Intro. [Recording date: December 15, 2022.]
Russ Roberts: Today is December 15th, 2022 and my guest is economic historian, Judge Glock. He is Director of Research at the Manhattan Institute. Judge, welcome to EconTalk.
Judge Glock: Thanks so much for having me, Russ. As someone who's listened for over a decade, it's a real pleasure.
Russ Roberts: Glad to hear it.
Russ Roberts: Our topic for today is housing. We're going to start with zoning. Based on a recent essay of yours where you gave zoning two cheers. Not three, two. I'm more like one. So, I'm very interested to hear what we have in common and what we disagree on in that area. So, what's the argument for zoning? What's good about it?
Judge Glock: Yeah. And, I actually also debated whether or not it should be 1.5 cheers or one cheers and I gave upon fractions and settled for two. So, the basic argument that I start with is that there's a lot of real and justifiable complaints about the American housing system and American housing affordability. But, from my perspective, there's a lot to be said for it in general. And, I often use--there's the old economist joke that somebody asks, 'How's your wife?' And, the economist responds, 'Relative to what?' You look at the American housing system, and by some measures it's in fact the most affordable on earth. Certainly when you look at the rest of the anglophone world. We have what's called a price-to-income ratio--the median house price to median income ratio--about four. Where, you see a lot of places like New Zealand or Australia, it's more like seven or eight. And, even places that the data's not as good, but, like, Japan that's often celebrated as an urbanist success, you often see these housing price-to-income ratios more like seven or eight.
So, from a lot of measures, American housing is pretty good and pretty affordable. And, that also makes one think about it and look at the places in America that are very affordable. And, they happen to be a lot of places that do have actually extensive single family zoning, extensive powerful local governments.
If you look at places like Nashville or Atlanta or Oklahoma City, these places, for growing cities, have some of the most affordable housing on earth.
And so, if zoning is not the overwhelming issue in a lot of these cities, and if zoning is near universal, but America's real housing crisis is located in a few areas, most importantly California, New York, and Massachusetts and some of the coast, then what's the real issue here? To me, it can't just be zoning. And so, in the piece, I then also talk about what some of the economic advantages of zoning could be and what some of the economic literature says about that.
Russ Roberts: So, talk about those advantages. What would be the argument?
Judge Glock: So, it basically goes back to a 1956 piece from Charles Tiebout that became kind of institutionalized as the Tiebout Hypothesis. He was trying to answer the question o: How do you decide how much governments should pay for public goods? Streets, police protection, to some extent you could say schooling. Some of these local public goods are provided by government. And, this is a similar question people like James Buchanan and Richard Musgrave and other people were trying to answer at the time.
And, Tiebout had an interesting argument about this. He said: Well, if you have a lot of competing local governments, they should actually allow people to decide the mix of taxes and public goods they want. And, this competition between local governments should keep them relatively efficient, probably not as efficient as a pure private sector thing. But, if there are public sector goods that can't be provided by the private sector, this would be a way to figure out how much people want to pay for them.
But, it didn't take long [for?] to realize there's a potential issue with that Tiebout Hypothesis. And, the main one is there's a free-rider problem. That, say, you had an area that was willing to tax itself for a lot of public goods, mainly through property taxes, but a lot of people could move in and pay for below-the-average property tax rate. You'd have a tendency of everybody to pull back on paying for public goods at all, because there was a tendency to redistribute it.
And, the economic literature is pretty consistent that when you tend to redistribute public goods, especially away from the median voter, the median voter votes for less of them.
And, in fact, one of the main people pointing out this critique was James Buchanan and a man named Goetz in 1972 arguing that there's this perpetual chase after good local public goods and these small local governments.
And so, some economists like Bruce Hamilton and others realized, well, zoning solves that problem. That, if you have zoning that determines how much property people could afford or should afford in these kind of competitive local suburban environments, and you had property taxes that were commiserate[commensurate?] with the amount of zoning and amount of property that was allowed in these local governments, you basically had something that looked--kind of, if you really squint--a little bit, maybe like a business. That you have these owners who have a lot of equity invested in this area. They're fairly homogeneous and they can determine who can, kind of, come in and come out investing in the business. And, they would have kind of a goal to maximize the value of their housing wealth, which can have both good and bad effects, but they would also have a lot of incentive to pay for good public goods.
And so, that's the kind of base argument for zoning. And, there's been a lot of debate obviously about that. But, again, I think the important point is here that in those areas we know that have a lot of this single-family zoning, housing seems to be pretty affordable. You seem to have these very successful local governments. We know these local governments tend to be more competitive and more efficient by many measures than more distant, centralized governments. So, if you care about that kind of local competition in public goods and you want some sort of mechanism to encourage that, zoning is one means to do that.
Russ Roberts: Yeah. Let's talk about the single family piece. I mean, there's a lot of different aspects to zoning, obviously, and housing regulation more generally and approval for new building and so on. What we're really talking about here is whether, in the middle of a suburban landscape, you could build an apartment building or a multi-family home, an eight-unit--not necessarily a skyscraper. And, in many of those towns, correct me if I'm wrong, that's literally against the law.
Judge Glock: Yeah. That's correct. And so, to some extent I agree with a lot of the, as it's known, the YIMBY movement--the Yes in My Backyard movement--that tries to advocate for more housing. But, the interesting thing, again, is their argument is--their argument is, like: Well, the main barrier to housing affordability is this inability to build these large apartments in single-family-zoned communities in the suburbs.
