Why Money for Schools Means No Permits For Housing

Housing has a lot going against it in the California. But amidst all the legal, political, and regulatory roadblocks, there’s one law that sneaks by largely unnoticed: Prop 98.

Prop 98 guarantees a minimum level of state spending on education each year. Sacramento pools most city, county, and special district property taxes into special education funds to meet this commitment. The localities only get to keep a small part of the property tax revenues for their own general budgets.

This system creates a disincentive for cities to permit housing. New housing brings in new residents who need city services. But it doesn’t bring in a commensurate increase in property taxes since most of that revenue gets scooped up by Sacramento.

Commercial development, though, brings in taxes a city gets to keep. Sales and hotel taxes are significant revenue streams. And they don’t cause the kinds of strain on city services that new residential does.

Reforming Prop 98 might be low hanging fruit. Changing the formula to appropriate a broader stream of city revenues might help ease the bias against housing. And it might even be possible to amend the law without having to fight the California Teachers Association. As long as there’s no net decrease in education funding, of course.


For those not acquainted with California politics, the California Teacher’s Association (CTA) is the most potent lobby in Sacramento. If the CTA doesn’t like a bill, it doesn’t become a law.


It’s tough to say exactly how much new housing Prop 98 actually prevents. Different cities get to keep different amounts of their property taxes, so the disincentive differs case to case. And there are plenty of other things like CEQA and Prop 13 which put a drag on new construction as well. But where CEQA and Prop 13 make it easier for residents who are already NIMBYs to gum up the works, Prop 98 is a reason in itself for a city to avoid residential development. So while we can’t do much to change the aesthetic preferences of our neighbors, we can do something to change the law. And if tweaking one law makes cities see new housing as a financial boon instead of a burden, it might be worth the effort.


Travel Update: Recent Articles On Housing

I wrote a housing-related article this week for Forbes, and in the process of research, came across several other interesting recent ones. Here’s the roundup:

1. My article discussed the connection between rent control and high housing prices. To my surprise, only 6 of America’s 50 largest cities still have rent control, as numerous others ended what they saw as a counterproductive policy. But those six remain among the nation’s most expensive, and I argue that rent control is a big reason why.

2. This didn’t prevent Seattle from trying to revive the policy this week, led by Socialist Party councilor Kshama Sawant.

3. While rent control is seen today as antiquated, this hasn’t stopped the rise of its close cousin, “inclusionary zoning.” Steven Greenhut writes for Reason about a California state court case that could determine the policy’s constitutionality. The case, he says, is “about whether cities have unlimited power to extract concessions from homebuilders for things that are not ‘impacts’ from the project. In other words, it’s legitimate for government to require new developments to pay to mitigate the effect of the new residents on local infrastructure (roads, sewers, fire service), but is it OK for cities to require affordable housing just because officials want to see more of it built?”

4. Michael Lewyn challenges the notion that Airbnb hurts housing affordability by taking units off the market.

5. Recently the New York Times published a short time-lapse video of lower Manhattan’s various developmental stages over 500 years. Daniel Bier at Newsweek points out something strange about the video’s last few decades: “The pace of change slows dramatically toward the end…because the city government has deliberately calcified New York City, encasing the city’s structures in a legal state of suspended animation.”

6. Emily Badger writes on Wonkblog about the rise of urban adult singles, and the way that cities’ housing stocks have failed to adapt–thanks to government regulation. Her piece is worth quoting at length.

Our housing stock wasn’t built for a society full of singles. Our communities instead are full of homes meant for the traditional nuclear family — two-bedroom starter homes, three-bedroom houses, apartments with more bathrooms than a singleton needs, full-service kitchens when 25-year-old bachelors now primarily dine by microwave….In New York, Austin and Denver, nearly 57 percent of adults were single in 2010 (although not necessarily living alone). In Washington, D.C., that figure is a whopping 71 percent. But none of these cities have anywhere near enough small-sized housing to accommodate them. That means that a lot of people are probably living with unrelated adult roommates who’d prefer to live alone (half you people in D.C. group homes?). And it means that some people who do live alone are likely paying more for space they don’t want in a large one-bedroom because there aren’t enough alternatives in studios and efficiencies.

