Matthew Yglesias’ The Rent is Too Damn High

The latest short e-book in the wonkosphere is Matthew Yglesias’ The Rent is Too Damn High. I recommend it and following Yglesias at Slate. Yglesias is one of the clearest and most accessible economics writers to meet the criterion of seriousness.

The basic idea of the book is this: Right now, in the U.S., legislation and regulations at all levels of government are punishing and thwarting density. Local zoning boards and activists make it difficult for developers to build new high-rises in up-and-coming (‘gentrifying’) areas of cities. And, even where new buildings are permitted, government-mandated parking-space requirements and height restrictions artificially suppress supply. Meanwhile, other political constituencies protect policies like the Home Mortgage Interest Deduction, which incentivize and subsidize life in single-family, owner-occupied homes in the suburbs.

This has a number of bad consequence. Most obviously, it makes housing much more expensive. When the supply of housing in desirable urban areas isn’t allowed to expand to meet demand, prices necessarily soar. And insofar as people are priced out of those areas, they go seek housing elsewhere, in suburbs and exurbs, thereby bidding up housing prices everywhere else, raising costs for the country as a whole. These rising housing prices take a big chunk out of people’s paychecks, which is a bad on its own — Yglesias makes a compelling case that much of the American middle class’s economic gains in the past decades has been completely wiped out by rising housing prices. But they also have a lot of broader, subtler costs: Housing is most expensive in the most productive areas of the country, i.e., cities in the northeast corridor and California. Which means people are being incentivized by housing policy to move to less-productive areas, like the sunbelt (and yes, sunbelt cities are much less productive than Boston — if you thought the opposite, that’s just an illusion of relative movement over the past few decades). And that’s a national problem: If we care about Gross Domestic Product, we must care the policies and incentives that influence individual people’s levels of productivity. It’s good for people to live in high-productivity areas: A young professional will learn more and make more connections and therefore become a better professional if he lives in Manhattan than if he lives in Phoenix; and the wages that people in service jobs earn move with the productivity of their region as a whole (which is why nannies in Manhattan earn much more than nannies in Phoenix, even with equivalent skill sets). So a country with better housing policy, and consequently cheaper housing, would be more densely concentrated around major high-productivity cities and wealthier as a whole.

Denser life is, additionally, greener life. It involves less driving, both by residents and by the suppliers of the grocery stores that feed them (on a per customer basis). Heating 1,000 families in a single city high-rise is naturally more efficient (less carbon-intensive) than heating them all in separate homes. And, finally, the more densely we’re packed in major metropolises, the easier it is for us to preserve the great outdoors elsewhere — there is a contradiction in being a conservationist who thwarts development at dense cores. In short, if we just let people build housing more easily and more densely — much more densely — it would bring a host of benefits.

In laying this all out, Yglesias takes on some really elementary but common misconceptions about housing policies. As a center-left liberal, Yglesias is particularly miffed that progressive-type advocates are so often behind efforts to keep developers out of gentrifying areas. They, like Yglesias, say they want to keep housing prices low so that working and middle-class people can afford to continue living in their long-time neighborhoods. And they see that development and higher rents frequently go hand-in-hand. But, as Yglesias points out, their assumption, and their response, get it exactly backwards. The causation goes the other way around — developers come in to a neighborhood because rents are rising; development per se does not cause higher rents (on its own, density should put downward pressure on rents). Keeping developers out is exactly the wrong way to keep housing prices low. This is basic economics — if demand for housing increases in an area, but supply is not allowed to expand, then rents will rise. While I think — and I had the sense Yglesias would agree — there are sometimes good reasons for preserving historically significant buildings and districts, we should be honest that we are doing so for aesthetic/nostalgic reasons, rather than dressing it up with a risibly opposite-of-truth economic justification like “modern high-rises cause higher rents because they’re modern!” Yglesias also exposes the lunacy of making so many housing decisions matters of policy when there doesn’t seem to be any good justification for not just leaving them up to markets — case in point, parking requirements. Some people will want to park their cars in their buildings; and developers and owners will respond to meet that demand. Other people won’t want parking. It makes a lot more sense to let markets — via the decisions and tradeoffs of individual people and developers — decide how much private parking there should be, rather than to impose one-size-fits-all on everyone.

Finally, in arguing all of this, Yglesias warms my heart by arguing that identity politics have hopelessly muddled the policy issues. Urban progressives really should promote more development — as a way to keep rents down, so middle- and working-class people can still live in cities if they choose (and to make us greener) — but they don’t, because they are instinctively distrustful of business, hence developers. Conservatives really ought to support freer housing markets and deregulation, but they don’t, because they are skeptical of a policy that smells too pro-urban. And intelligent discussion of the policy of housing policy is rendered impossible, as the conversation inevitably devolves to the level of symbolic identity politics — a big national debate over “Which is the better way of life: suburban or urban?”

Personally, I think both are the better way of life, for different stages — high density makes sense for early adulthood, when one is figuring out career paths and looking to meet new people; lovely leafy suburbs with sledding hills in the front yard and ferny woods in the back, and a public high school that sends dozens of kids to the Ivy League, are good for once we’re settled in our careers and raising kids. So the debate needn’t be about symbolic identity politics, or elevating one type of lifestyle over the other. It should actually just be about arranging institutions and policies to best allow our country’s hundreds of millions of people to coordinate and trade-off their individual preferences for where they want to live in the most efficient, broadly beneficial way possible. And that kind of coordination, broadly speaking, is best achieved through markets. Insofar as deregulating housing and densifying will also bear fruits in making us greener, then that’s terrific, too.