But to me, that does face a real query that: Well, where is the housing the most affordable in the United States? And, again, it is those--somebody like Oklahoma City is often kind of a poster child. Places like Dallas, Nashville, and the others have very low housing price-to-income ratios, and they have all of the single-family zoning, very little state restrictions on it.
But, if you look at places like California and Massachusetts--California especially--they have by most measures the densest housing in America.
They have lots of multi-family housing. They have lots of what's known as infill housing. And, they encourage that at the state level. There's a lot of mandates to encourage more of this apartment housing. And, that doesn't seem to make those areas significantly more affordable. If anything, it seems to go in the opposite direction.
So, what's the main encouragement of affordability? It seems to be this actual more development in the green fields outside of existing urban areas that's mainly but not exclusively single family--which also seems to be what most Americans want in a house.
Russ Roberts: My urban-oriented friends would say, 'Well, that encourages sprawl, and if you don't provide any services for making it easy to live inside the city'--and of course they're going to say that's what they want. But, in a different world they'd want something else. And, they might be right. We might come back to that.
Russ Roberts: But, I want to--you've identified a correlation: that, many places have zoning, have affordable housing, but of course those are places where land is relatively cheap. And, it seems to me there's two issues here. There's: What are you allowed to build and how long does it take to build it? So, we think about--and, I think the time to build--the length of time to build--is an easily underappreciated aspect of this problem. Certainly, living here in Israel, I think the time it takes to get a building approved and get it actually executed is probably somewhat similar or worse than it is in, say, the Bay Area.
But, if I think about San Francisco, which I know you have some experience with, and I think about Palo Alto. So, Palo Alto is this pristine, adorable, fabulous, incredibly expensive suburban area of the Bay Area. And, I'm sure it's highly regulated. I'm sure it's hard to build a 40-unit apartment building. And, to me, the fundamental question is the people in Palo Alto don't want those 40 people living there. They just don't. And, the zoning keeps them out. And, I'm not sure that the 40 people who'd like to live in that apartment building and enjoy the amenities we're talking about--some of the public goods, a very respected school system, very nice air, super-good pleasant temperatures most of the year--should people be entitled to live there?
How many 40-unit apartment buildings would you allow them to build? 50? 1,000? Would it change the character of Palo Alto? Yes, it would. For sure. Should it? Who should be in charge of that? Well, right now the people in charge of it are the people who already live there. So, that's troubling, also. What are your thoughts?
Judge Glock: Yeah. So, I mean, I agree with most of that. And, I think it's important to kind of frame who would be the potential winners and losers of what's called an up-zoning, when you increase the amount of density you could build.
So, there's a good argument that if you were a benevolent city manager--you don't say 'dictator' when you get down to the city level--but let's say you're a benevolent city manager. And, the smaller level--again, I think there's a good reason you actually allow more centralized, executive control at a smaller level, because there's more exit as an option as opposed to voice as an option.
But, let's say you're a benevolent city manager. Bruckner, an economist back in the 1990s, said that, 'Well, your actual goal should probably be to maximize the value of land in your city. You can't control consumer welfare, you can't control all the businesses and whatnot, but if your goal is to maximize the people inside it, you should maximize land welfare.' And, it would help do all the things that I talked about in competitive local governments.
Now, a lot of YIMBYs and some of the other groups--urbanists aligned to them--assume that would mean everybody would try to prevent development. But, most of the evidence is that contemporary zoning is too strict relative to a goal of maximizing land value.
So, you mentioned that--people like to point out the person in Palo Alto has a $3 million dollar, $4 million dollar, single-family home. People say: Look at all the benefits zoning gives that person.
But, the way I often think of that, actually, is: If that person could subdivide their land into four single-family homes, maybe for a million dollars, or sell it off for a significant amount of money to an apartment developer or something else, they could get more income than they have.
And so, the argument that zoning--you can think of zoning as something like a monopolist, to some extent. The way to increase the price of something is just to restrict the supply of it. And, on the whole that actually means less welfare overall. If you restrict the supply of a good, you're getting less of that good, including less consumer welfare for everybody.
So, zoning, in one sense, can do that. That's a kind of bad zoning. And, I would say--again, I would agree with most of the YIMBY friends that most zoning in America today is too strict. It's preventing the full development of land. And, there would be an argument for increasing the density to benefit everybody. And, why that isn't taking place everywhere is one question we can deal with.
But, I think a very important issue is actually: California sets up a lot of things that make it harder for new places to grow and compete.
One of my favorite facts there is back in the 1960s, California created something called LAFCOs [Local Agency Formation Commissions]. They're Local Area Formation Commissions, I think they're called. And, these are set up in the county level; and they're basically cartels of existing municipalities that can side[?] when new municipalities start. One of the advantages of places, like Nashville and Dallas and all of the rest of it, is that if you want to kind of go out into the sticks and build your own city, you can do that. You can get some people together; you can eventually vote for a city. That city or sometimes a utility or infrastructure district can build all those public goods. And, that kind of puts pressure on those other cities to be: Well, that Tiebout competition we talked about.
But, in California, to me, it's a great kind of equivalent of a Certificate of Need [CON] stuff for a lot of the private sector--
Russ Roberts: Yeah. Hospitals--
Judge Glock: Yeah, exactly. And, you had the same arguments there about local governments that you do about hospitals or taxis or all of the rest of it: That, this is chaotic, new people are starting up cities everywhere; you don't want it.
And so, these LAFCOs have all the existing cities and districts on their Boards, and they decide do we want a new one? And, they say, No, we don't want new competition.
And so, this is why you look at--the argument is: Well, why is Palo Alto and all these areas so expensive? And, people say, 'Well it's, again, all this single family zoning.'
