Russ Roberts

Avent on Cities, Urban Regulations, and Growth

EconTalk Episode with Ryan Avent
Hosted by Russ Roberts
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Ryan Avent of the Economist and author of The Gated City talks with EconTalk host Russ Roberts about The Gated City and how cities have restricted access to land and housing. Avent argues that restricted access has raised housing prices artificially on both the east and west coast of the United States, reducing urban populations and restricting access to labor markets. He argues that this in turn has artificially depressed growth in the United States by keeping workers from their most productive opportunities. The conversation closes with a discussion of possible policy changes that might make cities more accessible to development and growth.

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0:36Intro. [Recording date: October 17, 2011.] Ideas in book, a Kindle single; brief by book standards, full of interesting economics and many important observations about how cities actually function. Main argument in the book is that urban policy of various kinds has handicapped growth in America. Interesting and provocative argument. Begin by talking about what's special about cities. Why are cities important, why are they places of productivity? Cities exist basically because there are limits to how easy it is to ship goods and move people. And so, despite all the improvements we've seen in transportation and communications technology, distances are still important for different kinds of activities to group themselves together. So, during the Industrial Revolution, when it was very expensive to move goods around, it became really important for big factories to locate near each other; we had these huge industrial cities. Now it's cheaper to move goods, but it's still expensive to move people, and people still need to interact and do all sorts of things to make the economy run. And so cities have become very important places for interaction between people. And a lot of those interactions underlie some of the key sectors in the economy today. And so what we see is that cities create an opportunity for us to enjoy more scale in our markets. And when we look at the economic logic for why that's important, it allows for greater levels of specialization in trade in a lot of places that wouldn't be possible if people weren't grouped closely together. I use the example in my book of a Vietnamese restaurant. In a small city, you might have one. You are not going to have enough people with diversity of taste to support high levels of specialization. In a large city, you will and with that greater specialization comes opportunities for innovation and greater satisfaction of preferences and things like that. Competition; you talk about the existing restaurants that do a good job and a better job over time. Right, and they attract suppliers and customers, all along the vertical chain there. Makes for a better productive process. It's not that it erodes competitive intensity; but that it supports competition but also allows for if you have a situation where you lose your job in a large city with a lot of different producers, you are better able to find another good job. That obviously becomes very important in situations like today, when unemployment is high. And you don't have to move, which is costly. And I think that's become increasingly important in recent decades; we have the rise of the two-earner household and so previously if you just had the head of household working, and the head of household lost his job, it was less of an issue to move. Now if you have both members of the couple working and one of them loses their job, it's very problematic to try to locate and try to find a better opportunity for both people. That's one of the things that's sort of been supporting large cities. If you look at what the data says--there's been kind of a lot of work on this in the past two decades--and it suggests, especially in recent decades, density has become quite important for improving productivity. I think there's an intuition there that has a lot to do with the increasing importance of personal interaction in the economy especially among high skill level jobs, and I think when you look at some of the data on the return to work: very talented individuals have seen their incomes soar lately and I think that's directly related to the importance of face-to-face interaction and how that sort of takes place in big cities.
5:25As you point out, there's a lot of spillover effects or team production or complementarity, synergy--these are all words we use to describe this, that when a particular industry has a lot of participants in one geographical location, the whole industry gets better. It's not just that there's more competition, although that's part of it, but that there's a lot of cross-pollination of ideas between the participants, new spin-offs get started; so many aspects of that process take place in Silicon Valley, one of the examples you use, Boston, and other places like that; or in New York, the finance sector--some of them not so healthy--but a lot of innovations taking place that are harder to take place in geographically disparate locations. It's a little bit of a surprising claim--I think it's true, by the way--but surprising because at the same time so much more communication is taking place not face-to-face. So much stuff is being outsourced; so many back office jobs are being put in distant locations which are inexpensive relative to putting everybody in the city. Of course, some of that is a result, not an underlying cause; a response to the expense of cities, which we are going to talk about soon. But it is interesting that both of these effects are taking place at the same time. It's easier than ever to see the research other people are doing, to communicate with people in other cities around the world and just talk to them about what they are doing. And so, it's surprising in a way that these connections, concentrations continue to be so important. They actually seem to be getting more important. I think part of it has to do with the fact that we are exploring lots of new technologies and new business models. That's because when there is this process of figuring out how to use new technologies, this sort of conversation between firms, between workers, becomes more important. There's a lot of kind of background conversation, a lot of tacit knowledge, what economists call it, that you really miss out on when you are not there. You get some of that from people starting new businesses or people jumping from firm to firm; and that's happening a lot more within a city than it does at long distances. You get a lot of the sort of serendipitous meetings between people at bars and restaurants, eureka moments that are hard to have when you are just communicating by email are much easier to have in person. I think there is an element of mystery to it that we haven't wrapped our head around. But, at the same time it does seem to show up that the research says that even across floors within a building, you lose something in terms of the importance of interaction that you don't get from the building across the street. Or across the country. So clearly proximity is important.
8:36I'm a big believer, obviously, in the power of conversation. And some conversations can take place over the telephone, as this one is. But some are better face to face. And some are better if there is more than one person--more than two people is important for making the difference. Part of what we are talking about right now is what we might call productivity differences when you concentrate people of similar intellectual or business ideas. There is also a big factor in amenities. So, people have a certain income level, a certain set of preferences, might want to consume similar amenities. So, some of the concentration we are talking about is just a result of the choices people make. They'd like to be in, say, a lively personal environment; or vice versa. I often think of the difference between Manhattan, NY and Boseman, Montana. There's a lot of intellectual activity going on in Boseman, a lot of because people like the non-urban amenities that a place that Boseman offers. Whereas people are concentrating in Manhattan because they like the urban amenities. One of the key things it's easy to forget about and that I'd like you turn to now is density. Talk about why density is important. Of course, in Boseman it's a certain lack of density that is important. But in urban settings, density is very powerful. Right. It's right on the production side, and I think that's right on the consumer side. Ed Glaeser has made this point a number of times. It works in a couple of different ways. One of the ways it works is that you have a lot of people but it's one large market, then it's easier to satisfy sort of unique tastes. There are enough people in Manhattan, in New York City, that you can have a successful business catering to very incredibly niche needs there. And people like being in an area where there are a lot of businesses catering to those niche industries. You may not be someone who is always going to be interested in going to see a sort of interesting kind of avant garde theater, but you like being in a city that has that option available and maybe you want to go once every few years. And then another aspect of it is the scale effect: when you are in a market like NYC, so large, you have enough people there to support things that require huge audiences to really work. Big sporting events, big museums; things that really require a lot of turnover to work. So, in a market like NYC there are a lot of things going on that you can't replicate elsewhere. And a lot of those things are experiential goods. It's not the kind of thing you can get in Houston, unless you are willing to pay for an airline ticket to fly to New York. So, I think, we've definitely seen a rise in these kinds of experiential amenity values, and that certainly is one of the things that's driving the popularity of places like New York and other dense cities. As you point out in the book when we think of dense cities like New York or Tokyo, where the density is very intense in a very concentrated area, we often forget about the density in suburban areas as well. So in the rings around these urban cores, suburbs also have varying amounts of density with consequences about productivity as well. That's absolutely right. When you say the word density people automatically think about midtown Manhattan and imagine that it means very tall skyscrapers. I say in the book, I live in one of the denser places in the country, and that's Arlington County in northern Virginia, just outside Washington, D.C. But it looks very different from Manhattan. There aren't a lot of very tall skyscrapers; parts of the county have single family homes and look very suburban; and the county right next door in Fairfax county is very suburban and yet is still a very dense place. So, you are going to see a range in density there. And it matters if you are going up in density even at lower levels of density. And so you see a place like Silicon Valley, which looks nothing like Manhattan--a lot of suburban campuses and suburban development. But it turns out in terms of jobs per square mile, it's really quite dense. And that matters in terms of the effectiveness of the towns in the area, in terms of the size of the labor market. And so it's not just a story about trying to make every place like Manhattan. It's about the extent to which large markets, whatever they end up looking like, are important for productivity.
13:45Now, your argument is that we have distorted the amount of density that there is and we have under-consumed density. That denser urban and suburban America would be much more productive and we have biased through some public policies our choices with surprising consequences. We'll turn to those in a minute. We've talked about the positive side of density so far, which is specialization and economies of scale--all this is right out of Adam Smith, the division of labor is limited by the extent of the market. It's an old idea. But you are applying it to a very new set of policies. Let's talk about the downside of density, because I think when most people think of density they are very negative. I think what most people think of is: Density, that means overcrowding. So, there are a lot of negative amenities in cities, as well. What are they? You are absolutely right. In the old days, density meant dying early. Disease was very common. We have mostly overcome that problem but there are still a lot of others. Congestion is one of the first people think about. One of the big complaints people have when you talk about new development is that it's going to mean more traffic, more trouble parking, things like that. There are still some pollution costs associated to density; you don't have air pollution problems in Boseman, Montana as you do in Los Angeles. But at the same time, getting goods to Manhattan, getting goods to Manhattan is relatively cheap compared to getting goods to Boseman, in certain dimensions. I think people automatically assume that Boseman is greener than Manhattan; in many ways, it's not. That's absolutely right. Because you have so many people packed together in New York, there are a lot of efficiencies there. In fact, New Yorkers emit far less carbon than people who live in less dense environments. That's because they are all next to each other and they keep themselves warm. No--it's something like that. In terms of congestion, it goes beyond just sitting in traffic. There's competition for other public services; you run into a lot more issues with tragedies of the commons, public spaces that may tend to be overused. Even people who live in big, dense cities like to get away and to see green; and that's obviously a concern as well. So, it's not all good things; even if it were, we wouldn't expect to see the rules that we see limiting density. That's a great point; and of course many of the tragedy of the commons problems come from underpricing, and I guess that the roads are typically unpriced in America; the parks are unpriced; it has serious congestion costs. Also we have to concede that there are people who like the Manhattan sidewalk even though it's a little crowded, especially around holiday time, a lot of people thrive off of that and find it stimulating to be in swarms of people; it's exhilarating. Just a different experience than most other places.
