The Rent Is Too Damn Highlights By Bryan Caplan

An agricultural economy starved of land will suffer. An industrial economy starved of raw materials will suffer. And a service economy starved of proximity will suffer. -- Matt Yglesias, The Rent Is Too Damn High

Since I’m tooling up to write Poverty: Who To Blame, I decided to finally read The Rent Is Too Damn High, the 2012 e-book by Matt Yglesias. I expected it to be good, but it was still better than I expected. True, wise, and quotable.

The thesis should be familiar to EconLog readers: Housing and land-use regulations have insanely inflated rents, especially in the highest-productivity/highest-wage areas of the country. Since regulators happily restrict construction for the flimsiest of reasons, the supply of housing is vastly below the free-market level – and its price is vastly above the free-market level. Government could greatly help the poor and middle-class with massive deregulation.

Matt takes advantage of his left-wing bona fides to emphasize that housing deregulation is not some Koch brothers plot. Government really can and should get out of the way and let business do what it does best: deliver abundance to the masses. The secret of mass consumption is, once again, mass production. Highlights of the book include…

What’s the skinny in NYC:

There’s a cluster of skyscrapers in Midtown, and another cluster in the Financial District, and then a broad valley of shorter buildings in between. What explains this valley? The phenomenon is so noticeable that an urban legend has grown up that holds it’s caused by the varying qualities of Manhattan’s bedrock. The real answer is simpler—the buildings are tall where you’re allowed to build tall buildings and they’re shorter in places where you’re not.

If high-tax areas like New York City or the Bay Area are undesirable, why are they so expensive? In reality, these places are booming. But instead of booming in the form of a spurt of new construction and population growth, these places have housing supplies that don’t expand to match demand, resulting in a trend toward higher prices.

The dysfunctions of the ongoing migration to low-productivity regions of the country:

People are moving less than before, and they’re moving away from economic opportunity—not because they’re stupid but because even though America is blessed with gold mines in the form of high-income central business districts, we’ve made it prohibitively expensive to live within a convenient location to the gold.

[U]nlike fertile farmland, there’s no objective reason houses should be scarce. If some patch of land is particularly in demand as a place to live, we can build multifamily housing on it. More people require more infrastructure, but providing infrastructure is generally cheaper per capita in denser areas. The main reason it doesn’t happen is that it’s hard to get permission to build.

Yes, the free-market will take care of it:

To say that some of America’s neighborhoods—especially in coastal cities with strong economic opportunities and limited space—should be denser is not an argument for infinite density. Nor is it an argument for central planning and coercion. It’s an argument that places ought to grow to the point where the costs of additional density outweigh the benefits and no more people, on net, want to move there. This is precisely the sort of balancing act that markets perform better than planners.

America is, on the whole, a very spacious country, and there will and should always be plenty of room for suburban homes and large lots. Viewed correctly, curbing America’s policies of forced suburbanization is not anti-suburb or contrary to the interests of people with a strong preference for detached houses and white picket fences.

We’ve switched from a system in which owning a piece of real estate means you’re entitled to do what you want with it, to one in which owning a piece of real estate means you get wide-ranging powers to veto activities on your neighbors’ land.

The left is wrong on its own terms:

When progressives see neighborhood activists rallying against rich developers, they side with the activists by instinct. Indeed, the activists themselves are often people who consider themselves deeply committed to progressive politics. But the fact that houses and offices are built by rich businessmen shouldn’t distract people. At the end of the day, almost everything is, on one level or another, built by rich businessmen… The important issue is that American families need houses to live in. Rich families need housing and poor families need housing. People of all kinds need jobs in stores and offices. If space is scarce, then poor people won’t be able to afford homes and low-margin businesses and start-ups won’t stay in business. Indeed, scarcity is inherently anti-egalitarian. When there’s not enough space to go around, it’s the economically weakest who end up being outbid no matter what the distribution of income is.

Suppose we not only want everyone to afford “a place to live” but specifically a place in a safe neighborhood with decent public schools within a reasonable commuting distance of the central business district of an economically vibrant metropolitan area (nothing wrong with rural living, of course, but rural land is by definition not in short supply). That is, by today’s standards, a nearly utopian vision. Yet technologically speaking, it is almost entirely within our grasp. The actual cost of building homes is hardly trivial, but it’s not too much for the vast majority of American families to be able to afford one. The scarce factor here is land, and permission to build on the land. The country doesn’t need to embrace willy-nilly destruction of structures of genuine historic value, but progressives must see that scarcity is the enemy of equality.

