluate our methods of “planning”!

Comments are closed.


DELVE DEEPER

This week's guest:

This week's focus:

Additional ideas and people mentioned in this podcast episode:

A few more readings and background resources:

A few more EconTalk podcast episodes:


AUDIO HIGHLIGHTS
TimePodcast Episode Highlights
0:33

Intro. [Recording date: April 11, 2019.]

Russ Roberts: My guest is urbanist, architect, and author Alain Bertaud.... His book, and the topic for today's conversation is Order without Design: How Markets Shape Cities.... Your book is about how the economics of bottom-up, emergent order--what you call markets--interact with the top-down administration and regulation of cities around the world. It's a fabulous introduction to urban economics. And you argue that most urban planners are ignorant of how market forces shape cities. What is that perspective that urban planners have that is missing, the economic perspective? And, what's the most important aspect of economics that they ignore? [More to come, 1:31]

Alain Bertaud: Well, an urban planner thinks in terms of norms; an economist in terms of needs. You know, a bit, how to say, like Karl Marx discusses about to each according to his needs, and from each according to his ability. So, for instance, if you ask an urban planner, 'What is the optimum size of housing?' this planner will tell you a number--you know, 50 square meters, 60 square meters, something like that. If you ask the same economist will say, 'Well, it all depends.' So, this is really the big difference between planners and economists. Planners do not think about [?]. They consider that what is important is what people need. So, they decide what people need, depending on norms that, you know, sometimes make sense. For instance, to decide what is the minimum size of a house, they will say, 'Well, most people in the city have two children, so they need two bedrooms; and the bedrooms, there will be a bed that has this size. Therefore the size of the bedroom will be, say, 12 square meter.' Then you have a kitchen, a bathroom, and a living room; and that will be the norms. And they say anything below that is socially unacceptable, which will not allow anybody to build that. The effect, of course, is that in areas where people are relatively poor and construction is expensive or land is expensive, they eliminate a large number of people from having legal housing. They don't, of course, exclude people from the city: People don't go away because--they will just go in the informal sector, either, you know, crowding existing housing or building illegally. So, that's really the big difference between planners and the economist.

Russ Roberts: It's a great example you give about the minimum housing. We're going to come back and talk about that in some detail. Because, I had, ashamed to say, didn't fully appreciate some of those factors that you are mentioning. But I think what you are highlighting there that's crucial is the difference between norms and prices, and then the role that information plays in what people desire. And, the planner doesn't know what people desire. They may think they know what's best, sometimes, for those people. But often--usually, I would say--people know what's best for themselves.

Alain Bertaud: Absolutely. For instance, for housing, you know, every household makes a tradeoff between location, price, and size. And, these tradeoffs are done differently by different households. It's a very, very important thing. The tendency of planners is to concentrate on, for instance, the size of the quality of housing, forgetting about location. So, that's why you see so many [?] housing, for instance, which are in terrible locations which are complete poverty traps because they are in locations which are inaccessible to most of the jobs.

Russ Roberts: Yeah; and we'll also talk about that, too.

4:58

Russ Roberts: But I want to start with a formative experience that you write about in the book. It was 1965. You were a young man. You had a job; it was a great opportunity for you to be on the ground. You were approving permits, building permits, in a city of 80,000 people in Algeria. I'm not going to get the town right--it's Tlemcen.

Alain Bertaud: Tlemcen. Yes.

Russ Roberts: And, you learned a lot from that. Describe what that experience was like and what you learned.

Alain Bertaud: Well, you know, I was still--I had not graduated yet, so I was still a student. But, I had this job: it is like a Peace Corps, let's say. And suddenly I was in a position of responsibility. I had this staff. And, my job was to apply the law, which was in a big book which was called the Code de l'urbanisme. And I assume, first, that the people who wrote this book were much smarter and more educated than I was, and that I had to take it seriously. Now, when I compare what the book of regulation was prescribing to what the people wanted to build in Algeria--and the people, by the way, who applied for building permits--there were many people who didn't apply for a building permit and built informally. So, those people who applied for a building permit wanted to maximize the size of the house, and also the houses they wanted to build reflected the local culture, which put a big emphasis on privacy. So, the Code de l'urbanisme was developed in France: Algeria was a former French colony. And, the people who developed the norms had in view, in fact, the suburbs of Paris: you know, what people would like in the suburb of Paris--what type of housing they would like. So, it required, first, relatively large windows, low, large windows; and a lot of setbacks between buildings, so you could have a little garden in between, which could be seen from the street: not very different from an American suburb although a little smaller, probably. And, in Algeria, the people wanted something very different. They value privacy very much. So, they don't like a large window on the ground level, so they would tend to put tiny little windows close to the roof. They prefer to have a central courtyard, you know a [?], a house, all the rooms oriented around the central courtyard. And that, of course, is impossible if you have a relatively small lot and if you have to give setbacks between your property line and your line of construction. So, the result was that if I applied the regulation, I had to refuse to give the building permit. But, as an architect, I had to recognize that the plan that was provided to me on the basis of approval made a lot of sense. Actually, they made much more sense than the suburban house in Paris. So, the first 2 or 3 days I was so intimidated I had an assistant was already preparing the answer and usually the permit and quoting the norms which were violated by the plan which was proposed. So, the first 2 or 3 days I signed because I was so intimidated. But, I felt really very bad about it, because suddenly I realized that I was doing a disservice to the city. Here are these people that wanted to build legally: they had the plan, the design plan, which as an architect I could see that this plan makes sense. There was nothing wrong with this plan. And then I was obliged to tell them, 'You cannot build.' Or, 'You have to build something that might be okay in the suburb of Paris but would be terrible in Tlemcen,' in terms of culture, and also in terms of climate, by the way. The central courtyard is much more--in North Africa, the central courtyard is much more pleasant for a house. So, after 3 days, I decided I couldn't continue signing those permits. So I went to see the Prefect[?]. The Prefect is the chief of all the civil servants in the city. He is a representative of the central government. And, he was a young guy like me, and as inexperienced as I was. So, I told him the problem. I explained to him. And I said, 'Could I--instead of using the book of regulation, could I just use common sense? I am an architect; I am able to judge a building, whether it makes sense or not.' So, the Prefect told me, 'Yes. Go ahead; do that.' So, during my tenure there, which was another 6 months, I gave building permits just entirely based on what I thought was right and not following the law, actually, at all. Well, we got away with it. Fortunately.