Changes in demographics and social norms invariably occur faster than changes in the built world around us…[But] a lot of cities are also actively making it hard for the housing supply to adjust. The rise of singles calls in particular for more micro housing: apartments the size of studios or even smaller, and “accessory dwelling units” (think in-law cottages or garage apartments) that might be built in the back yard of existing homes. It also calls for a different model of housing where, for instance, four singles might share a communal living space adjacent to their separate units instead of each having their own living room. Neighborhood opposition and existing regulation make this kind of housing hard to build in most cities, though. Parking requirements, for example, often mandate that new housing come with new off-street parking spots, too. But that rule is impractical for someone who wants to rent a cottage in her backyard. And it makes projects financially unworkable for a developer who wants to build an apartment full of micro units next to a train stop for residents who don’t own cars. Other laws set minimum standards for how small a housing unit can be — in much of New York, it’s 400 square feet — making micro units effectively illegal.


Urban[ism] Legend: The Free Market Can’t Provide Affordable Housing

Over at Greater Greater Washington, Ms. Cheryl Cort attempts to temper expectations of what she calls the “libertarian view (a more right-leaning view in our region)” on affordable housing.  It is certainly reassuring to see the cosmopolitan left and the pro-market right begin to warm to the benefits of liberalization of land-use.  Land-use is one area the “right,” in it’s fear of change, has failed to embrace a widespread pro-market stance.  Meanwhile, many urban-dwellers who consider themselves on the “left” unknowingly display an anti-outsider mentality typically attributed to the right’s stance on immigration.  Unfortunately, in failing to grasp the enormity of the bipartisan-caused distortion of the housing market, Ms. Cort resigns to advocate solutions that fail to deliver widespread housing affordability.

Yes, adding more housing must absolutely be a part of the strategy to make housing more affordable. And zoning changes to allow people to build taller and more usable space near transit, rent out carriage houses, and avoid expensive and often-unnecessary parking are all steps in the right direction. But some proponents go on to say relaxing zoning will solve the problem all on its own. It won’t.

Well, if “relaxing” zoning is the solution at hand, she may be right – relaxing will only help a tad…  While keenly aware of the high prices many are willing to pay, Cort does not seem to grasp the incredible degree to which development is inhibited by zoning.  “Relaxing” won’t do the trick in a city where prices are high enough to justify skyscrapers with four to ten times the density currently allowed.  When considering a supply cap that only allows a fraction of what the market demands, one can not reasonably conclude “Unlimited FAR” (building density) would merely result in a bit more development here and there. A radically liberalized land-use regime would deliver numbers of units several times what is permitted under current regulation.

Ms. Cort correctly concludes that because of today’s construction costs, new construction would not provide housing at prices affordable to low income people.  This will certainly be the case in the most expensive areas where developers would be allowed to meet market demands by building 60 story skyscrapers.  Advocates of land-use liberalization who understand the costs of construction would not claim that dense new construction will house the poor.  But if enough supply is allowed to come to market today, today’s new construction will become tomorrow’s affordable housing.  And this brings us to the more meaningful discussion: filtering.  Here’s where Ms. Cort’s analysis completely falls apart.

It is true that increasing supply eases upward pressure on all prices. But the reservoir of naturally cheaper, older buildings runs out after a while.

Tragically, Ms. Cort is using the current radically supply-constrained paradigm to analyze a free-market counter-factual.  If development at levels several times the current rate were allowed over the past few cycles, the reservoir of cheaper, older buildings would have remained plentiful and affordable.  If the market were allowed to meet demand for high-end units in the form of dense new construction, there would be little or no market pressure for unsubsidized market-rate units to be converted into luxury units.  The 1400 Block of W Street NW example she gives would almost certainly still be affordable.