But, by most measures--San Francisco Bay Area is one of the densest in the country. Second, third, depending on how you look at it. And, if you look at the kind of nine-county Bay Area, almost 40% of that is grazing and pastureland.
I mean, to me, the real argument--the real kind of monopolization that's preventing development--is that inability to grow outwards and create new municipal competitors, new districts, new areas that can really compete with those existing ones and also then kind of force them to a more optimal level. And, even if we should restrict zoning, I think a lot of our energy should be focused on: What can we do to grow outward and create new competitors, in a sense?
Russ Roberts: If you drive the 280 from Palo Alto or Menlo Park into the city of San Francisco, there's a lot of vacant land. And it's really beautiful, and I love looking at it when I would go visit there. And, I think the hard part on all these questions--I'm sure there's a fancy name for it--but it's really the character of the place. I've talked about this with respect to New York City in the episode with Alain Bertaud. Chelsea--the neighborhood of New York called Chelsea--is really cool. It would look really different if it was all skyscrapers. Wouldn't be as cool, but poor people could afford to live there, and that would maybe be important.
So, I think we have a romance about place. A lot of people would say the Bay Area should not be changed. Right? All those farmlands and pasture and other things should not be allowed to be built on. It's perfect in that way and it should be left alone. And, Palo Alto should stay these small single-family units; and then if we allowed apartment buildings there, it would be destructive. It would ruin what is special about the place.
And, I think it would, to some extent. I like to think there's a middle ground. I like that there's a middle ground where certain types of streets would be allowed to have larger apartment buildings or at least three or four multi-family units.
And, I think it's--like many areas of economics, there's a bootlegger and Baptist issue here where there's a good reason to have zoning. There's a good argument for it. At the same time, it allows an opportunity for the self-interested--that's the bootlegger--to take advantage of the better-intentioned side of the discussion.
I haven't talked about bootleggers and Baptists in five years probably on EconTalk. But, bootleggers and Baptists agree that it's bad to sell liquor on Sunday. So, the bootlegger likes it because it creates demand for their product. The Baptist likes it because they think it's God's will to make it the Lord's Day and not drink. So, the politician says the Baptist is right and then takes money from the bootleggers to make sure that the law stays outlawing liquor sales on Sunday.
But, the real reason that bootleggers and Baptists is destructive, is that it's not just that politics makes strange bedfellows. It's that when you get into the details of how the regulation gets implemented, often the Baptists have gone off to church and the bootleggers are really focused on how this is working to make sure it helps them. I think that's the real issue. It's a powerful tool, zoning. And, my guess is that in its actual implementation it doesn't need to be as draconian as it actually is.
Judge Glock: Absolutely. And that's exactly where I come down on this.
But, I think an important--maybe not a qualification--but an important perspective here is that a lot of these kind of public choice and government questions do look a lot different when you get down to the area of local governments. And, especially when you get down to the area of competitive local governments.
If you have a government that is local and people can, say, have a choice of one or two dozen local governments in an area to choose from and people can maybe choose. I mention in the article: there's wet and dry counties. There's cities and places where drugs are fair--
Russ Roberts: That means places where you can legally buy alcohol and can't. Right?
Judge Glock: Exactly. Exactly.
Russ Roberts: Not everybody knows what that is, Judge. Sorry.
Judge Glock: No, no. Thank you. Good point. It's much rarer than it used to be. Even 30, 40 years ago used to be fairly common to have dry counties throughout.
And that brings the question of: If you have a strong exit option for these local governments, how much do some of these broader public choice problems take place? If the bootleggers conspire with the Baptists to create those rules against drinking or the dry county or whatever it is; and you have people that, a large majority who really want to live in a dry county. Let's even say we can put a price on it somehow, or that we could allow people to express through exit and voting with their feet--as it's known--that this is the kind of place they want to be in. Does that temper the negative deadweight losses of a bad regulation?
It might--and, it might in a sense, even allow for a lot more consumer surplus. It might allow for a lot more people insofar as they value a certain kind of local community, the character which you talked about. You'd want them to, in one sense, pay for that. Price that in the value of land and allow them for those different alternatives across different things.
And, I think this gets to your Palo Alto question, or Chelsea: In one way, again, if we are an efficient city manager, we should look at that and say, 'Well, there's a value to Chelsea looking like Chelsea.' And, you could look at, say, maybe developing a huge amount of apartments that would actually lower that value substantially--would lower the value of land because those amenity values would be lost. And, zoning, when it's done well, can create those positive amenity values. And, everyone agrees those are there.
I think too many of the pro-development and YIMBY groups--which again, I do consider myself--are kind of dismissive of the negative potential effects of increased density. I'm not saying they're overwhelming. In many places, they're more than necessary. But, there is congestion, there is aesthetic costs, there are these other things.
So, what do you do about all that? Again, in one way allowing these competing municipalities whose goal is to maximize the value of the land will incorporate and internalize, as it's known, a lot of those costs. Like, say, Chelsea is its own city and everyone can vote for: Well, do we want to develop or not? If you tell everybody, 'Well, you can develop more and this is going to make all of your land worth four times as much,' I do imagine a lot of the people would vote for that even if they had aesthetic or character concerns.
Russ Roberts: And, they--
Judge Glock: Or as opposed if the--yeah?
Russ Roberts: Yeah, they might be wrong, and they might make a mistake--obviously that's not the question here. Coming back to the Tiebout Hypothesis and this idea of local competition, I think one perspective on it might be how unimaginatively uncompetitive most, say, Bay Area suburbs of San Francisco are--not suburbs, cities--that ring San Francisco; they all kind of have very similar situations. And, I'm thinking about how little experimentation there is in, say, urban transit. Now, of course, it's tricky because some people want to go beyond--they don't want to just travel within the little city that they live in, so that starts to get complicated. Private companies have figured that out pretty well, by the way. Google runs a massive bus business in the city of San Francisco.
