0:33 Intro. [Recording date: April 11, 2019.] Russ Roberts: My guest is urbanist, architect, and author Alain Bertaud.... His book, and the topic for today's conversation is Order without Design: How Markets Shape Cities.... Your book is about how the economics of bottom-up, emergent order--what you call markets--interact with the top-down administration and regulation of cities around the world. It's a fabulous introduction to urban economics. And you argue that most urban planners are ignorant of how market forces shape cities. What is that perspective that urban planners have that is missing, the economic perspective? And, what's the most important aspect of economics that they ignore? [More to come, 1:31] Alain Bertaud: Well, an urban planner thinks in terms of norms; an economist in terms of needs. You know, a bit, how to say, like Karl Marx discusses about to each according to his needs, and from each according to his ability. So, for instance, if you ask an urban planner, 'What is the optimum size of housing?' this planner will tell you a number--you know, 50 square meters, 60 square meters, something like that. If you ask the same economist will say, 'Well, it all depends.' So, this is really the big difference between planners and economists. Planners do not think about [?]. They consider that what is important is what people need. So, they decide what people need, depending on norms that, you know, sometimes make sense. For instance, to decide what is the minimum size of a house, they will say, 'Well, most people in the city have two children, so they need two bedrooms; and the bedrooms, there will be a bed that has this size. Therefore the size of the bedroom will be, say, 12 square meter.' Then you have a kitchen, a bathroom, and a living room; and that will be the norms. And they say anything below that is socially unacceptable, which will not allow anybody to build that. The effect, of course, is that in areas where people are relatively poor and construction is expensive or land is expensive, they eliminate a large number of people from having legal housing. They don't, of course, exclude people from the city: People don't go away because--they will just go in the informal sector, either, you know, crowding existing housing or building illegally. So, that's really the big difference between planners and the economist. Russ Roberts: It's a great example you give about the minimum housing. We're going to come back and talk about that in some detail. Because, I had, ashamed to say, didn't fully appreciate some of those factors that you are mentioning. But I think what you are highlighting there that's crucial is the difference between norms and prices, and then the role that information plays in what people desire. And, the planner doesn't know what people desire. They may think they know what's best, sometimes, for those people. But often--usually, I would say--people know what's best for themselves. Alain Bertaud: Absolutely. For instance, for housing, you know, every household makes a tradeoff between location, price, and size. And, these tradeoffs are done differently by different households. It's a very, very important thing. The tendency of planners is to concentrate on, for instance, the size of the quality of housing, forgetting about location. So, that's why you see so many [?] housing, for instance, which are in terrible locations which are complete poverty traps because they are in locations which are inaccessible to most of the jobs. Russ Roberts: Yeah; and we'll also talk about that, too.

4:58 Russ Roberts: But I want to start with a formative experience that you write about in the book. It was 1965. You were a young man. You had a job; it was a great opportunity for you to be on the ground. You were approving permits, building permits, in a city of 80,000 people in Algeria. I'm not going to get the town right--it's Tlemcen. Alain Bertaud: Tlemcen. Yes. Russ Roberts: And, you learned a lot from that. Describe what that experience was like and what you learned. Alain Bertaud: Well, you know, I was still--I had not graduated yet, so I was still a student. But, I had this job: it is like a Peace Corps, let's say. And suddenly I was in a position of responsibility. I had this staff. And, my job was to apply the law, which was in a big book which was called the Code de l'urbanisme. And I assume, first, that the people who wrote this book were much smarter and more educated than I was, and that I had to take it seriously. Now, when I compare what the book of regulation was prescribing to what the people wanted to build in Algeria--and the people, by the way, who applied for building permits--there were many people who didn't apply for a building permit and built informally. So, those people who applied for a building permit wanted to maximize the size of the house, and also the houses they wanted to build reflected the local culture, which put a big emphasis on privacy. So, the Code de l'urbanisme was developed in France: Algeria was a former French colony. And, the people who developed the norms had in view, in fact, the suburbs of Paris: you know, what people would like in the suburb of Paris--what type of housing they would like. So, it required, first, relatively large windows, low, large windows; and a lot of setbacks between buildings, so you could have a little garden in between, which could be seen from the street: not very different from an American suburb although a little smaller, probably. And, in Algeria, the people wanted something very different. They value privacy very much. So, they don't like a large window on the ground level, so they would tend to put tiny little windows close to the roof. They prefer to have a central courtyard, you know a [?], a house, all the rooms oriented around the central courtyard. And that, of course, is impossible if you have a relatively small lot and if you have to give setbacks between your property line and your line of construction. So, the result was that if I applied the regulation, I had to refuse to give the building permit. But, as an architect, I had to recognize that the plan that was provided to me on the basis of approval made a lot of sense. Actually, they made much more sense than the suburban house in Paris. So, the first 2 or 3 days I was so intimidated I had an assistant was already preparing the answer and usually the permit and quoting the norms which were violated by the plan which was proposed. So, the first 2 or 3 days I signed because I was so intimidated. But, I felt really very bad about it, because suddenly I realized that I was doing a disservice to the city. Here are these people that wanted to build legally: they had the plan, the design plan, which as an architect I could see that this plan makes sense. There was nothing wrong with this plan. And then I was obliged to tell them, 'You cannot build.' Or, 'You have to build something that might be okay in the suburb of Paris but would be terrible in Tlemcen,' in terms of culture, and also in terms of climate, by the way. The central courtyard is much more--in North Africa, the central courtyard is much more pleasant for a house. So, after 3 days, I decided I couldn't continue signing those permits. So I went to see the Prefect[?]. The Prefect is the chief of all the civil servants in the city. He is a representative of the central government. And, he was a young guy like me, and as inexperienced as I was. So, I told him the problem. I explained to him. And I said, 'Could I--instead of using the book of regulation, could I just use common sense? I am an architect; I am able to judge a building, whether it makes sense or not.' So, the Prefect told me, 'Yes. Go ahead; do that.' So, during my tenure there, which was another 6 months, I gave building permits just entirely based on what I thought was right and not following the law, actually, at all. Well, we got away with it. Fortunately. Russ Roberts: What I love about the story, actually--well, there are many things I like about it. But the part I like is when you were given this book--and I have this image of this enormously fat book of regulations, the whatever-it-was of urbanisme-- Alain Bertaud: Yeah. Russ Roberts: So, you have this fat book; and you said, a minute ago you said it was written by people who were smarter and--I forget--maybe you said more experienced than you-- Alain Bertaud: More experienced, yes, right, yeah. Russ Roberts: But they didn't have the relevant experience or the relevant smarts for that book to apply to that situation on the ground, where the circumstances of time and place and other things were very different. Alain Bertaud: And culture; yes; especially culture. Yes. I mean, this is again what Hayek developed very much--is, the lack of information. You know, when you want to plan for others, you need some information. And usually you think you have this information, but you don't. So you take the wrong decision.