Russ Roberts: What I love about the story, actually--well, there are many things I like about it. But the part I like is when you were given this book--and I have this image of this enormously fat book of regulations, the whatever-it-was of urbanisme--

Alain Bertaud: Yeah.

Russ Roberts: So, you have this fat book; and you said, a minute ago you said it was written by people who were smarter and--I forget--maybe you said more experienced than you--

Alain Bertaud: More experienced, yes, right, yeah.

Russ Roberts: But they didn't have the relevant experience or the relevant smarts for that book to apply to that situation on the ground, where the circumstances of time and place and other things were very different.

Alain Bertaud: And culture; yes; especially culture. Yes. I mean, this is again what Hayek developed very much--is, the lack of information. You know, when you want to plan for others, you need some information. And usually you think you have this information, but you don't. So you take the wrong decision.

11:28

Russ Roberts: In many parts of the book, you are critical of planning, regulations and visions; and it reminds me a little bit of Adam Smith's man of system--the idea that you can move people around like pieces on a chessboard. And, of course, you find out, as Smith says, they have emotion of their own. So, much of your book is an illustration of that. But you are not anti-regulation. You certainly suggest in many places that regulation is necessary. What are some of the regulations that are necessary in urban settings, and why are they important?

Alain Bertaud: Well, first is, you know, every city in the world, even in the Middle Ages, even antiquity, had regulation, which we like call, a good neighbor's regulation. For instance, you find in the ancient Greek cities, that I found that also in Chinese cities, that it was forbidden to dump water from your roof to your neighbor's property. And, of course, dirty water even more. That was a rule that you had to, you know--was enforced. There were a number of rules like that. So, basically, there were rules about what economists would call negative externalities: You cannot cause some problems for your neighbor by your own actions. So those rules are okay. Then there are some rules, I think, which are much more technical. For instance, building code, the way concrete should be poured, the way structurally--if you have a steel structure, the way it should be assembled. Which is really the state of the art, so that the structure will be, you know, will be solid and it would not collapse. So, those are legitimate true. There are rules about fire regulation. Rules, sometimes they go a bit over the top. But, say, fire regulations are also important. The way you connect, you know--if you have, if you are in a city with a sewer system, the way you connect your house to the sewer system has to be regulated. You cannot do it the way you want. So, there are a number of rules like that. The rules I argue against are rules which affect consumption. That means: which set the minimum about of floor space for a house, or for an office or for a restaurant; or the minimum amount of land which is required to build something on it. I think that those rules are arbitrary; that people are able to see how large a house is and whether they are ready to live in it or not. Contrary to [?], if you visit an apartment and select an apartment--sorry, a building and an apartment in this building--you may not be able to know whether the structure is solid or not. That's why you need a regulation for that. You may not be able to know whether if there is a fire you will be able to escape. So, you need a regulation for that. But, whether--the height of a building or the size of an apartment and the size of the kitchen, or things like that--this is up to you. You make your own tradeoff. You are able to see it. So, I don't see why those things are regulated.

15:00

Russ Roberts: So, let's back up a little bit, and talk about your general view of cities, which is quite illuminating. I was just in New York a few days ago, on Sunday. I was visiting some friends. But when I usually visit a large city like New York, I'm a tourist. I, as a visitor, see a city as a collection of interesting sights--whether it's the Empire State Building, or the Colosseum in Rome. There's entertainment. There's special events. I'm a traveller. But, you argue, and quite powerfully, that what a city is, is fundamentally, is a large, dense labor market. How does that affect how you see a city, and how the key parts of a city, which I would say, you talk about in your book quite a bit--the housing stock, transportation opportunities, and then land prices--how those three things interact, given that a city is a large labor market?

Alain Bertaud: Yes. I think that this aspect of the labor market is very important, because this is the foundation. The working of the labor market is a foundation for everything we like in cities, including the monument you quote[?]: the Colosseum or the Eiffel Tower, or things like that were made possible because there was a very efficient labor market in the city which produced those monuments. So, when the labor market is efficient, then can put to use in all of the things, which makes the city much more pleasant. But, the foundation is still this labor market. If people cannot get to their jobs in a relatively short time, the city will, the city economy will fragment in a way, and become less and less efficient. So, that's what is important. This is why, I think also it is important for me: It was very important to live in different city. Very different from visiting, as you mention. If you live in a city--for instance, when I first went to work in Shandigar[?] in India, you know, the city designed by the [?], I was working there. And suddenly, I had to go to work. I had to meet with friends: we would go to restaurants together, to café. I had to get new clothes. And all that activity in the cities which are very much linked to the labor markets. You know, to the tailors, the people who were selling clothes, had to be in a certain part of the city in order to have clients. And for me, I had to have access to them, too, for the city, for me to be present. So it's not so much as visiting monuments. It's living there. My definition of the labor market sometimes is a little different from what people think of the labor market. The labor market is not just to have a job. And, I think a job close to your house. And stay in this job all of your life. A labor market is the ability for an individual to look at different jobs, constantly, and eventually change jobs if you are not satisfied with your current job--or if you find it boring or if you think it's not paying enough. And, again, here, in looking for a job you make a tradeoff. You make a tradeoff between the time commuting, the salary you will have, the people you will be working with--whether they are pleasant or not. And, maybe also, you will feel, obviously also, the interest of the job: Whether it leads to something really interesting in the future or not. So, those tradeoffs will be made very differently by different people. And, that's why the idea of some planner to try to match housing and employment is a complete illusion. And it doesn't work. The labor market, the functioning of the labor market, means being able to change jobs as you like it, and not being constrained so much by transport or affordability. From the employer's point of view, it's the same thing. You move to a large city like New York or London, and if you move to the city, everything will be more expensive there. But, you move to this large city in order to select the right employees. And some time you may have to change your staff, also, to reflect, again, the constraint from the world. And so you should be able to select people who are not just living within a kilometer from your enterprise, but among the 20 million people living within New York City. That's the way the labor market works. So you see again: Sometimes my idea of labor market is misunderstood by some parody[?] think if they could match housing and job that would solve the problem: That would be [?] really minimize transport. I always remind people that in most jails now, people have a job. They have no commuting. And, but it--you cannot expect people working in jail to be very productive nor very inventive. Because, that's not--this is not a labor market. To be employed in itself is not a labor market. That was the same thing in Russia, or in China, before the Reform. Enterprise, at their own housing. And very often their own housing was relatively closed to the enterprise. So, you could say that it was a perfect tax-accessibility[?]--people didn't have to commute too much to go to their job. But, it was not a labor market in the sense that people were employed in the same factory or same enterprise for all their life, whether they like it or not, whether they were competent to do it or not. So, that was not a labor market. And that was why the Chinese did their reform: It was precisely for this reason, the very, very low productivity of the labor force. And the same thing for Russia. You know, Russia, they very educated labor force. And with a terribly low productivity. And it was in my opinion because of this lack of labor market. Most people were just mis-employed.