On a larger scale, the increased supply of housing in the area helps absorb demand for more housing, but it’s not enough to stem the demand for such a sought-after location. Between 2005 and 2011, the rental housing market’s growth added more than 12,500 units. But at the same time, $800/month apartments fell by half, while $1000/month rentals nearly doubled. Strong market demand will shrink the availability of low-priced units. That’s what has happened over the last decade as DC transformed from a declining city into a rapidly growing one.

But, 12,500 units is the amount of supply added under the current over-regulated regime.  This amount of development is minuscule in a large city. (see diagram below)  What if DC allowed as much supply growth as Austin or Miami?  The 12,500 figure would triple.  Further, since Austin and Miami are far from free-market, the development rate in a truly free-market DC would certainly exceed a tripling.  If you consider the amount of supply that would have been added over the last several decades in an unlimited FAR DC, Ms. Cort’s position starts to sound quaint.  Conservatively assuming 50-100,000 units of rental housing would have been developed over the last few decades of DC’s growth, rents certainly would not have doubled.  I’ll go out on a limb and estimate that average rent growth would be close to inflation.

Chart by the Citizens Budget Commission (via NYYIMBY)

Chart by the Citizens Budget Commission (via NYYIMBY)

Ms. Cort wants housing to be less than 30% of gross income for nearly all residents.  Will the market provide new housing affordable to minimum wage earners at the most expensive intersection in Georgetown?  Probably not, and I hope she isn’t setting the bar that high.  While nobody is wise enough to know whether a free-market in land use would accomplish this, a free-market DC could be affordable to 50-100,000 more people than the zoned-to-death DC of today.  Will stock of units deemed affordable to low wage earners be of the quality, location, and size acceptable to Cort?  The necessity for further intervention is a subjective preference.

While acknowledging the validity of liberalization in her critique of supply-and-demand denialism, Cort’s conclusion fails to look at supply and demand wholistically:

Supply matters, but it’s not the whole story

Wrong. Supply really must be part of the whole story.  A city is only affordable to the number of residents it houses affordably.  Failure to recognize this only shifts the burden from one demographic to another. (and it won’t be the rich who pays the price)  If a zoning-plagued city fails to provide 1,000 units demanded, 1,000 people can no longer afford to live there.  Even if that city chose to subsidize housing for 2,000 people at 50-80% of AMI, that doesn’t change the fact that 1,000 people who wanted to live in that city must leave.  Any viable solution (free-market or otherwise) must involve increasing supply significantly, either through creating supply directly or subsidizing demand through vouchers, which induces new development.  But, this simply can’t happen if overall supply is capped through zoning.

Undead Ideas: Rent Control

Originally published at Freedom Politics:

Richard Nixon instituted Price Controls in 1971, which included rent control

Richard Nixon instituted Price Controls in 1971, which included rent control

In these days of economists constantly debating the right way to revive the economy, it seems like there is no way to find consensus among economists.  Economists don’t spend much time debating the issues they agree on, and to them, rent control is about as dead an issue as the earth revolving around the sun.  In 1992, 93% of American and Canadian economists surveyed agreed with the statement “A ceiling on rents reduces the quantity and quality of housing available.”  Opposition to rent control among economists spans the political spectrum from Milton Friedman and Walter Block to leftist Nobel Laureates Gunnar Myrdal and Paul Krugman.  In fact, it was the socialist Swedish economist Assar Lindbeck who famously said, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing it.” (Assar Lindbeck, The Political Economy of the New Left, New York, Harper and Row, 1972, p. 39)

Never underestimate opportunistic politicians when they smell blood in the water.  With housing prices already falling, politicians want to be seen as champions of the little guy and do something for “affordability” with one side of their mouth, and force housing prices to “recover” with the other.   With the economy in disarray, even widely discredited schemes such as rent control are making a comeback in politician’s playbooks of idiotic moves that please certain constituents.

