The Fitzwilliam Endorses the YIMBY Movement

(Pending further investigation)

YIMBYs (Yes in My Back Yard) are people who want to solve the housing crisis by building more houses. Doesn’t sound so radical, does it? 

Except it really is. NIMBYs (Not In My Back Yard) are people who lobby the government to restrict supply through zoning laws, historic preservation rules, and widely distributed veto power. They do this in part to preserve the value of their homes, but mostly because of externalities from new developments like blocking the sun and having troublesome neighbours. Hence, when demand goes up, prices increase. 

It’s hard to say whether NIMBYism is a problem of excessive government intervention or excessive civil society. A central claim of libertarianism is that the government is overrated, and civil society is underrated. If we had been trying to show the opposite, we could use the fact that civil society obstructs building so much to argue that the government needs to socialise more housing.

This relates to my general confusion about decentralisation arguments. There is a thesis that decentralisation is good because it allows for the synthesis of information from many different sources, in a way that couldn’t plausibly be done by central authorities. The problem of NIMBYism is a problem of decentralised town councils, part of the centralised government, being lobbied by decentralised homeowners, to obstruct the ability of decentralised individuals to pay centralised developers to build new buildings. For whom is this a win – the centralisers or the decentralisers?

The supply-and-demand story is essentially correct

There is a line of thought that house prices and rents are going up because of ‘investment funds’ or ‘speculation’, and this is endorsed by a small number of heterodox economists. But it doesn’t make a lot of sense: If houses are in fact overpriced, investors stand to massively gain by shorting the market. Houses are primarily so expensive because they are extremely valuable. No doubt credit and house prices interact in lots of complex ways, but the housing crisis is primarily caused by insufficient supply.

In a competitive market, the price of a good falls closer and closer to the cost of replacing it. For centuries, house prices outside city centres hovered above replacement levels. Now, houses cost at least double their replacement cost, and many multiples more in cities. According to the Office for National Statistics, the market value of houses in the UK exceeds replacement costs by £3 trillion, which is almost 50% more than GDP.

Houston famously has no zoning laws (it does still have other planning regulations including parking minimums). Houston represents one equilibrium, in which the city has enough renting tenants (44% of the population) to form a permanent bloc to vote for more housing. This has made Houston one of the most affordable major cities in the U.S. The South of England represents the opposite equilibrium, in which there are enough homeowners to consistently block new developments. 

Existing solutions are unsatisfactory 

The supply-and-demand story implies that a lot of existing government housing policy is counterproductive. Grants and loans for first-time homeowners like the UK’s Rent to Buy scheme are probably harmful, because they artificially inflate the demand for housing, thus raising prices. Similarly, rent control is almost universally condemned by economists as being a terrible idea. Even the Freakonomics guys once released a plea for people to stop supporting rent control.

I’ve heard the suggestion that second homeownership be heavily taxed or banned altogether. But second homeownership is already pretty rare; vanishingly so in expensive cities. Insofar as units are unoccupied in desirable cities, it is often because someone lives there during the week for their job and elsewhere at the weekend. The reason they do this is that the rental market sucks because of (you guessed it) insufficient supply. The more house prices are robustly rising, the more people will buy (if they can) when they otherwise would have rented. Advocating a policy with mostly symbolic value against the elites is not a good way to solve problems. 

It’s been suggested that NIMBYism can be solved with Coasean bargaining. Coase’s theorem says that, in the absence of transaction costs, rational actors will bargain to efficient outcomes. If my flatmate likes blaring loud music that I don’t like, theoretically she will compensate me exactly to the extent that I am harmed by her music. You could imagine developers compensating nearby residents to the extent that they are harmed by living near an ugly building or an irksome construction site. This rarely happens, because it’s hard to say what counts as ‘nearby’, it’s hard to make this compensation in a legal way, and lots of NIMBYs oppose developments nowhere near where they live. 

Denser housing makes society richer and more equal

A well-known paper from Hsieh and Moretti finds that US GDP growth between 1964 and 2009 was 50% lower as a result of restrictions on building. If we take this at face value, it’s staggering. A standard result in the economics literature is that restrictions on the supply of housing cause a doubling in house prices. For London, they seem to cause a quadrupling in rents. Apparently, we’re not in flying cars colonising the galaxy because we wasted all our money on rent.