17:15So, what's wrong? If we step back and look at American cities, it's tempting to say the following: Yes, some things are underpriced, like the roads perhaps or public parks, underpricing doesn't matter in the public parks, it's not like they are abused; but on the roads we'd say that's a problem. What's wrong with the conclusion that says: Okay, cities are crowded but what happens is that as they get crowded and as it gets harder and harder to get around, then some people choose not to live in those cities or in the densest part; they choose the suburbs and people sort themselves out. The people who want a big yard move out to the suburbs; the people who want to live closer to the really good Vietnamese restaurants and all the other incredible things that a big city offers live closer to those by living in the urban core. We have lots of choices in America and that's all good; everything's working out fine. There are these natural signals, some things literally prices, sometimes implicit prices of congestion; and that's what determines where people want to live and they look at the alternatives and they choose accordingly. So everything's fine. But you say: No. Why? I say no. I think that what we essentially see is that the prices are telling us something important, but it's not that we've filtered people into the places, fitting them to the city that matches their taste. I think actually what we are seeing is that there's been an increasing volume of research done on this that in fact in all cities, but especially in dense cities, existing home owners strongly favor efforts to limit new construction, not just on their properties but on adjacent properties. And this is what we would call the Nimby effect--Not In My Back Yard. There are a lot of different ways they go about limiting new development and some of them are new zoning regulations; some of those zoning regulations have been there for a while. There are also increasing efforts to designate some areas as historic and to make it difficult; and sometimes that's appropriate but a lot of times it's just a means to control what other people can do with their land. And there's also just a lot of explicit pressure: you see a developer expressing interest in building new housing on a piece of land and all of a sudden you have a lot of neighbors calling their councilmen and complaining and asking them to do whatever is necessary to tweak the zoning rules to prevent that from occurring. And when you aggregate all these Nimby efforts to limit development, what you get is a market where supply is unable to adjust. So, you have a situation where a lot of Americans are more interested in living in these dense cities, and normally we would expect that to bid up the price to live in the cities. In the short run. But in the longer run we'd expect supply to adjust. We'd expect builders to come in and build new housing to meet that demand. But there's a problem in that last step there, and that's that homeowners are effectively able to limit the way supply can adjust by imposing all these limits on developers. Now, there's no denying the fact that it's hard to develop land in America, especially in urban areas. There's lots of casual and anecdotal and serious evidence that there are costs of all kinds that are imposed on development. Historic. You mentioned one example; environmental regulations would be another. I just don't like it would be the third, which I think it's important to focus on because that kind has no positive justification. That's obviously true. But what I found impressive about your book, which made me think a lot more about it than I had before, was the implications that that has for the actual numbers in terms of housing stock and housing prices and what's happened to population in places that I would have assumed were growing. So, talk about that. There has been a sense, and it's a correct sense, that cities that had been struggling in the 1960s and 1970s have had a turnaround. And they have. Places like New York, Boston, Washington, the Bay area--these are places that have been incredibly economically successful over the last ten years, and I think a lot of that is due to the way a lot of new technology has supported the high levels of human capital that they have. Made those places more productive. What's striking is that this economic success, growth in wages, employment, to some extent, has not translated into a lot of population growth. In fact, quite the opposite. There has been some population growth there but most of that is due to natural increase or immigration. If we look at just where Americans are moving and focus on net domestic migration, We basically see a giant sustained move from these high productivity places to the Sunbelt and when you sort of pull apart the reasons why they seem to be moving, they seem to be driven by these dramatic differences in housing costs, and that's primarily associated with difficulty in building in these coastal cities--the Zoned Zone as Paul Krugman calls it--versus difficulty in building in Flatland. So places like Phoenix, Charlotte, Raleigh where you grew up, Houston--these are places where people try to move there, which they have, they find that they can still buy a large piece of land and build a nice house on it. If they decide they want to move to one of these coastal cities they struggle to do so because as more people try to do that, the price goes up disproportionately to desirability. I think that would be the right way to summarize it. The technical way to phrase it would be the elasticity of supply is much smaller in these coastal cities relative to the Sunbelt, so that when there is an increasing demand price goes up a lot relative to a place where the supply is relatively flat or elastic and you would get a big quantity increase in a small price increase. That's right. And the effect in the last 10 to 20 years is the population has flowed to the places that have very elastic housing supply and not to the places that have really been seeing strong economic growth, strong wage growth. And again to come back to the surprising part of this, if you told me that it was more expensive to live in San Francisco than in Phoenix I would've said: well of course it is. It's a lot more pleasant to live in San Francisco; it's not surprising it's more expensive. But what you're really talking about and that's what markets do: they take the things that are more precious, that aren't easy to duplicate, like the Bay area's weather, the vista, or the various amenities of the city or the productivity of being around a lot of people like you, like one who is working in one of these industries we've been discussing. Sure, that's what happens, they get expensive to live there, which rations the number of people who lived there, which it has to because there's a limited amount of space they are and that is sort of the standard economics argument. But it's not really working that way.
25:20Right. We would expect given the differences in amenities that there is going to be a premium to live in San Francisco relative to Phoenix, but you wouldn't necessarily expect to see a huge gap. In fact, you'd probably expect to see more building in a high-demand area like San Francisco than you would in Phoenix. And that's just not what you see. It's just remarkable the difference in the growth in the housing stock in the last 20 years. Give us some of those numbers. If I remember correctly, in the handful of coastal cities we are talking about the growth rate is less than--I forget what the time period was; you have a chart--it's less than the 5-ish percent range, compared to other cities where it's in the 30 and 40%. Yes; so from 2001-2009, the housing stock in Boston, NY, and the Silicon Valley area, each of those, it grew by a little over 5%. And then you look at a city like Las Vegas and the housing stock grew by almost 40%. And in places like Phoenix and Charlotte it grew by 25%. So it's just a huge difference in growth in the housing stock, which really has nothing to do with demand but has entirely to do with the ease of building in those places. And that turns into a very large difference in the cost of housing. It's really remarkable. The median owner-occupied home in Houston in 2009 was just about $130,000 in value. And in San Jose it was over $600,000. And that just dwarfs the difference in wages. And it's not associated with the difference in construction costs. There is a difference in construction costs but it's very small relative to the premium due to the difficulty in building in those areas in the country. It's important to emphasize that we would expect that the real cost of living would be higher in San Jose than in Houston; it's the amount that it's different by. We wouldn't expect wages to totally compensate for the higher cost. It's just how little they compensate given the differences. Now, Las Vegas had a 40% increase in its housing stock over that 8-year period. And much of that was a mistake ex post; ex ante it might have seemed like a good idea. But it was a result of a whole bunch of factors, which we are going to leave alone for a minute. Maybe for the rest of this podcast. But clearly we overbuilt in those cities; those houses are not all occupied. But this is a challenge to your claim: there seems to be a puzzle here. Your claim is that: How could it be that there has been so little growth in the Bay area's growth in its housing stock, for example, and such a big increase in housing prices; and your answer is supply is not very responsive and it's not very responsive because of the regulations in zoning and other restrictions that are put on land use by the policies and all the various legislation and regulation. But that would be true if you--you should see at least quantity increases. Because you are claiming that, to put this in a simple supply/demand framework: if you are claiming that there is an increasing demand to live in these cities but dramatically higher prices are what's choking off that demand too effectively, too much because of the shape of the supply curve, the ability of the supply to respond, well how can these places be losing population? How could it be that some of the cities you talk about, some of the urban areas you talk about, are actually losing population at the time that prices are skyrocketing? I have an idea, but what do you think? One thing that's important to point out is they are losing existing residents--on a net basis many more current residents are moving out than are moving in. When you take into account immigration, for the most part the population has been flat to slightly increasing. That stands in stark contrast to Phoenix and places like that which have just seen enormous total population growth as well as domestic population growth. So, that's one thing that's occurring. But you also see a couple of different trends that help to explain this. One is that you are probably filtering for people with greater levels of wealth, and that could be affecting the size or the quality of the units they are buying. Right, so within a market it's not just that every house is going up by the same amount; you are shifting toward the more expensive houses. Exactly. And I don't know. There could be some speculative purchase of homes with the expectation that they'd be able to develop them later on. What's your theory? I think we distorted through public policy financing costs a great deal over the last two decades. We made it a lot easier to borrow money both in how we subsidize the flow of money, liquidity, into the housing via liberating Fannie and Freddie from their previous restrictions. We made it easier for mortgage originators to lend money to people because they could sell those loans to Fannie and Freddie; and of course it got worse than that--it got easier to sell it to almost anybody because of mortgage-backed securities. But early on the in 1990s public policy shifted toward encouraging home ownership in a very dramatic way, and the way that it happened was through the financing aspect. And then the Federal Reserve piled on in the early 2000s by lowering--Alan Greenspan pushed interest rates very low. So even though there weren't necessarily more people trying to live in San Francisco--this is a variant of your argument, the underlying cause--the ones who were there were bidding for higher and more expensive houses because it was cheaper to consume a bigger house through interest rate changes in policies. We've certainly been subsidizing debt and that encourages people to borrow as much as they can and buy as big a house as they can. So, other than causing the financial crisis, what's the big deal? That's a negative. We'll put that to the side, because what I love about your argument is it's a hidden consequence. It's a hidden, unseen effect of these kind of policies. Okay, so it's expensive to live in San Francisco; it's expensive to live in Boston, Manhattan; what's the big deal? So, people have to live somewhere else. We're ignoring the collapse of the housing market and the incredible, tragic effects on unemployment it's had on construction workers and people who do anything related to housing