Rent control was implemented twice on a national scale in the United States.  Rents were first frozen during the difficult years of World War II, and frozen again in 1971 as part of President Richard Nixon’s wage and price controls intended to curb inflation.  After Nixon’s wage and price controls expired, many cities kept some form of rent control intact. Could President Obama resurrect an undead Richard Nixon to implement nationwide rent control in reaction to the impending stimflation?  There’s a 93% chance his economic advisors wouldn’t let him do such a thing.  However, Nixon’s undead corpse has been spotted mumbling “I am now a Keynesian” in places like California and New York City where bad ideas never seem to die.

Despite widespread liberalization of rent control laws, rent control remains a popular idea in many cities and states.  Last June, California voters reaffirmed their support of rent control, by voting down Proposition 98.  In New York, Democrats now control the state legislature and intend to revive some of the rent control laws that have been liberalized over the past few decades.  The legislation would return thousands of previously de-regulated apartments back under regulation; reduce allowed rent increase percentages, even when a tenant moves out; limit owner’s ability to use his regulated apartments for personal use; and crack down on harassment of tenants by landlords to induce eviction.

As Paul Krugman concluded with respect to rent control, “So now you know why economists are useless: when they actually do understand something, people don’t want to hear about it.“  A voting public, better informed by economic consensus, would be less tolerant of these legislative charlatans.  Before resurrecting bad ideas, let us rejuvenate the discussion of why rent control is bad for nearly everybody, particularly the lower and middle-class people politicians are pretending to protect.

As stated by the National Multi Housing Council:

Rents serve two functions essential to the efficient operation of housing markets:

  • they compensate providers of existing housing units and developers of new units for the cost of providing shelter to consumers; and
  • they provide the economic incentives needed to attract new investment in rental housing, as well as to maintain existing housing stock. In this respect, housing is no different from other commodities, such as food and clothing — the amount producers supply is directly related to the prevailing market price.

Those of us who have studied microeconomics understand the supply/demand consequence of price-controls: a decrease in the supply of a good, and thus shortages at the prescribed price.  But, rent control is much more than just a price control, it’s effects compound over time.

A conventional price control, let’s say on chickens, prescribes that all chickens be sold at a government-determined price.  If a farmer cannot profitably provide chickens at that price, he would likely just stop selling chickens until doing business is feasible again, or simply drown the chickens as many farmers did during the Nixon era price controls.  Now, imagine a price control on chickens where farmers are not only compelled to sell at a prescribed price, but also compelled to offer that rate to all customers who previously bought chickens from that farmer at the same quantity that was ordered previous to the price control.  Regardless of the price the farmer must pay for feed and other costs of raising chickens, he is not permitted to stop producing chickens as he is forced to sell a certain number of chickens indefinitely.

Some might call this a crude form of serfdom, or even slavery, but this is exactly what rent control does to landlords.  Would we be too surprised that suddenly the quality of the chickens have noticeably deteriorated as farmers cut back on the quantity and quality of feed? Would it be shocking if the farmer became rude to his now obligatory customers, or made it difficult for customers to safely pick up their orders?  When such a burden is placed on the ones who provide housing in the first place, it seems inevitable that the long-term effects of rent control on the housing market would be devastating.

Let’s look at some of the more subtle results of rent control:


Just as price controls on gas in the ’70s caused long lines and hoarding of gas, the same thing happens with rent controlled housing. The tenants of rent-controlled units are not stupid. They know that the supply is artificially limited and will become more limited in the future. They know that if they stay put, they’ll be able to pay about the same rent forever, in real terms. They know that if they were to look for another apartment, and they were fortunate enough to find one, the rent would be significantly greater than what they pay where they are.

So, they don’t move. Well, almost never. Even if their family grows or shrinks. The incentive to stay is just too great, and the wealthy and well-connected are better equipped to take advantage of the situation.  It should be noted that New York’s Governor Paterson, Congressman Charlie Rangel, and various other politically-connected people enjoy landlord-subsidized apartments in the Lenox Terrace luxury apartment complex in Harlem, which happens to be owned by a politically-connected developer.  As Peter Salinas and Gerard Mildner wrote in Scarcity by Design: The Legacy of New York City’s Housing Policies:

To begin with, to earn the maximum benefits from New York’s rent regulations, it helps to occupy an apartment for a long time (because landlords are permitted to raise rents more than usual when an apartment is vacant). Affluent professionals have greater job stability and can, in any case, manage to fake their continued occupancy (in order to sublet) when they must move. Also, influence or good connections are helpful in the search for a desirable rent-regulated apartment.