Two proto-critical thoughts: Yglesias chides ‘suburban conservatives’ for failure to work to dismantle local anti-density housing regulations, concordant with the free-market ideology they claim to endorse. But (1) as a political generalization, this is imperfect (which Yglesias may have conceded in passing — I don’t recall): the affluent suburbs of northeast-corridor and west-coast metropolises are majority Democrat and, it certainly seems, have plenty of anti-density “let’s keep this town socio-economically homogenous” laws on the books. And (2) Yglesias, as I remember, didn’t give much ink to unpacking the main, very well-known reason why suburbanites try to drive up real estate prices in their towns through anti-density regulations: they want to keep their public schools excellent, for their kids. If public education weren’t an issue, suburbanites might worry about new construction on their cul-de-sac, but not in the town (i.e., school district) as a whole. So our metonymic ‘suburban conservative’ could say in her defense:

“Sure, I guess I’m anti-free market when it comes to my school district’s housing regulations. But that’s just a response to government control over my number one priority right now — my child’s education. If, as I advocate, we had a more extensive voucher system, I wouldn’t have to ‘pay twice’ to send my kids to private schools. I could more easily afford to send them to schools where they could test in to classes with other gifted students. But, in lieux of that, I need to keep this school district good — which means keeping life here expensive.”

(Because, after all, what child of upper-middle class professionals isn’t “gifted?”)

My point really is not to say anything about public education per se (I’ll save it for another post). It’s just that the picture Yglesias presents looks a little different when we keep in mind that it is a reaction to the fact that we have limited choice, a lack of a market, in primary and secondary education. This isn’t a refutation, and there’s no obvious policy takeaway that comes out of this — it’s just something I wish he had chewed over a bit more.

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4 thoughts on “Matthew Yglesias’ The Rent is Too Damn High

  1. Enjoyed this, but one quibble with your critique: public schooling is hardly the only reason that that wealthy people want to raise their children in socioeconomically homogeneous environments (the others are just less socially acceptable to say aloud).

    To your tweeted question: On issues like ADA “constitutionality” requires a negotiation of conflicting principles and practices. It is not a mathematically-derivable legal fact. Oh, and contrary to popular belief, rejecting such naive legal formalism doesn’t require embracing legal nihilism. Some things are more forbidden or permitted by the constitution than others. That said, I’d put the constitutionality of ADA somewhere between that of a 34-year-old President and that of a federal income tax ;-).

  2. Another great post, Matthew! I always learn things from you!

    Some thoughts:

    (1) Could there be any other rational or semi-rational motivations for zoning boards and other government organizations “thwarting density”? I feel like you’re really giving your opponents the short end of the stick here. For example, if Manhattan becomes denser, won’t it reach some sort of critical point where the increased tax revenue won’t make up for the insane strain on the public infrastructure, such that the government will have to revamp existing infrastructure in possibly innovative (and therefore costly) ways? Is that something to avoid, or something you think demand will take care of? Do you really think that it all boils down to partisan mistrust of “businesses”? Couldn’t cities just, well, become too dense, too crazy, or too big?

    (2) “It’s just that the picture Yglesias presents looks a little different when we keep in mind that it is a reaction to the way the government does education. This isn’t a refutation — just something I wish he had chewed over a bit more.” Please, chew over it a bit more. Digest it, and regurgitate it nice and smooth to your nest of faithful, dependent readers.

  3. Fascinating discussion but I have one overall quibble with Mr. Yglesias, and a couple of questions.

    The quibble is with the general tendency among “urbanists” to characterize suburbs as the anti-city. Perhaps a better way of understanding them is as an integral and essential part of metropolitan areas. Most of the U.S. population growth in metropolitan areas since 1950 (when the Census found for the first time that a majority of our population lived in metropolitan areas) has occurred in suburbs. Suburbs now account for about two-thirds of metropolitan populations. Had this metropolitan population growth been accommodated solely in central cities and not at all in suburbs, the population (and hence population density) of central cities would have had to triple. The very anti-development policies that you decry indicate that the cities’ own residents feel they are already quite dense enough, thank you. Presumably this would be even more true of those folks who have chosen not to live in central cities. The growth of suburbs may have been facilitated by, but was certainly not caused by, the home mortgage interest deduction (which in any event is equally available to, and robustly used by, homeowners and condo buyers in cities as well as suburbs). Suburbs are essential and integral parts of our metropolitan areas and we will probably make better policy if we understand them than if we think of them as somehow dubious or inferior.

    As to my questions:

    The first has to do with the reported finding that cities are inherently more productive economically. I haven’t seen Yglesia’s evidence, but I wonder whether this might be a result of cities’ mistakes, not an index of their actual superiority. That is, could it be that because cities’ high costs (reinforced by the sorts of policies you decry) have driven out all but the highest-margin industries and residents, those left in Manhattan, Boston etc. (or drawn to them) are high-income on average and hence appear “productive” in the statistics? Perhaps their productivity is about who they are, not where they are.

    The second question kind of loops back to the first. If the people and cultures in cities are so atypically smart, why does their political culture adhere so ferociously to so many dumb ideas? From rent control, to zoning restrictions, to school monopolies enforced over all those who can’t afford to send their kids to private school (or to escape to the suburbs). Just asking.

  4. Pingback: Regional economics: The trivial, the despair-inducing, and the ethically problematic | This is your brain on economics

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