Isegoria

Restrictions on the supply of housing are not a simple transfer from renters to homeowners or from young to old, Matt Yglesias explains:

They are an incredibly value-destroying leaky bucket of redistribution that makes people a lot poorer on average.

Most people in Washington, D.C., myself included, own plastic snow shovels that are lightweight and good at moving large quantities of snow relatively quickly. These shovels are also completely useless against the large blocks of ice that have besieged the city over the past couple of weeks. As a result, metal shovels — including shovels that were designed for gardening rather than snow removal — have become a scarce quantity in high demand. Within a couple of days of the storm, it was not only impossible to buy a metal shovel at any Ace Hardware, Home Depot, or Lowe’s in or near the city, but they were also out of things like pickaxes too. I got the last crowbar from my neighborhood hardware store two days after the snow fell and have been using it ever since to smash ice.

I don’t know exactly what the secondary market for these implements looks like. But I guarantee you that under these conditions of intense scarcity, a person with a spare metal shovel could sell it for a lot more than he bought it for. Anyone who happens to have anything that’s good at smashing ice has seen a nice little bump in their wealth as a result of the temporary scarcity.

So maybe we should pass a law prohibiting (or strictly limiting) the manufacture and sale of new metal shovels, pickaxes, crowbars, and similar implements. The snow will melt soon enough and this particular ice crisis will pass. But these kinds of tools have enduring use. If you restrict the supply of new ones, then over time more and more people will find themselves wanting to buy used ones from the people who already own them. There will be future ice storms and future demolition jobs. People will want to dig holes in gardens. And through the magic of supply constriction, something like my trusty ice-smashing crowbar can be transformed from a slowly depreciating durable good into an appreciating asset — an investment commodity that builds wealth over the long term.

Notably, nobody proposes that we do anything like that or believes it would be a sensible way for a country or a city or a state or a region to proceed.

We even saw a real world example of this during Covid, when production of new cars was temporarily curtailed, which led the price of used cars to soar. Most Americans own cars (often more than one car) so in some sense the car shortage was a financial windfall that caused the net worth of many to soar. But, again, nobody proposed permanent quantitative limits on the sale of new cars in order to bolster car wealth. “Ban cars” is a semi-joking slogan of urbanist ideologues, not a wealth-building strategy.

The same even applies to financial assets. Like most Americans, I have some savings in the stock market, mostly in index funds that own shares of existing large companies. In some sense, the fact that people found new companies and those companies sometimes grow and become successful is a threat to the profitability (and therefore share price) of the large, existing companies that are in my 401(k) fund.

But I’ve never heard anyone argue that we should bolster the value of Americans’ existing stock portfolios by making it impossible to found new companies.

Obviously companies lobby to protect themselves against new competition all the time. But nobody believes that giving in to those pressures is a reasonable strategy for bolstering retirement funds.

The point, in both the trivial case of banning new crowbars and the dramatic case of banning new companies, is that these moves would be bad for economic growth, and people generally benefit from a growing economy.

Of course, growth isn’t the only thing that matters. People care about distributive issues and fairness and environmental protection and all kinds of other things. But they do also care about growth. It might be worth accepting slower growth to advance some other social aim. But this really only works when the benefits are large and the growth impacts are small.

Banning new companies would obviously be an economic disaster, so (fortunately) no one proposes that.

The car thing, though, strikes me as a fairly close analogy to housing. One big problem with restricting new car production in order to increase car owners’ car wealth is that to actually realize that wealth, you’d need to sell your car. Most people own cars because cars are useful, so if they ended up carless they would either need to go buy another one (at now-inflated prices) or else they’d take a big hit to their well-being. Lots of very old cars would stay on the road much longer despite poor performance, bad features, and worse fuel efficiency. A larger share of social resources would be sucked up by trying to repair old beaters and keep them on the road. Safety would get worse. Governments would start various programs to help young people afford car ownership — some outright subsidies, but mostly a lot of subsidized credit to help people get cars so they can get jobs — but ultimately those programs would just end up further inflating the value of the existing fleet of used cars.

That’s the dilemma you’d end up with: a “wealthier” society in terms of the paper value of its stock of used cars but in all practical terms a poorer society in which the average quality of people’s access to transportation services declines.

Something like a ban on new metal shovels would make this even clearer. Random old tools would obtain more financial value, but life would be worse: the actual act of shoveling would become harder.

And the more you repeated this exercise, the worse things would become. First you ban new shovels. Then you extend the ban to pickaxes and crowbars to create even more wealth. Then you’re banning hammers. Next it’s all hand tools. Eventually it’s cars too. Heck, maybe we even restrict the supply of new smartphones to enhance the trade-in value of the phones that people already own.