Judge Glock: And, they get protests for it, too.
Russ Roberts: Yeah. And, the reason was they weren't living in the city.
Judge Glock: Oh, something about--
Russ Roberts: But, they were.
Judge Glock: Something about: rich people on buses were taking over San Francisco. It seemed to be a win-win for everybody. But, what do I know?
Russ Roberts: No. Never can be.
Russ Roberts: On the other hand, you have a situation--I think, recently in a neighborhood in London, where they have very high taxes for car travel in certain time--I'm going to get this wrong; it doesn't matter. But, they try to make it more expensive to own a car.
Now, not every piece of London is like that. I don't think. This one neighborhood has done this and what it's created--neighborhood--it's one little, again, suburby kind of thingy. There are fewer cars. It's easier for kids to play in the street. If you're worried about pollution, there's less of it to breathe. And, it's kind of interesting. I'm not sure that's where I'd want to live, but it might be. I don't know.
And, then you'd say: Well, what are you going to do to go along with that?
So, we had Donald Shoup on this program where he says you don't want to require people, when they build an apartment building, to provide off-street parking. The argument for off-street parking requirements are that: 'Well, all these people are going to move in this apartment building. Then they're going to crowd up the parking around the area. And that's an externality, so you should force them to provide off-street parking.' And, his point is that of course that just means the apartments can be very much more expensive, because a huge part of the apartment building is not rentable: it's just taken up with a parking garage. Including a parking garage for people who don't own a car. Because you've got to prepare--there's a requirement in advance in case they do own a car.
But then you have to ask the question: So, what are they going to do when they want to go out? If you don't build the garage, what are you going to do? They are going to cruise and look for spaces. And the answer is: Of course you have to build some urban transportation options for them. And, that seems to be sensible. And yet, we struggle to do that, it seems, in many cities.
Judge Glock: No. Exactly. I mean, I think this gets to one of my obsessions, which we briefly touched on earlier, which is: If these cities already have an incentive, as one may say, to maximize the value of their land, and yet they're not doing it, what is holding them up and why are they creating these obscene regulations that don't seem to benefit everybody?
One: I would say that there's a lot of these--I know some YIMBYs will disagree with me--but a lot of the most burdensome things are happening in these central cities where a lot of the benefits can accrue to different interest groups. Different interest groups can catch the large city. In fact, the larger a city is, there's much more evidence that these are less efficient than these smaller local government areas.
One of my favorite examples, there's some studies on what's known as the fly paper effect. That, if a government gets a ton of free money from usually a higher level of government or a boost in property taxes, do you keep it? If you were an efficient city manager, you should pretty much just return it down in tax cuts to people because you already had the right proportion of public services that you all wanted.
And, what you find is small governments do that, by and large. If you have a small suburb that gets a boost in property taxes, they keep their total public service spending flat and they just cut taxes.
The larger cities are much less likely to do that. They're much more likely to have what's called the fly paper effect: it sticks to that city and they use it for interest group and log-rolling and all of the rest of it.
So, I think that's part of the thing. Again, using that not-perfect but somewhat-useful metaphor as these cities as competitive corporations in a market. And, I'll even point out that, historically, a municipal corporation was not treated substantially differently from a normal corporation. It was legally pretty much the same thing. Both were just considered corporations created by the state that had some authority.
Russ Roberts: You raised the question a minute ago about why these municipalities might not want to maximize the value of their land. I'm not sure that's a good idea. It's an interesting idea. But, you did describe that would require a benevolent city manager. But, in fact usually that city manager has to get elected. And, of course, the incentives that person faces are going to be not quite what you might have in mind.
Judge Glock: Well, to some extent, exactly. But, as long as you have the exit option--and again, I would think of maybe if we're using the metaphor of a corporation where, you know, who rises to the top of a corporation? It's somebody who can promise to maximize the value of the internal stuff. And the larger the corporation gets, it's a little tougher to kind of maximize shareholder value. There's more problems with aligning incentives, all the rest of it. But, you have a really strong reason to do that.
And, one of the ways that William Fischel--one of my favorite researchers over at Dartmouth--talks about the home-voter hypothesis. And, he makes the good argument that a lot of people have a lot of wealth tied in a single asset that's illiquid, immovable. And, that's why they're rightfully attuned to what their city manager does. And, not only do they have that asset that makes them very attuned to that, they also, when people are competing to get people inside or out of the city, they have a lot of competition, in terms of other cities do.
So, it's just like a corporation, even if the inner internal politics of that aren't always great for who gets to the top. As long as you have that outside competition, there's some sort of limitation to those exploitative tendencies.
Now again, not perfect and maybe just briefly talk about some of the ways that that's kind of been sabotaged.
Now, one of my obsessions is property taxes. So, the main argument for zoning and public goods in the Tiebout Hypothesis is that: Well, most of local government is paid for through property taxes. And, if you have a new development that increases the value of property taxes, everyone in the city benefits from that. One, they might benefit from allowing more upzoning of their land just because they themselves could build more. But, even if, let's say, a single parcel somewhere else was upzoned and developed, even though--and the rest of the city would have face the local congestion and all the other charges--they'd get these property taxes.
And, one of my favorite quotes from a newspaper in the Bay Area in the 1960s is arguing why they should develop it. They said, 'Cows don't pay property taxes. You as a local voter, trying to maximize value of land, should try to do that and encourage that.'
