Welcome to Keith Knight, Don't tread on anyone in the
Libertarian Institute. Today I'm doing joined by Doctor
Brian Kaplan, the author of Build Baby, Build the Science
and Ethics of Housing Regulation.
Dr. Kaplan, where is the best place for people to buy the new
book? I would buy it on Amazon but
it's all over the place. Should be in Barnes and Noble
two and bunch of other places. Awesome links will be in the
description below. I saw this the other day here.
According to the Empire State Building website, construction
was completed in a record-breaking one year and 45
days. That was in 1930.
A another website discussing the Golden Gate Bridge in San
Francisco says just putting up the suicide Nets on the bridge.
Construction began in 2018 and was completed in early 2020 for.
Can you explain to us your theory as to why it's so
difficult to build things nowadays and be productive?
So the Golden Gate Bridge is going to be public sector, which
probably requires a whole bunch of additional stuff to
understand what's going on. But yeah, for the private
sector, it's really hard to get government permission to do
stuff. And some of this is inspections
and safety regulation. Most of it actually is just the
level of breaking ground. Going from idea to digging your
shovel into the ground for one shovel full of dirt has gotten
way harder than it used to be. As far as the citations in your
book, and then we'll start with chapter one, You cite Tyler
Cowen in your notes section, who says a price is a signal wrapped
in an incentive. What does that mean and what are
your thoughts on that? Yeah, so I feel like that's
actually Alex Tabarrok, although maybe it's in their textbook so
they both say it. But here's the idea, you take a
look at a price, you see that it costs $1000 to go and get a
particular flights from, say, I don't know, Lanzarote in the
Canary Islands to Barcelona on a certain day at a certain time,
right? The first thing is, well, Gee,
why is it so expensive? Probably that's showing that
there's just very few seats that are available in that particular
route to that particular time. But the idea that it's a signal
wrapped in incentive says it's not just telling you, oh, by the
way, there's not a lot of seats here.
Because if that was all that was saying, then someone might say,
well, there may not be a lot, but I want it for me, me, me,
me, me, me. The incentive combines the
scarcity with, well, if you want it to be you, then you're going
to pay $1000. That's what you have to cough
up. Do you really care that much?
If so, great, pay the money. If not, then you're going to
back away and leave that seat sitting around for someone who
wants it more than you do. And as far as the law of supply
and demand, could you briefly explain that?
I think I know what it is, but I just want to make sure.
All right, Well, the Law Supply says that when the price of a
good goes up, sellers are more interested in selling it.
The law of demand says that when the price of a good goes up,
buyers are less interested in buying it.
When you combine those two things, you get the law of
supply and demand, which says that at excessively high prices,
then people want to produce more than people want to buy.
At excessively low prices, people want to buy more than is
getting produced. And somewhere in between there
is the Goldilocks price, where the quantity that people want
and the quantity that people people want to buy and the
quantity people want to sell is exactly equal.
So when it comes to housing, I know a lot of people who want to
purchase houses or even remodel their business, and yet it
doesn't seem like the market is providing in the way we would
like it to. You'd think there's a profit
incentive. And because we don't see a lot
of building or a big decrease in the cost of housing, it's most
likely the result of greedy construction companies who are
not interested in providing a product for the masses.
Is there anything wrong with that mindset?
I mean, just back up to begin with.
So you take a look and you see that price of housing really
high. And then one reaction is, all
right, well, maybe that's just the intersection of supply and
demand, Gilly. It's really desirable.
It's really hard to build it. So end of story.
Nothing too surprising there. And that's actually where I say
you should start. But then there's the question,
well, have we been too quick with our story here?
It may well be that we're at the intersection of supply and
demand, but the supply in particular may have been
artificially constricted or restrained.
So imagine that you're taking a look and you see, wow, it's
really expensive to go to the circus.
And you find out that the government has arrested 90% of
the people that work in the circus.
Like, all right. Well, on the one hand, supply
and demand says the price is going to be really high.
On the other hand, the government didn't have to arrest
all the circus workers. And if you release them, then
circus prices would once again go way down.
That's a fanciful example, but it's highly relevant in the case
of housing. And here's what we can say.
We've got data on housing prices going back a really long time.
And in earlier periods, housing markets seem to work the way
that markets in general normally work.
Namely, in the short run, when there's an increase in demand,
housing prices go up. But in the long run, the very
fact that housing prices are high means the prices are above
average cost. And prices being above average
cost is a single rapid incentive, as we were saying
before, to enter that market and start building a lot more
housing. Think of it like this.
Anytime that the price that you can sell a product for exceeds
the average cost of production, that is a license to print
money. If you can just go and produce
that good with the normal level of confidence and sell it to the
typical consumer. In the past, housing markets
worked as I described, where there'd be an increase in
demand, prices would go up, but then there'd be a pile of entry
pile, new construction, bring prices back down to cost.
Starting in the 70s and 80s, that seemed to stop working in
housing markets. And instead the general tendency
with some interruptions is for housing prices just keep going
up, up, up, up. And let me remind you, this is
this is adjusting for inflation. It's the easiest thing in the
world to say, wow, there's been inflation.
So what's the big surprise? Like the surprise is that
housing prices have gone up a lot more than inflation.