When rent-controlled apartments become available, family and friends often know about it first and rent up the apartment immediately, knowing that rent-controlled apartments are so hard to come by and the opportunity to rent other vacant apartments may not come for some time.

Of course, this hoarding by existing and new tenants worsens the problems, because those who are shopping for apartments have very few, if any to choose from. The longer this goes on, availability declines further and the incentives to hoard grow exponentially, as do the negative effects.

rent control long-term

In fact, one study found that rent control tripled the expected duration of residence in New York City.

The ones who suffer the worst are those who are trying to relocate to the area for job opportunities as vacancies become more rare.

Black Market and Deceptive Acts

Supply/demand diagram showing the black market incentive with price ceilings.As current renters hoard their rent-controlled apartments, it is rare that new apartments become available. Sometimes, tenants would illegally sublet their units at higher rents.
Landlords do under-the table deals or rent to friends and family. New York had to crack down on landlords charging “key fees” as high as several thousand dollars to new renters.

Landlords will often find loopholes that will let them de-regulate a building, just to be released of the financial burdens. For example, in NY landlords will take their rent-controlled building and deregulate it by using the entire building as a residence for a certain number of years. This is space that could otherwise have been rented at a market rate.

Deterioration of Existing Housing Stock

Because of the disincentive to improve and maintain the property, landlords will often become slumlords and allow unhealthy conditions or activities to take place in the apartments. This lack of improvement not only is unpleasant to the current renter, but accelerates the end of the usable life of the apartment building. The Rand Corporation studied Los Angeles’ rent control law and found that 63 percent of the benefit of lowered rents was offset by a loss in available housing related to deterioration and disinvestment.

The burdens of rent-control could become so heavy on a landlord that he may find it beneficial to burn his building down to collect insurance. Of course, this is dangerous to tenants and neighbors, but happened regularly in the Bronx. The Bronx’s arson epidemic led sports announcer, Howard Cosell to proclaim “‘There it is, ladies and gentlemen, the Bronx is burning”, as the TV camera panned over the neighborhood during a 1977 Yankees World Series Games.


The free-market typically disincentivises any discrimination based on factors other than price, quality, and quantity because of the self interest of the participants. However, rent control removes this disincentive.

Since under rent control, the price is set and there are many applicants, a landlord has the incentive to choose tenants based on other factors. A landlord will more carefully examine applicants’ credit history and income, which a good landlord should do, but lends toward biases against younger applicants. A landlord may decide renting families is less desirable, or may prefer to rent to attractive young females. Often times, racial preferences have influenced renting decisions, which traditionally worked against minorities. Thus, rent control can exacerbate segregation problems because landlords choose not to rent to people who would change the demographics of an area.


As mentioned above, duration of residence in a rent-controlled apartment has been observed to be three times as long as duration at market-rate apartments. One can see that the incentive to hoard rent-controlled apartments is also disincentive to relocate.

The mobility of both the tenants and newcomers are drastically hampered by rent control. Unless the tenant has the money to rent a second apartment (or Governor’s mansion), it will be difficult for him to relocate closer to better employment. The tenant may rather endure a very long commute in order to maintain the rent-controlled apartment. As Walter Block put it, “They are, in a sense, trapped by the gentle and visible hand that keeps them where they are rather than where they might do better.”

Difficulties are multiplied if the local economy takes a turn for the worse. A downturn in local employment would not be relieved by people relocating for jobs, thus making the unemployment and poverty situation worse.

Employees looking to relocate in the city with rent control are hurt the worst as they will have a difficult time finding available apartments. The drawbacks to the local economy are discussed in the section on regional growth and adaptation.