construction; it lured all these people into this field that now is dead for ten years, tragically. Put that to the side. It turns out that's easy to see. You can go to Las Vegas and see lots of unemployed people. But what I like about your argument is the underlying consequences are harder to see and maybe just as important. What are they? The main one I focus on is that by making it difficult to satisfy demand in these cities we are producing this big shift. And I think it's happening mostly among middle-skilled workers who are moving to cities that seem to have better opportunities for them. Most specifically, they can afford to put their family in a home that's large and comfortable and newer than they could in the Bay area. But the impact of that is that they are taking their family to a different labor market, and productivity levels are lower. That's one of the points I make. But it's also the distribution of jobs that we see in these fast-growing cities is different from what we see in places like Silicon Valley and Boston. It's more oriented toward non-tradeable sectors, that's things like health care and education rather than high technology. And so there's an impact there; and I think our productive potential and our innovative potential and also the ability of a lot of these middle-skilled households to find work in these new industries. And I think it also has an impact on our ability to trade. The industries we see in these coastal cities happen to be a lot of these exporting industries, high value-added industries; and 100 years ago these were the industries that really were attracting millions of workers. Now it's curious that they are repelling them and putting more and more people in low-productivity industries. Though some of that is going to be the natural evolution of the economy. As the population changes and ages, we're going to be putting more people in health care, which tends to be a low-productivity field. But I think much more of it is occurring than needs to be the case simply because people can't afford to live in the places that have the potential to create more of these high value tradable jobs.
35:11So, the crux of this issue for me is trying to think about how important it is, which is really hard to measure what you are talking about. You can get a measure of it: as you say, you can compare jobs in Phoenix to jobs in San Francisco, but of course you never know whether you are controlling for the things that are different between Phoenix and San Francisco other than housing costs whereas maybe it's just people with different skill levels moving to those cities. And the market of course can try to get around this problem. So, if you have a high-tech idea and you imagine that eventually you are going to put a corporate headquarters in Silicon Valley and you realize that the cost of doing that is enormous, because just to buy the land for your corporate headquarters is enormous; the salaries you've got to pay people to compensate for those high costs of living is enormous. And so you might end up locating somewhere else; and other places will get these synergies. Sourdough bread might really be better in San Francisco because the air is special; that's the joke; it could be true. But don't software startups work just as well in Austin, Texas or other places than Silicon Valley? Is it really that important? Maybe it's just not that important. I think it is that important. As I try to say in the book is not that there's nothing good coming out of places like Austin or Raleigh; there are some innovative companies there, some really good opportunities there. But I think that we underappreciate the extent to which these large agglomerations, places like Silicon Valley, are very important for figuring out how to use our best new ideas. It comes out in a couple of different ways in the research. One thing we see is that spillovers from new innovations, it's easier to take advantage of them when you are in a place that's close to the location of the innovation; and I think that has a lot to do with this sort of tacit knowledge aspect we talked about earlier. But also I think the labor market aspect of it is very important. I talk about what happened in Silicon Valley during the tech boom. There's been some interesting research on this lately which is that essentially there was no surplus labor in Silicon Valley in the late 1990s. Pretty low unemployment rate, like 2-3%. That was great for the workers who could afford to be there. Salaries were skyrocketing. But it was very difficult to attract new people. You wonder why, if salaries are going up so much, why wouldn't people just be flooding into this market and taking advantage of that; and that's because housing prices were growing even faster than compensation. So even as the tech industry was booming, people were leaving Silicon Valley. I think what's interesting about that is that it put a chill on entrepreneurship; made it very lucrative to stay at a place that was established, to keep piling up stock options. It was much better to be a salaried worker than to be self-employed, so the rate of entrepreneurship in Silicon Valley at this point was much lower than the national average. You have a place that's producing some of the best ideas; it's a center for innovation; and it's important that we start new businesses in the center of innovation--that's what the research tells us. And yet it was very unattractive to start a new business at that point because the labor market was so tight, thanks to the tightness of the housing market. And so, I think it's not that there are no good things happening elsewhere. It's that we are really underexploiting the potential of these centers of innovation. And when you have a situation like that where the most innovative, highest potential places are so expensive, I think it acts as a disincentive to joint the industry in the first place, to specialize in the fields that are really building. We see this discussion now--Felix Salmon, a blogger for Reuters posted on this just this week, where he was talking to entrepreneurs in Silicon Valley and they are struggling to find people with the skills to develop computing platforms. That it's just not attractive to people because they can make so much more money doing social media in the big businesses that are in sort of an ongoing boomlet in Silicon Valley. That would be less of an issue if it were easier to have a middle class lifestyle in Silicon Valley; it would be more attractive to people to get into these fields in the first place, to move to the place where demand is high. So, we are underexploiting our innovative opportunities. And that has an impact not just for the economy of Silicon Valley, but for the national growth rate. And just to emphasize the point--when you said a minute ago that it's hard to start these businesses because it's so expensive to live there. We always would expect it to be expensive; it's just how expensive it is. It's much more expensive than it would be if we didn't artificially restrict the supply response.
40:37I spent a reasonable amount of time in Silicon Valley and in other cities that are much denser. Arlington, in Virginia, is one of those places that's denser than Palo Alto or Cupertino, these place that we're talking about in Silicon Valley. Neither is as dense as Manhattan. What might Palo Alto look like if it were easier to develop land there? There's some green space in Palo Alto--there are some parks, quite a few parks in that Silicon Valley area. Are you suggesting that those parks should be turned into housing tracts? The laugh suggests you are not. What policies could lead to something different--that is, a slower growth rate in housing prices--and what would it look like that would be so different on the ground other than the existing housing stock might be a little less expensive? It's a good question. I try not to get too much into design prescriptions in the book. I think what emerges will depend on what solutions local leaders decide to embrace. But I do think one important point to make is when we limit development in one place, within a city for which there is a high level of demand, it doesn't go away. It just shifts elsewhere. So, in a way it's sort of a tragedy of the commons--the more Nimbyism you get in one neighborhood, the more likely you are to see it elsewhere. Because of the pressure on their infrastructure. Ed Glaeser tells this story about how there was this development proposed in Manhattan, midtown, and it prompted all sorts of outrage from people on the upper West side, Tom Wolfe among them, who claimed that Glaeser wanted to pave over Central Park and put up buildings. That would lower the cost of an apartment or condo in New York. I think Glaeser made an excellent point, which is that when you allow the market to satisfy demand as it sees fit, in some places in the city there is less pressure than other places. You wouldn't need to develop Central Park if people could build as high as they wanted on other pieces of land. There would be less pressure to develop historic places in a city if places that weren't so historic where people wanted to buy rights to redevelop were able to. So, that's one thing to keep in mind. It doesn't necessarily mean that every neighborhood is going to be immediately turned over and built into skyscrapers. It just means that the markets will allow people to find places to sort of meet the demand for new housing. As we look at the variety of density around the country, it's also clear that you can create new density without building skyscrapers. I think Arlington is one good example. If you have an environment where there is very low-density building, you can do quite a lot just by moving up to like row-houses and developing a small town feel while at the same time increasing density. You can shrink lot size, for example. Although in Palo Alto, an increasingly common phenomenon is a very large house on a very small lot, which the city doesn't like. You can think of that as another example of density where developers find it hard to implement because there are minimum lot sizes, minimums for footage, setbacks, and other things--all of which have good, attractive reasons for those things because it gives the city a certain look. But it also means it's going to be expensive for newcomers. I think my preference would be that people develop a slightly more tolerant attitude toward what other people do on their own land. But it's important to be realistic about this. I think there are a couple of strategies that seem especially promising. One is that if we can find a way to turn some of the gain from more intense land use into investment. So, if you had a sort of density charge--I hate to tax density in that way but in terms of being realistic about the distribution of cost--you could channel some of that into investing in local amenities: could be parks, could be transit, something to try to convince local stake-holders that density is going to be in their interest. So normally we think of taxes as discouraging an activity--which it would. It would make it more expensive for developers to make urban areas more dense. But you are arguing that the political consequences of that would outweigh that and we'd get more. Correct. That would be the hope. Certainly if you had a situation where it was easy for developers to build now, you wouldn't want to tax density because it would discourage it. But when you have a situation where the political interests are aligned against any new building, conceivably you could change the local political dynamics such that it was easier to build. An alternative, and people have different ideas about how to develop transportation, and I appreciate that, but transit-oriented development has been successful in the Washington area. What is transit-oriented development? When you build a transit line, could be a metro line or light rail line, and use that to change the equilibrium around the stations from one that's focused around driving and loaded city development into one that's focused on using transit and changing the local streetscapes to encourage walking; and then as a result you can support higher levels of density. So, if you look at the Washington area, in Arlington, where I live, the Orange Line corridor is a series of stops that the county has used to facilitate greater levels of density. You see more multi-unit apartment buildings, more office buildings with some height. And because it's around Metro, I think it's easier to convince people that traffic isn't going to become a problem; that there will be some nice benefits in terms of having a walkable community; and that sort of allowed Arlington to grow much faster than the typical close-in Washington suburb. Arlington over the last 10 years has grown about 20% in terms of population, which is about twice the national growth rate in population. If there's buy-in, it's conceivable that it could work. Right now, Fairfax County is trying a more aggressive approach in turning this type of corridor, which is a mass of highways and strip malls and giant parking lots and trying to completely overhaul that; and I think a lot of people will be watching closely to see if it can work on that scale. Now, it's not something you want to rush into. Transit is expensive. There's the temptation for government to use eminent domain to sort of steamroll local interests; and that's something I'm not in favor of. I don't think the way to achieve density is to have government come in and take over the land and mandate it. But I do think if we are going to be building infrastructure anyway because of population growth and if we can do it in a cost-conscious way, then it may make sense to look at places where a different kind of infrastructure, like transit, can sort of change the equilibrium and allow for more density.