Russ Roberts: You have two issues there. One is: people are not necessarily assigned to the task that was most productive; and their incentive to work hard was not always there because pay was not necessarily correlated with that.

21:56

Russ Roberts: But, to go back to a modern American city without those extreme restrictions, I love how you talk about the role that land prices play. And transportation--how they interact. So, for example, in the 19th century you either walked or rode a horse. So, as a commuter to your job you had to be within walking distance. Obviously, you can walk a long way. But most people don't want to walk more than an hour. That's a long walk. So, the city was constrained by that reality--that the way you could get from wherever you lived to wherever you worked had to be less than an hour. With modern transportation, what takes an hour to commute is suddenly a lot farther away. A person can then choose if they want to have a bigger house far from their job, where land prices are lower. If they want to live close to their job--their job is closer to the center of the city where land prices tend to be higher--they have to take a smaller unit. And they make that tradeoff. And they make that decision. And, the stock of houses and where jobs and houses are located are constantly in flux, constantly adjusting to what people want. And that is just a beautiful way to think about how markets work.

Alain Bertaud: Right. Yes, absolutely. And again--the choice. You could have two households with exactly the same income. For some reason some will prefer to live in a smaller apartment close to the center of the city. And, the other household, exactly the same size, exactly the same income, will prefer a much larger house in the suburb. And this is the way an efficient city works. This allows[?]--and this is of course prices, the mechanism of prices, which is, you know, it's a self-generated mechanism. Which provides this choice. And I think this is a very important aspect. Another aspect of price is the recycling of land when land use is obsolete. It's possible that in a city 40 years ago you had houses which were built relatively close to the city, but that was a suburb at the time, so the people consumed relatively large amount of land. But, as the city expands there is more, much more demand for this land, which is relatively close to the center and to the [?] of the center. So, the price of land here will increase and will push developers to change the housing stock in something with a higher density. This is, I think completely legitimate. It's a mechanism which is self-generated. You do not have a planner to decide, 'Aha, this is a time to have apartment here, and then [?] houses there.' It is just, you know, the way things work automatically. Again, the big lesson from Russia and China, particularly from China, was that, you know, sometimes in the center of the city you had areas which were devoted to warehouses. Or you had old factories which had been there for 60 or 70 years. And, if you do not have a price mechanism to recycle the land, it is really, the urban planner, would take decision, 'Ha, we have to now remove this factory which is in the center of the city. We have to move it somewhere else.' And there is no way to pay for it. Because, the land, I quote, 'belongs to the people, therefore has no value.' Therefore, you know, it's a net--removing an old factory from the center city and redeveloping the land, in a command economy appears to be a cost. Where in fact, in a market economy it is a benefit to a lot of people.

Russ Roberts: And the market figures out whether that should be a loft, or a different kind of factory, or an office building, or a playground, or, you know, a zone for kids to do some, fund some things--or a yoga studio. All those things are up for grabs--

Alain Bertaud: that's right--

Russ Roberts: and the market does that assignment without a--using the information that people have in their heads but that isn't generally available to the planner.

Alain Bertaud: That's right. Yeah. And, this is a--that's where sometimes I argue against zoning, but not necessarily all zoning plans. But against zoning plans. Because zoning will already affect the use to a certain area. And it's possible that this is not the best use. That some--for instance--let us see, downtown New York. You know, the Wall Street area. For a long time, it was mostly office buildings--you know, there were financial things. And, it was considered--you know, considered not fit for housing. For some reason, after 9/11, there were a lot of firms left Wall Street area. And suddenly people discovered that there was a lot of demand for people living in the Wall Street area. It can be very attractive, if this is what you like. So the zoning was finally amended so that you could have a residential building in this area. Which are now, my belief now is that half the land used in the Wall Street area are residential condominiums. So you see here again, sometimes the zoning, built, designed to protect individuals against externality, against bad neighbors, in fact preventing them to have the choice they want.

28:11

Russ Roberts: You write, "A city's productivity depends on its ability to maintain mobility as its built up area grows." And we think about a city that spreads out as people moving into the city to find new job opportunities or whatever amenities there that people are enjoying. How is that mobility maintained? What's the role of government in making sure that people can get from different places in the city to other places? Who does it? And who does it well? And who does it poorly?