And, they did. These cities were what known as growth machines throughout most of the 1950s and 1960s. For good reason. And, California was the quintessential example of that, becoming the biggest state in the Union in 1964 and growing very rapidly.
So, what changed? One of my favorite explanations is a lot of the states--in California was through a lawsuit known as Serrano v. Priest--tried to equalize property taxes for school districts, most importantly. They said: It's inequitable that your area has a lot more property taxes than the city down the road and we should make sure when you raise property taxes that most of that goes to that city down the way. And, again, there's lots of good arguments for that. But, there was two surprising effects of that. One is that the argument--
Russ Roberts: And, that passed? That was decided in favor of flattening of property taxes in California?
Judge Glock: In California. And, it largely was replicated throughout most of the states in the Union, either through other court cases or through state-level legislative changes that redistributed property taxes or state grants based on how much cities were raising for schools--to try to equalize.
In California, it was almost a $100 difference per student was all you were allowed. It had to be almost exactly equal. Other cities or states, it's a little distinct.
But, one interesting side effect of that was that people voted for what was known as Prop 13 [Proposition 13], which is the property tax limitation measure in California. And, a lot of people say, and I think correctly--and again, William Fischel did some of the great early research on this--well, this is because of this Serrano v. Priest case. Everyone said: If you're going to redistribute my property taxes, I don't want to raise them. There's no reason to take that local benefit for that.
And, a version of what Prop 13 was when it passed after the Serrano v. Priest case--overwhelmingly, almost about two to one--that went down by about two to one a few years before the Serrano v. Priest case, the second version, was decided. And, that seems to be the argument. A lot of these redistribute things broke the link between property taxes which could provide a lot of local gains for these local taxpayers and development. And, it was really post-1980 you saw this incredible explosion in California housing prices. And, I'd say partially because of those things I talked about--the restricting of competition in new cities--but partially because you didn't give a lot of these people an incentive to build.
And, to my mind, when we're talking about how can we force governments to do something which we agree they should do, which is build more, to me, instead of focusing on how can we create more state mandates, well, we should look at how we encourage them to build more. If we think there are gains from trade, if we think there are net benefits to be gained from development, which there are, how can we make sure that local governments, those areas have that incentive? And, one thing would be restoring property taxes.
Russ Roberts: Are you saying that in the Bay Area--let's take an example I always enjoyed because it's so dramatic. We have Palo Alto and East Palo Alto. They're separated from each other by the 101 Highway. It's my poster child example because when I would say that we should have less government involvement in schools, we should have private schools more generally, they would say, 'Well then all the rich people would get together and they'd get really good schools and the poor people would be stuck with the bad schools.' So I said, 'Well Palo Alto, most of the students scored in the 99th percentile and there has to be a district in the first percentile, meaning the worst. And, in some areas, whether it's math, science--I don't remember--English, East Palo Alto is down in the single digits. And, down to one in some areas. So, 1 versus 99 is a pretty big gap. Are you saying it could be bigger? Would it be negative 17 to 130?' It's kind of a tough argument to make.
So, East Palo Alto, it has gentrified a bit since I used to tell that story. It's gotten a little bit more developed. But at the time, East Palo Alto had a lot of undeveloped areas. It was desperately poor. And, Palo Alto at the time--this is in the mid-1980s--was thriving. And, it's still true that Palo Alto is much healthier economically than East Palo Alto. Are you saying to me that the property taxes that come out of Palo Alto that stay in Palo Alto are roughly equal to the property taxes that come out of East Palo Alto because of government redistribution and Serrano v. Priest? Is that true?
Judge Glock: For schools, that's largely true. There've been a lot of changes since Serrano v. Priest in some of the cases in the 1970s and 1980s. But, the most recent version in California, the Local Control Funding Formula I think, which was created in 2014, keeps that spending on local schools pretty close to equivalent. It's pretty close to the same.
And, that kind of gets to the question of what we know about school funding, which is that funding doesn't seem to be an overwhelming determinant of local school success and quality.
And, two, the interesting thing to me is that what everyone agrees what happened, both post Serrano v. Priest and post-Prop 13, is that school spending dropped substantially across the state of California. And, even if you don't think it has a substantial effect, everyone agrees that California turned from in many ways a leader in local education in K-12 [kindergarten through 12th grade] into an obvious laggard, near the bottom of a lot of quality and other metrics.
And, that is partially because they had trouble. One, you had trouble funding those local schools because you had to ask instead of someone who cared about funding their local schools because they paid for it in their local area, they saw the benefit, and they saw the housing value benefit. I mean one of the strongest connections in the historical literature going back to 1969, a Wallace Oates piece, is that areas with better school districts tend to have higher values. Everything else held constant. And so, a lot of people poo poo that but--
Russ Roberts: Housing values--
Judge Glock: Housing values. Thank you. One of the interesting finds of that is that gives people a very strong incentive to care about their local schools, and that makes people really care about them because their own home voter hypothesis value.
And so, then when Prop 13 and the other happened, and that kind of segregation between your property taxes and the local schools, you had people who take a lot less interest in their local school system and there's a lot less property tax gains that can be got from that--the value of raising that.
So, I think--obviously we've seen amazing success in school choice in Arizona and West Virginia and some other places recently, and that's very important. But, if you look at how that does usually, it works--it takes the state funding formula and allows that to redistribute but it keeps most of the local stuff--insofar as it's not already redistributed--local. Which, we need more competition in schools in general but insofar as you do have competitive local governments, which actually and a lot of people who care very strongly about the value of their local schools, it works pretty well. Which is why, again, suburban districts seem to work pretty efficiently and these central city districts, similar to the other problems I discussed with central cities earlier, seem to work terribly.