That's the surprise. That's what should puzzle you
now is what's to going on? What's going on?
Well, anytime you see the price is permanently above average
cost, like that's kind of weird. Why isn't entry happening?
And then a natural thing to look for with as well.
Is there some way in which entry is difficult or just not
allowed? And that is where we really can
go and point fingers at government and say not only is
entry difficult, not allowed, but the number of different ways
that government strangles housing supply, it boggles the
imagination. The ones that I talked about,
most of the books, I think they are the most significant.
It's really hard to build tall buildings, extraordinarily hard
talking at the level of maybe decades to go and get
permission. Even if you can get permission,
maybe it's just one building a year, which is what was going on
in San Francisco for quite a while.
Before that it was 0 and now it may be going back to zero.
A little unclear there. Fairly hard to build multi
family housing where you put a lot of homes into a smaller
area. Furthermore, even when you're
talking about single family homes, which most land, most
residential land in the US is reserved for single family
homes. Even there there's a lot of
regulation because it's totally standard for government to go
and say you have to give everybody a minimum amount of
land nowadays, often it's an acre.
So you can have one home per acre, right?
Well, when you do that to developer who might have been
happy to build 100 homes in an area now into only building 25
homes. As a result, very strictest
supply of housing, price of housing stays high relative to
cost, and that means that consumers wind up losing out.
But not just consumers. You can also say the regulation
winds up being bad, often even for current owners, because
they're prevented from selling out to a developer who could
then go and give them a pile of money to go and allow other
people to make better use of their land.
You talk about the benefits of cheap housing, Henry Haslett
said. The art of economics consists in
looking not merely at the immediate but at the longer
effects of any actor policy. It consists in tracing the
consequences of that policy, not merely for one group, but for
all groups. When it comes to the benefits of
cheap and affordable housing, what are some of the ones you
touch on and what are some other ways it would benefit current
homeowners who are usually the ones protesting any building
operations knowing that it will likely decrease the value of
their current home? All right, so let's just start
with the obvious benefits of housing deregulation, right?
Very typical estimates would conservatively say that in the
modern US, the average home price is now at double its cost
of production, probably more, actually.
It varies by area. Yes, it's really bad in San
Francisco and in the middle of nowhere.
In farm farm territory, maybe there's barely any effect at
all, but still, averaging over the entire economy, looks like
regulation is at least double prices.
Which means that if we imagine a long run deregulated future, you
can expect the price of houses would fall, or price of a square
foot of housing, let's put it that way, would fall by say 50%.
And what does that mean? Well, minimum means that there
is not just a large fall in housing prices, but there's a
large rise in standard of living.
Simple reason, housing is a large share of your budget.
So if a large ticket item in your budget falls in price by
large amount, that amounts to higher living standard.
People on average spend about 20% of the budget on housing the
modern US. So if you have that 20%, you're
basically reducing the cost of living by 10%, which means that
your standard of living would rise by 11%.
All right, so that's the direct, obvious part.
It's big that is really important to tell people about,
but if that was all I had to say, I probably wouldn't have
written whole book about it just wouldn't have been enough
material. What got me excited was I
realized there's just a lot of other problems that most people
not only do not connect to housing, but often think of them
as just hopeless and beyond solution.
And what I say is not only hopeless and beyond solution,
there's a one policy that can simultaneously make a big dent
and a whole bunch of problems that seem unrelated to each
other and unrelated housing. What am I talking about?
Well, housing deregulation. That's the idea.
What kinds of problems can we make a big dent in using housing
deregulation? Well, how about the problem of
inequality? It's gotten worse.
All right. Well, pretty simple story.
Housing's a necessity. Poor people spend a larger share
of their income housing. If we could just cut the price
of housing by 50%, this wouldn't just benefit people on average,
it would give an especially large percentage gain to the
poor, smaller gain to the rich. By definition, that reduces
inequality. Another interesting perspective
on this. If you've heard of the work of
Thomas Piketty, capital of the 21st Century, you know this
stuff, right, Keith? Unfortunately, yes.
Well, he has a whole story about how there's just a general
tendency of free markets to lead to more and more inequality over
time, because in an economy where the rate of growth is less
than the interest rate, all a rich person has to do is just
not spend and let their money expand and they will get a
larger and larger share. There's been a bunch of
criticisms of this, and all those criticisms are reasonable.
But an additional criticism is that his measure of capital
includes housing. And if you break it down by what
normal people think of as capital and this housing
subcategory, turns out that for a bunch of countries, the rising
income share of housing does all the work.
So rather than it being the natural workings of free
markets, it is the unnatural workings of a housing market
where government strangles it. And then this winds up giving
free markets a bad name. Some of the other benefits of
housing deregulation. Also, housing regulation would
raise social mobility. In the past there was a really
easy way for anyone who wanted to get a better standard living
for themselves could generally do, and that's just move from
wherever you are to a high wage part of the country.
This used to work really well because housing prices used to
not be very different in different parts of the country.
Now housing prices in high income areas are usually very
high, to the point where a low income person who moves to a
higher wage part of the country normally has a lower standard of
living afterwards because the extra housing cost absorbs more
than 100% of the gain. So that's another one.
I could talk about other ones if you want.