Alain Bertaud: Well, first, of course, you have to have the right of ways to have means of transport. So, one of the first job of the planner is really, as a city expands, to separate what is private and what is public. What is private are the lots, you know, which will be developed by developers, whatever they use. And, what is public is, of course, the right of way of streets. And, maybe some amenities like parks, a river--the shore of a river or a lake--or some things like that. So, that's the first thing. If the planners do not do that--and in many cities they do not do that because they do not believe that the city would grow, or, they want to curb "sprawl,"--then they do not develop those right of ways for future transport. Then, you have cities like Jakarta or Bangkok which were always--the planner always thought that they would be kind of garden cities and they will not really expand; it was not desirable really for them to expand. So they never designed the right of ways for the expansion. Then you have of course terrible traffic jams because you just do not have enough space. Whether the people use buses, taxis, individual cars, bicycle, or rickshaw, you just do not have enough space. So that's one thing which is important is to estimate in advance the right of way for a city to develop. One very good example, positive example, was the great[?] of New York, which was established, if I remember correctly, in 1805. And included an expansion of New York more than 20 times compared to what it was. So, that was very enlightened. Now, one could argue whether the avenues were wide enough, or too wide, or all the streets were too long, or something. That was not important, in my opinion. You could--what was important was to establish the right to build on a very, very large area by separating public from private. Immediately, you establish by doing that, a land market. You have a transparency. You know that when you buy a lot somewhere, even if it's far away from the city, you know how far you are from an avenue; you know how wide will be the street in front of your house. And therefore you can buy a piece of land with a complete transparency in price. You know what the information is. So, many planners forget to do that; or think that, you know, they want things like a compact city. So, a compact city will be more compact if they don't develop roads in the, you know, in the periphery[?]. Then, as a city grows, of course, the mode of transport will have to grow also, and will be different. And so, the basic mode, as you say, was walking and horses. Then you start having street cars. And the street cars, then, require a certain density to develop. You can walk to a street car; but you can walk only that much. So, that requires relatively high densities. Then, you had individual cars. The individual car suddenly multiplied the supply of land at variable, let's say the supply of land which will give access to a job within half an hour. And, there, suddenly you have a very, very large area, a lot of choices. And I think that's a beauty of transport. Now, when a city becomes much larger than that--for instance, if you look at the Pearl River Delta in China, you know, the area around Guang Zhou, Hong Kong, Macao--these are areas of 60 million people, on the modern, hundred, let's say the dimension about 150--about a hundred miles by 60 miles. Here, you cannot have traditional means of transport here. You could--you know, the subway of Hongkong is wonderful. The subway of Guangzhou is wonderful. But, it will not allow you to develop a labor market corresponding to these 60 million people. Impossible. It's too slow. So, you have to devise a new system of transport, which will probably link individual transport with fast rail to go from one area of the metropolitan area to another for long distance. And, this is what the Chinese are working on right now. Unfortunately, that is not what we are working on so far, much, in the United States or in Europe, except maybe with the advents now of the self-driving car. And I think maybe self-driving mini-buses will probably change this; and allow those markets to integrate a much larger area. This is really our survival. When, forces--if you take a city like Mexico City, which is 25 million people now--the labor market is not corresponding to 25 million people. The labor market within Mexico City is fragmented in probably 5 or 6 smaller labor markets. And therefore much less efficient, because the transport system has collapsed. You know, they are--most of the transport now are provided by mini-buses. But the minibuses are not that efficient. The city also refused to organize them, and the legitimate means of transport. The individual car takes too much, you know, consumes too much real estate compared with the density of Mexico City which is very high. So, if you are in a very dense area, real estate is expensive. If you have a car, which consumes a lot of real estate, you--you know, it's very costly for the city. It's not very efficient. So, here we are at this threshold. If we understand what the labor market, the large labor market brings to a city, then we have to invent new means of transport. We cannot just expand the means of transport we have, which work quite well for a city, let's say, below 5 million people, but not so well for a city much larger than that. And again, because of the efficiency of a very large labor market, we have to face a reality that, whichever country develop, integrate, labor market of 60 million people, like, or 100 million people like the Chinese now decided to do: If they succeed in providing transport, to unify this labor market, they will outdo us in terms of productivity in a way that we cannot even conceive it.

36:08

Russ Roberts: Well, we had Jason Barr on the program talking about skyscrapers in New York City. And your discussion of mobility reminds me of--we tend to think of a city as a two-dimensional place. There's these roads that go in different places. Sometimes there's buses, bicycles, cars, foot traffic on those roads. But, the two hidden aspects of a city that give them three dimensions are the subway, below the street. Which gives you sort of a duplicate, express, form of travel. At a high cost, obviously. But worth it in a dense setting. Potentially. And then, the elevator. Which allows you to increase, to multiply the city, up into the heavens. And that's just such a beautiful image that, for me, that the way that human creativity has allowed that density of, not just labor markets but of course social life, and food, and everything that cities have--music--it's just an incredible thing that we have that compared to a city of hundreds of years ago, which was a very different place.

Alain Bertaud: Yes, absolutely. You know, what makes a city is really not the land. It's the floor space. So, if you stack up floor space you have a lot of advantages. You could--there is a subway that you talk about. But there is also tunneling. Which is a new thing now. Because probably the cost of tunneling is going to go down, which is a new technology. And that will be a way, again, to make again a city much more viable. Because you could increase also the different, the viability of different mode of transport in very dense area.

Russ Roberts: What is 'tunneling'?

Alain Bertaud: Tunneling is digging tunnel.

Russ Roberts: To do what?

Alain Bertaud: Well, to do highways underground.

Russ Roberts: Oh, okay. Whoa. Like a tunnel. Like a highway tunnel. Yeah.

Alain Bertaud: Yes, yes. Sorry.

Russ Roberts: Or you could put a parking lot underground. Or you could put apartments underground for people who--

Alain Bertaud: Absolutely. Absolutely. For instance, one thing in New York City that should have been done and should be done is to put all the cars which are parked in the street should be underground in a privately owned parking--so they should pay market price for parking. And the area of the world, of the streets in New York, especially in Manhattan, should be entirely devoted to either pedestrian or taxi or Uber or whatever. Or cars. And, to have, you know, people who will park their car the entire year in the street is a complete waste of space. And they park it free. In the most, probably, the most expensive real estate prices in the world. You have people who will claim ten square meters of street space permanently for free.