What you’re doing here is entering a degrowth spiral.

Politics is nothing but an ocean of hyperbole, Bryan Caplan reminds us, as he cites this passage from Edward Banfield‘s 1974 classic, The Unheavenly City Revisited:

A great part of the wealth of our country is in the cities. When a mayor says that his city is on the verge of bankruptcy, he means that when the time comes to run for reelection he wants to be able to claim credit for straightening out a mess that was left to him by his predecessor. What he means when he says that his city must have state or federal aid to finance some improvements is (1) the taxpayers of the city (or some important group of them) would rather go without the improvements than pay for it themselves); or (2) although they would pay for it themselves if they had to, they would much prefer to have some other taxpayers pay for it. Rarely if ever does a mayor who makes such a statement mean (1) that for the city to pay for the improvement would necessarily force some taxpayers into poverty; or (2) that the city could not raise the money even if it were willing to force some of its taxpayers into poverty. In short, the “revenue crisis” mainly reflects the fact that people hate to pay taxes and that they think that by crying poverty they can shift some of the bill to someone else.

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That we have not yet been willing to pay the price of solving, or alleviating such “problems” even when the price is a very small one suggests that they are not really critical. Indeed, one might say that, by definition, a critical problem is one that people are willing to pay a considerable price to have solved.

When his best friend in Austin quips, “It’s great living in a blue city in a red state,” Bryan Caplan is tempted to reply, “ We really don’t know what it would be like to live in a red city in a red state — or even a red city in a blue state.”

Why? Because they barely exist. Zero cities with over one million people currently have Republican mayors.

From the standpoint of the textbook Median Voter Model, this is awfully puzzling. Even if urbanites are extremely left-wing, you would expect urban Republicans to move sharply left to accommodate them. Once they do so, the standard prediction is that Republicans will win half the time. But plainly they don’t.

One possibility is that Republican politicians are too stubbornly ideological to moderate. But the idea that virtually no one in the Republican Party is power-hungry enough to tell urban voters what they want to hear is deeply implausible.

The better explanation, as I’ve explained before, is that urban voters have party preferences as well as policy preferences. They don’t just want left-wing policies; they want left-wing policies delivered by the Democrats.

The most important reason why historical towns produced beautiful architecture without design is vernacular architecture:

When Amalfi was built, everyone used local materials and styles out of practical necessity. If you were building a terraced farm and house, you had to use stone quarried nearby, volcanic ash mortar from the mountains, and local limestone plaster. There were no other options. Similarly, the architectural designs using those materials are kept uniform by greater ignorance of other styles and the physical properties of the few available materials.

Local conformity of style and material was enforced without laws or community meetings. Simultaneously, styles and materials varied greatly across communities. Local conformity was matched by a wonderful global diversity of styles.

Today, people have diverse tastes sourced from global media and more diverse buildings styles and materials available due to globalization. This inverts the historical pattern and creates local variety and global conformity. Within any city you will find dozens of clashing styles: colonial houses abut glass towers and fake-wood 5-over-1s. But across cities, variance is decreased and this same clash of styles is repeated over and over again.

For more than three decades, Maxwell Tabarrok notes, Japan has endured near complete economic stagnation:

But despite severe economic stagnation, Japan is still a desirable place to live and work. The major costs of living, like housing, energy, and transportation are not particularly expensive compared to other highly-developed countries. Infrastructure in Japan is clean, functional, and regularly expanded. There is very little crime or disorder, and almost zero open drug use or homelessness. Compared to a peer country like Britain, whose economic stagnation over the past 30 years has been less severe, Japan seems to enjoy a higher quality of life.

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Japan’s zoning code is set at the national level and therefore tends to be much less restrictive than the local zoning codes found in the West. Its national system lays out just 12 inclusive zones, which means the permitted building types carry over as you move up the categories, allowing mixed-use development by default. This compares favorably to zoning codes in the US which often have multiple dozens of exclusive land use categories. Even the most restrictive category in Japan’s system, shown in the top left (below), allows people to run small shops and offices out of their homes. There are floor-area-ratio limits and setbacks, but they are modest, and there is no distinction between single and multi-family housing units within these limits.

For environmental permitting, Japan mostly relies on explicit standards for environmental impact, rather than a lengthy permitting process where applicants must write detailed reports about possible alternatives and mitigation measures under threat of lawsuit, as in the US. Japan does have a copy-cat National Environmental Policy Act (NEPA) procedural environmental law that was enacted in 1997, but it has two important differences that prevent its evolution into the procedural morass seen in other countries.