Just the last thing is you were mentioning this idea that it's
generally homeowners who are resistant to any kind of
deregulation. I think that's quite misleading,
actually. It's probably true.
The people who show up at meetings are likely to be local
homeowners. But first of all, they're a tiny
share of local homeowners. They're the weirdos.
They're not a random number of homeowners.
Most homeowners have as little interest in local politics as
the typical tenant. Furthermore, when you look at
public opinion, there is very strong opposition housing
deregulation among tenants too. And if you're saying wondering,
well why in the world would that be, there's a bunch of reasons.
One big part is that about 2/3 of Americans just deny basic
supply and demand. And when you say that allowing
more building will reduce prices, about 2/3 of Americans
just say no, it won't. It's just ideology.
It's like, it's not ideology, it's common sense and it's
science. If you're running a lemonade
stand and you can't sell your lemonade, you cut the freaking
price. Obviously it's not an ideology,
it's not a philosophy to say cut the price of lemonade to get
more sales. Same thing goes if you do
deregulate housing. More gets built and of course
prices fall. Not because builders feel
grateful that you gave a pat on the head and sign their forms,
but because when you build a lot more stuff, the only way to sell
it or and get tenants is to cut the price.
I should have specified in my experience because of what I
work with in Chandler AZ basically all of the people who
object to any new buildings it's just home owner after home owner
saying my the value of my price is going to go down.
I should differentiate the between personal experience and
empirical data. Thank you.
You say like. I don't want to just totally
dismiss it. I mean, but is that really what
they say? So I've talked to a lot of
people who, well, not talked to a a moderate number of people
who actually go to meetings, they say is no one ever talks
about property values. They're much more likely to talk
about there's a bird nest that would have to be disturbed.
Now, you may say that's a thinly veiled attempt to protect their
property values. Maybe.
Then again, maybe what they say is the real reason.
Here's something that's pretty striking to me.
Normally any time there is NIMBY not in my backyard activity,
it's based upon something that I can see with my own eyes while
standing on my property. But if it were really about
protecting your financial interests, you should actually
be much more concerned about someone building a pile of new
housing a mile away from you then about one person going and
putting in a duplex across the street.
That's just going to be a very modest increase in housing
supply. You should be really worried
about big increases housing supply.
Seems to me it's much more about this visceral sense of I'm
looking at something I don't like, which also explains why
tenants are against it too. Because a tenant can also look
at something and say, I don't like that.
The actually economically sophisticated thing of saying,
well, they're building more things, which leads to more
competition, which reduce the price, reduce my price.
That's something that is so far from the thoughts of most
people, even though that's how markets work.
Most people are politically working from a just gut level
reaction of I don't like it, it bothers me.
No, must be stopped. Yeah.
The other benefits you mentioned, crime, birth rates
and construction jobs. Walk us through that, why we
should care about those and what those have to do with housing
deregulation. All right, let's.
Start with the construction jobs really primarily thinking about
benefits for non college males. Just to back up.
There's a lot of evidence that non college males are one of the
worst fearing demographic groups in society in recent decades.
Usual story is that there's been a big decline in manufacturing
course. Non college males could just go
and move into the expanding sectors of the economy, but
overall they haven't been that successful at doing it.
The typical guy who wants who's a non college male isn't going
to become a coder and isn't very comfortable with service sector
work, doesn't want to go and be a waiter, doesn't want to go and
give massages. So then what are they going to
do? There's the whole national
conservative movement, which is all about using protectionism
just to turn back the clock and make the economy work the way
that it used to in order to save non college males.
I have a piece called Revive Construction, Not the Rust Belt
that I wrote, just walking through and saying, look, even
in the most optimistic cases, this is not going to create a
lot of jobs. Because the main reason why
manufacturing employment is fallen is just that we've got a
large increase in productivity per worker combined with we have
almost reached the satiation point for manufactured goods.
Think about it this way, Keith. Suppose that five free
television sets showed up on your doorstep.
You can't resell them. What do you say?
Thank you for five free televisions.
Maybe what's more likely, it's like I don't need or want 5
televisions. I don't have the space for them.
I've got all the televisions I want, maybe one or two of them.
You might say it's better than my TV, I'll install it.
But the basic story is that consumers are pretty satiated
for manufactured goods precisely because we've gotten so good at
making them in abundance. On the other hand, there is an
immense pent up demand for more housing.
If you tell the typical person, you know, a house twice as big
for the same price of what you're paying now, lot of
people, probably a large majority of people would say,
sounds great to me, let's do it. Putting all this together, we
can see that right now we've got about 10 million jobs in the
construction sector, large majority of them done by non
college males. So even modest deregulation
would plausibly create millions of new traditionally macho non
college male jobs. And a really serious
deregulation could easily double the size of the sector, which is
a big boon to this group that a lot of people are concerned
about that seems to be doing badly, has a lot of additional
effects for working class families and so on.
So that's my quick story for that.
See then crime or this is one that is not obvious.
I didn't really think about it till I've read more about it.