11:28 Russ Roberts: In many parts of the book, you are critical of planning, regulations and visions; and it reminds me a little bit of Adam Smith's man of system--the idea that you can move people around like pieces on a chessboard. And, of course, you find out, as Smith says, they have emotion of their own. So, much of your book is an illustration of that. But you are not anti-regulation. You certainly suggest in many places that regulation is necessary. What are some of the regulations that are necessary in urban settings, and why are they important? Alain Bertaud: Well, first is, you know, every city in the world, even in the Middle Ages, even antiquity, had regulation, which we like call, a good neighbor's regulation. For instance, you find in the ancient Greek cities, that I found that also in Chinese cities, that it was forbidden to dump water from your roof to your neighbor's property. And, of course, dirty water even more. That was a rule that you had to, you know--was enforced. There were a number of rules like that. So, basically, there were rules about what economists would call negative externalities: You cannot cause some problems for your neighbor by your own actions. So those rules are okay. Then there are some rules, I think, which are much more technical. For instance, building code, the way concrete should be poured, the way structurally--if you have a steel structure, the way it should be assembled. Which is really the state of the art, so that the structure will be, you know, will be solid and it would not collapse. So, those are legitimate true. There are rules about fire regulation. Rules, sometimes they go a bit over the top. But, say, fire regulations are also important. The way you connect, you know--if you have, if you are in a city with a sewer system, the way you connect your house to the sewer system has to be regulated. You cannot do it the way you want. So, there are a number of rules like that. The rules I argue against are rules which affect consumption. That means: which set the minimum about of floor space for a house, or for an office or for a restaurant; or the minimum amount of land which is required to build something on it. I think that those rules are arbitrary; that people are able to see how large a house is and whether they are ready to live in it or not. Contrary to [?], if you visit an apartment and select an apartment--sorry, a building and an apartment in this building--you may not be able to know whether the structure is solid or not. That's why you need a regulation for that. You may not be able to know whether if there is a fire you will be able to escape. So, you need a regulation for that. But, whether--the height of a building or the size of an apartment and the size of the kitchen, or things like that--this is up to you. You make your own tradeoff. You are able to see it. So, I don't see why those things are regulated.

15:00 Russ Roberts: So, let's back up a little bit, and talk about your general view of cities, which is quite illuminating. I was just in New York a few days ago, on Sunday. I was visiting some friends. But when I usually visit a large city like New York, I'm a tourist. I, as a visitor, see a city as a collection of interesting sights--whether it's the Empire State Building, or the Colosseum in Rome. There's entertainment. There's special events. I'm a traveller. But, you argue, and quite powerfully, that what a city is, is fundamentally, is a large, dense labor market. How does that affect how you see a city, and how the key parts of a city, which I would say, you talk about in your book quite a bit--the housing stock, transportation opportunities, and then land prices--how those three things interact, given that a city is a large labor market? Alain Bertaud: Yes. I think that this aspect of the labor market is very important, because this is the foundation. The working of the labor market is a foundation for everything we like in cities, including the monument you quote[?]: the Colosseum or the Eiffel Tower, or things like that were made possible because there was a very efficient labor market in the city which produced those monuments. So, when the labor market is efficient, then can put to use in all of the things, which makes the city much more pleasant. But, the foundation is still this labor market. If people cannot get to their jobs in a relatively short time, the city will, the city economy will fragment in a way, and become less and less efficient. So, that's what is important. This is why, I think also it is important for me: It was very important to live in different city. Very different from visiting, as you mention. If you live in a city--for instance, when I first went to work in Shandigar[?] in India, you know, the city designed by the [?], I was working there. And suddenly, I had to go to work. I had to meet with friends: we would go to restaurants together, to café. I had to get new clothes. And all that activity in the cities which are very much linked to the labor markets. You know, to the tailors, the people who were selling clothes, had to be in a certain part of the city in order to have clients. And for me, I had to have access to them, too, for the city, for me to be present. So it's not so much as visiting monuments. It's living there. My definition of the labor market sometimes is a little different from what people think of the labor market. The labor market is not just to have a job. And, I think a job close to your house. And stay in this job all of your life. A labor market is the ability for an individual to look at different jobs, constantly, and eventually change jobs if you are not satisfied with your current job--or if you find it boring or if you think it's not paying enough. And, again, here, in looking for a job you make a tradeoff. You make a tradeoff between the time commuting, the salary you will have, the people you will be working with--whether they are pleasant or not. And, maybe also, you will feel, obviously also, the interest of the job: Whether it leads to something really interesting in the future or not. So, those tradeoffs will be made very differently by different people. And, that's why the idea of some planner to try to match housing and employment is a complete illusion. And it doesn't work. The labor market, the functioning of the labor market, means being able to change jobs as you like it, and not being constrained so much by transport or affordability. From the employer's point of view, it's the same thing. You move to a large city like New York or London, and if you move to the city, everything will be more expensive there. But, you move to this large city in order to select the right employees. And some time you may have to change your staff, also, to reflect, again, the constraint from the world. And so you should be able to select people who are not just living within a kilometer from your enterprise, but among the 20 million people living within New York City. That's the way the labor market works. So you see again: Sometimes my idea of labor market is misunderstood by some parody[?] think if they could match housing and job that would solve the problem: That would be [?] really minimize transport. I always remind people that in most jails now, people have a job. They have no commuting. And, but it--you cannot expect people working in jail to be very productive nor very inventive. Because, that's not--this is not a labor market. To be employed in itself is not a labor market. That was the same thing in Russia, or in China, before the Reform. Enterprise, at their own housing. And very often their own housing was relatively closed to the enterprise. So, you could say that it was a perfect tax-accessibility[?]--people didn't have to commute too much to go to their job. But, it was not a labor market in the sense that people were employed in the same factory or same enterprise for all their life, whether they like it or not, whether they were competent to do it or not. So, that was not a labor market. And that was why the Chinese did their reform: It was precisely for this reason, the very, very low productivity of the labor force. And the same thing for Russia. You know, Russia, they very educated labor force. And with a terribly low productivity. And it was in my opinion because of this lack of labor market. Most people were just mis-employed. Russ Roberts: You have two issues there. One is: people are not necessarily assigned to the task that was most productive; and their incentive to work hard was not always there because pay was not necessarily correlated with that.