Russ Roberts: Prop 13, just to be clear, it was--explain it. It was a cap on--explain.
Judge Glock: It was a cap passed by voters--again, about a two to one margin I believe in 1978--that basically didn't allow property taxes to raise more than I think 1% a year and basically actually froze all kind of property tax income for all these cities in whatever they were in 1978, or the distribution of it.
And, the argument I've made, and Fischel and some others made, is this is largely a downstream effect of this earlier attempt to equalize school spending. And, some of the other states' attempts to equalize local property taxes. Because--otherwise, property can be a very powerful reason to get people involved and caring about their local community. And insofar--schools is a more borderline case--but insofar as you do have public goods that you do care about--the roads and the rest of it--it can help tighten the connection between those local incentives and home values.
Russ Roberts: Fascinating. I did not know that about--I knew there was equalization in some states across school districts in terms of spending, and I guess it's--you haven't gone into all the details: obviously, it's complicated. But, I didn't think about what that does pre-stream or upstream when you think about we need more, better roads, or better whatever it is, and you're worried that a bunch of it's going to be siphoned off. Incentive's just very low to favor that. Fascinating.
Judge Glock: And, the basic--oh sorry. Go ahead.
Russ Roberts: No. Go ahead.
Judge Glock: Well, I think the basic thing is the argument that--this goes down to fundamental public choice economics and stuff of, like: How do we decide how much public goods we want and what's the best level to decide that? I mention the European/Catholic concept of subsidiarity: You want the lowest level of government possible, but no lower.
And, to me, for a lot of these public goods, and for a lot of government in general--which, all of the public choice economists are not anarchists. They care about how do we fund actual public goods, including public goods that may just have very low or very high economies of scale that the public we feel needs to provide. And, there's a lot of good arguments for saying, like, the local governments should do that, and they can do that much more efficiently.
In which case we need to figure out a lot of ways to strengthen local government that will--as James Buchanan realized later in his career--that competition, both federalism at the state level and especially local level will kind of constrain that Leviathan. So, even if we have concerns about local spending and local factors and externalities and all the rest of it, a lot of what we should do is figure out how to make sure these governments are as coherent and internalize most of what they can earn and benefit from as possible.
Russ Roberts: What comes to mind is the following. Public competition is usually not--I don't think of it as, as effective as private competition. Usually it's expensive. It's much harder for me to move from Palo Alto to Menlo Park than it is for me to change cars when I decide to buy a new one; and other things like that. I get used to my neighborhood. I might like my public school or whatever it is.
But, what you're pointing out, I think--I think the real takeaway from our conversation is that even when local government works imperfectly, when we impose certain regulatory constraints on it from above, such as these kind of equalizing of property rights, we detach and destroy some of the natural incentives that might make them work fairly well. And, that we've done a bunch of that in America.
Is that--in other words, I don't want to be romantic and say that each community depicts the level of zoning and housing regulation that it wants because I don't like that kind of language and I think it's misleading, and there's special interests and so on. But, certainly, if I make it hard to pick the level that anybody wants because I'm imposing certain constraints on it, we're going to get a lot of people not paying attention. And, that'll make even harder. It'll make even easier for special interests to get what they want.
Judge Glock: Well, exactly. And I think--you pointed out that it's harder to move from a local government than to switch car suppliers or whatever it is. It's a lot more restricted on exit.
And so, what do economists realize when it's really hard to exit from some sort of areas?
Now, one, you could talk about antitrust or something like that and even breaking up the large things. And I've seen some good arguments, say, for breaking up school districts even beyond the usual arguments about just allowing voucher-based choice, which I agree with.
But, the other thing to think about is we do have the higher levels of government assumptions have to restrain that when you don't have as much of an exit option. So, even the, say, electricity deregulation--that it's kind of taken over the air. We all agree you can't really switch the wires that everything comes through on. Maybe you can allow electricity generators to compete for price and how much they provide, electricity hours, but there's--it's really hard for you to just exit and pick another guy who is going to draw a wire to your house.
So, then you have the government kind of constrain that monopoly. And, I think one of the important things--or monopoly is maybe just another word for inability to exit easily or difficulty to exit.
And so, one of the things I think we need to do is make sure courts, especially, and higher levels of government are restraining kind of the worst excesses of that. If you look at the 1950s and 1960s you had courts strike down minimum lot size of an acre as just plainly ridiculous. Meaning you couldn't build a house on anything less than an acre large. And, the court said this is just clearly expropriating the value of, usually, say, a farmer's land. He can't develop fully because you're not doing that. And, he doesn't have an ability to exit. That farm is just part of--he was stuck in that municipality or whatever it was. And, often the day it was [?] it was sometimes hard to form a new municipality, too.
And so, we should have courts in high levels make sure that you don't have that, while still making sure that as much as possible we have that government public goods provided at that local level. Because, the alternative of redistribution actually means we probably have too few public goods overall, because people don't want the free rider problems I touched at before. Are we of the alternative of a Leviathan--a larger state--that has all the log-rolling problems or even greater at that level and public choice?
And, I'll mention: one final thing that I mentioned in that article is that, for those hardcore libertarians who are big fans of, say, Robert Nozick--who love the book Anarchy State and Utopia--he mentions in the book this idea of a kind of meta-utopia that allows people to choose these different communities that have a lot of a power if you chose to join them.