39:20

Russ Roberts: I want to move to affordability. And I'm going to--which is an area which is extremely important in America these days. We've had many conversations about it. And, I'm ashamed to say, when I said earlier that I learned way too much from your book, I realized something that I should have realized long ago. And I want to introduce that by going back to New York City, which, along with, say, San Francisco, Boston, other American cities, has a huge issue. Because, rents are very high. And you say, shockingly in your book to me that not every urban planner understands the connection between the price of land and rent. Which is fascinating. But we'll put that to the side. There are these American cities where land is very expensive, and rents are very expensive. And it's increasingly difficult for people to move there, to find the jobs that often are productive for them to take. So, a friend of mine--I was walking down the street in New York on Sunday, and I hadn't read your book yet: I read it over the last three days--he says to me, 'Why is it so expensive to live here?' You know, the easy answer: There's two easy answers. The easy answer is, 'Well, a lot of people want to live here--because of the amenities. The collection of people who are already here creates a great productive place to work, to play, to eat, to enjoy; to frolic. Etc. It's a great city. So, a lot of people want to live here. That's one reason. The second reason, of course, is that there are a lot of restrictions on supply. So, there's zoning; and there's permits; and it's expensive to do all that. And delays. And so as a result, to make it work well to put up a building it's very expensive. So, I know all that; and I told him that. But I--the real question then is: What changed? Because, you know, a hundred years ago, New York was an attractive place to live and there was lots of access to all kinds of housing. And now, I think people have the following feeling--which is wrong. I think a lot of people believe that housing is expensive in, say, a city like New York, because 'Developers, they are greedy, and they can make more money selling luxury apartments. So, of course they don't build any housing for the poor.' And the only thing that will allow there to be housing for the poor is some, either, government construction or housing subsidies. But, what I wondered for your book, and this is the embarrassing thing, is: Well, the kind of regulation they have in New York is really important. It's not just that it's hard to build a new building. They have really specific laws about how big an apartment has to be. And that kind of changes everything. So, talk about the role that minimum standards play in effecting the mix of housing that's available in a city like New York. And then you talk about, I think it's the Chambre de bonne in Paris. And talk about how that opportunity to allow flexibility is so important. And what you react to that long speech as well, any way you want. Sorry for that.

Alain Bertaud: No, no, no; not at all. Well, yes. You see, households make a choice, make tradeoffs, between the quantity of floor space they want, and the location, and the time commuting. And that's their choice. As soon as the regulator wants to be nice with those households by saying, 'No, no, no: You would like to live in the center of Manhattan but in the certain square meter, but in fact, you will be much better off if we impose developers to build at least 60 square meters, you know, and not less--so, as soon as they do that, they of course eliminate a large number of people who cannot afford those 60 square meters. This is not the only thing which creates a constraint in New York City or San Francisco. It's not only the regulation, you know, those minimum apartment size. You have all sorts of zoning which do not allow--for instance, in Manhattan, you will not allow housing in some areas which are still considered manufacturing, for some reason--although there is practically no manufacturing left in Manhattan. But, in SoHo [area South of Houston St. in Manhattan] for instance, just an area, so, you have a, several blocks which are manufacturing, and there was no demand for manufacturing in those blocks: you were left to be crazy to try manufacturing in this area of New York. There were a number of artists who were located there because there were those empty buildings. And they were not squatters--you know, they paid rent to the owner. But it was illegal. At the same time, the city realized that those artists--you know, it was embarrassing for New York City to kick out the artists from lofts--you know, former industry lofts were empty. So, they decided not to change the zoning. Instead of saying, 'Well, this area is excellent for housing; why don't we allow housing to be built there?' They say, 'Those artists, the most trades that they work there, they will have to send a portfolio of their work to the city. It's still there, by the way, if you want to apply yourself as an artist in New York--I think my book gives the website where you can apply as an artist. And, so, they will send their portfolio. The city will decide if they are bonafide artists. And therefore, in the regulation itself it says, 'Certified artists will be assimilated to a small manufacturer, and therefore will be allowed to live and work in this area.' So, this is a complete, absoludite[?] of course--

Russ Roberts: [?]

Alain Bertaud: the limit completely--by the way, that means also the zoels[SoHos?] artists consume much more floor space than they should, you know. If they wanted to consumer that much floor space, they should go to Queens. Or they should go to Long Island or maybe New Jersey. You know, and commute. There is no reason for having that. So, and that adds expense, of the school teacher, for instance, who is teaching in a school in Manhattan and cannot find any house to live in except somewhere in Long Island or in New Jersey within an hour and a half commute, one way. So, you see, this is--I will say even that this is criminal. Although I don't believe it's a conspiracy. I think it's incompetence. You know, Albert Hirschman used to say, not talking too much about zoning, but certainly not about zoning about many regulations or management rules, that we have a case where the weak are oppressed by the incompetent. And I think that's, this is exactly what is happening now in New York; and San Francisco, and cities like that; and Paris or London. The people who have relatively low income but have irregular jobs--you know, housing for people who have irregular jobs in the city should not be a problem. Housing for people who are in the streets, who are homeless, that's a different--this is a social problem. And the city has to take care of them with subsidies. This is a different thing. But, for me, the test is: If a school teacher, who has a job, with absolute indispensible for the working of the city cannot afford to live within half an hour commuting time from his or her school, there is something wrong with our system. And this something wrong is entirely due to regulation. There is absolutely no reason for it. You see a lot of numbers which are buried in the zoning code. For instance, in New York City, every, every zone will be called R6--Residential 6. And then there is a long line of parameters that decide what should be the, you know, the dimension of things which are building, Residential 6. And among them is a number, which is a number of square feet. This number of square foot is in fact, you have to divide the total area of the building, that you are allowed to build in this zone, divide it by this magic number and that will give you the magic number of dwelling units that could be built in this area. I challenge anybody to tell me what is the advantage to the city to establish this--this minimum number of dwelling. This--sorry--this maximum number of dwelling. The density of New York 80 years ago was practically double of what it is now. So, it's not number--it's not that our infrastructure cannot capture two more people. It's only a completely arbitrary number. And it limits, of course, the number of dwellings that can be done. The household size in New York now has decreased, you know, some 40 years it was again around 4.5. Now, if I remember well--

Russ Roberts: That's people per household.