21:56 Russ Roberts: But, to go back to a modern American city without those extreme restrictions, I love how you talk about the role that land prices play. And transportation--how they interact. So, for example, in the 19th century you either walked or rode a horse. So, as a commuter to your job you had to be within walking distance. Obviously, you can walk a long way. But most people don't want to walk more than an hour. That's a long walk. So, the city was constrained by that reality--that the way you could get from wherever you lived to wherever you worked had to be less than an hour. With modern transportation, what takes an hour to commute is suddenly a lot farther away. A person can then choose if they want to have a bigger house far from their job, where land prices are lower. If they want to live close to their job--their job is closer to the center of the city where land prices tend to be higher--they have to take a smaller unit. And they make that tradeoff. And they make that decision. And, the stock of houses and where jobs and houses are located are constantly in flux, constantly adjusting to what people want. And that is just a beautiful way to think about how markets work. Alain Bertaud: Right. Yes, absolutely. And again--the choice. You could have two households with exactly the same income. For some reason some will prefer to live in a smaller apartment close to the center of the city. And, the other household, exactly the same size, exactly the same income, will prefer a much larger house in the suburb. And this is the way an efficient city works. This allows[?]--and this is of course prices, the mechanism of prices, which is, you know, it's a self-generated mechanism. Which provides this choice. And I think this is a very important aspect. Another aspect of price is the recycling of land when land use is obsolete. It's possible that in a city 40 years ago you had houses which were built relatively close to the city, but that was a suburb at the time, so the people consumed relatively large amount of land. But, as the city expands there is more, much more demand for this land, which is relatively close to the center and to the [?] of the center. So, the price of land here will increase and will push developers to change the housing stock in something with a higher density. This is, I think completely legitimate. It's a mechanism which is self-generated. You do not have a planner to decide, 'Aha, this is a time to have apartment here, and then [?] houses there.' It is just, you know, the way things work automatically. Again, the big lesson from Russia and China, particularly from China, was that, you know, sometimes in the center of the city you had areas which were devoted to warehouses. Or you had old factories which had been there for 60 or 70 years. And, if you do not have a price mechanism to recycle the land, it is really, the urban planner, would take decision, 'Ha, we have to now remove this factory which is in the center of the city. We have to move it somewhere else.' And there is no way to pay for it. Because, the land, I quote, 'belongs to the people, therefore has no value.' Therefore, you know, it's a net--removing an old factory from the center city and redeveloping the land, in a command economy appears to be a cost. Where in fact, in a market economy it is a benefit to a lot of people. Russ Roberts: And the market figures out whether that should be a loft, or a different kind of factory, or an office building, or a playground, or, you know, a zone for kids to do some, fund some things--or a yoga studio. All those things are up for grabs-- Alain Bertaud: that's right-- Russ Roberts: and the market does that assignment without a--using the information that people have in their heads but that isn't generally available to the planner. Alain Bertaud: That's right. Yeah. And, this is a--that's where sometimes I argue against zoning, but not necessarily all zoning plans. But against zoning plans. Because zoning will already affect the use to a certain area. And it's possible that this is not the best use. That some--for instance--let us see, downtown New York. You know, the Wall Street area. For a long time, it was mostly office buildings--you know, there were financial things. And, it was considered--you know, considered not fit for housing. For some reason, after 9/11, there were a lot of firms left Wall Street area. And suddenly people discovered that there was a lot of demand for people living in the Wall Street area. It can be very attractive, if this is what you like. So the zoning was finally amended so that you could have a residential building in this area. Which are now, my belief now is that half the land used in the Wall Street area are residential condominiums. So you see here again, sometimes the zoning, built, designed to protect individuals against externality, against bad neighbors, in fact preventing them to have the choice they want.