But, as long as you have this exit option to be able to move from them, the meta- sort of government that protects peace and basic rights and so forth should kind of allow these local communities to operate. Because you want to allow people diversity of choices, including choices to contract for public goods and some amount of control that you're willing to contract away from.
And, after I wrote this article, I actually read that Peter Boettke over at GMU [George Mason University] and some others had written about that James Buchanan had, in reviewing Nozick's book, compared the Tiebout competition: the idea that this might be--well, this looks a little bit like Tiebout competition. This looks like the kind of thing that, to some extent we have an America. Not that we should perfectly mimic that and not that we should allow local governments to run rampant or everything. But, even if you're a hardcore libertarian, a lot of what zoning and a lot of this local control is, is people who moved to these areas, and moved and made a choice to be constrained in some way.
And, as long as they have the ability to go to other ones--as long as they have the ability to form new governments, which is something we need to encourage--as long as they have ability to move outside into the next county and start something there, we should really encourage that. I mentioned the last thing we want to do is collapse an admirable diversity of lifestyles into a battlefield and a state capital or into Washington, D.C. where we're all deciding: This is the level of public goods we want for everybody; this is the one rule we want for the whole nation. And, instead we should allow these local governments to adopt more of their different rules to reflect the diversity of America.
Russ Roberts: If you could change one thing in the housing market--and, you can pick the city--what would you change?
Judge Glock: That's a tough one. And, I would probably say that if you just look at highs, housing prices, it's easy and correct to focus on the Bay Area and to say a lot of those rules that just prevent you from building outwards: Get rid of those. Everything from open space reserves to slope-density ordinances to--they often have the equivalent of green belts or urban growth boundaries that are fused to allow you to grow out.
So, get rid of all of those. Allow people to grow out. Get rid of those LAFCOs [Local Agency Formation Commissions] that prevent the new abilities to form new governments, and you're going to get the Bay Area a lot closer to an efficient housing market. Allowing that competition at the local level again and allowing them spread out is going to do wonders for the Bay Area, if they can manage it.
Russ Roberts: And, what would your answer be to the people who are concerned about urban sprawl and the amount of infrastructure that's going to have to be created to allow those people to get to work and so on?
Judge Glock: Well, it's an issue> And there's cost and benefits to every type of urban development. But, a lot of the arguments against urban sprawl, as I said, are solutions desperately searching for a problem. If you look at the 1980s, a lot of the argument was, 'Well, local air pollution from cars is just choking us and we need to restrict cars and driving.' Thanks largely to environmental regulations, the local air pollution by cars are down by more than 90% per mile driven. It's not a local political issue like it once was.
And, now people say, 'Well, cars make a--there's CO2 emissions issues.' And, you know, I say: 'That seems less important, obviously, when we're going more electric--when we're going hybrid, when we're reducing the gasoline cost per miles driven.' So, a lot of the arguments against sprawling--cars, things--to me, I just don't entirely understand them.
And, finally the argument that well, it costs a lot of money. You know, one of the examples I use is--and we haven't talked about Houston, which has no zoning, but I think I could explain why--
Russ Roberts: Yeah. Talk about Houston. Go ahead.
Judge Glock: Okay. So, Houston, one of the things they allow on their fringes is something called Municipal Utility Districts--MUDs--as they're known. And, the developer can go out into the sticks in Harris County or further out counties further outside of Houston, and, basically, have two people raise their hand and say, 'I agree to vote for a MUD in my district and we'll tax ourselves to do the MUD.' And, then the MUD issues bonds.
These local MUDs, they build the roads out there, they build the pipes, the sewers, the water and the rest of it. And, that's all internalized. All of the property tax payers in that new area, all the homeowners have to pay for all those new utilities through property taxes. And, the only way you can get someone to pay for them is to encourage them to move to that place in the first place, because there's nobody there yet.
And so, there's a lot of good evidence that this stuff, especially when properly internalized, does pay for itself. And, you want to encourage that because that encourages more people to create these.
Now, on the broader issue of Houston and zoning, which is a big discussion--you know, I live right now in Austin. I'm just a few hours outside of Houston. Houston is an amazing, successful city. I've known people who worked on some of the recent votes to make sure Houston was not zoned, remained the only large unzoned city in America; and I think they were correct to do that.
But, there's two things I'll mention about Houston that I think are important. One, for the argument that zoning is the overwhelming reason why housing prices are high. Houston has very low housing prices; but not relative to California and New York and some of the others. But, not very distinct relative to, say, Dallas or Fort Worth right next door. By some measures, their housing-price-to-income ratio is almost the same. Maybe about 10% higher in Dallas.
So, it doesn't seem like the zoning in a lot of these other cities really is what holding increasing housing prices.
And Two: As I mentioned, there's an argument these central cities should probably not be zoned, and that the central cities--the densest places in America--already are actually, because of all the problems I talked about with central city log-rolling and kind of a large monopolistic sort of government with less exit options, that they don't need to kind of control their fiscal mix as much as other people. They rely on property taxes from a lot of downtown real estate that doesn't require many services. And therefore there's less of an argument for kind of Tiebout competition for central cities as there are in these small competing municipal governments.
Which is also why the very most important kind of goal in school choice is those central cities. Because to some extent, not entirely, those suburbs have more competition between districts than the central cities do.
But, the other thing about Houston is that: One, they have a lot of other things. They have a lot of homeowners' associations and other groups that allow people to control the land use in their areas.
And, Two: a lot of these suburbs themselves are zoned. I mentioned, I think Katy, Sugarland, some of these other cities are zoned in the suburbs outside of Houston.