But here's the story. A shockingly high share of urban
land is vacant in America. So like 15% of urban land is
vacant. Vacant land routinely becomes a
breeding ground for crime. So some researchers said, oh,
maybe if we could get vacant lands down somehow, then we
could go and reduce crime. The city of Philadelphia, they
actually let them do an experiment where they took pile
of vacant lots and let them randomly assign half for just
beautification. So let's clean up the trash,
plant some grass, trees, benches, little picket fence,
make it look nice. And they found a noticeable
decline in crime and that in the surrounding neighborhoods as a
result. This very paper specifies
saying, look, we're not talking gentrification.
We're not talking about building anything.
Don't get really mad at us. We just want to plant some
grass. But you read this thing, it's
like. Why is so much land vacant?
Very likely the number one cause is you can't get permission from
the government to do anything on the land.
What if we did let people build stuff?
Almost certainly that would reduce crime a lot more than
grass right now, the last one, fertility.
This one has been more controversial, but I'm still
going to say that the argument's strong and I think the evidence
is there too. Simplest way of thinking about
it is this. When housing prices are high,
people keep living with their parents.
When people live with their parents, they are highly
unlikely to get married and they're even less likely to have
kids. If we could get the price of
housing down a lot, people would go and get their own place at a
younger age. Raising the both, raising the
the the rate of family formation, also making happy
sooner, which then likely will also lead to people having more
kids. There is more to it than that,
but I think that's a totally reasonable story and especially
if you just think about it in terms of the price of a square
foot of living space. I know there's some people like,
well, people in downtown skyscrapers very rarely have
many kids. And I'll say, well, that
probably has a lot to do with how getting an apartment in a
downtown skyscraper is very expensive for a square foot.
What if you could get 2002 thousand square foot apartment
in a skyscraper for $1000 a month?
Seems very plausible people to have kids in a place like that.
So I say that is more than worth a try.
It's totally likely that this would also get fertility up.
Without denying that this is not the sole reason why fertility is
down if you know the data. In the 1950s people live in
small homes and had a ton of kids.
So it's not just housing. But housing is still one obvious
lever to push on in order to make the problem of low
fertility less bad. The book is Build Baby, Build
the Science and Ethics of Housing Regulation link in the
description below. You cite an economist in the
book who says next to carpet bombing, rent control is the
best way to destroy a neighborhood or something like
that. I'm sorry, I don't have.
That what? Does that?
What does rent control have to do with destabilizing an
environment like that? Aren't you just helping the
renters, making sure that they're not exploited?
Right. Well, let's go back to that
supply and demand thing. Remember, the whole idea is
supply and demand. There's a price so low that
you'll have an enormous number of people who want it, but
hardly anyone wants to supply it.
There's also a price so high, the enormous number of people
who want to supply it, but hardly anyone wants to buy it.
In between, there is a Goldilocks price, where the two
things are the same. The number of people who want to
buy equals the number of people who want to sell, or the
quantity people want to buy equals the quantity people want
to sell. The standard problem with
housing right now is that we got really low construction, really
low supply. You got a whole lot of people,
but not that much housing. Under these circumstances, what
happens if government goes and pushes down the price of
housing? Well, there's two effects.
One is it the lower price. People want a lot more housing.
They want to go and buy a lot more housing.
On the other hand, at that lower price, people want to build even
less housing. Therefore, what rent control
does is create housing shortages.
This is the standard story that economists of almost all
political persuasions will give you.
Now, this senior Lindbeck point is where you look a bit further
in the future, per Haslett, and say, well, in the very short
run, it's not like buildings collapse the instant you post
rent control through. But two things happen when you
post rent control. First of all, there's going to
be a lot less new construction. Second of all, there is a
greatly reduced incentive to maintain existing real estate.
All right, you can have a pile of regulation, normally rent
control, Rd. control authorities do, where once they impose rent
control, they also start telling you all the maintenance that you
have to do. But owners are fighting you
every step of the way because why should I go and provide them
with really good maintenance when I can easily fill all of my
buildings at the legal price without doing so, right?
Which you may say, that's those evil, horrible landlords.
Are they? They invest in figuring they can
make some money and then the government takes it away and
then you're mad because they no longer feel very motivated.
I think that's a totally reasonable and fair reaction.
When it comes to homelessness, a common response is there are
many homeless people but there are even more empty homes.
Therefore, the state should facilitate in giving these empty
homes to the homeless people in order to resolve the homeless
problem. What, if anything, is wrong
about that approach? Yeah, there's one where you
really have to step back and say, why is any building ever
vacant ever? Why is it that the day that
someone finishes an apartment unit, someone doesn't show up
two seconds after it passes approval?
And when you think about it, it's like, yeah, well, it takes
time. It takes time to go and match
people up to buildings. People are leaving places all
the time. People are looking for places
all the time. People are building things.
People are pulling them off the market for maintenance.
And once you've seen this, you realize, OK, so it is totally
normal for there to be even a positive vacancy rate.
A world with no vacancy rate would be just a bizarre, crazy
world. It would be a science fiction
situation where people instantly pop up from teleport into new
buildings. That's not the way the real
world works, nor would it be a good idea for it to do so.
All right, So once you realize that it makes sense for there to
be vacancy rate. And by the way, it's the same
principle for unemployment, 0% unemployment.
What would that be like would mean that the second job opening
is announced, it's filled, right?
Which also means that you don't have the time to go and try to
find the right match for the job, which is crazy.