28:11 Russ Roberts: You write, "A city's productivity depends on its ability to maintain mobility as its built up area grows." And we think about a city that spreads out as people moving into the city to find new job opportunities or whatever amenities there that people are enjoying. How is that mobility maintained? What's the role of government in making sure that people can get from different places in the city to other places? Who does it? And who does it well? And who does it poorly? Alain Bertaud: Well, first, of course, you have to have the right of ways to have means of transport. So, one of the first job of the planner is really, as a city expands, to separate what is private and what is public. What is private are the lots, you know, which will be developed by developers, whatever they use. And, what is public is, of course, the right of way of streets. And, maybe some amenities like parks, a river--the shore of a river or a lake--or some things like that. So, that's the first thing. If the planners do not do that--and in many cities they do not do that because they do not believe that the city would grow, or, they want to curb "sprawl,"--then they do not develop those right of ways for future transport. Then, you have cities like Jakarta or Bangkok which were always--the planner always thought that they would be kind of garden cities and they will not really expand; it was not desirable really for them to expand. So they never designed the right of ways for the expansion. Then you have of course terrible traffic jams because you just do not have enough space. Whether the people use buses, taxis, individual cars, bicycle, or rickshaw, you just do not have enough space. So that's one thing which is important is to estimate in advance the right of way for a city to develop. One very good example, positive example, was the great[?] of New York, which was established, if I remember correctly, in 1805. And included an expansion of New York more than 20 times compared to what it was. So, that was very enlightened. Now, one could argue whether the avenues were wide enough, or too wide, or all the streets were too long, or something. That was not important, in my opinion. You could--what was important was to establish the right to build on a very, very large area by separating public from private. Immediately, you establish by doing that, a land market. You have a transparency. You know that when you buy a lot somewhere, even if it's far away from the city, you know how far you are from an avenue; you know how wide will be the street in front of your house. And therefore you can buy a piece of land with a complete transparency in price. You know what the information is. So, many planners forget to do that; or think that, you know, they want things like a compact city. So, a compact city will be more compact if they don't develop roads in the, you know, in the periphery[?]. Then, as a city grows, of course, the mode of transport will have to grow also, and will be different. And so, the basic mode, as you say, was walking and horses. Then you start having street cars. And the street cars, then, require a certain density to develop. You can walk to a street car; but you can walk only that much. So, that requires relatively high densities. Then, you had individual cars. The individual car suddenly multiplied the supply of land at variable, let's say the supply of land which will give access to a job within half an hour. And, there, suddenly you have a very, very large area, a lot of choices. And I think that's a beauty of transport. Now, when a city becomes much larger than that--for instance, if you look at the Pearl River Delta in China, you know, the area around Guang Zhou, Hong Kong, Macao--these are areas of 60 million people, on the modern, hundred, let's say the dimension about 150--about a hundred miles by 60 miles. Here, you cannot have traditional means of transport here. You could--you know, the subway of Hongkong is wonderful. The subway of Guangzhou is wonderful. But, it will not allow you to develop a labor market corresponding to these 60 million people. Impossible. It's too slow. So, you have to devise a new system of transport, which will probably link individual transport with fast rail to go from one area of the metropolitan area to another for long distance. And, this is what the Chinese are working on right now. Unfortunately, that is not what we are working on so far, much, in the United States or in Europe, except maybe with the advents now of the self-driving car. And I think maybe self-driving mini-buses will probably change this; and allow those markets to integrate a much larger area. This is really our survival. When, forces--if you take a city like Mexico City, which is 25 million people now--the labor market is not corresponding to 25 million people. The labor market within Mexico City is fragmented in probably 5 or 6 smaller labor markets. And therefore much less efficient, because the transport system has collapsed. You know, they are--most of the transport now are provided by mini-buses. But the minibuses are not that efficient. The city also refused to organize them, and the legitimate means of transport. The individual car takes too much, you know, consumes too much real estate compared with the density of Mexico City which is very high. So, if you are in a very dense area, real estate is expensive. If you have a car, which consumes a lot of real estate, you--you know, it's very costly for the city. It's not very efficient. So, here we are at this threshold. If we understand what the labor market, the large labor market brings to a city, then we have to invent new means of transport. We cannot just expand the means of transport we have, which work quite well for a city, let's say, below 5 million people, but not so well for a city much larger than that. And again, because of the efficiency of a very large labor market, we have to face a reality that, whichever country develop, integrate, labor market of 60 million people, like, or 100 million people like the Chinese now decided to do: If they succeed in providing transport, to unify this labor market, they will outdo us in terms of productivity in a way that we cannot even conceive it.

36:08 Russ Roberts: Well, we had Jason Barr on the program talking about skyscrapers in New York City. And your discussion of mobility reminds me of--we tend to think of a city as a two-dimensional place. There's these roads that go in different places. Sometimes there's buses, bicycles, cars, foot traffic on those roads. But, the two hidden aspects of a city that give them three dimensions are the subway, below the street. Which gives you sort of a duplicate, express, form of travel. At a high cost, obviously. But worth it in a dense setting. Potentially. And then, the elevator. Which allows you to increase, to multiply the city, up into the heavens. And that's just such a beautiful image that, for me, that the way that human creativity has allowed that density of, not just labor markets but of course social life, and food, and everything that cities have--music--it's just an incredible thing that we have that compared to a city of hundreds of years ago, which was a very different place. Alain Bertaud: Yes, absolutely. You know, what makes a city is really not the land. It's the floor space. So, if you stack up floor space you have a lot of advantages. You could--there is a subway that you talk about. But there is also tunneling. Which is a new thing now. Because probably the cost of tunneling is going to go down, which is a new technology. And that will be a way, again, to make again a city much more viable. Because you could increase also the different, the viability of different mode of transport in very dense area. Russ Roberts: What is 'tunneling'? Alain Bertaud: Tunneling is digging tunnel. Russ Roberts: To do what? Alain Bertaud: Well, to do highways underground. Russ Roberts: Oh, okay. Whoa. Like a tunnel. Like a highway tunnel. Yeah. Alain Bertaud: Yes, yes. Sorry. Russ Roberts: Or you could put a parking lot underground. Or you could put apartments underground for people who-- Alain Bertaud: Absolutely. Absolutely. For instance, one thing in New York City that should have been done and should be done is to put all the cars which are parked in the street should be underground in a privately owned parking--so they should pay market price for parking. And the area of the world, of the streets in New York, especially in Manhattan, should be entirely devoted to either pedestrian or taxi or Uber or whatever. Or cars. And, to have, you know, people who will park their car the entire year in the street is a complete waste of space. And they park it free. In the most, probably, the most expensive real estate prices in the world. You have people who will claim ten square meters of street space permanently for free.