So, Houston shows that you can have a city that works very successfully, that allows suburbs to choose some amount of their own zoning, that allows some people form new governments outside of the fringes of it. And, it works pretty well. It doesn't work as distinctly as from, say, again, Dallas or San Antonio or some of these other cities as people think. But, you know, that kind of mix of pretty open in the center city, some amount of suburban competition, some amount of unanimous homeowners' association controlling land use can do pretty well.
Russ Roberts: Yeah. Again, I think the--trying to give fair audience to my more environmentally-oriented friends, who correctly see density as a powerful tool for environmental improvement and would argue that dense cities with more bikes and more bike--less car-oriented. If it was more Tiebout competition for those kind of cities--if there were more American cities--say, like Amsterdam or other European cities--that have taken a different approach to the car--my response to that is always: 'Well, American and Europeans have very different demands for space. Americans have bigger families. They like being out in Sugarland and Katy, probably. And, they don't really want to cram themselves into a tall apartment building.' When they're single, they might, but when they have kids they're less interested.
And, I think the battle zone for urban life in America--and here in Israel we have lots of interesting issues around this because of the high costs of living in Tel Aviv, which is a place so many young Israelis want to settle in--to start with, at least. The battle zone is really this question of: What's the role of the car? How many roads are we going to build? How good a public transportation system we're going to build alongside it? And, then I wonder what technology might come along.
Buses are pretty primitive. They're just big cars. There are probably better ways to move groups of people around effectively and to have fewer people in their cars. I don't know. Any thoughts on that? And, we'll close with this.
Judge Glock: Yeah. I wrote a piece for the Breakthrough Journal and Breakthrough Institute--is, what they call themselves, an Ecomodernist group out of Oakland and California. I wrote a piece that--slightly tongue-in-cheek--but I don't think it inaccurately was titled "Sprawl Is Good": the environmental benefits of sprawl. And, I think one, besides the--
Russ Roberts: Made a lot of friends from that piece, I'm sure.
Judge Glock: Oh, exactly.
Russ Roberts: You're a brave man, Judge.
Judge Glock: Like you, I know a lot of very strong urbanists and I myself have only lived I think in central cities for my entire adult life. I love them. I tend to be a more urban guy myself.
But: One, you look at the evidence and like you say, the overwhelming majority of Americans, the survey was, I think 90% of millennials even said they want a single family home with a car at some point in their lives.
And: Two, the car is--not only is it getting more efficient, it's emitting less local air pollution. It's admitting less CO2 over the long run. There's real environmental costs to density. I'm not saying that there's not costs to sprawl too, because there are. But, one of the things--like it's almost universal in the literature--is that there's more local air pollution. If you have more people crammed together, you're more likely to suck down more nitrous oxide, more sulfur dioxide, all these things. Simply because: even if every person emits a little less individually, it's all crammed more together in that one small space.
And, there's also some arguments that--a single family home, it's largely stick-built. It's largely wood, which means it's largely using a renewable resource that's a carbon sink. Especially when you get up above four or five floors--when you're using concrete, when you're using steel--these are very heavy CO2-emitting materials. And, you have the argument that some evidence is for the same amount of square foot, these higher buildings use a lot more energy and electricity, because you have to heat and cool the common areas, you have to make elevators go up and down, you have to use this.
So, again, not saying that there's not cost of sprawl, especially habitat destruction and some of the others that you need to concern about. But, I think kind of the overwhelming focus, the future and the environmental future is going to be all these people living in dense apartments does not understand some of those local environmental costs and even some of the kind of climate environmental costs.
And it also doesn't consider--but it also doesn't consider the fact that most people want to live in these single family homes. And, everybody. And, like you say, we need more competition to allow some of those more Amsterdams in America and so forth.
But, I think just aesthetically, a lot of people are unhappy with suburbia and they refuse to admit that that might just be how a lot of Americans want to live. And, we should focus on how can we make that green and as environmentally sound as possible, as opposed to seeing how we can cram more people into a 10-story apartment buildings.
Russ Roberts: Do you want to say anything about making cities nicer? I think the complaint isn't just they don't like suburbia. I think they think urbia could use some improvement. Is there anything there they have that they're right about?
Judge Glock: Obviously, there's few cities in America--right now I'm actually sitting in New York City, which is gorgeous and exciting and amazing but also has serious problems with crime, local pollution, and just quality of life on the streets. One of the things I think that most big urban mayors don't understand is how important the daily quality in life and basic sense of order that was achieved in many cities in the 1990s and the early 2000s was for the re-flourishing of American cities. Because, they went from losing population for about 50 years to starting to grow again around the 1990s and 2000s. And, a large part of that was people wanted to feel safe and they wanted to feel like they were living in a clean, open city. And, one of the things that allowed them to do that was not just making sure murderers and criminals or robbers or whoever it was prosecuted, but making sure that life was comfortable and clean when you stepped outdoors.
And, when a lot of people escape to the suburbs, even if they do want to live in the cities--and I know many people like that--it's because that inability to control the public space collapsed. And, my joke is that in a lot of these big cities, they're very, very regulated in the private space. If you want to build a sink in your wall--or whatever it is--you need 10,000 permits. But, if you want to do whatever you want in public--throw out trash, whatever--you do anything. Which is 180 degrees the opposite of what government should do. They should be very focused on that public space and they should allow as much as possible--within some constraints and some amount of zoning and the rest of it--allow you to do what you want in that private sector. And so, reorienting cities to again focus on what they really can control, the public space as opposed to so much of what you do inside your house, I think would be a good step.
Russ Roberts: My guest today has been Judge Glock. Judge, thanks for being part of EconTalk.
Judge Glock: Thanks so much for having me, Russ.