Randal O'Toole on Housing
By Arnold Kling
The book is American Nightmare, and it is iconoclastic. Some excerpts:
Glaeser and Avent each profess to oppose coercive policies aimed at forcing people to live in higher densities than they wish. Yet their often-erroneous arguments lend credence to those who do support such policies…Many of the city dwellers I’ve met think their lives are so ideal that they unhesitatingly support coercive government aimed at forcing everyone to live that way, but I’ve never met a suburban or exurban resident who wants to force their lifestyle on anyone else.
This suggests a sort of Tiebout equilibrium, in which people sort themselves into communities based on their preferences concerning land-use regulations. Unfortunately, the people who choose communities with lots of land-use regulations tend not to respect the preferences of the people who make other choices.
O’Toole argues that the benefits of population density are weak. It is the benefits of job density that are stronger.
land-use regulation was the single most important factor in the housing bubble of 2006.
What about bubbles outside the U.S.?
Due to strict land-use regulation in much of Europe, the 2006 American housing bubble that was supposedly caused by such uniquely American institutions as the Community Reinvestment Act and Fannie Mae was almost perfectly replicated in Britain as well as many other European countries.
I think that when it comes to trying to explain something like the housing bubble or the financial crisis, one should keep in mind James Manzi’s term of “causal density.” There were many factors at work, and any monocausal theory is difficult to defend. Therefore, in my view, it is inappropriate to speak of “the single most important factor.”
Among the ten policy recommendations that conclude the book:
Increase down-payment requirements in states with growth-management laws.
The idea is that states that restrict new building will have more house price volatility, so that lenders should require buyers to hold more equity.