48:41Let me come back and ask you a similar question I asked before; I'm going to try to come from a different place than I did before. A city I don't think you mention very much is Portland, Oregon. Now, Portland has really taken many of the ideas that we're talking about here, that we are being critical of on the growth side to heart; and they are in many ways, my understanding is, much harder to develop than in many other cities. If you talk to people who live there, they say: Well, Portland's special; we love the city; we love living here; and we love living here in the way that we live here--meaning this certain mix of low density. Urbanish but not too urban, not too dense, just right. And yes, it makes it harder for people who want to live in Portland to move here. But that's the way we like it. And what's wrong with that? I think it's wrong, actually, but what's wrong with that? You could argue that by your ideas, they are just punishing themselves; isn't this natural reaction that should come from the fact that since they are living this undense life they are missing out on all these complementarities and Vietnamese restaurants and everything? So maybe it's just the right level and you are just exaggerating. It has been interesting. You would think in writing this book that I would provoke a lot of anger from people who love their suburbs and want to keep them that way. But there's also been quite a lot of pushback from people who you might call new urbanists, who sort of treasure this sort of dense-but-not-too-dense approach to city building, and sort of see tall buildings as an abomination. I think that's a very natural response. People, when they purchase a home, decide to live in a place; they are not just purchasing the place that they live; they are purchasing the neighborhood and the amenities that come with it. The problem as I see it is the property rights don't actually match up in that way. You purchase a home and you feel like you are purchasing the neighborhood, but you don't actually have any ownership over that; and so because there is sort of a gray area, we are not in a position to help neighborhoods strike bargains between what's in the interest of the city as a whole and what's in the interest of the neighborhood. So, you get a sense where everyone is fighting density, and they would be better off if the city as a whole allowed more density. It's kind of a collective action problem. And so, to some extent I think that's one way of looking at what's going on in Portland. Everyone would like the city to be a little more dense; they just don't want it to be dense in their particular area. If we can find a way to help strike bargains within the city then everyone can be made better off. But I think it's also important to say--when we talk about negative externalities, we talk about the fact that when people make decisions between buyer and seller, they impose costs on others. When we talk about pollution we think it's appropriate to take some steps, whether it's taxing the act that produced the pollution or regulating it in some cases. We think it's appropriate to mitigate that in some way. I guess essentially that's what I'm arguing. In Portland, they have the right to do as they see fit up to a certain extent. But if these actions are having a big negative cost on society as a whole, then maybe it's justified to step in and take some steps to make sure we are leaving everyone better off. And we want to be cautious in how that's used, but I think it's appropriate to have some check on the actions of people in places like Portland simply because their decisions don't take into account the many other people who would like to live in Portland but aren't able to, or the many other people who would benefit from greater growth in Portland and think a higher level of productivity would result. I guess that's sort of the argument that I'm making. I want to shift directions now, but before I do so I just want to mention to my current and former students--when we are talking about supply responding, we are of course talking about movements along the supply curve; and we technically should have called it quantity supplied. But when you talked about supply responding, I assume that's what people understood we meant. So for you technical supply-and-demand people out there, that's just an aside.
53:29Two things that are missing from your book that I wanted to challenge you on. One is the politicians' incentives. One of the things that happens when city councils and zoning boards and other groups have more ad hoc power rather than rule-of-law decisions--so, if you want to describe it positively, you call it flexibility; if you want to describe it negatively, you call it arbitrary. So, a city council can turn down a project for a variety of reasons, or accept it for a variety of reasons; and the more power they have the easier it is for self-interested homeowners to protect their property values and to protect their gains from outsiders coming in. But of course, the more politicians get to enjoy the attention they get, from influencers or homeowners, who now can petition them for the rare times that they say yes; and it seems to me that the entrepreneurial side of this for politicians is extremely destructive. That's interesting. Are you mainly concerned about the potential for corruption? Well, I wouldn't call--it wouldn't have to be corruption. What you've pointed out in the book is so powerful; example of what we've talked about many times on this program, which is the bootlegger and baptist idea that a lot of regulation is justified on altruistic grounds but often serves self-interested purposes, particularly in how it's structured. So, instead of saying we want to keep people out because it keeps our home values high, and we like making money on our house, they instead say it's for historic preservation, it's for green spaces, we call it smart growth. It's really selfishness masquerading as self-interest, sometimes. Not always--we agree on that. But when it's arbitrary, when you don't have clean, transparent, regular regulations that decide when a development is allowed and when it's not allowed, and when it's then going to come up every time for a vote, what you've done is you've created a tremendous amount of rent-seeking there for politicians to be selling the occasional yes. I live in Montgomery County, outside of D.C., a different side of the river from you; and there is no super-Walmart, and no Wegman's grocery store in my county. There is a special provision that if you have a really large store you have to get a special permit. And so Wegman's and Wal-mart have a choice. They can say, well, should we press for a permit that we might not get, because there's no certainty about whether we'd qualify. The existing grocery stores--Giant and others--make large donations to the city council of Montgomery County and are good friends with them. Because they keep out their competitors. And that's not corrupt. Nobody's going to jail for it. But it's extremely destructive and it makes it more expensive to live here. That's true, and I think it would be helpful to move to a more rule-based system for adopting these things. I think I advocate a bunch of things along these lines, one of which is a zoning budget. Talk about that and some other ideas in the book that you think might improve things. I think one issue we see is there are a lot of these pressures to constrain development or to get special consideration at a hyper-local level. The problem is that we don't consider these things at the level of the metropolitan area as a whole. One thing that would be useful would be to find ways that sort of tie politicians' hands. One suggestion made by a couple of economists, Roderick Hills and David Schleicher, for zoning budget, is essentially whatever the council or whatever the ruling body is, decides that it is going to accept a certain amount of new development each year; and that sort of ties their hands, constrains their ability to meet this or that demand. Another way of looking at it is it gives politicians an opportunity to say yes or no on something else. They can say: Look, we had no choice in the matter because we had to follow the zoning budget. Which I think is useful as a way to get politicians to behave better is to give them someone to blame. The problem of course is that the insiders--the people who already live there--vote and the people who would like to live there can't vote against these policies because they are not on the rolls yet. But that suggests that these kinds of policies would never pass. No city council would ever impose those kind of restraints on themselves; and the voters won't like it either. Right. It sort of counts on a level of enlightenment there that you may not get. And you would expect that whatever the zoning budget is, it would be set at a level that's lower than optimum. That said I think that setting the zoning budget lower than the optimum may produce better effects than if you just have sort of arbitrary decisions being made. But I sort of make a point of this in the book, and I think actually Tyler Cowen has made this point as well: that there seems to be an extent to which people are willing to accept greater levels of openness and density if they feel like there is less state there to be abused. They feel that there is some sort of trade-off there. When you look at a place like Texas, which is very open to immigration relative to some of its neighbors, which is very open to development in its big cities--Houston and Dallas have enormous housing stock growth, enormous in-migration in population growth--and that sort of corresponds to a smaller state, fewer public services there. And this is a sort spot occasionally for Texas politicians running for higher office, that there's not as much state there to benefit the newcomers. And I think that may be not coincidental--that people are more willing to accept outsiders when there is less in the way of state spoils to be shared. And so maybe that's one of the lessons here, that there is some sort of tradeoff and maybe we need to think harder about whether policies we think are helpful in general, which may be things we think make health care more open or cheap, public education more cheap. I'm not suggesting we should get rid of them, but maybe when we have a high level of public education, that's going to increase the desire to exclude outsiders out of fear that those public goods are going to be exploited by those outsiders. That's one of the questions I don't really have a good answer to, but it seems potentially to emerge from what I've argued here. I don't know. Maybe you can tell me what you think about that.
1:01:07Well, I don't know. You are touching on something maybe I want to close with, and I think it's a deep and complicated issue, so I'm not going to give you a pat answer. But one of the things that struck me, I don't think you talk about in the book, is when we think about coastal cities versus Sunbelt, there is a very different political outlook on average between those two types of locations. So, the coastal cities--Boston, New York, the Bay area, Washington, D.C., Portland, Seattle--these are places where the average worldview of the people who live there tends to be more interventionist, a little more interested in using the state to either improve people's lives or just to improve their own. That's the tension we've been talking about in the last few minutes. In the Sunbelt, and this would be North Carolina, Raleigh, Arizona, Phoenix, Tucson, Texas, Houston, Dallas, San Antonio--these are places that have seen enormous growth, partly because they are attractive and partly because they are cheaper than places that are more attractive--a lot cheaper. And those are places where people tend to be more skeptical about the value of government, where they generally want a smaller state. I don't think that's a coincidence. And I think those worldviews result in different zoning policies, obviously, and are going to make it more and more likely that this competition--which is what it is--between these urban areas continues in the direction it's going. Where there are places that are open and have much more opportunities for development and places that have less. The places that have less are going to stay about the size they are at; and the places that have more are going to inevitably attract more people. And that's going to be another important political dynamic that feeds back on the outcome. It's a really interesting issue. I agree with you. It's interesting when you look at these coastal cities that exclude a lot of people through housing costs, that creates pressure for other interventions, to find ways to ameliorate the situation for lower income people through affordable housing measures and to do things about the school systems that apply to lower income households there, rather than sort of allowing the market to do more of the work of equalizing opportunity: We need to do something to allow for the fact that a lot of people are being left behind. When in fact they are being left behind because some of them can't afford to be able to take advantage of the opportunities there. You see that in Europe as well. You have Scandinavian countries that have rich economics, really high quality of public services, but they are really only able to maintain those things because they are not welcoming for the most part to outsiders. Is that a tradeoff that is really a good one to make? Would we be better if we were allowing more people to take advantage of these opportunities even if that meant you couldn't do quite as much in terms of supporting those newcomers through state intervention. That's going to be something that continues to be debated as we watch this play out over the next ten years, when people are moving and what they are doing when they get there.