Alain Bertaud: People per household. Yes. It's people per family, let's say. Now, it's about 1.2 or something like that. But, this magic number I was talking about in the zoning code assume it is relatively large because it assumed that you still have a relatively large family. So, it obliges the developer to build a relatively large apartment. Because, if not, they will be, they will run against the rule of this number of dwelling units per acre, which will be too high. You know, in the New York Times, some about a year ago, there was a very interesting article which was extremely well documented which showed that in Manhattan, 40% of the building could not be built today--not because of a building code or fire--

Russ Roberts: safety--

Alain Bertaud: safety. No. Because there are too many apartments. In those buildings, already. Too many dwellings. Because, those buildings are too high. Or because there are too many businesses in the area. Which, imagine: some planners who have the knowledge to know what is the optimum number of businesses in Manhattan? Where does he get that? Where does it come from? And, the problem is a bit like, the problem we are talking at the very beginning of this talk about Nigeria--all these numbers are in the Building Code, in the Building Regulation. And people assume that the numbers were there of a reason. That, somebody really smart has put these numbers there--

Russ Roberts: An expert--

Alain Bertaud: An expert. And nobody knows why they are there. But this is: Somebody must know. And therefore do not change them. They feel that: Here goes the neighborhood. You know: If you change this number, maybe something will collapse, or something like that. It's not true. You know, so, I recommend, really, regulatory audits. You know, to get rid of all those regulations for whom we don't know what the reason is; or the reason was maybe valid a hundred years ago, but not any more.

51:40

Russ Roberts: So, just to highlight this: There are other regulations you haven't mentioned, about restrictions about how many units can be on any one block; the number of unrelated individuals that can live in any one apartment. And, of course, many of these are violated, as you point out in what you call the 'informal sector': people find ways to get around some of these. It's not perfect--

Alain Bertaud: Right. Yes--

Russ Roberts: But, the point that's--I just want to emphasize this because it's, again, so obviously true; and the fact that I struggled to notice it is disturbing but illuminating. Which is: it's true that a high-end apartment can rent for a lot of money. But a lot of smaller units can rent for a lot of money, too, even though they'd be less per unit. You could just change the floor space. And the--I'll put a video up, it just blew me away, of an apartment of in Paris--and I'm not exaggerating, this is the exact number: It's 8 square meters--

Alain Bertaud: that's right--

Russ Roberts: 86 square feet. Which is a very small--it's about the size of a child's bedroom in a small suburban house. And in that space, there is a kitchen, a bathroom, a bed, a table, book storage space. Other storage space. It's a beautiful work of art. And I'll put a link up to it. But, that apartment would be illegal in New York. Obviously. And the point about child-, about household size, is just crucial. As fewer and fewer Americans are married, and more and more people are living on their own, the idea of limiting household size, of square footage, is just a recipe for high rents and people living very far from where they work. Or only rich people living in those urban centers. And it's just an easily fixed problem. And I want to say one thing bad about that, and one thing in defense of it. And let you react. So, you suggest it's incompetence. There's also, of course, the Road to Hell being paved with some intentions. Some of these laws were passed to benefit people, to make sure they had enough room and space to live. And, of course, some of it is designed to protect the people who already lived there. Who benefit from the rents. It's a classic, what we call Bootlegger and Baptist problem, where the regulator invokes a high-intentioned, wonderful moral reason for the law. But it also benefits, makes other people richer; and those are the Bootleggers; they keep that quiet. Um--at the same time--now let me defend--I'm a little more cynical than you, but that's okay. Let me defend regulation for a second. On that same walk on that street with my buddy, when I said how horrible it was that all these restrictions were the way they were, we happened to be walking in the Chelsea neighborhood. The Chelsea neighborhood is beautiful. A lot of gorgeous old buildings. They are very low: they are not high, multi-story buildings. They are low numbers of stories, 3-5 stories. Gives it a certainly look and feel. And he said, 'You know, don't you think that the people who live here want to enjoy this kind of feel and look on the streets?' And you could say that about many zoning and other types of restrictions, that it creates this public good, this sort of ambience that would otherwise be destroyed by the interest of developers trying to cater to poor people who would like to live in high-rises in those areas, for example. How do you respond to that?

Alain Bertaud: Well, yeah. On your last comment here: Yes. But you see--don't you get that Manhattan, for many years, there were mostly brownstones in Manhattan? Which are very, very nice--

Russ Roberts: Beautiful--

Alain Bertaud: and, you could have said, 'We should not have developed Midtown because there were beautiful brownstones there, and the people were living there. A city has to evolve constantly. Now; and any city which froze itself in the past is doomed. At the same time, I completely recognize, especially as an architect, and a French architect on top of it, I completely recognize the value of keeping some historical neighborhood intact. But, let us face it: We can't keep those neighborhoods intact--for instance, having several streets with brownstones intact--and we should, do not forget that this will be extreme gentrification. You cannot maintain a brownstone unless you have a lot of money. And, it's the same thing for any historical building that you want to maintain. It will have to go to rich people in order to be maintained. If not they will deteriorate very, very quickly. This is, by the way, what's happened in Harlem, in the 1960s, the end of the 1960s, I was working there for the city Crime[?] Commission. Harlem was full of beautiful brownstones. The people living there at the time were extremely poor. There was a huge crime problem and drive[?] problem. A lot of those buildings, those brownstones, had to be demolished because they were so badly maintained they were collapsing. The only way to maintain a brownstone is to have rich people working--you know, living in them. Now, for, I get back to your example of Chelsea: Yes; we have to--it's nice to live in Chelsea. But, only, you know, if you are protected, you know, from the market by living in Chelsea. By a zoning regulation which prevents people from going and living there, too. I think that's a little egoistic--