The reduction in mobility is especially burdensome on families with children, since public schools tend to be local. If the local school is under performing, a family under rent-control will lose it’s reduced rent if it makes the difficult decision to relocate to an area with better schools. To relocate to a better school, a family would also have to find a new apartment, which would be much more expensive and almost impossible to find.

Regional Growth and Adaptation

The hoarding of rent-controlled apartments makes finding an affordable apartment in the the city with rent-control. Not only is this a burden on the newcomer, this makes it harder for a city’s businesses to attract skilled workers. Employers may decide to relocate to other cities, if their recruits consistently can’t find decent housing.

Often times workers who’s industries have relocated will not relocate in order to maintain the rent controlled apartment. In the long-run, this worker’s family may become a burden on the public assistance system as they may not have the skill sets to quickly pick up another profession that pays as well.

Tax Revenues

Rent control reduces the market value of regulated rental property. Typically, this negatively effects the assessed property value relative to unregulated properties, decreasing overall property tax revenues and burdening market properties disproportionately. A study of rent control in New York City in the late 80s estimated reduction in taxable assessed property values attributable to rent control at approximately $4 billion, which costs the city approximately $370 million per year in property tax revenues.

Housing Development

Developers would have very little incentive to build affordable housing if they knew the rents they charge were to be restricted by rent control, or were at risk of being regulated in the future. Thus, almost no new stock of middle and lower class housing is built. Instead, developers may only build “luxury” buildings that are often not regulated.

Thus, affordable housing stock will decrease as older buildings become uninhabitable (or are burned to the ground for insurance money) and no new stock is created. Over a long time, the effects the shortage is devastating.

Gentrification and Class Conflict

As mentioned above, landlords may choose unsavory methods to choose their tenants, since price is not permitted to be the deciding factor. Often, landlords will discriminate against persons of certain ethnicities or religions. This type of discrimination can often be widespread through an area causing tensions between religious or ethnic groups, and in the long-run drive out certain types of people from those areas.

The shortage of affordable housing, and development of only luxury housing a huge gap in the income of a city’s residents. Over time, luxury developments will be confined to certain areas less blighted by rent control, causing segregation and rapid gentrification.

As housing in cities have become less plentiful under rent control and market-rents vary drastically with regulated rents, the incentive grows for landlords to deregulate apartments to market-rates. These tactics have become aggressive as the incentive is extraordinary. A recent NY Times article describe the tension between tenants and management at Stuyvesant Town and Cooper Village in New York:

More than a year after buying Stuyvesant Town and Peter Cooper Village in Manhattan for a record-breaking $5.4 billion, Tishman Speyer Properties has accused hundreds of rent-stabilized tenants of living somewhere other than their apartments, a tactic that residents and their lawyers say is part of an aggressive attempt to drive out low-rent tenants to make way for high-rent ones.
…about 800 rent-stabilized leases have been denied renewal because the landlord believed the tenants had a primary residence elsewhere, according to the company. More than 4 in 10 of those cases were later dropped, while 3 in 10 ended with tenants giving up their apartments.

Another example of class conflict caused by rent control is an apartment building owner in Manhattan who’s rent controlled tenants tried to prevent his family from living in their own building.  Neighbors escalated the class warfare with protests and threats against the lives of the family that only desired to live in the building they owned.  How much of this sense of entitlement to another person’s private property would be acceptable without the explicit endorsement of rent control by the city, and many of it’s leaders.


Rent control is not just a conventional price control, setting the price at which willing renters and landlords are permitted to do business.  It is a coercive act that gives landlords no legal option, but to rent to a tenant, even against his will and often at a financial loss.  Rent control adds a non-voluntary burden to landlords which deepens over time because landlords have no option, but to rent to a tenant at below market rates.