First is explicit numerical standards for which projects must go through the impact statement process, rather than the hand-waving ambiguities of NEPA. These standards generally only include large infrastructure projects like a port extension exceeding 300 hectares. Some residential projects are covered, but only those which exceed 75 hectares in area. Only 854 environmental impact assessments have been started in Japan since the act passed, and there have been zero for residential construction projects.

Second, the completed environmental assessments are harder to sue over than in Western countries. Plaintiffs need to have a personal and legally protected injury to have standing, rather than a generalized concern for the environment as in the US. Plus, the greater specificity of when the law applies and a court that has a much more deferential attitude towards agency determinations means the lawsuits are harder to win.

Permissive national zoning and an absence of environmental proceduralism leads to Japan having the highest rate of housing construction and the lowest home price to income ratio in the OECD.

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Japan’s social order is incredibly valuable. The annual cost of crime in the United States is around $5 trillion dollars which is 18% of GDP. Higher crime rates would threaten the high-density urbanism which makes Japanese cities so affordable and desirable.

New York City’s congestion pricing program has been in place for one month, implementing tolls on drivers who enter certain, often gridlocked, areas of Manhattan:

And so far, the results are “undeniably positive,” transit officials say, with measurably reduced traffic and more commuters choosing public transit.

The traffic mitigation plan covers a “congestion relief zone” that spans almost all of Manhattan below 60th street and includes major routes like the Lincoln, Holland, and Hugh L. Carey Tunnels and bridges that go into both Brooklyn and Queens. Since its launch on January 5, one million fewer vehicles have entered that zone than they would have without the toll, according to the Metropolitan Transportation Authority (MTA).

Passenger cars with an E-ZPass that travel through that zone face a $9 toll during peak hours, from 5 a.m. to 9 p.m. on weekdays and 9 a.m. to 9 p.m. on weekends, and a $2.25 toll overnight. Tolls are more expensive for commercial traffic, and vehicles without E-ZPass face a 50% premium.

Those charges are meant to reduce traffic in the city and also raise funds for $15 billion worth of transit repairs to the MTA. By cutting traffic and ushering more commuters onto public transit, the program will also reduce air pollution and greenhouse gas emissions.

It’s the first such plan in the United States, though congestion pricing has been successfully used in London, Stockholm, Singapore, and other cities. In Stockholm, traffic levels dropped about 25%, and the city saw less pollution and more investment in local infrastructure. And though business owners and residents there criticized the program before its pilot began — much like they did in New York — a majority of voters ended up making that toll permanent.

New Yorkers are already seeing an impact one month in. Along with fewer drivers in general, the vehicles that still travel through the area are dealing with less traffic. Those crossing through the Holland Tunnel see the most time savings, with average trip times down 48% during peak morning hours. The Williamsburg and Queensboro Bridges are both seeing an average of 30% faster travel times. During afternoon peak hours, drivers in the entire zone are seeing travel times drop up to 59%.

More commuters are opting for buses to cross Manhattan, and those buses are now traveling more quickly, too. Weekday bus ridership has grown 6%, while weekend ridership is up 21%, compared to January 2024. (Subway ridership has also grown by 7.3% on weekdays and 12% on weekends, part of a larger trend in ridership growth happening since the fall, per the MTA. Anecdotally, some subway riders have said they’ve seen more packed trains on their morning commutes.) Buses entering Manhattan from Queens, Staten Island, and the Bronx are saving up to 10 minutes on their route times, which also makes their arrivals more reliable.

Last month, Dwarkesh spent two weeks in China, visiting Beijing, Chengdu, Dujiangyan, Chongqing, Shanghai, and Hangzho:

It’s funny how China has basically the inverse problem as America. We subsidize demand and restrict supply. They subsidize supply and restrict demand. We can’t rebuild fallen bridges. They build bridges to nowhere. In the most desirable cities in this country, every random Victorian house and park bench is a historic site that can’t be disturbed. There, they’ll bulldoze a 500 year old temple to build an endless skyscraper complex that no one wants to live in.

My overwhelming first impression was: wow this place is so fucking big. Travel often teaches you things about a country which you honestly should have intuited even without visiting. Obviously, I knew that China is a big country, with over 1.4 billion people. But it was only after I visited that the visceral scale of the biggest cities was impressed upon me.

Even in Dujiangyan, a city of just half a million people (considered a quaint countryside town by Chinese standards), we found a Buddhist temple of staggering proportions. The scale was almost comical — we’d enter what seemed like an impressively large compound, only to discover it was merely the entrance to an even grander structure right behind it. This pattern repeated 5 or 6 times, each subsequent building larger and more ornate than the last, like some kind of inverse nesting doll.