It makes sense for there to be a positive vacancy rate and makes
sense for there to be a positive unemployment rate, right?
Once you realize this, then saying why don't we just go and
put homeless in every vacant place, you realize how crazy
that is. It's almost like saying, why
don't we just go and shove the unemployed into whatever job
opening there is. Well, all that with all that you
wind up doing there is that, well, two things.
First of all, people would be really reluctant to announce a
vacancy or a job opening for fear that there would be someone
that is not actually beneficial for them will be voices on them.
And the second thing is it's like, well, to actually find
people, we need to go and make even more vacancies, have even
more of, you know, do even more hiring in order to go because
they're going to go and shove a bunch of people that are
useless. We really want to get somebody
good. We're going to have to go and
get a step ahead of that, which is an even crazier reaction.
But you can see the logic of it. It's like if the government will
say that I have to go and date a bunch of people I don't want to
date, if I've got any free nights in my calendar, then it's
like, well, Gee, maybe I better go and free up all my nights
just to have a prayer. Snowballs change in hell of
finding someone I actually like, right?
So there's that too. What are zoning restrictions?
Well, there's really two ways of thinking about it.
So there's the very general way that a lot of economists use
this, and for a lot of economists, it's just like it's
whatever goes and holds back instruction.
When economists talk about the zoning tax, there isn't really a
zoning tax. The zoning tax just means the
total burden of all the regulation that's out there that
is preventing prices from being what average cost?
In a more technical legal sense, zoning refers to a subset of
housing regulation, which is basically about separation of
uses and similar related things. So it would also probably count
like setbacks, but mainly it's the separation of residences
from commercial real estate from industry.
One quote from the book, you say.
I know this is hard to believe, but builders try to maximize
profits by cutting prices. How does that work?
How do you know it's true? Well, let's.
Go back to the lemonade stand if you're having trouble selling
all your lemonade. You're looking at it now.
I made 10 gallons of lemonade. I've only sold one gallon.
The obvious common sense thing that even a child figures out
very quickly is if I cut the price, my lemonade, I will sell
more cups. Now they may say, huh, well,
doesn't that mean that I'll lose money?
It's like, well, you do want to be careful that you don't cut it
so much that you lose money. But normally, no, normally you
go and you cut your price and that's a way of making more
money. And obviously you could try
selling your your lemonade for $1000 a cup and see how much
money you make. Same idea is going on with
builders that if you build a lot of new units, you might be
tempted to say, well, I want to go and get top dollar for every
unit. But if you're stubborn about
that, you're likely just to be sitting on a giant pile of
vacant units. The way that you fill those
units is going to be by cutting the price so you can actually
attract in tenants from other places.
Now, by the way, Keith, so if I could just go and make one
point. So this is the podcast of the
Libertarian Institute. So I'd say the question I would
ask myself, so why is it that this is an issue libertarian
should care about so much? And my answer is that, look,
we've got a an incredible universe of government
regulations that are messing the world up, but there are some
regulations where you can go and say, all right, well, we could
privatize the lighthouses. Wouldn't that be wonderful?
And I think the honest answer is, all right, sounds like a
fine idea, but I don't see how it's really going to affect the
lives of too many people. I don't see how it really affect
my life. A world where we deregulate,
regulate, where we deregulate lighthouses would look pretty
similar to the world that I'm already familiar with.
What I want to do in these books is say these are regulations
that dramatically change what it is like to live in modern
society. These are regulations that stop
the future. I want to go and say there's a
whole futuristic world that is technologically and managerially
completely feasible. It's just government that is
blocking it, that is holding up production.
There's a giant stranglehold on the future right now.
And housing is one such area. Housing is an area where we have
a far more advanced technology than they had 90 years ago, and
they built the Empire State Building.
And yet in practice we are way worse at building anything like
that. Why?
Because the government is stopping us from using what we
know, and we know a lot more than they did, to build a
dramatically improve world. So a lot of what I'm doing in
this book is not just to say housing.
Housing is another issue where government goes.
And no, I don't want to do that. I want to say we could have a
world where housing was half the cost of what it currently is.
A world where someone with a very modest income could live in
a mansion. This would be a normal thing
that would be happening with a pile of add on benefits.
Just imagine this, this greatly improved world.
A world that is richer, the world that is more equal.
A world with better mobility, a world with higher fertility, a
world with lower crime, a world where all where the plight of
the non college male is greatly alleviated.
All these things imagine all happening simultaneously.
We just get serious about this one crummy kind of regulation
and we take a fire. We, we, we take a flamethrower
to it. That is the motivation for the
book. You know, if we could just take
a flamethrower to this particular kind of regulation,
we can live in a futuristic world of not utopia, but a lot
more utopia that we're looking at now.
And why not? There really is no good reason
not to do it other than people are just really stubborn about
this stuff. When it comes to empirical
evidence, have you found any areas in, Let's just take
America or I guess we could compare countries as well, where
more heavily regulated geographical areas have much
higher prices than other areas where there is much less
regulation, they experience much lower cost of construction and
therefore housing. Any empirical examples we can
refer to? Yeah, I'd say.
It's almost all the empirical evidence you can look at San
Francisco versus Texas, All right, That's it's really easy.