39:20 Russ Roberts: I want to move to affordability. And I'm going to--which is an area which is extremely important in America these days. We've had many conversations about it. And, I'm ashamed to say, when I said earlier that I learned way too much from your book, I realized something that I should have realized long ago. And I want to introduce that by going back to New York City, which, along with, say, San Francisco, Boston, other American cities, has a huge issue. Because, rents are very high. And you say, shockingly in your book to me that not every urban planner understands the connection between the price of land and rent. Which is fascinating. But we'll put that to the side. There are these American cities where land is very expensive, and rents are very expensive. And it's increasingly difficult for people to move there, to find the jobs that often are productive for them to take. So, a friend of mine--I was walking down the street in New York on Sunday, and I hadn't read your book yet: I read it over the last three days--he says to me, 'Why is it so expensive to live here?' You know, the easy answer: There's two easy answers. The easy answer is, 'Well, a lot of people want to live here--because of the amenities. The collection of people who are already here creates a great productive place to work, to play, to eat, to enjoy; to frolic. Etc. It's a great city. So, a lot of people want to live here. That's one reason. The second reason, of course, is that there are a lot of restrictions on supply. So, there's zoning; and there's permits; and it's expensive to do all that. And delays. And so as a result, to make it work well to put up a building it's very expensive. So, I know all that; and I told him that. But I--the real question then is: What changed? Because, you know, a hundred years ago, New York was an attractive place to live and there was lots of access to all kinds of housing. And now, I think people have the following feeling--which is wrong. I think a lot of people believe that housing is expensive in, say, a city like New York, because 'Developers, they are greedy, and they can make more money selling luxury apartments. So, of course they don't build any housing for the poor.' And the only thing that will allow there to be housing for the poor is some, either, government construction or housing subsidies. But, what I wondered for your book, and this is the embarrassing thing, is: Well, the kind of regulation they have in New York is really important. It's not just that it's hard to build a new building. They have really specific laws about how big an apartment has to be. And that kind of changes everything. So, talk about the role that minimum standards play in effecting the mix of housing that's available in a city like New York. And then you talk about, I think it's the Chambre de bonne in Paris. And talk about how that opportunity to allow flexibility is so important. And what you react to that long speech as well, any way you want. Sorry for that. Alain Bertaud: No, no, no; not at all. Well, yes. You see, households make a choice, make tradeoffs, between the quantity of floor space they want, and the location, and the time commuting. And that's their choice. As soon as the regulator wants to be nice with those households by saying, 'No, no, no: You would like to live in the center of Manhattan but in the certain square meter, but in fact, you will be much better off if we impose developers to build at least 60 square meters, you know, and not less--so, as soon as they do that, they of course eliminate a large number of people who cannot afford those 60 square meters. This is not the only thing which creates a constraint in New York City or San Francisco. It's not only the regulation, you know, those minimum apartment size. You have all sorts of zoning which do not allow--for instance, in Manhattan, you will not allow housing in some areas which are still considered manufacturing, for some reason--although there is practically no manufacturing left in Manhattan. But, in SoHo [area South of Houston St. in Manhattan] for instance, just an area, so, you have a, several blocks which are manufacturing, and there was no demand for manufacturing in those blocks: you were left to be crazy to try manufacturing in this area of New York. There were a number of artists who were located there because there were those empty buildings. And they were not squatters--you know, they paid rent to the owner. But it was illegal. At the same time, the city realized that those artists--you know, it was embarrassing for New York City to kick out the artists from lofts--you know, former industry lofts were empty. So, they decided not to change the zoning. Instead of saying, 'Well, this area is excellent for housing; why don't we allow housing to be built there?' They say, 'Those artists, the most trades that they work there, they will have to send a portfolio of their work to the city. It's still there, by the way, if you want to apply yourself as an artist in New York--I think my book gives the website where you can apply as an artist. And, so, they will send their portfolio. The city will decide if they are bonafide artists. And therefore, in the regulation itself it says, 'Certified artists will be assimilated to a small manufacturer, and therefore will be allowed to live and work in this area.' So, this is a complete, absoludite[?] of course-- Russ Roberts: [?] Alain Bertaud: the limit completely--by the way, that means also the zoels[SoHos?] artists consume much more floor space than they should, you know. If they wanted to consumer that much floor space, they should go to Queens. Or they should go to Long Island or maybe New Jersey. You know, and commute. There is no reason for having that. So, and that adds expense, of the school teacher, for instance, who is teaching in a school in Manhattan and cannot find any house to live in except somewhere in Long Island or in New Jersey within an hour and a half commute, one way. So, you see, this is--I will say even that this is criminal. Although I don't believe it's a conspiracy. I think it's incompetence. You know, Albert Hirschman used to say, not talking too much about zoning, but certainly not about zoning about many regulations or management rules, that we have a case where the weak are oppressed by the incompetent. And I think that's, this is exactly what is happening now in New York; and San Francisco, and cities like that; and Paris or London. The people who have relatively low income but have irregular jobs--you know, housing for people who have irregular jobs in the city should not be a problem. Housing for people who are in the streets, who are homeless, that's a different--this is a social problem. And the city has to take care of them with subsidies. This is a different thing. But, for me, the test is: If a school teacher, who has a job, with absolute indispensible for the working of the city cannot afford to live within half an hour commuting time from his or her school, there is something wrong with our system. And this something wrong is entirely due to regulation. There is absolutely no reason