Russ Roberts: yeah--

Alain Bertaud: You know, it's not so--you know. Again, think of my school teacher. My school teacher is teaching at this school 10 blocks from there, but have no hope absolutely to live in Chelsea right now. So, if you increase the supply, and the supply of smaller dwellings, for which there is a demand and which can be very attractive, if there are--you know. I know, by the way, when I came to New York with my wife as young immigrants, you know, in 1968, there were still quite a large number of old-law[?] tenements, which are illegal now--you are grandfathered: you can still live in them if they are still standing--but it's illegal to build apartments which have the same size of the one we had, you know, in this old-law[?] tenement, you know, in Yorktown[?]. And this was wonderful. We had a young kid--you know, we had a toddler. We had, my wife and I. So we were three people in 27 square meters, a little larger than the Chambord[?] of Bonn, but a little larger. And this is illegal now. For us it was, it's one of the most wonderful [?] we had coming and living in New York. You know, we could walk to Central Park on the weekend with our kids. It was a wonderful thing. My employer, when we came to New York, I told him, 'I have a wife and a young kid. How do I get housing in New York?' And he told me who--'With the salary that you have,' he was paying so he knew, 'you will have, you may find something maybe in the Bronx or maybe in New Jersey.' And we decided: we don't want to live in New Jersey. We came from Paris to New York. We have to live in Manhattan. And we made the tradeoff of living in a very small area. You know, we furnished it well so that it was very livable so that in spite of being small, but for us, accessibility to the amenities of Manhattan, largely compensated the size. And it was affordable. We were not only living on a waiting list--you know, when I hear, the city, the City of New York, now saying, 'Well, we are going to build affordable housing below market,'--if it's below market, if the price is below market, it is not serious. It means you have to be on the waiting list for 10 years or you have to go through a lottery. You know, if you have a new job in Manhattan the way I had coming from Paris, I could not wait to be on the lottery or on the waiting list. So, we need--if the program of the city to do affordable housing is the role-market[?] housing, this is a joke. You have to put use housing which is affordable at market price. And then you will have enough of it. And you can do it. We can do it--the technology otherwise. One way of doing that, of course, is also to improve transport systems. So, you allow people who want to consume a little more to have efficient transport, which brings them to their job. You know, from their house to their job at a longer distance. So, you could have that also. You know, if the transport were more efficient, it would have a way of providing--that's why, in my book, I link, I very much, I think the two main jobs of the urban planner is affordability and mobility. These are the two things. Forget about sustainability, livability, or, you know, resiliency, or all that. These are all very nice things. But, the main job of the planner is to insure that. And you can measure mobility. You can measure affordability. The planner, should say, or the Mayor, let's say, should say, 'Well, this is our target for affordability and mobility. We are going to do that. And let's see if it works.'

1:02:04

Russ Roberts: Well, I want to go back to your story of when you first arrived in New York. Because you talked about it in the book. And I think it really brings home what has changed in America. And I think it's a tragedy. You mentioned, just--I didn't hear it correctly the first time--an 'Old Law,'--tenement. Meaning, I assume that's a tenement that had been grandfathered in, as you say, now--that now would be illegal--

Alain Bertaud: that's right.

Russ Roberts: So, here's what you write. You say you are at a museum, and the docent was telling you that in the 1850s:

... immigrants who were fresh off the boat would typically stay only a few months in a tenement. They would then keep moving as their employment and financial circumstances changed. A typical length of stay in the same tenement would be about 6-8 months. My wife and I then looked at each other
--this is all a quote--
remembering that this was exactly what we did when in January 1968 we were also fresh off the boat in New York. We changed apartments three times in thirty months. We moved from a flophouse on the upper east side that was soon going to be demolished to a studio apartment in an old-law tenement on the Upper East side. And then to an entire floor in Brooklyn Heights. I also changed jobs 3 times. Each time I changed for a more interesting job and a higher salary. This is the type of mobility that we'll discuss in this chapter: the ability move from job to job and from dwelling to dwelling, made possible by transport infrastructure that gives access to millions, of potential jobs, in less than one hour of commuting time. This mobility was made possible by a buoyant housing and job market, ensuring a load transaction cost of changing jobs and location. By contrast, in Paris, where we came from, housing mobility was hampered by two-year leases that could not be broken without penalties. Additionally, job mobility was frowned on as a sign of instability. Changing jobs 3 times in 30 months would have resulted in a resume that raised a lot of eyebrows.
And then you talk about the fact that you were a little uneasy quitting your job; but how, in America, that was Okay. And you boss[?] threw you a party: 'Congrats! You have a better job!' But I think the point that's important, and we talk about this a lot on the program, is that: You know, if you are in West Virginia and your factory closes and you don't have anything to do in West Virginia, or Kentucky, or Ohio--areas that used to be vibrant that no longer are vibriant economically, and that the whole thing for hundreds of years that Americans did is they moved. They got up and they moved to a city. But now the ability to move to a city is much harder than it used to be. And I think that's a--physical mobility is down in America. And part of the reason--it's not the whole reason, but part of the reason is the kind of restrictions you are talking about that make it harder for people to find the opportunity, near a place they where want to live and thrive. And it's an enormous mistake. And I think it's done--you know, you said it politely, you said it's a form of egoism. It's a form of selfishness. And it's a failure to recognize that the next generation needs to have a place to use their talents, and to experience life fully. And when we zone New York or San Francisco or other places and make it hard for people to move there--I understand why the people who live already and the people who own the buildings want to profit from it. But it's wrong. Just wrong.

Alain Bertaud: Yes. I absolutely agree with you on that. I mean, for us, you know, again, moving to America was a very important thing. When I arrived in New York, my wife didn't work. You know, her English was a little shaky. She could not find work yet, for her [?] English. So I was only the breadwinner. On top of it, the job was [?] and the architect, and it was so good on your resume that you could afford to pay your the room[?] my guess is that I was paid at the minimum wage. And, you know, at the minimum wage, a household of three persons could survive in Manhattan very well. You know, we really enjoyed our time. We were not in poverty at all. We were enjoying it very much.

Russ Roberts: You had a rich life. You weren't poor--

Alain Bertaud: Exactly, yes. So that's exactly what--I wish, again, when I'm talking about this schoolteacher or people like that would have the support--the person in West Virginia, indeed, would be much better off moving to a large city, which is affluent, which look for new people, where there are so many opportunities; and they cannot do that because they are frozen--I would call it frozen, land-use regulation which are completely obsolete. And which need to be revised in a different way.