Or maybe the flying car shortage is because people live in the wrong places. There are two problems with supply constraints on housing: waste and inefficiency. The average UK renter pays 30% of their income on rent, so a crude guess is that society is paying a 15% tax on economic activity to pay for restrictions on building. But this effect is plausibly smaller than the problem of people not living where their labour is most valuable. This is why you get software engineers in the Bay Area doing their own plumbing: few plumbers can afford to live in San Francisco. This leads to an oversupply of service workers in economically stagnant areas, driving down wages.

The rise in inequality since the 1970s is mostly due to the increasing gulf between people who have houses and people who don’t. Housing shortages are a reverse robin hood, stealing from the poor and giving to the rich. This is my understanding of Matt Rognlie’s work, which challenged the account of inequality given in Thomas Piketty’s Capital in the Twenty-First Century. I confess I have only read the first three pages of Piketty’s formidable book, but apparently, no one else has read it either.

Density is better for the environment and children

A new argument being explored by YIMBYs is that land use restrictions are harmful to the environment because higher-density buildings are more eco-friendly. For example, carbon emissions per capita in London are almost 40% below the UK average. When you think about it, this is unsurprising: cities have lots of people living close together using public transport who don’t need goods transported to remote locations.

One of London’s most stringent building restrictions is the green belt. The green belt enjoys massive support because of its image of being ‘green’ and good for the environment. But most of the green belt is used for agriculture, and British farming is hardly a paragon of environmental sustainability. The green belt doesn’t exist because it’s an area that is particularly beautiful; this confuses it with an Area of Outstanding Natural Beauty. Nor does it exist for specific scientific or environmental reasons. Its function is primarily to restrict London from growing and ensure that Londoners in the suburbs have access to nice outdoor areas. Having access to nice outdoor areas is important, but this is a spectacularly inefficient way to do it. 

High house prices may also decrease fertility. One of the most important things I learned from One Billion Americans is that Western women’s ideal number of children is not, in general, going down. If anything, the number of children the average American woman wants is slightly up since the 1980s. What’s changed is the economic circumstances: women make more money, so the opportunity cost of having a child is higher. Baumol’s disease has driven up the price of education and childcare: some sectors, like software, have increased in productivity so much that compensation has had to rise in low-growth sectors to keep people from jumping ship. Childcare may even be experiencing negative productivity growth, because of various laws restricting the number of children that can be taken care of by one carer. In Ireland, depending on the circumstance, the child:adult ratio can be no larger than 3:1. What’s plausibly more important is that couples have to wait longer until they can afford a house, and they don’t want to have children in a cramped expensive apartment. I assume the reason that YIMBYs don’t make this argument more is that more children are not an unalloyed good; many people think that having children is bad because of climate change. People want more babies, but we price them out of this lifestyle through a screwed-up planning system.

Practical solutions from the YIMBYs

Stringent restrictions on building are a recent phenomenon. American zoning didn’t take off until the 1960s. Britain’s modern planning system didn’t exist until 1947, with the passing of the Town and Country Planning Act. The difficulty of building is a reversible trend, not a timeless truth. 

Various groups including the Adam Smith Institute and London YIMBY propose ‘street votes’ as a practical way to increase the supply of housing. Under this system, each street can vote to ‘up-zone’ and allow for denser development, thereby greatly increasing the value of their property. ASI proposes this be done through a double majority: it would be approved by two-thirds of residents and two-thirds of residents that have lived on the street for at least three years. The hope is that this would replace the current vetocracy, in which small numbers of cranky residents can successfully oppose new developments.

I don’t recommend making people feel bad for supporting something because the initial motivation for that thing was racist. But it’s worth mentioning that single-family zoning (the primary form of zoning in the US) was designed to exclude black people from white neighbourhoods. Whatever their current utility, racism and classism are baked into the DNA of land use restrictions. 

I’m not sure how distinct a problem high house prices are from homelessness. The rent in San Francisco is very high, and there are lots of homeless people there. But presumably, most of them still wouldn’t be able to afford to live in an apartment even if the rent were half as much. Is the reason that NIMBY contributes to homelessness that it blocks the development of ultracheap tenements for homeless people? An alternative explanation I’ve seen is that homeless people are highly reliant on friends and family, and it’s these people that get priced out when the rent increases. A few years ago, a man in LA built tiny $1,200 houses for the homeless, before the government shut him down, presumably to free the homeless people from oppression or something. They went back to sleeping on the streets. Maybe someone needs to make a tear-jerking documentary about this, like Blackfish. If only people were as cute as killer whales…

Sam Enright is executive editor of the Fitzwilliam. You can follow him on Twitter here.