COMMENTS (29 to date)
Eric Hosemann writes:

I see a parallel between the idea that Silicon Valley has some inherent, unique ability to produce technology and the idea that only Vidalia onions can be produced in Georgia.

Sweet, mild onions are now being produced in other states, and overseas as well. Market interactions produced this outcome. Other than political reasons, there are no reasons market interactions cannot make it profitable to produce technology anywhere.

Peter Gordon writes:

Three points. (1) When talking about "density" there are problems using large-area averages. You can find productivity and success in high-density districts in Manhattan as well as in much lower-density districts in Silicon Valley. (2) In the discussion, you keep saying "city". Many "cities" have maintained their vitality by drawing labor and capital to suburban hinterlands. So you may have been referring to metropolitan areas when you say "cities". But when looking at the whole Urbanized Area, LA has been denser than NY since 1990. Aggregation causes problems. (3) Cheap modern communications channels can be complements as well as substitutes with respect to traditional channels. We exchange ideas via many channels. We have local networks (local densities); we may still drive as well as telecommute to an office (2010 commuting data show telecommuting has increased since 2000). We use the internet a lot. And we still get on airplanes to attend conferences for networking purposes. We choose a complex mix. Asking "density" to explain the many information networks that we maintain is asking a lot. I think that this makes my first point all the more relevant.

Thanks for a great podcast.

Schepp writes:

Great guest,

I have seen many comments on "The Gated City" on planning and transportation blogs. It was good to hear directly from Mr. Avent.

I wish that you would have brought up Richard Epstien's comments that people who fight additional development in their communities usually increase the current inhabitants wealth. I do see that you have sighted in the related podcasts, but it would have been nice to see Mr. Avent's response.

As a Texan who has lived in a coastal city for a short time, I enjoy my 4 bedroom house in the burbs in a confortable part of medium sized metro. The price in hours worked of my Texas home is comparable to the price of an efficiency apartment in LA. As markets work, I enjoyed my scenic view (after the smoke cleared from the month long wild fires), my runs into the mountains and walking by the movie shoots on my way to and from work. But the earthquakes, mudslides and 1.5 hour commute on the Metrolink convinced me Texas, that does have a coast, works just fine for me.

Mr. Avent has advance a good discussion, and clearly the NIMBY price affects the economy, but I would guess there have always been NIMBY's and the market forces do their work keeping developers and NIMBY's from pushing to far out of reasonable market balance.

A writes:

As Schepp suggests, I suspect the reason most homeowners want to restrict supply is the same reason any business owner would like to limit supply from his competitors: all else equal, lower supply means higher resale value for homes.

Dr. Duru writes:

I wanted to nod my head in agreement on the economic principles here, but I never got comfortable with the implications for community free choice and liberty.

A community has decided to pay the cost of restricted development and, according to Avent, slower economic growth. But outside the community, economists have done the analysis and decide FOR THEM that it is better for the larger society that this community allow developers to have their way in order to lower the costs of migration into the city. Is there really a moral, economic, political high ground here? It does not seem so to me.

I am one of those people that "fled" Silicon Valley for the cheaper housing in Atlanta. But after the economy hit the skids, I found ZERO opportunity in Atlanta. I took a job out here again, and, lo and behold, opportunities have been flowing better than ever. I hate paying the extra costs to live here, but better that and to be employed. Also, contrary to the image conjured in this podcast of vast tracts of undeveloped land, I see a LOT of crowding in the Bay Area. That crowding has happened not because land is off-limits within cities, but land is preserved outside the cities. I would really like to know where Avent thinks developers can squeeze another 100K people in San Francisco. Despite claims to the contrary, I couldn't help but think the argument here boils down to allowing the "Manhanttanization" of each and every community if that's where the economics leads.

Next, I was surprised to hear the casual association of coastal cities to preferences for government intervention. Southern California is conservative, Florida is full of conservative enclaves, and last I checked, Columbia (South Carolina), Savannah, etc... are conservative towns. Chicago, Detroit, and Cleveland are not on the coast but boast large "interventionist" populations. Enclaves of high-priced real estate, inland as well as coastal, are well-known for extremely restrictive development rules to preserve the ambiance and culture of the place - and I am guessing many of these are full of people who would prefer government in general to leave them alone. So, what fundamental point can really be made cherry picking SF, Boston, Portland, and NYC as coastal cities that are "suffering" from interventionists?

Finally, I am surprised this podcast did not take the argument to its logical conclusion to say that it makes no sense to have limits on national immigration because it is harmful to the larger global community. I know there was a podcast a long while ago providing the arguments for eliminating such laws.

Overall, I think this is one of those classic cases where the mathematics can speak as loudly as they want to speak, but individual choice and liberty is going to speak louder through preferences rather than a coldly rational pricing mechanism.