You can see San Francisco, they strangle construction and prices
are through the roof. Texas, the regulation's much
lighter and tech and prices are way lower.
There's, you know, there are papers that I cite in the book
that go over this in a lot more detail, but really this is the
single best predictor of what housing prices will be.
It's just regulation, not the the pure desirability of the
location, right? They're like, there's an area
that's highly desirable, but it's easier, but it's easy to
build. We have the technology just make
a massive amount of housing in that area.
The problem is when government doesn't allow you to do it.
So yeah. So if in fact, it were possible
to just go and buy up homes in San Francisco, bulldoze them and
put up skyscrapers, prices would crash and a vastly larger number
of people could live in style in San Francisco right now.
Like, now I know there's people who are really worried about low
fertility rates, who think that this is just going to crash
fertility. Say, look where I'm not talking
about having five times as many people live in San Francisco
under current conditions. I'm talking about five times as
many people live in San Francisco in a lot more living
space than they have right now. It's a totally different
hypothetical that I'm talking about.
I'm not trying to get people to live like people in San
Francisco currently do. I'm trying to turn San Francisco
into a area that has a suburban feel from the inside, even
though of course it won't be suburban when you're out on the
streets. As far as good examples of
deregulation in other industries do any come to mind?
So deregulation, other industries, all the really
famous ones are of course aviation and transportation
generally. So there used to be the Civil
Aeronautics Board whose job it was to strangle the supply of
flights and they got rid of, we got rid of that and planned the
price of flying went way down. Similarly, there was the
Interstate Commerce Commission, which used to heavily regulate
the regulate the price of trucking and rail, right.
That was good. That was greatly reduced.
And again, prices for those things went down also.
Those are two very standard examples.
Absolutely. What was the Euclid decision
that the Supreme Court faced? Right.
Since the 1200s, Keith, it has been possible under Anglo
American law to sue your neighbor for going and putting
smoke or or odors on your property for spraying water.
So physical harm to your property has for almost 1000
years been a standard thing that you could take a lawsuit about
and where there would also generally be some local
regulation about. But for until around until like
the early 1900s, the general idea was it's got to be a
physical invasion. It's got to be a sound, it's got
to be a smell, it's got to be smoke, something like water.
It's got to be something like that in order for the government
to get involved either in the courts or the regulation.
Then in the early 20th century, some local government started
saying, you know, just building an apartment is like that.
From the point of view of single family owners, someone building
an apartment is like going and putting a pig farm next to you
that leads to choking odor. All right, initially people took
this to courts and courts, well, seems really different from
what's been done before, before you actually have some kind of
substantial physical harm. But anyway, got all this.
The Supreme Court, Supreme Court said no, no, we agree with this
local government and apartment is like putting a giant pile of
smoke on somebody. This opened up the slippery
slope for massive regulation of everything at the level of local
real estate and gradually gave us the world that we know, and I
say should hate today. What is status quo bias?
It is a general psychological tendency of people to feel like
the grass is browner on the other side, to think that the
way things are right now is fine and any change that you can have
is going to likely be worse, right?
This is a very general, normal human psychological tendency,
which of course sometimes the change is worse, right?
However, the one big feature of the modern economy is that
change generally is an improvement.
If you live long enough to remember, say, the 1980s, I know
you have a teeth, but I do, right?
You can see there's some things that are worse, but overall the
level improvement boggles the imagination.
It's just amazing how much better things have gotten.
And yet, when you do talk about change, people normally do let
their mind run to very dark places.
The end is nigh. When it comes to things like
housing, healthcare and college, it seems like those are the big
three scary things that keep growing in cost.
Whereas we do see declines in price of things like computers,
televisions, printers, microphones, furniture,
clothing. Do you have any theory as to why
some things increase in price and others decrease in price
adjusted for inflation? Right.
So all those things fit a very simple model, which is
government strangles supply and subsidizes demand.
That's true for housing. So the housing, we've got a lot
of regulations making hard to build stuff and yet government
subsidizes mortgages and other. And there's also, you know,
affordable incomes and affordable income stuff.
So, you know, strangling supply, subsidizing demand.
The same is true, of course, for medicine where it's really hard
to enter medicine, really hard to innovate, but government
picks up most of the bill. Same thing with education.
It is hard to go and get permission to, especially to get
an accredited new Institute of Education.
But government picks up most of the tab.
A lot of people will be very quick to say, well, there's some
kind of cost disease here. My main story there is, look,
right, that's part of the story, but a big part of the story is
just that you've got heavy government funding and with
heavy government funding then particularly for health and
education, that just greatly messed up the market.
I think what's going on here honestly is that the
strangulation of supply is much worse for housing, moderate for
health, and then for education. It's not that bad, actually.
On the other hand, in terms of the subsidies for the subsidies,
the subsidies of government subsidies are heaviest for
education, then next biggest for health, and then finally for
housing. The subsidies are modest.
So housing, the industry where supply is really strangled,
demand is only moderately bumped up.
But yeah, they're all in the same general vicinity of
strangle supply. Pump up demand.
Call yourself a hero. When it comes to, let me see,
what else do we have the most burdensome regulations that you
came across. You touched on them earlier with
reference to the height that buildings can be.
