THE world’s great cities are engines of wealth creation. Places like London and San Francisco account for a disproportionate share of economic output. They are the combustion chambers in which ideas and capital are combined to generate new riches.

To an alarming extent, such cities are also playgrounds for the rich—and only the rich. The soaring cost of housing in these places pushes those of more modest means away, toward spots where homes are cheaper but opportunity is more limited. That pressure has serious consequences. A recent paper* reckons that over the past 50 years this dispersing effect left American output 13.5% below the level it would otherwise have reached. Poor Americans living in rich cities survive longer than their counterparts in poor ones. Finding more effective ways to reduce housing costs would thus not only save money but prolong lives.

Economics is all about supply and demand, and high housing costs are the product of too little of the former in the face of lots of the latter. Strict planning rules in pricey cities make building new homes a nightmare for developers. In London, for example, they face myriad rules about what they can build where, including one that states that nothing should impede the view of the dome of St Paul’s Cathedral from a gap in a hedge ten miles away. By the same token, a thicket of environmental rules in California has given NIMBYs (short for “not in my backyard”) a host of ways to stall, shrink or stop new projects.

Most onerous planning restrictions reflect the difficult political economy underlying urban growth. Would-be migrants to rich cities stand to benefit handsomely from access to lucrative jobs, but lack a political say in the places that are building too little. Within cities the balance of costs and benefits favours NIMBYs. Everyone in the city stands to gain from growth; productivity in skilled cities rises with population, so when more people move in, all workers’ incomes should rise. But the gains from any particular property development are relatively small and thinly spread, whereas the costs are highly concentrated.

Those in the immediate vicinity of a big new project must put up with noise and other inconveniences during construction, and increased competition for parking spaces and places in good schools after it, not to mention blocked views. Because affected residents live near each other and often share local-government representatives, the cost of organising opposition to new projects is low (and the motivation to do so is high). Even those who see urban growth as a positive have strong incentives to oppose development in their own backyards. Since almost every part of a city is someone’s backyard, far too little construction takes place.

Clever policy, however, can help balance the concerns of NIMBYs with the broad benefits of growth in productive places. One approach is simply to neutralise local opposition to development by compensating neighbours for the costs they bear when new construction is approved—to bribe, them, in effect. David Schleicher, a professor of land-use law at Yale Law School, has proposed the use of “tax increment local transfers”, or TILTs. New buildings normally generate extra property-tax revenue for the city once they have been completed. Some portion of the expected rise in the tax take associated with a proposed new development (the tax increment) could be promised to nearby residents in the form of a temporary property-tax rebate, scheduled to last ten years, say, if the development went ahead. As Mr Schleicher notes, TILTs would enhance the signalling value of local opposition to new projects: residents who fight against a proposed development despite the prospect of direct financial gain from it are more likely to have reservations worth addressing.

An alternative to buying NIMBYs’ silence would be to reform planning procedures to balance NIMBY voices with those seeking more development. Most city-dwellers are not reflexively anti-growth; they merely prefer that building occur in other parts of their city, giving them the benefits of growth while sparing them many of the costs. But when battles over building unfold at the neighbourhood level, the affected residents have little reason to prioritise the citywide benefits over the local costs.

Shifting the debate about new construction to the level of the city as a whole would change this dynamic. Representatives charged with thinking about the citywide loss from forgone development still have an incentive to push for limited development in their own neck of the woods. But it would be to their advantage to ensure that at least some building does in fact take place. In another recent paper Mr Schleicher and Roderick Hills of New York University reckon such dealmaking could be encouraged by using city plans as binding development “budgets”: one area could curb construction below the planned level only if a deal was reached to boost building in another part of the city.

Build me up, buttercup

If cities fail to act, regional or central governments can take matters into their own hands. Evidence from America suggests that where state governments help to set building guidelines, NIMBYs have less influence. The government of Washington state is more involved in planning than that of California. Partly as a result, the housing stock in Seattle grew at twice the rate of the San Francisco Bay area in the 2000s; house prices correspondingly grew less.

Other governments are beginning to heed the lesson. A bill in the Massachusetts state legislature would require cities to designate areas in which dense building can occur without a fight—a measure targeted at expensive, restrictive Boston. More experimentation would be welcome. Though NIMBYs deserve their say, they ought not to dominate the conversation.

Sources:

"Why do cities matter? Local growth and aggregate growth", Chang-Tai Hsieh and Enrico Moretti, NBER Working Paper, May 2015.

"The association between income and life expectancy in the United States, 2001-2014", Raj Chetty et al, Journal of the American Medical Association, April 2016.

"City unplanning", David Schleicher, Yale Law Journal, May 2013.

"Planning an affordable city", Roderick Hills Jr and David Schleicher, Iowa Law Review, November 2015.

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