John Strong writes:

I didn't like the views of this guest. Things that disappointed me included:

(1.) Taxing density to increase density makes no sense. Saying it will persuade people who oppose density to support it is homeopathic nonsense.
(2.) No discussion during this interview of the fundamental role of people trying to cash in on city agglomeration by jerrymandering residential and business districts in highly artificial ways. This leads to cities that are artificially spread out. I refer to things like legislated (minimum) lot size, etc. In other words, there are powerful economic incentives for sprawl that no one ever discusses. (Russ mentioned minimum lot size legislation, but the guest seemed shy about addressing the point).
(3.) No discussion about the way private covenants are taking on the characteristics of municipal governments, so Houston, with no zoning, has the same development patterns as most other American cities that have zoning.
(4.) Jane Jacobs never mentioned nor any of her insights.
(5.) No fruitful comparison of American cities with more livable foreign cities.

Americans are not "in love with the automobile".
Americans are not in love with giant lots or dead suburbs that are a long drive from any business or any city life at all.

Americans just love capital gains on real estate. Why does that never get the focus it deserves in this kind of discussion?

John Strong

P.S. Why don't you interview Don Boudreaux on cities?

Brian writes:

I really enjoyed this week's podcast - thank you very much. I had seen a couple reviews of Avent's book but hadn't taken a close look before Dr. Roberts' conversation with Mr. Avent. I'll definitely pick it up now. Sounds like it will be well worth a read!

I do, however, think it's time that you stop using Portland, OR as a straw man for everything about growth policy that you dislike without verifying your claims. Portland's growth policy is explicitly designed to favor density through an urban growth boundary. That may not be the right policy - it certainly doesn't sound like what Mr. Avent proposes - and it may not be a policy you like, but I don't think it's fair to criticize a policy for not doing what it explicitly purports to do without explaining what you mean. I think a trip to Portland is in order. I can recommend some great Vietnamese restaurants.

Irish Texan writes:

Great show Russ.

In 1950 Baltimore, Buffalo, Houston and Dallas all had roughly the same population. 60 years later, Houston and Dallas are booming though the same cannot be said for Baltimore or Buffalo. Artificially expensive housing caused by development restrictions in New York, Boston and the Bay Area cannot explain the tremendous growth we have seen in the South and Southwest and the population reductions we have seen in other cities.

Have you ever considered asking Joel Kotkin to be a guest?

AHBritton writes:

I would first like to second some of Dr. Duru's points.

I find it interesting that people who often argue against top down planning, often also feel that they have a uniform solution that should be imposed on those with policies with which they disagree. I am not saying that this is a powerful argument in opposition to these views, but I would think if anyone would be weary of an outsider coming in and telling a community that "they know best" for them it would be you Russ.

My main issue is more fundamental however and deals with NIMBY. When is NIMBY justified and when isn't it? Who gets to decide?

For instance if I live in a residential neighborhood, but one block a way a lard rendering plant is about to be built which will create a continuous foul odor surrounding my neighborhood, shouldn't I be able to petition to have it's construction stopped, moved, or modified? If so it would be my right to do so, as far as I can see, based on two grounds.

First that it would lower the value of my and my neighbor's properties.

Second that is would have a negative and unanticipated effect on my quality of life.

Both of these seem like they would be the same reasons you pointed out why people oppose growth. Some people want to live in a smaller community and considered it a part of their quality of life. They do not want greater road congestion and large buildings obscuring views they possibly enjoy. Secondly, as you said, people want to protect their property values.

How does this differ from my first example other than you likely consider the first reasonable and the second unreasonable?

John Strong writes:

AHBritton, even before zoning there were remedies in Common Law for a neighbor who produces a bad smell, so I think the example you give sets up a straw man.

Let's talk about a hypothetical that is closer to reality:

Should suburbanites who want to cash in on capital gains due to city agglomeration be allowed to
(a) force everyone within their residential subdivision to have a very large lot and
(b) impose very rigid restrictions concerning when they open their garages,
(c) how many cars are parked in front of their houses,
(d) what sort of blinds they install in their windows,
(e) whether they have satellite antennas on their roofs, etc.?

I live in a Mexican city (pop. 300,000) where I am (1) 3 blocks from a cinema (2) two blocks from two large supermarkets whose traffic I never see (3) 8 blocks from the post office (4) 4 blocks from a hospital (5) 3 blocks from my wife's gynecologist (6) two blocks from our dentist (7) one block from a pretty park next to a gorgeous colonial church (8) 2 blocks from a **privately** operated bus line that sends buses every two minutes that will take me anywhere.

The reason, by the way, that we have such GREAT (I do mean GREAT) public transport in this Mexican town is precisely because our cities are a patchwork of business and people, not wooded suburbs with bike trails. The city is "dense" and alive, but not oppressively so, contrary to stereotypes in U.S. media, and operating private transport is *profitable* thanks to the density. You cannot recreate this (as the guest suggested) with the usual leftwing approach of building an expensive commuter train line then zoning for density around the train (God help us).

Portland Oregon looks exactly like Houston, Texas to me. They tried to fix sprawl with top-down preconceived methods, and they haven't fixed anything. They just stare in their mirrors every morning and repeat the mantra: "we like our uniqueness". It's an interesting case in collective self-hypnosis, but certainly doesn't provide a model for other American cities that want to repudiate sprawl and create more livable cities.

You say one top-down approach is like another. Well, you don't have to rely on theory. Try comparing your "model" for designing cities with the design of foreign cities that are more livable than U.S. cities. That's a more empirical approach. Or compare older U.S. cities like New York to newer ones like Portland.

Ironically, I find that I share many of the objectives of people on the left but just as predictably I find their confidence in their deeply mistaken remedies infuriating.

I think Jane Jacobs said the definitive word about the need for cities to grow spontaneously. She wrote, what, 40 years ago? Do we need a new Jane Jacobs every 25 years for people to get a clue?

John S.

John Berg writes:

Reacting to the stimulating podcast and some of the comments:

"Green fields construction" is always more attractive because of the savings in not having to remove what existed before the construction. I would like some economist to explain the order and rationale for these actions I saw in the 60s in Phoenix AZ.
1. The Submission to residential construction of the Japanese Flower growing "industry" which once were hundreds of acres of various flowers along Base Line Road in South Phoenix.

2. The conversion to construction of thousands of acres of Citrus, mainly Oranges, farms all over Phoenix.

3. The conversion to construction of thousands of acres of cotton fields in an about Phoenix in the same time period.

At the same time, a curious leap frogging of intense homebuilding that left hundreds of acres of raw land unused and passed over by development at a time when both the city and the builders buily on small lots to keep down the cost of utilities and street building by controlling the "frontage" of each lot.

John Berg

Robert Kennedy writes:

I didn't necessarily agree with the guest on a variety of issues but I greatly enjoyed the discussion. For me, Russ & the guest shed some new light on the consequences of various public policies.

And, as usual, Russ was a respectful host, as was the guest. I listen to a lot podcasts of this general format and there is no other show even close that has such intelligent conversations. In other shows, the host either does nothing but ask questions or constantly talking over the guest.

Great job, as usual, Russ

Thanks for a great show Russ.

Re: John Strong's comments on need to look at American's desire for capital gains on housing:

I suggest picking up a copy of William Fischel's "Homevoter Hypothesis." His basic argument is that local land use control in the US is driven greatly by homeowners' desire to preserve and increase their home value. Thus he argues any new land use that residents perceive will lower land values will be prohibited. Aside from his work, numerous other books and white papers exist on the topic.

If Russ finds continued interest on the issue, I would highly encourage him to invite Professor Fischel and/or Professor Peter Gordon (who commented above) onto the show. It would be great to generate a Hayekian discussion about individual v community property rights with respect to land use and preferences for local goods. Both have written extensively on the topic.

John Strong writes:

> Ralph McLaughlin writes:
> I suggest picking up a copy of
> William Fischel's Homevoter Hypothesis."

Haven't read that one, but I have read Fischel's Regulatory Takings.

> His basic argument is that local land use
> control in the US is driven greatly by
> homeowners' desire to preserve and increase
> their home value.

That is precisely my point. When your friends want to buy a house, what do they talk about? Schools and capital gains! I don't understand what's so mysterious here.

Fischel argues that some of the capital gain from city agglomeration is captured in the form of property taxes which finance public goods that people really want. Hmmm.

Fischel says some refreshingly critical things about the behavior of municipal restrictions on growth (especially in California).

All I know is that whenever my wife & I contemplate returning to the U.S. we are terrified of getting trapped in a subdivision a long distance from any of the businesses we use. Life is short and I do not want to spend it in an automobile.

S.V.Gates writes:
John Strong: Life is short and I do not want to spend it in an automobile.
Or on a commuter train ...
John Strong writes:

> S.V.Gates writes:
>> John Strong: Life is short and
>> I do not want to spend it in an automobile.
>
> Or on a commuter train ...

We agree, btw. I want the government to buy train sets for everyone who likes trains and allow most businesses to operate within a short walk from where I live, including private transport companies.