But I really want you to walk through some specifics if
there's any that come to mind, because I think when you talk to
the average person, they go housing regulation is so you
make sure these big buildings don't just collapse in on each
other. So we either have that or we
have, you know, no regulation at all.
What are some that are so blatantly so burdensome and so
costly that it just boggles the mind?
Right, so. For skyscrapers, almost none of
the actual regulation is for safety, to prevent them against
collapse. There's already building
inspections in the 1920s and 30s, surely in New York City.
That didn't stop the new The Empire State Building from being
constructed in record time. No, the real issue is not
safety, it's having to go through a massive pile of oh,
but I don't like this, I don't like that, I don't like the
other thing. Many different levels.
That's the thing that's making it take years.
Was just a matter of safety. You submit your plans, they say
this is standard stuff, you get approved, you build it, they
inspect it, it's fine and you're done.
So I was talking to one architect.
He said, well, basically the kind of stuff you're talking
about, Brian, is the stuff that double S the cost and this other
stuff is probably raising at another 20%.
I am definitely libertarian enough to say we don't need any
of the government safety regulation either because
private business does not want to build build buildings that
collapse. And they will actually self
monitor both because it would be terrible for the reputation of
buildings collapse and they also they would get sued into
oblivion for doing it. So I'm just not concerned and
never mind tenants also are going to want to go and
investigate a little bit and say, huh, I'll have is this is
this building been inspected by inspected by who?
These are all natural things, normal market forces to protect
us anyway. So that's one.
Another huge one is just being unable to build multi family
homes at all. So apartments, townhomes,
anything where you are sharing a wall with another family.
About 80% of US residential land is set aside for single family
only homes. So single family detached.
All right, which means that you are only allowed to put a
relatively small number of homes in a given area.
And probably the one that is most ridiculous and where the
argument is so flimsy is just minimum lot size.
You can't put more than one house on an acre.
It's a common local regulation. Why not?
Will that cause buildings to collapse if you put four homes
on an acre? It's ridiculous.
It's just a matter of local government says, well, we just
don't think that this is the right kind of neighborhood to
have right now. If you're to push further,
sometimes there is a actual story of we're just trying to go
and reduce parking and driving problems.
This is one where there is a much more obvious solution than
strangling construction. And that is how about we go and
we write an app which your works on one of these things, all
right? And the app goes and charges you
a higher price for going and driving and parking during peak
times. Unfair to the poor?
Not at all. Compared to the status quo.
It's a lot better to be poor and to have housing be at half its
current price. And then if you are planning on
driving or parking, which you probably won't anyway, you pay a
higher price just for those services.
On the other hand, the current system, you charge people
through the nose for housing and then make the parking driving
free and also super congested during peak time.
So thanks a lot. I just went to Arizona State
University today for the first time in years and they actually
have QR codes where you could pay for parking which they did
not have beforehand and the line was much longer.
Even if it costs more, which it actually doesn't, I would pay a
little more to not wait in the line and have people get out of
their car and swipe the card and everything.
So it is happening in some areas.
So this is a. Case where it's working right.
So this is a case where they they've raised the price and
made it more convenient simultaneously and then it's
easier to get a spot. Is that correct?
Oh yeah. It, it, it was so much easier
than than than I remember. But yeah, the an app is one way,
but even the QR codes that you just put your phone over, that
has made it so much easier. Right, 'cause it's.
Worth pointing out that in the old days there was something
that was at least potentially a problematic about toll
collection, which is the back when you had to stop at a toll
booth. Then at least you got to say
maybe the toll booth is actually slowing up traffic.
But now with modern technology that's all thing of the past.
And yet we have barely moved to any greater use of tolls because
of this absurd norm that it's just wrong for anyone have to
pay to park and drive. Like housing could be through
the roof, but you charge me a nickel to park and that's evil.
You say in the book regulation is popular because it's easy to
get people angry with negatives endured than positives denied.
How does this get to the heart of why so many people cheer on
regulation so much? The best way to think about
housing regulation is that almost all would exist because
normal human beings think the world would be worse without it.
Often they can even go and correctly state some problems
saying look, you built a skyscraper, it'll block my
light. I don't like that.
All well and good, but before you say this is a good reason to
ban or just to make people wait 10 years, you should say, well,
wait a second, all right? All you're doing right now is
coming up with problems. You're listing complaints.
All right, that's fine. But how about we also come up
with a list of good things will happen if there's additional
construction. Once you do that, it is really
easy to go and name a lot of good things that come from
additional construction like or people live here.
There are going to be more restaurants that will be able to
be that will be that will stay in business and solve a better
choice of restaurants. Larger population, they'll
probably be more better jobs, larger population.
It'll be easier for me to find kids within walking distance.
In fact, when you start thinking about this more, it's like, all
right, so there's positives, there's negatives.
Well, obvious question. What's the net?
What is the net effect? Even if people ask that
question, I think that's a big step forward from the status quo
where people only complain. But I can actually do a lot
better than that and say, look, we have hard evidence that most
people value the package of all the good stuff of population and
all the bad stuff of population more than they value the package
of very little the good stuff of population and very little of
the bad stuff. Here's the simple argument.
Think about your typical complaining New Yorker.