Not only does rent control cause huge distortions in the housing market, but the burdens fall disproportionately on the poor and underprivileged people it’s enactment was intended to benefit. Although particular people are able to live with the comfort of low rent payments, even those renters will see their living conditions deteriorate as landlords neglect repairs and maintenance. As the situation gets worse, middle class residents are able to move away, leaving behind the poorest residents who have become reliant on the reduced rent.

In effect, rent control grants property rights to renters that originally belonged to the original property owners, while retaining the owner’s obligations. Rent control becomes a redistribution of wealth to existing tenants and away from apartment owners, market-rate apartment renters, newcomers to an area, and renters who’s needs change over time. Nonetheless, over time the quality of life decreases for all residents of a city where rent control is imposed.  Essentially, if housing affordability is the objective, strapping additional burden upon providers of housing will only make matters worse.

In conclusion, controls on supply can do as much damage to affordability as controls on price. Eliminating rent control needs to go hand-in-hand with loosening exclusionary zoning and density restrictions in order to allow the market to perform as it should. A truly free-market incentivizes investment in quality affordable housing for all residents by allowing individual decisions to determine living patterns and location preferences based on quality, availability and affordability.

For more reading on rent control, see the section on Rent Control in the Articles and Academic Papers page at Market Urbanism.

My Article at FreePo on the Resurrection of Rent Control

The Orange County Register’s new site, Freedom Politics just posted an article I wrote for them on rent control

Here’s a snippet:

In these days of economists constantly debating the right way to revive the economy, it seems like there is no way to find consensus among economists.  Economists don’t spend much time debating the issues they agree on, and to them, rent control is about as dead an issue as the earth revolving around the sun.  In 1992, 93% of American and Canadian economists surveyed agreed with the statement “A ceiling on rents reduces the quantity and quality of housing available.”  Opposition to rent control among economists spans the political spectrum from Milton Friedman and Walter Block to leftist Nobel Laureates Gunnar Myrdal and Paul Krugman.  In fact, it was the socialist Swedish economist Assar Lindbeck who famously said, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing it."

The article is part of a series called “Undead Ideas” and I’m told the article is supposed to feature a humorously hideous illustration of a zombie Richard Nixon, which is the reason for the Nixon joke.  I will share the illustration once it is public.    

Could President Obama resurrect an undead Richard Nixon to implement nationwide rent control in the face of the impending stimflation?  There’s a 93% chance his economic advisors wouldn’t let him do such a thing.  However, Nixon’s undead corpse has been spotted mumbling "I am now a Keynesian" in places like California and New York City where bad ideas never seem to die.

I actually thought of the word “stimflation” on my own, but I checked and learned I wasn’t the first to think of it.  The domain stimflation.com had just been reserved last week…

Here’s a composite, I found:


Wendell Cox also made a contribution to the “Undead Ideas” series with a very good article about housing.  I thought I might, but I don’t have any significant disagreements with Cox’s article.  I was very glad not to see him singling out “Smart Growth” as a culprit, and appropriately blaming land use restrictions in general:

Demand for housing, driven by low interest rates and a growing economy, combined with supply restrictions—such as zoning laws, high permitting costs and “not in my backyard” regulations—to contribute to rapid price appreciation.

and he quoted a great point by Glaeser:

If some aid to expensive states is made conditional on permitting more construction, then pricey places will face incentives to permit more units and promote affordability. Those incentives will encourage restrictive cities and towns to look beyond their borders, and to make America more affordable by permitting more construction in the high-price housing markets that are undersupplied and unaffordable even to the middle class.


Discussing Ithaca, New York’s plan to increase permitted density and reduce parking minimums, I can dig what Matthew Yglesias says :

The distributive impact of parking minimums is to redistribute income from people who don’t own cars to people who do own cars—not to shift income from poor to rich. A rich family will probably have at least one car for every family member who’s at least 16 years old. A family of more modest means will probably own fewer vehicles.

More generally, while I’m obviously not a hard-core free marketers, it does make sense to consider a free market position our default position. Mandating the construction of extra parking doesn’t reduce harmful environmental externalities. Rather, it generates them. It doesn’t help the neediest members of society, it makes it more difficult for them to afford housing. It doesn’t correct important information deficits—people are perfectly capable of asking whether or not a house they’re considering buying or renting comes with a reserved parking space.