for it. You see a lot of numbers which are buried in the zoning code. For instance, in New York City, every, every zone will be called R6--Residential 6. And then there is a long line of parameters that decide what should be the, you know, the dimension of things which are building, Residential 6. And among them is a number, which is a number of square feet. This number of square foot is in fact, you have to divide the total area of the building, that you are allowed to build in this zone, divide it by this magic number and that will give you the magic number of dwelling units that could be built in this area. I challenge anybody to tell me what is the advantage to the city to establish this--this minimum number of dwelling. This--sorry--this maximum number of dwelling. The density of New York 80 years ago was practically double of what it is now. So, it's not number--it's not that our infrastructure cannot capture two more people. It's only a completely arbitrary number. And it limits, of course, the number of dwellings that can be done. The household size in New York now has decreased, you know, some 40 years it was again around 4.5. Now, if I remember well-- Russ Roberts: That's people per household. Alain Bertaud: People per household. Yes. It's people per family, let's say. Now, it's about 1.2 or something like that. But, this magic number I was talking about in the zoning code assume it is relatively large because it assumed that you still have a relatively large family. So, it obliges the developer to build a relatively large apartment. Because, if not, they will be, they will run against the rule of this number of dwelling units per acre, which will be too high. You know, in the New York Times, some about a year ago, there was a very interesting article which was extremely well documented which showed that in Manhattan, 40% of the building could not be built today--not because of a building code or fire-- Russ Roberts: safety-- Alain Bertaud: safety. No. Because there are too many apartments. In those buildings, already. Too many dwellings. Because, those buildings are too high. Or because there are too many businesses in the area. Which, imagine: some planners who have the knowledge to know what is the optimum number of businesses in Manhattan? Where does he get that? Where does it come from? And, the problem is a bit like, the problem we are talking at the very beginning of this talk about Nigeria--all these numbers are in the Building Code, in the Building Regulation. And people assume that the numbers were there of a reason. That, somebody really smart has put these numbers there-- Russ Roberts: An expert-- Alain Bertaud: An expert. And nobody knows why they are there. But this is: Somebody must know. And therefore do not change them. They feel that: Here goes the neighborhood. You know: If you change this number, maybe something will collapse, or something like that. It's not true. You know, so, I recommend, really, regulatory audits. You know, to get rid of all those regulations for whom we don't know what the reason is; or the reason was maybe valid a hundred years ago, but not any more.

51:40 Russ Roberts: So, just to highlight this: There are other regulations you haven't mentioned, about restrictions about how many units can be on any one block; the number of unrelated individuals that can live in any one apartment. And, of course, many of these are violated, as you point out in what you call the 'informal sector': people find ways to get around some of these. It's not perfect-- Alain Bertaud: Right. Yes-- Russ Roberts: But, the point that's--I just want to emphasize this because it's, again, so obviously true; and the fact that I struggled to notice it is disturbing but illuminating. Which is: it's true that a high-end apartment can rent for a lot of money. But a lot of smaller units can rent for a lot of money, too, even though they'd be less per unit. You could just change the floor space. And the--I'll put a video up, it just blew me away, of an apartment of in Paris--and I'm not exaggerating, this is the exact number: It's 8 square meters-- Alain Bertaud: that's right-- Russ Roberts: 86 square feet. Which is a very small--it's about the size of a child's bedroom in a small suburban house. And in that space, there is a kitchen, a bathroom, a bed, a table, book storage space. Other storage space. It's a beautiful work of art. And I'll put a link up to it. But, that apartment would be illegal in New York. Obviously. And the point about child-, about household size, is just crucial. As fewer and fewer Americans are married, and more and more people are living on their own, the idea of limiting household size, of square footage, is just a recipe for high rents and people living very far from where they work. Or only rich people living in those urban centers. And it's just an easily fixed problem. And I want to say one thing bad about that, and one thing in defense of it. And let you react. So, you suggest it's incompetence. There's also, of course, the Road to Hell being paved with some intentions. Some of these laws were passed to benefit people, to make sure they had enough room and space to live. And, of course, some of it is designed to protect the people who already lived there. Who benefit from the rents. It's a classic, what we call Bootlegger and Baptist problem, where the regulator invokes a high-intentioned, wonderful moral reason for the law. But it also benefits, makes other people richer; and those are the Bootleggers; they keep that quiet. Um--at the same time--now let me defend--I'm a little more cynical than you, but that's okay. Let me defend regulation for a second. On that same walk on that street with my buddy, when I said how horrible it was that all these restrictions were the way they were, we happened to be walking in the Chelsea neighborhood. The Chelsea neighborhood is beautiful. A lot of gorgeous old buildings. They are very low: they are not high, multi-story buildings. They are low numbers of stories, 3-5 stories. Gives it a certainly look and feel. And he said, 'You know, don't you think that the people who live here want to enjoy this kind of feel and look on the streets?' And you could say that about many zoning and other types of restrictions, that it creates this public good, this sort of ambience that would otherwise be destroyed by the interest of developers trying to cater to poor people who would like to live in high-rises in those areas, for example. How do you respond to that? Alain Bertaud: Well, yeah. On your last comment here: Yes. But you see--don't you get that Manhattan, for many years, there were mostly brownstones in Manhattan? Which are very, very nice-- Russ Roberts: Beautiful-- Alain Bertaud: and, you could have said, 'We should not have developed Midtown because there were beautiful brownstones there, and the people were living there. A city has to evolve constantly. Now; and any city which froze itself in the past is doomed. At the same time, I completely recognize, especially as an architect, and a French architect on top of it, I completely recognize the value of keeping some historical