1:06:46

Russ Roberts: Now, we had a guest on EconTalk, Glen Weyl, and I don't know if you've read his work. But, he argues that this frozen-ish needs to be liberated in creative ways: there's too much monopoly power in land markets. And your book really is a statement that market forces, when you let them work, are incredibly effective at tailoring opportunities for what people demand. Glen Weyl and others don't agree. They think we need to change the way property rights are established. Why are you so positive and enthusiastic about the role of markets in housing, where, just to pick on a straw man that drives me crazy--'Well, it's nothing, in economics, to have competition you need homogeneous product with perfect information.' In fact, housing is almost incredibly not homogeneous. It's heterogeneous. Every house is unique. Every building is slightly different. The location is certainly different. And people have imperfect information about how that, what it's going to be like to live in the house, where they can get to from the house. And yet, you believe, or at least you argue in this book, that these--that the interaction between suppliers and demanders works well when government sticks to what it does well and doesn't try to over-plan. What's your reason for that? ]

Alain Bertaud: Look, we see that, for instance, this market working well in the food industry. You know, if you are in Manhattan, you can have, in the same block, an extremely expensive French restaurant and next to it you will have a food court. And the food, in both, will be quite okay, actually. I assume better in the French restaurant, but in a certain way, it will certainly be satisfactory and you could go from one to another. Why? It's the same in clothes, by the way. You could have, in Manhattan, you can find fantastically expensive clothes; but you can also, you know, find enough clothes to, you know, be decently clothed for you, for $400, probably, I think. So, why, is everything different? I think that a lot of it has to do with, you know--again, regulation and infrastructure. Those two things. Infrastructure has not followed the expansion of cities, because always society[?] is that maybe a city should not grow so much. Especially when I was a student or when I was a young professional, there was this idea about the optimum size of cities. And so, there was a reluctance to have a city grow. In a way, now, it's expressed a bit differently, as a sprawl. You know, the sprawl is kind of the bugaboo of every city. 'We don't want to create sprawl. We want compact cities.'

Russ Roberts: 'Houston is a horrible place, because it's'--

Alain Bertaud: that's right, yeah--

Russ Roberts: so big--

Alain Bertaud: Or Atlanta. You know. It is not. It's just a different tradeoff. It represents a completely different tradeoff. And it's very efficient in terms of jobs--there is no doubt about it: an excess of jobs. So--

Russ Roberts: And price of housing, which is very reasonable in Houston.

Alain Bertaud: What is important here is that if you have crazy regulations--like we have--the market adapts to those crazy regulations[?]. And that creates a new equilibrium. If you remove those regulations, then [?] industry has to re-adapt to it. And that's not easy. It takes a long time. Right now in New York, the system, and especially in Manhattan, the system is such that unless you are a very large developers and you build for the 10% richer people of Manhattan, for the rich, you cannot build anything really. But, in order to do that you need lawyers, who are fantastically expensive, who can tell you how much it will cost to change the zoning, you know, from this to that. So, you buy the land at a certain price; it will take you 10 years, and with constant work on the zoning with your very, very specialized lawyer to change the zoning, and then you will make a bundle. But you can do that only if you build luxury housing. So, now you are being told by the city: We want inclusionary zoning. That means that, 'Every time you build 10 apartments, 8 will be at market; 2 of them will be affordable; and we will decide which is affordable.' This is, of course, absurd, you know, to have the supply of low-cost housing depending on the supply of luxury housing; and only a fraction of the supply of luxury housing goes to affordable housing. I explained that in part of my book, here, on this specific case. This is absurd. We have to have a market solution. I do not believe that, you know, that--there are interests, certainly, for the status quo, which will want to keep the status quo. I don't think that if we are aware of it, if we are aware how a market works, that it's not possible to build housing which is affordable to a schoolteacher in New York or San Francisco.

1:12:46

Russ Roberts: Well, this is a time when I would normally say my favorite Hayek quote; but I'm going to use my second-favorite Hayek quote, or maybe my third. Which is, you use at the beginning Chapter 1, you say, 'Order generated without design can far outstrip plans men consciously contrive.' Order generated without design can far outstrip plans men consciously contrive. That's from The Fatal Conceit. And, it's just hard for people to face that. They don't like--it's unpleasant to be made aware of that. And let's close with this. I think your perspective is a little unusual--I'm just guessing--in the urban planning community. I say that based on my own knowledge and what you say in the book. And I would argue that your book kind of takes the fun out of being an urban planner. So, I'm curious how your book has been perceived by your colleagues. And, do you think your perspective on regulation and what you've been talking about today has a chance to become more widespread and mainstream in cities in the world?

Alain Bertaud: Well, first--yes, it's unusual. But, around the world, I have a number of colleagues who are urban planners. And who think the same way I do. There are not many, but they are quite a number. And, you know, in countries like India and New Zealand, Australia, Latin America. It's true that there is there a general hostility to those ideas. Well, I'm critical of it--you know, of the profession. For instance, when my book was published, at MIT Press, there were--you know, the first review for the first three chapters were done mostly by economists, urban economists, and they had some criticisms but they were very positive. So, the book, you know, get the okay. When the book was finished, and all the chapters were finished, MIT Press asked two reviewers to review the complete book. One was an urban economist, who said very nice things--I'm too modest to repeat them. And the other was from an urban planner--you know, it was anonymous. I don't know who they were. My guess is that the urban planner was an academic, from the style. And the urban planner said: 'A book like that should not be published. Because it's entirely based on idiosyncratic views from a guy based on his own experience. It doesn't address,' you know--he said--he or she says, 'the academic debate on the nature of urban planning.' So, you see: Yes. It is a big fright[?]. But, what's interesting, too, I am following on Amazon, I am following, you know, the sale of my book. And, in the category of economics, it's usually within the 10 or 15th best seller. In the category of urban planning, it's about 50 or 60 or something, go to 80. So, that means that in fact, most urban planners are not reading my book. And that's why, so far, I have not received any flak, yet. You know. I have not received--so, maybe that's a question: If they are not reading it, then that's a--but, I think that eventually, those ideas--you know, ideas percolate. We should not--they go into the garden; then they come back after some time. So, I'm rather optimistic. I think also that the new technology, the new information technology will make these things much easier than they were before. You know: Ideas circulate, the good or the bad ideas circulate faster. I think also that transport technology: we are at the eve of a big revolution in urban transport. I'm not completely sure what the outcome will be. But, it's there. And it will be the equivalent of going from the horse and walking, to motorized transport. I think the self-driving cars and the share--the possibility of sharing small vehicles rather than very large buses, I think this will change to. So, all these things put together, I am rather optimistic.


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