Oh, it's terrible here. There's the traffic, there's the
parking, there's a noise, blah, blah, blah, blah, blah.
All right, Well, guess what? There is a small town in Kansas
that you can move to where you won't have any of these problems
anymore and it's cheaper and you telework.
All right, give me any reason why you aren't going to move
there now. Because you haven't.
All right, small chance. The person was like, I had no
idea I can move to Kansas and solve all my problems.
But more likely they will say, Nah, I don't want to live there.
That's terrible. Yeah.
Why is it terrible? Because though you do avoid the
negatives of population, you also lose the positives of
population. You lose your restaurant, you
lose your culture opportunities. You lose the opportunity to meet
a lot of other people. So.
And you pay a large premium to get that package.
So I'd say it is bizarre for government to go and try to
reduce the number of people living in areas, reducing
congestion, when on balance, it looks like people actually are
willing to pay a premium for this.
This is a typical thing that democracy does, which is they
respond to what people say instead of their demonstrated
behavior. As I say in the book that I'm
writing right now, a different book, free markets do the bad.
You know, free markets do the good things that sound bad.
Government does the bad do the governments do the bad things
that sound good. The good thing is just to build
a ton of housing, even though a lot of people complain.
And the bad thing is there's what government does, which is
listen to complaints and then try to go and use laws to stop
it, never considering. What about the actual net effect
on human welfare? Is that you think one of the
downsides of political democracy as opposed to people having
power within the market, that they actually get a vote that
decides something, whereas their opinions can be ignored in the
voluntary sector at a lower cost?
I'm looking used by the last thing you said, but but yes, I
mean, I mean, honestly, like one of the main themes of my work is
that markets are a lot better than democracy.
Democracy has a Halo around it. Oh, it's just so great.
It's democratic. Yes.
The actual lived experience of democracy, as everybody knows,
is bad. Someone pointed out that
professors always talk about a great democracy is except they
hate every departmental meeting. It's like, oh God, departmental
meeting is so dysfunctional. Yeah, well, guess what?
That's how actual democracy is too.
Regular democracy, it's just functional.
It's a giant group therapy session where people go and
scream at each other and then government acts on the basis of
the loudest complainers. What a great system.
The markets, on the other hand, live by the adage of actions
speak louder than words. Markets go and you don't have to
give a speech in favor of what you want to do.
You just do it. Markets let people do things
like, oh, I'm going to go and risk my life to see a movie.
It's like, what do you mean? Well, if you, if you just
stopped going to movies and stayed home instead, then you
would reduce your risk of dying in an auto accident on the way
to the movie theater, which always exists through people's
actions. What are they're saying?
They're saying I'd rather take a tiny risk of death so I could go
and see Dune 2 because otherwise I'm going to be living this
crummy life where I don't have any fun or get to do anything or
I'm stuck at home. I don't want to.
And you know, during COVID, you might remember all this if it
saves one life. Ridiculous.
Human beings risk their lives all the time.
They risk the lives of their children all the time.
Because safety is not the only thing that matters in life, nor
should it be the only thing that matters.
People with their actions are trying to go and get a favorable
package of safety and entertainment and joy and
variety and everything else. And what does government do?
Government focuses on giving people the stuff that they are
proud to say they want, instead of the stuff for their actions
demonstrate that they actually care about.
Last question, I know you got to go in 3 minutes.
Again, the book is Build Baby, Build The Science and Ethics of
Housing Regulation. You mention how something like
an HOA is different from city planning, regardless of the
voluntarism violence difference there.
But you say one of the big differences is the slippery
slope difference between the private sector and the coercive
sector. What is the slippery slope have
to do with anything? Well, you specifically what I
just said is that while there are some very restrictive HOA's,
there is a whole range of levels of strictness.
So I live in one where we pay, let's see, it's like under.
So we pay I think $200.00 per year and all they do is mow and
maintain a few common areas. That's it, right?
There's other people who pay thousands of dollars per year
and there's a long and detailed list of what you may or may not
do. The nice thing about this is
that there's a range of options compared to the public sector
where it's generally going to be of equal strictness for a very
large area. There just isn't the same
flexibility that you get. And of course with HO as there's
also fine, I want to do something weirder, I'm going to
just buy a place that is not in any HOA and then I can go and do
what I want. So that's part of it.
The other thing is that HO as at least have a stronger motive to
consider the cost, right? So if we go and do this, people
might like it, but it's going to cost a lot of money, so maybe we
shouldn't. Governments, on the other hand,
very rarely consider costs. So that's the other issue.
Now, in terms of the slippery slope, the general idea here is
that you start off with one particular thing that government
does, or it could be AHOA, and then once you do that, you
establish president. Why not do a little more?
Why not do a little more?
Again, if cost doesn't matter, then you are likely to
eventually end up where we are with actual regulation, which is
just completely out of control. With an HOA, at least there is
this pressure of cost and also exit.
It's like people don't like that these rules, they're too strict.
So people don't want to live anymore here, live here anymore.
Maybe we should be a little bit more relaxed so that someone can
go and have a pink door if they want.
Thanks to everyone for watching Keith and I Don't Tread on
Anyone and the Libertarian Institute.
Doctor Kaplan, thank you for your time.
Thank you very much.