neighborhood intact. But, let us face it: We can't keep those neighborhoods intact--for instance, having several streets with brownstones intact--and we should, do not forget that this will be extreme gentrification. You cannot maintain a brownstone unless you have a lot of money. And, it's the same thing for any historical building that you want to maintain. It will have to go to rich people in order to be maintained. If not they will deteriorate very, very quickly. This is, by the way, what's happened in Harlem, in the 1960s, the end of the 1960s, I was working there for the city Crime[?] Commission. Harlem was full of beautiful brownstones. The people living there at the time were extremely poor. There was a huge crime problem and drive[?] problem. A lot of those buildings, those brownstones, had to be demolished because they were so badly maintained they were collapsing. The only way to maintain a brownstone is to have rich people working--you know, living in them. Now, for, I get back to your example of Chelsea: Yes; we have to--it's nice to live in Chelsea. But, only, you know, if you are protected, you know, from the market by living in Chelsea. By a zoning regulation which prevents people from going and living there, too. I think that's a little egoistic-- Russ Roberts: yeah-- Alain Bertaud: You know, it's not so--you know. Again, think of my school teacher. My school teacher is teaching at this school 10 blocks from there, but have no hope absolutely to live in Chelsea right now. So, if you increase the supply, and the supply of smaller dwellings, for which there is a demand and which can be very attractive, if there are--you know. I know, by the way, when I came to New York with my wife as young immigrants, you know, in 1968, there were still quite a large number of old-law[?] tenements, which are illegal now--you are grandfathered: you can still live in them if they are still standing--but it's illegal to build apartments which have the same size of the one we had, you know, in this old-law[?] tenement, you know, in Yorktown[?]. And this was wonderful. We had a young kid--you know, we had a toddler. We had, my wife and I. So we were three people in 27 square meters, a little larger than the Chambord[?] of Bonn, but a little larger. And this is illegal now. For us it was, it's one of the most wonderful [?] we had coming and living in New York. You know, we could walk to Central Park on the weekend with our kids. It was a wonderful thing. My employer, when we came to New York, I told him, 'I have a wife and a young kid. How do I get housing in New York?' And he told me who--'With the salary that you have,' he was paying so he knew, 'you will have, you may find something maybe in the Bronx or maybe in New Jersey.' And we decided: we don't want to live in New Jersey. We came from Paris to New York. We have to live in Manhattan. And we made the tradeoff of living in a very small area. You know, we furnished it well so that it was very livable so that in spite of being small, but for us, accessibility to the amenities of Manhattan, largely compensated the size. And it was affordable. We were not only living on a waiting list--you know, when I hear, the city, the City of New York, now saying, 'Well, we are going to build affordable housing below market,'--if it's below market, if the price is below market, it is not serious. It means you have to be on the waiting list for 10 years or you have to go through a lottery. You know, if you have a new job in Manhattan the way I had coming from Paris, I could not wait to be on the lottery or on the waiting list. So, we need--if the program of the city to do affordable housing is the role-market[?] housing, this is a joke. You have to put use housing which is affordable at market price. And then you will have enough of it. And you can do it. We can do it--the technology otherwise. One way of doing that, of course, is also to improve transport systems. So, you allow people who want to consume a little more to have efficient transport, which brings them to their job. You know, from their house to their job at a longer distance. So, you could have that also. You know, if the transport were more efficient, it would have a way of providing--that's why, in my book, I link, I very much, I think the two main jobs of the urban planner is affordability and mobility. These are the two things. Forget about sustainability, livability, or, you know, resiliency, or all that. These are all very nice things. But, the main job of the planner is to insure that. And you can measure mobility. You can measure affordability. The planner, should say, or the Mayor, let's say, should say, 'Well, this is our target for affordability and mobility. We are going to do that. And let's see if it works.'

1:02:04 Russ Roberts: Well, I want to go back to your story of when you first arrived in New York. Because you talked about it in the book. And I think it really brings home what has changed in America. And I think it's a tragedy. You mentioned, just--I didn't hear it correctly the first time--an 'Old Law,'--tenement. Meaning, I assume that's a tenement that had been grandfathered in, as you say, now--that now would be illegal-- Alain Bertaud: that's right. Russ Roberts: So, here's what you write. You say you are at a museum, and the docent was telling you that in the 1850s: ... immigrants who were fresh off the boat would typically stay only a few months in a tenement. They would then keep moving as their employment and financial circumstances changed. A typical length of stay in the same tenement would be about 6-8 months. My wife and I then looked at each other --this is all a quote-- remembering that this was exactly what we did when in January 1968 we were also fresh off the boat in New York. We changed apartments three times in thirty months. We moved from a flophouse on the upper east side that was soon going to be demolished to a studio apartment in an old-law tenement on the Upper East side. And then to an entire floor in Brooklyn Heights. I also changed jobs 3 times. Each time I changed for a more interesting job and a higher salary. This is the type of mobility that we'll discuss in this chapter: the ability move from job to job and from dwelling to dwelling, made possible by transport infrastructure that gives access to millions, of potential jobs, in less than one hour of commuting time. This mobility was made possible by a buoyant housing and job market, ensuring a load transaction cost of changing jobs and location. By contrast, in Paris, where we came from, housing mobility was hampered by two-year leases that could not be broken without penalties. Additionally, job mobility was frowned on as a sign of instability. Changing jobs 3 times in 30 months would have resulted in a resume that raised a lot of eyebrows. And then you talk about the fact that you were a little uneasy quitting your job; but how, in America, that was Okay. And you boss[?] threw you a party: 'Congrats! You have a better job!' But I think the point that's important, and we talk about this a lot on the program, is that: You know, if you are in West Virginia and