Actually, I'd just like to see more choices.

A writes:

AHBritton and Dr. Duru ask some good, tough questions, and I want to take a stab at answering their general thrust.

In brief, homeowners who buy a piece of land and then lobby for more restrictive land use policies are harming others for personal gain, and that is what is so objectionable. Let me try to explain.

The most obvious harm is that resulting from what I think of as the "homeowners' cartel". Homeowners in a neighborhood or city lobby to pass laws that allow them to credibly commit to limit the supply and usable potential of their product (homes and land). This allows the cartels to raise prices above those seen in competitive markets, and it also results in less innovation in how demand for housing gets fulfilled. For would-be buyers, these policies are extremely detrimental.

Now, cartelization of a neighborhood is bad enough, but it gets worse. Next on the agenda is lobbying the government to apply restrictive policies on land surrounding their area -- that is, land that none of the homeowners actually owns. Maybe they want to prevent that lard rendering plant from springing up near to them. The problem is that to grant these additional rights to the cartel, the government has to take the rights from the present owners. The cartel could have paid for those rights, but they asked the government to steal them on their behalf instead. That's obviously bad for those who purchased the affected property believing they would have access to a certain bundle of rights to either use or sell. Apart from the one-time loss due to the theft of rights, there are ongoing losses of consumer surplus from gains from trade that are not being realized.

Finally, the knowledge that governments are open to helping current homeowners at the expense of other people means that both homeowners and non-homeowners engage in wasteful lobbying to get favors or prevent disfavors. This money, time, and effort could have gone towards productive market activity that would increase everyone's standard of living. Instead, it's flushed down the drain.

I think this general explanation answers all of the specific questions you raised, but I'm happy to explain further if you want.

John Berg writes:

Perhaps I should clarify my questions above. Why would people running a comfortable business which produces annual income sell out for a one-time income? Is there something about our tax system that forces this action? Was there something special about the Arizona economy in the 60s?

JOhn Berg

John Strong writes:

John Berg:

I am not an economist and I cannot address the particular case of Phoenix Arizona, but here are a couple of bullets in response to your questions:

  • Why would people running a comfortable business which produces annual income sell out for a one-time income?

Farmers have good economic reasons to sell their land all the time, but are prevented from doing so by zoning restrictions. Land is not zoned "agricultural" to protect Japanese Flowers, or cotton or Citrus trees. It is zoned "agricultural" to prevent development that could lower neighboring property values.

There's a bootleggers-and-baptists story here. You might read an environmentalist narrative in the newspaper that professes to explain this restrictive zoning, but that's just the ideological veneer. The driving force behind "agricultural" zoning in the periphery of large cities is an attempt to artificially ginny up capital gains of neighboring property using laws that restrain trade. If those laws were suddenly changed, that would explain the sudden conversion of agricultural land in Phoenix.

  • At the same time, a curious leap frogging of intense homebuilding that left hundreds of acres of raw land unused and passed over

Right. Leapfrogging occurs because artificial restrictions on land development encourage people to keep land off the market while its value rises, so developers have to pass over this land and develop in some distant spot barely within reach of the city. Our laws are causing sprawl, my friend, not our culture or our wide open spaces.

Want to get to the bottom of crazy development patterns? Follow the capital gain.

John Berg writes:

Thank you John Strong.

In the 70's I lived in Montgomery County, MD and experienced a RING of development radiating from and centered on the Washington Monument. As a guess the inner radii was 12 miles and the outer radii was 15 miles. Farm land with a excellent ROI was being converted to residential land of moderate to high homes while ignoring the development of the hundreds of acres of land in inner DC burnt out after the MLKjr riots. Apparently MD and VA had similar land development laws as well as tax laws.

John Berg

Prior_Analytics writes:

I may have got the conclusions wrong on this podcast, but I came away with a number of messages that I can not agree with....

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1) Poor planning, can only be corrected by 'better planning'....

2) When planning, you really want just a few elite economists reading the numbers, writing the plans, and setting the rules for the rest of us. We don't want a lot of people like you have in democratic local city government structures. People don't know what they really want, and even when they do, they don't know how to get it. Only the planners know these things.

Why? Because the first thing that local democracies do is aggregate power via elected representatives which, really, just act in their own interest, or the interests of a lucky few....

3) Clearly, economists are the best planners for the rest of us.

If you are going to aggregate power, you should really aggregate it into wise economists, that know better than everyone else in their own city, and everyone else in every city.

4) Markets can be fooled into disarray.

All it takes is one small group within a city to act in their self interest and lobby the city council for an ordinance that a trash-dump can't be located in their neighborhood. Then every other neighborhood must do the same or end up with the city trash-dump. Once you get all neighborhoods in a city to do this, you can then get a city ordinance that trash-dumps can not be established within the city. Once you have this, then neighboring cities have to do the same, or they end up with a multi-city trash-dump.

This continues until you have to ship your trash overseas to some poor country that needs the money and takes the trash, because turning their grain fields into trash-dumps is more profitable in the short-term.

Thus, clearly, without regulations that protect my neighbor's right to turn his backyard into a trash dump, democracies will fool markets into wasting precious fuel on shipping garbage...

We can solve this by protecting everyone's property rights. I mean its their property. You don't own it. They can do anything they want with it. Toxic chemicals, nuclear waste, whatever, it's not your concern, its their property...and, there's market for everything....

In fact, if they want to put both a super-walmart and a nuclear waste dump on their property, why not? Any externalities will be worked out through the markets, everyone knows this....

In fact, your own property values might increase in value if you could turn it into a toxic waste dump. Cold hard cash, going once...

6) Thus clearly, markets are only safe, if we can trust that small groups don't act in their self interest. Since we can't ensure this, without the proper policies, you need the elite planners to ensure that cities are kept at peak economic proficiencies.

For example, we should tax density. As a way to encourage more density. Because, only when density of properly funded by taxes can it reach its full potential.....

yes, yes, I know its counter-intuitive, that's why you need the best planners, planners that can read the data. You see, it's all in the reading and planning......And, the strong man to keep everyone else on plan....

7) What else? Oh yeah, class planning.....

Cities will continue to under-perform without regulations to ensure the right mix of 'classes' within every city. Surely without the right mix of 'middle class lifestyles in Silicon Valley', the Valley will under-perform.

Hello, every upper class neighborhood needs the right mix of lower level classes to supply a peak performance labour force.... Everyone knows this, except maybe the local city council in Palo Alto.

You think the market is going to plan for the right mix of lower classes on its own. No.. You need planning....class planning....the right mix of zoning budgets...ladies and gentlemen, the new city map....this is where the upper class will live, and over here, over here is where the lower 'worker class' will live...see how you can get the right mix with the proper planing.....we'll have busses and train schedules for the workers to take in the morning and evening... and the upper class will have the ability to walk to the super-walmart and Vietnamese restaurant staffed by these workers.....

6) Was that all?... ah, well, power and planning really can't be done at the local level.... you need national planners....for the good of the country as a whole...

"The problem of course is that the insiders--the people who already live there--vote and the people who would like to live there can't vote against these policies because they are not on the rolls yet. But that suggests that these kinds of policies would never pass. No city council would ever impose those kind of restraints on themselves; and the voters won't like it either. Right." ....

Thats right!~ Clearly, you need 'National level' planners, that know what's good for the Country as a whole.

You know, we could have people that live in Washington DC and Arlington County, deciding what is best for Boseman, Montana and Portland, OR. I mean, without national power to decide (and enforce) local economic regulations, you'll never get those 'Costal cities' to accept the clearly superior policies of the 'Sunbelt cities'....

We need cities that grow at double digit rates. We need cities to output every ounce of full economic production. We need the density to support the diversity, to realize the full potential of our nation as a whole.

Density, Diversity, Destiny!

Listen, "Everyone would like the city to be a little more dense; they just don't want it to be dense in their particular area." And, because of these 'NIMBY' attitudes at the polls, its only the elite national economic planners that can get us to peak performance.

Listen, its all right here in the plans. If you'd just read the book, you'd know too. Statistics don't lie. Supply curves can be mapped, and you are here, and we need you there. Only better planning, by those that can read the numbers can save us from ourselves....

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I found the podcast interesting, but, yeah, I think I stick with the status quo.....

"Democracy is the worst form of government except for all those others that have been tried."~ Winston Churchill

"The best argument against democracy is a five-minute conversation with the average voter."~ Winston Churchill

-p_a

Bogwood writes:

Two additional questions. 1. When does division of labor become destructive? Catton makes the point that it can be alienating. It can lead to increasing fraud and friction. At the least there is unlikely to be a linear relationship but more J or U shaped. 2. The biology and physics of cities is unexplored. Take the effect on the nitrogen and phosphorus cycles. That these cycles need to be closed is obvious but not discussed. Brings up the S word, sustainability. So the city can convert more resources to waste more quickly. Peak cities.

