On this day (Clinton vs. Trump debate) of likely partisan political bloviation, I am delighted to highlight a very nice editorial by Jason Furman, President Obama's CEA chair, on the effects of housing restrictions. A longer speech here. The editorial is in the San Francisco Chronicle, ground zero for housing restriction induced astronomical prices. Furman:
When certain government policies — like minimum lot sizes, off-street parking requirements, height limits, prohibitions on multifamily housing, or unnecessarily lengthy permitting processes — restrict the supply of housing, fewer units are available and the price rises. On the other hand, more efficient policies can promote availability and affordability of housing, regional economic development, transportation options and socioeconomic diversity...
...barriers to housing development can allow a small number of individuals to enjoy the benefits of living in a community while excluding many others, limiting diversity and economic mobility.
This upward pressure on house prices may also undermine the market forces that typically determine patterns of housing construction, leading to mismatches between household needs and available housing.What's even more praiseworthy is what Furman does not say: "Affordable" housing constructed by taxpayers, or by forcing developers to provide it; rent controls; housing subsidies; bans on the construction of market-rate housing (yes, SF does that); bans on new businesses (yes, Palo Alto does that), and the rest of the standard bay-area responses to our housing problems. The first few may allow a few lucky low-income people to stay where they are, as long as they remain low-income, but does not allow new people to come chase opportunities. Subsidies that raise demand without raising supply just raise prices more. As in child care or medicine.
When President Obama's CEA chair writes an oped, most of which could easily have come from Hoover or CATO, it's a hopeful day, no matter what happens tonight.
Moreover, Furman recognizes that a thousand-point federal program imposed on states and local governments by regulation is not the answer:
While most land use policies are appropriately made at the state and local level, the federal government can also play a role in encouraging smart land use regulationsWe have found the enemy, as Pogo said, and it is us.
The real political economy is tough, of course. Current residents vote for restrictions, and not just out of misunderstanding. Current residents (people like me), who buy expensive houses in this beautiful area, vote to keep things just as they are. Restrictions mean they can't sell houses for $10 million to a developer who wants to put up a 100 story office building and turn it in to Manhattan. But restrictions mean they can sell for $2 million and retire comfortably to Mendocino. Or stay right where they are, paying property taxes based on the 1965 value of their house (another big impediment to housing mobility and affordability) and making sure the neighbors don't sell and ruin their view. Renters vote for rent control, affordable housing mandates, and so on that applies to current residents but not to newcomers. This behavior has a negative externality on low-income ("low" means out of top 0.5%in SF!) people who want to move here. But a Trumpian mini-wall of regulation keeps them out. The most local government is not always the best. The most liberal government often acts with effects that are surprisingly conservative.