The right is wrong on its own terms:

Meanwhile, for all conservatives’ talk about small government and free markets, in practice, the movement shows zero interest in the subject. Ideological battles focus much more on questions of identity, and the conservative movement has strongly positioned itself as an anti-urban movement for conformism-minded suburbanites. The Right can muster the energy to denounce overweening land-use regulation here and there if it’s aimed at curtailing sprawl or protecting wetlands. But the routine subsidization of parking and broad-brush prohibitions of multifamily dwellings don’t bother them. It’s striking that even with a wave of new hard-right governors elected in 2010, none of them have put meaningful reform of anti-density land-use regulation on the agenda. Instead, the order of the day has been to cut spending on rail and mass transit projects. The rise of the allegedly small-government Tea Party has not altered this dynamic either—identity politics triumphs. One East Bay Tea Party group complained about a proposal to curb sprawl through denser building by explaining that “their plan for the future is to ‘stack and pack’ housing near mass transit so we the people are not a burden on our environment by breathing and emitting CO2 from our cars.” Needless to say, even those of us who live in apartment buildings do breathe. Left unexplained here is why a free marketeer would resist the idea that property developers should be allowed to put tall buildings on valuable land.

The reality, as explored here, is that Americans want to move to the urban core. Not all Americans. Perhaps not even most Americans. But more Americans than live there currently. That’s why housing is so expensive in the major coastal metropolises and also in the core downtown areas of lower-cost midwestern cities. The appropriate policy response is to stop disparaging apartment buildings as tenements and stop preventing developers from building them. People should by no means be “forced” to stop owning and driving cars, but there’s no reason for regulations to incentivize these activities.

Preach it, Matt!

Progressives and urbanists need to move beyond their romance with central planning and get over their distaste for business and developers. Conservatives need to take their own ideas about economics more seriously and stop seeing all proposals for change through a lens of paranoia and resentment. Last, politicians of both parties who like to complain about “regulation” and “red tape” ought to spend some time looking at the specific area of the economy where red tape and regulation are most prevalent.

The dot-com bubble of the late 1990s led to some stupid ideas (Pets.com) and to the overbuilding of fiber-optic cables, but the Internet was a real advance over previous communication technology and one from which we continue to benefit. American housing, by contrast, is mostly characterized by technology retrogression. We know how to fit large numbers of people into comfortably sized homes on small plots of land. There is no national elevator shortage, nor have we lost the skills needed to build mass transit in order to move large numbers of people through narrow corridors.

What specific regulations need gutting?

Environmental impact reviews need to consider not just the impact of building, but the impact of not building and pushing development elsewhere.

Counties, municipalities, states, and everyone else involved in promulgating land-use regulations need to ease off on parking requirements, artificial constraints on lot size, height restrictions, etc. Very expensive urban areas need taller buildings. Their close-in suburbs may need to urbanize, or may simply need smaller front lawns and fewer parking lots. The point isn’t that everything in the country should look like Manhattan. America has, on the whole, a low number of people per square mile and will continue to be a predominantly low-density country. But those parts of the country where land is expensive should nonetheless be densely built so as to ensure that office and apartment rents remain reasonable.

Bottom line:

The lowest-hanging fruit for any country seeking to make itself more prosperous is to ask what useful technologies already exist but are going unused. In America, denser construction to ameliorate high land prices is on the list. With housing and transportation accounting for such a large share of the modern family’s budget, and face-to-face services acting as the main driver of employment, dense construction is essential. Add in the ecological benefits of relaxing curbs on density, and the imperative to lean against bad rules becomes overwhelming.

Closing thought: During the last seven years, Yglesias’s thesis has plainly failed to become a standard Democratic talking point. His doleful analysis of left- and right-wing neglect of housing deregulation rings as true as ever. And my Simplistic Theory of Left and Right explains why.

My theory, to repeat, states: “The left is anti-market; the right is anti-left.” A few center-left technocrats aside, the left opposes housing deregulation because they resent markets, business, and the rich. Turning to the target of their resentment to provide affordable housing would be bitterness itself. Similarly, a few free-market economists aside, the right’s chief goal is to anger the left. So they attack what the left loves – urban living, mass transit, environmentalism – instead of proclaiming, “Unshackle the construction industry and it will build what the left wants, dirt cheap!”

Alas.

P.S. Sharply discount the endless 1-star reviews of the book, which are largely a review of an unrelated Yglesias tweet.