Eric Mauro writes:

Not a bad podcast but there are some major holes in the premise here as pointed out above.

1. Here in Boston which was mentioned prominently, the city is already very dense, but there are suburbs poking into the radius from the center of town (Brookline and Newton) which are not.

2. The demand for density should support the development of laws and regulations on noise pollution, light pollution, petty crime and so forth. As long as the city is not interested in doing its part to control disruptive behavior there will be no support for higher density.

3. Shouldn't the demand for density turn current housing in poor and dangerous neighborhoods into desirable housing? Why doesn't that happen? There are plenty of houses for the people who are trying to live here in Boston. Except that they are in undesirable black or latino neighborhoods.

AHBritton writes:

@A (&John Berg)

A general response because some people (notably John Berg) seem to be under the impression that I am supporting any and all housing restrictions and market interference. I have noticed people often have trouble excepting that I am not necessarily arguing FOR a specific position when I ask questions, but that despite having read a lot of material on these subjects I am still trying to work out for myself what seems most reasonable and I don't feel terribly confident in defending a position on either side of the matter. My comments are merely reflecting open questions to which I honestly don't feel I have the answer. One more thing, the example I give IS a realistic example, people have to deal with environmental factors all the time.

A,

I greatly appreciate your reply. Sorry it has taken me so long to reply… one problem with these comment sections is they seem to die out quickly and I often don't have the time to put together a well-thought-out response before things die down.

I am a little confused by your response so I hope you could clarify for me. It seems to me you are saying homeowners would NOT have the right to prevent the lard rendering plant? I am not 100% sure if that is what you are stating when you say:

"Maybe they want to prevent that lard rendering plant from springing up near to them. The problem is that to grant these additional rights to the cartel, the government has to take the rights from the present owners. The cartel could have paid for those rights, but they asked the government to steal them on their behalf instead."

I understand and appreciate that as being a consistent position to hold, but it seems to me to have various difficulties. One difficulty is that there are many things that seem to be (albeit arguably) unprivatizable or "monetizable" in practice. Air, water, sound, livability, environment, etc.

IF you are saying that homeowners have no right to restrict a neighboring property no matter what, don't you think the lard rendering plant raises a problem?

A homeowner obviously usually can't purchase the entire surrounding area and properties. This would mean that home owners have no real control over any of the uprivatizable common elements and they simply have to hope no one does anything they dislike with these elements.

This seems like it could intentionally be used for what seem to me to be nefarious purposes. If someone wanted to temporarily lower the value of a neighborhood in order to buy of the property they could simply burn noxious smelling material, blast loud obnoxious music, flash bright lights, etc. If they properties are individually owned and homeowners have no right to restrict neighboring properties, what recourse would the other owner's have?

I'll stop there since I am not entirely sure this is even your position.

A writes:

AHBritton,

Agreed about the speed with which the comments section dies down. You've got to work fast on EconTalk!

On to the meat of the matter...

IF you are saying that homeowners have no right to restrict a neighboring property no matter what, don't you think the lard rendering plant raises a problem?

Yes, it does raise a problem! The lard rendering plant produces externalities that homeowners aren't going to like. However, I don't see this as a problem that is serious enough for one group of land owners to strip rights from other groups of land owners.

The reason? There is an established market solution to this problem. It's for private developers to purchase some combination of land and rights, then invite homeowners to come live in an area that is guaranteed to be externality free. Think gated communities, large planned suburbs, apartment towers, office towers, and shopping malls. One reason these developments are attractive is that tenants can expect certain externalities to be maximized and others minimized. They're not complete solutions, but they get us a long way.

Dr. Duru writes:

This has been a great discussion on this topic (is "A" = "Avent"?). From what I have read, I have concluded that a complicated interplay exists between democratic rights and the power to choose with market "rights" and the macro-goal of economically efficiency outcomes. A definitive resolution seems necessarily elusive.

I am reading there is a concern that people can use the (democratic) political process to subvert property rights and economic progress.

I am also reading that those with economic power (aka a lot of money) can impose undesirable outcomes because it generates large enough profits to outweigh the associated costs. In particular, I still take exception to the (implied?) notion presented by "A" that the way to solve for the lard rendering plant example is to rely on developers with enough money to buy out large tracts of land than can somehow insulate the inhabitants from the externalities. In other words, only concentrated economic power can deliver consistently desirable living conditions. The poor and impoverished will have to live by the lard rendering plant because, well, it's efficient and profit-maximizing to do so.

I can sympathize with the logical argument that free markets should be free from the whims of the political process. However, I still do not see how in practice this is sufficiently compatible with enabling a democratic society to choose the way in which it wants to live. That is, I do not see how a practical and consistent operating principle can be formed here.

A writes:

No, I am not Avent.

I am reading there is a concern that people can use the (democratic) political process to subvert property rights and economic progress.

"Economic progress" sounds so impersonal. The point I want to get across is that real people (including - or perhaps especially - poor people) are being hurt because they can't buy a house at a reasonable price. This affects renters too!

In particular, I still take exception to the (implied?) notion presented by "A" that the way to solve for the lard rendering plant example is to rely on developers with enough money to buy out large tracts of land than can somehow insulate the inhabitants from the externalities. In other words, only concentrated economic power can deliver consistently desirable living conditions.

"Concentrated economic power" sounds so menacing. Actually, it's home buyers who have the money. The developer is just the organizer - the vehicle that makes it easy to negotiate for the rights, coordinate the building process, etc. Rephrase your statement to say something like "only concentrated economic power can deliver consistently good laptops" and you'll see that this is harmless. This is all about how homeowners can cooperate with each other (by selecting an organizer) to get their needs met.

The poor and impoverished will have to live by the lard rendering plant because, well, it's efficient and profit-maximizing to do so.

The poor and impoverished are key groups who are being screwed by homeowner cartels, bro! The same things that make these people poor are often the same things that keep them from being very effective lobbyists, which means that they ALREADY live next to the proverbial lard rendering plant. Worse, they can't move away because the homeowner's cartel is preventing new and innovative sources of supply at reasonable prices.

However, I still do not see how in practice this is sufficiently compatible with enabling a democratic society to choose the way in which it wants to live. That is, I do not see how a practical and consistent operating principle can be formed here.

You will never get a chance to vote about whether it would be alright to beat me up. That is a principle. Similarly, the issue of whether one group should be able to economically brutalize another group in a particular way should never be put to a vote. Because it's plain wrong.

Pierre Boileau writes:

Dear Mr. Roberts,

I am again dismayed by the clear bias in your arguments and those of your guests as well as your clear bias towards selecting guests who have similar world views as your own. I am also disappointed by the presentation of this psuedo-academia as being well researched and authoritative analysis.

In particular in this episode it appears clearly irresponsible to argue for more laissez-faire development in well planned and strategically developed cities when the current economic crisis was, in large part, caused by laissez-faire development and financing of home ownership. I am struck by the need of you and your guest speaker to ignore or 'put aside' the realities of the causes of the economic crisis in order to justify your arguements. I am also struck by the need of Mr. Avent to strategically limit the scope of the analysis so as to ignore key variables in order to justify that cities like Portland should open up their rules for development to allow developers more freedom. For example, the argument that more laissez-faire development would lead to development of more social housing is ludicrous. No rational developer would provide reasonable quality housing at affordable rents unless there was government subsidy (and therefore influence) involved.

I am also struck by your constant use of the generic term 'public policy' as the evil woe that hampers properly functioning economic markets. You give the impression that public policy is the result of irrational government bureaucrats sitting in enclosed offices making decisions that properly functioning markets could make on their own. In fact, the reality is that public policy is developed by the public, through their votes and through their lobbyists. It is also clear that these public actors work to ensure that public policy advantages them and if you endevour to study the history of the real estate and finance lobbies in Washington, you will see that their influence has created the situation where cities have to act as a counter point to this strong national lobby to ensure that developers respect some rationale rules of urban development through the use of regulations. This is because developers, as economic actors, are motivated to build on greenfield sites with the cheapest building materials and housing designs possible because they don't have to live in what they have built.

I would expect a person with Mr. Robert's academic credentials to support thorough and unbiased analysis that contributes to increased economic literacy among the general public.

Russ Roberts writes:

Pierre Boileau,

I appreciate the feedback.

On your general point, no one that I know of in the media or even in much of economic research has an unbiased perspective. My approach is to make my ideology public and let the listener take what I say with a grain or pound of salt. I think that is preferable to pretending not to have an ideology or bias of any kind. When you find a podcast or interviewer that is bias-free, please let me know.

I didn't mean to give the impression that bureaucrats are irrational. Like you, I believe that they respond to various kinds of political pressure. That pressure sometimes leads to championing of cities over suburbs. Sometimes it leads to championing suburbs over cities. I have no reason to believe that the outcomes of this process serve the public in the sense that we normally use that phrase.

I certainly agree that the real estate and home building industries have used the political process to their advantage.

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