your factory closes and you don't have anything to do in West Virginia, or Kentucky, or Ohio--areas that used to be vibrant that no longer are vibriant economically, and that the whole thing for hundreds of years that Americans did is they moved. They got up and they moved to a city. But now the ability to move to a city is much harder than it used to be. And I think that's a--physical mobility is down in America. And part of the reason--it's not the whole reason, but part of the reason is the kind of restrictions you are talking about that make it harder for people to find the opportunity, near a place they where want to live and thrive. And it's an enormous mistake. And I think it's done--you know, you said it politely, you said it's a form of egoism. It's a form of selfishness. And it's a failure to recognize that the next generation needs to have a place to use their talents, and to experience life fully. And when we zone New York or San Francisco or other places and make it hard for people to move there--I understand why the people who live already and the people who own the buildings want to profit from it. But it's wrong. Just wrong. Alain Bertaud: Yes. I absolutely agree with you on that. I mean, for us, you know, again, moving to America was a very important thing. When I arrived in New York, my wife didn't work. You know, her English was a little shaky. She could not find work yet, for her [?] English. So I was only the breadwinner. On top of it, the job was [?] and the architect, and it was so good on your resume that you could afford to pay your the room[?] my guess is that I was paid at the minimum wage. And, you know, at the minimum wage, a household of three persons could survive in Manhattan very well. You know, we really enjoyed our time. We were not in poverty at all. We were enjoying it very much. Russ Roberts: You had a rich life. You weren't poor-- Alain Bertaud: Exactly, yes. So that's exactly what--I wish, again, when I'm talking about this schoolteacher or people like that would have the support--the person in West Virginia, indeed, would be much better off moving to a large city, which is affluent, which look for new people, where there are so many opportunities; and they cannot do that because they are frozen--I would call it frozen, land-use regulation which are completely obsolete. And which need to be revised in a different way.

1:06:46 Russ Roberts: Now, we had a guest on EconTalk, Glen Weyl, and I don't know if you've read his work. But, he argues that this frozen-ish needs to be liberated in creative ways: there's too much monopoly power in land markets. And your book really is a statement that market forces, when you let them work, are incredibly effective at tailoring opportunities for what people demand. Glen Weyl and others don't agree. They think we need to change the way property rights are established. Why are you so positive and enthusiastic about the role of markets in housing, where, just to pick on a straw man that drives me crazy--'Well, it's nothing, in economics, to have competition you need homogeneous product with perfect information.' In fact, housing is almost incredibly not homogeneous. It's heterogeneous. Every house is unique. Every building is slightly different. The location is certainly different. And people have imperfect information about how that, what it's going to be like to live in the house, where they can get to from the house. And yet, you believe, or at least you argue in this book, that these--that the interaction between suppliers and demanders works well when government sticks to what it does well and doesn't try to over-plan. What's your reason for that? ] Alain Bertaud: Look, we see that, for instance, this market working well in the food industry. You know, if you are in Manhattan, you can have, in the same block, an extremely expensive French restaurant and next to it you will have a food court. And the food, in both, will be quite okay, actually. I assume better in the French restaurant, but in a certain way, it will certainly be satisfactory and you could go from one to another. Why? It's the same in clothes, by the way. You could have, in Manhattan, you can find fantastically expensive clothes; but you can also, you know, find enough clothes to, you know, be decently clothed for you, for $400, probably, I think. So, why, is everything different? I think that a lot of it has to do with, you know--again, regulation and infrastructure. Those two things. Infrastructure has not followed the expansion of cities, because always society[?] is that maybe a city should not grow so much. Especially when I was a student or when I was a young professional, there was this idea about the optimum size of cities. And so, there was a reluctance to have a city grow. In a way, now, it's expressed a bit differently, as a sprawl. You know, the sprawl is kind of the bugaboo of every city. 'We don't want to create sprawl. We want compact cities.' Russ Roberts: 'Houston is a horrible place, because it's'-- Alain Bertaud: that's right, yeah-- Russ Roberts: so big-- Alain Bertaud: Or Atlanta. You know. It is not. It's just a different tradeoff. It represents a completely different tradeoff. And it's very efficient in terms of jobs--there is no doubt about it: an excess of jobs. So-- Russ Roberts: And price of housing, which is very reasonable in Houston. Alain Bertaud: What is important here is that if you have crazy regulations--like we have--the market adapts to those crazy regulations[?]. And that creates a new equilibrium. If you remove those regulations, then [?] industry has to re-adapt to it. And that's not easy. It takes a long time. Right now in New York, the system, and especially in Manhattan, the system is such that unless you are a very large developers and you build for the 10% richer people of Manhattan, for the rich, you cannot build anything really. But, in order to do that you need lawyers, who are fantastically expensive, who can tell you how much it will cost to change the zoning, you know, from this to that. So, you buy the land at a certain price; it will take you 10 years, and with constant work on the zoning with your very, very specialized lawyer to change the zoning, and then you will make a bundle. But you can do that only if you build luxury housing. So, now you are being told by the city: We want inclusionary zoning. That means that, 'Every time you build 10 apartments, 8 will be at market; 2 of them will be affordable; and we will decide which is affordable.' This is, of course, absurd, you know, to have the supply of low-cost housing depending on the supply of luxury housing; and only a fraction of the supply of luxury housing goes to affordable housing. I explained that in part of my book, here, on this specific case. This is absurd. We have to have a market solution. I do not believe that, you know, that--there are interests, certainly, for the status quo, which will want to keep the status quo. I don't think that if we are aware of it, if we are aware how a market works, that it's not possible to build housing which is affordable to a schoolteacher in New York or San Francisco.