I asked a monk at the temple how they funded this massive site in a city of just half a million people. He told us that it was simply through donations. We probed further about how such an enormous project could have been financed by just ordinary people’s donations. He responded, “We’ve got a lot of supporters, dude”, and changed the topic.

Chongqing is by far the coolest city I’ve ever visited. It’s this insane cyberpunk multi-level metropolis of over 20 million people. I wouldn’t know how to begin describing it, but there’s a bunch of great YouTube videos which will show you what I mean. I got a really nice nice 2-floor hotel room that overlooked two rivers and one of the most insane skylines in the world for 60 bucks – highly recommend visiting Chongqing if you get the chance.

Brian Potter explains how California turned against growth:

Residents found themselves surrounded by polluted water, poisoned air, and a destroyed landscape. Views and natural beauty were increasingly spoiled by overhead power lines, outdoor advertising, freeway overpasses, and thousands of identical houses. Infrastructure like roads, schools and sewer systems were stretched to their breaking point. Crime was rising, and neighborhoods of single-family homes with largely white residents were being encroached on by apartment buildings housing the poor and minorities. In response to this unwanted change, Californians began to create land-use restrictions that would curb growth, help stop environmental harm, and limit the influx of new residents. When this drove up property values, Californians then passed Proposition 13, which cut property taxes, reduced the government’s ability to fund services, and locked in the low-growth culture that had taken root.

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Since the days of the gold rush, growth in California came at the expense of the landscape and the environment. Six years after the discovery of gold, the landscape surrounding the motherlode was “scarred and devastated” from mining operations. Following the development of hydraulic mining, which uses high-pressure water to break up rocks, entire mountains were torn apart, and the resulting silt and debris clogged the rivers. The large-scale water projects that brought water to cities and farms flooded ravines, drained lakes, and destroyed ecosystems. Diverting water from the Owens River to Los Angeles dried up the formerly-fertile Owens Valley, and large-scale water diversion caused Buena Vista Lake and Tulare Lake to dry up. Damming of the Tuolumne River to provide water for San Francisco flooded the Hetch Hetchy Valley. Conservationist John Muir, who had fought against the dam, lamented that “These temple destroyers, devotees of ravaging commercialism, seem to have a perfect contempt for Nature.” In 1905, a canal dug from the Colorado River to the Imperial Valley overflowed, causing an enormous flood which only stopped when the Southern Pacific Railroad filled the breach with 2,500 carloads of rock and gravel. The result of the flood, the Salton Sea, has today become an “environmental disaster” due to steadily increasing salinity. In 1928, the St. Francis Dam collapsed, causing a flood that killed 400 people and destroyed everything in its path as the water rushed out to sea. In 1940 the Los Angeles River, one of the city’s major amenities, was turned into a concrete channel to protect the surrounding areas from flooding.

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Between 1910 and 1930, the number of salmon in the Sacramento River fell by 80%. In the mid-1930s, 750,000 tons of sardines were being caught annually off the California coast, but the industry was completely wiped out by the end of the 1960s, in part due to overfishing.

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Harvests of California’s majestic redwoods rose to “unprecedented levels” to provide lumber for new housing, and by the end of the 1950s, 90% of California’s redwood belt had been chopped down. Air pollution from industry and millions of cars created a lingering “smog” in cities like Los Angeles and San Francisco that poisoned the air and blocked off views: smog attacks were so common by the 1960s that they were reported by the news along with other weather announcements. Sewage was regularly dumped into lakes and rivers: in 1961 an estimated 250 million gallons of sewage was dumped annually in the San Francisco Bay. Developers regularly made plans to fill in thousands of acres of the Bay to make more land, to the point where many worried it would be turned into a narrow shipping channel just wide enough for ships to pass. In 1969, a blowout from an offshore platform created an oil spill off the coast of Santa Barbara, killing thousands of animals and polluting more than 30 miles of beaches. Excessive pumping of groundwater for agriculture had caused the land to subside by tens of feet in some locations, and excessive irritation had deposited minerals and other pollutants in the soil.

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Much of this concern was about the aesthetic effects of ongoing growth. Many people had moved to California to be surrounded by natural beauty, not billboards, neon signs, traffic congestion, and thousands of identical “ticky tacky” houses.

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While California had traditionally been a bastion of single family homes, by the late 1960s construction had shifted to building large numbers of apartments, which would inevitably be occupied by low-income residents. This was “perceived as a categorical threat to the detached culture of low-density residential life.” One California housing expert noted that “one of the most cherished property rights in our ‘free enterprise system’ is not the right to do what one pleases with one’s property, but the right to live in a neighborhood in which no more multi-family housing may be constructed.”