Update: here’s a follow up.

Glaeser: Let Housing Prices Fall

Ed Glaeser gives three compelling reasons why the government should end their infatuation with high housing prices. (Nonetheless, some of the same politicians speak through the other side of their mouths about promoting housing affordability):
Why We Should Let Housing Prices Keep Falling

There is a superficial attractiveness to policies that seem to promise an end to falling housing prices, but there are three reasons why these proposals don’t make much sense to me.

First, the government has no business trying to make housing less affordable to ordinary Americans.

There is no reason to hope that middle-class Americans should pay more for any basic commodity, whether that commodity is coffee or oil or housing. Government should be fighting to reduce supply-side barriers and make housing cheaper, not trying to inflate prices artificially.

Second, most of these proposals seem likely to be expensive failures. The government just doesn’t have the tools to rewrite the laws of supply and demand. If the cost of building a home in Las Vegas is $150,000, and there are no restrictions on building, then all the credit policies or bailouts in the world aren’t going to permanently keep prices above $150,000.

Finally, these policies all have the common feature of getting the government further entrenched in the operation of the housing market, and this creates all sorts of long-term market problems. I would have thought that recent events at Fannie Mae and Freddie Mac, for example, would have made Americans recognize the costs of having government-sponsored enterprises play mortgage lender to the nation. I would have hoped that the history of public housing would have made us wary about spending huge amounts of tax dollars to get into the business of public property management. The current crisis may imply a need for more federal regulation of lending, but it does not suggest that the federal government should be subsidizing more borrowing.

We do need action to fix our banking system, but we don’t need quixotic policies aimed at pushing up housing prices. I suspect these policies have some appeal because they seem to help homeowners (like myself) as well as financiers. Still, the government can’t repeal the laws of supply and demand in the housing market. The price decline should remind homeowners, and home buyers, that housing should never be seen as a short-term speculation, but rather as a place to live, and hopefully to enjoy, for the long run.

Many politicians love high housing prices because it allows them a chance to offer “solutions” to the high prices. Unfortunately, those “solutions”, have brought us rent control, public housing, and a whole affordable housing bureaucracy, which have done little to systemically solve the problem. Nonetheless, we don’t hear any of the politicians who champion affordability cheering because of the lower housing prices.

Let’s give a little credit to the housing market for correcting itself, enabling new people to afford homes they couldn’t afford three years ago, and let’s avoid creating more problems (and “solutions”) by artificially re-inflating housing prices. And hey, what about the renters?

Parking Minimums Hamper Development and Affordability

Thanks to Dan and Benjamin for separately tipping me off to this link:
AP: Cities rethink wisdom of 50s-era parking standards

Like nearly all U.S. cities, D.C. has requirements for off-street parking. Whenever anything new is built — be it a single-family home, an apartment building, a store or a doctor’s office — a minimum number of parking spaces must be included. The spots at the curb don’t count: These must be in a garage, a surface lot or a driveway.

Parking requirements — known to planners as “parking minimums” — have been around since the 1950s. The theory is that if buildings don’t provide their own parking, too many drivers will try to park on neighborhood streets.

In practice, critics say, the requirements create an excess supply of parking, making it artificially cheap. That, the argument goes, encourages unnecessary driving and makes congestion worse. The standards also encourage people to build unsightly surface lots and garages instead of inviting storefronts and residential facades, they say. Walkers must dodge cars pulling in and out of driveways, and curb cuts eat up space that could otherwise be used for trees.

“Half the great buildings in America’s great cities would not be legal to build today under current land use codes,” said Jeff Speck, a planning consultant. “Every house on my block is illegal by current standards, particularly parking standards.”

Opponents also say the standards force developers to devote valuable land to parking, making housing more expensive.

“We’re forcing people to invest in spaces for automobiles rather than in spaces for people,” she said. “There’s no way to recover that use.”