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In 1965 the U.S. removed quotas on immigration based on national origin, and subsequent immigration reforms created a path for previously illegal immigrants to become legal residents. In 1960 only 1.3 million of California’s ~16 million residents were foreign born, and only 8% of residents weren’t white. By 1970, the non-white fraction had risen to 12%, and by 1996 it had reached 51%.

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California’s violent crime rate doubled between 1960 and 1970, and by 1980 had doubled again.

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By 1970, 25% of the country saw pollution/ecology as an important problem, up from 1% in 1960. That same year there were over 8000 environmental bills introduced in congress.

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Between 1971 and 1975, 244 CEQA lawsuits were filed alleging that projects failed to properly complete an environmental impact report, and a state study found that CEQA litigation had been “excessive and frivolous, resulting in unnecessary legal costs and costs of project delay.” An environmental organization handbook at the time noted that “the mere threat of a suit can also be an impressive political tactic… suits can be an effective delaying tactic in order to force compromises.” Between 1971 and 1975, CEQA lawsuits were used to challenge more than 28,000 units of housing construction in the San Francisco area alone.

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Los Angeles had the first zoning law in the country in 1908, and California set the precedent for single-family home zoning in the 1920s. But historically, restrictions had been part of a broader plan to encourage growth by making cities appealing; now they were being used to shut it down. By the mid-1970s, most cities and counties in California had some form of growth restriction in place.

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prices. In 1973, southern California homes were on average $1,000 cheaper than homes nationally. By 1979, they were, on average, $42,400 more expensive (reaching $143,000 more expensive by 1988). Between 1970 and 1977, San Francisco had the largest home price increase of any of the 16 biggest metros in the U.S., with average home prices nearly doubling. By 1977 San Francisco had the highest home prices of any large metro in the country, up from 6th highest in 1970. Los Angeles followed behind as a close second.

Increased home prices, coupled with a property tax reform that raised residential tax rates and assessment frequency, caused property taxes to skyrocket. A home purchased in Los Angeles for $45,000 in 1973 with a $1,160 property tax bill would have a $2,070 tax bill just three years later. As home prices rose throughout the state (going from an average of $34,000 in 1974 to $85,000 in 1978), average property taxes doubled, and in some cases even quadrupled.

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Dissatisfaction with the taxes also came from the fact that taxes were increasingly being spent on things like welfare, healthcare, and schools in poor urban areas (a 1976 state supreme court case mandated that spending per-pupil be roughly equal across the state). In other words, in many jurisdictions taxes were being funneled to the poor and minorities rather than improving local services like police or road construction.

In response to increasing dissatisfaction with property taxes, California passed Proposition 13 in 1978. The ballot measure, which won by a 2-1 margin, rolled back assessed home values to their 1975 levels, limited assessed value to a 2% increase each year unless the house was sold, and capped property tax rates at 1% of the value of the house. Later amendments allowed a homeowner to pass on his home to his children (or even grandchildren) without triggering a reassessment, letting the low property taxes be passed from generation to generation.

Proposition 13 did exactly what it said on the tin. Homeowner property taxes immediately fell by nearly 60%, reducing government tax revenues by roughly $7 billion annually (with “losses” even higher later as property values continued to climb). City tax revenue declined by 27% on average, and county tax revenue declined by 40% on average. While government spending had risen by 4.1% per year between 1957 and 1971 in inflation-adjusted terms, after Prop 13 it began to fall. One estimate suggested that by 1988, Prop 13 had saved taxpayers $228 billion. California fell from 7th in the nation in tax revenue per $100 of personal income to 35th.

Cuts in government services quickly followed.

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Perversely, Prop 13 in some ways acted directly against homeowners’ desire for more local control. The measure eliminated local control over property tax, redirecting it to the state legislature and governor. Local governments and school districts were forced to hire lobbyists to represent their interests in the state capitol in the hopes of getting a portion of reduced tax revenue.

Prop 13, along with the enormous number of growth controls passed by various jurisdictions, forced California into a vicious cycle. With reduced tax revenues (and inability to control the revenues that remained), residency became far more zero sum. Services allocated to new residents might easily come at the expense of existing residents, incentivizing jurisdictions to create further growth controls. Rising property values forced people to live farther and farther away from their jobs, exacerbating the problems of growth: longer commuting distances meant more air pollution, more traffic congestion, and more freeway.

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Economist Ed Glaeser estimated that as early as 2002 land use restrictions in San Francisco add nearly half a million dollars to the cost of a typical home, and in 2009 Hseih and Moretti estimated that relaxing land use restrictions in San Francisco and New York alone could boost national GDP by 8.9%.