Even those who are not unfriendly toward markets often ignore or forget some of their properties. Consider zoning. A recent article in The Economist reports how high house prices have generated a YIMBY (Yes In My Backyard) movement that challenges some zoning regulations (“The Growing Movement to Restrain House Prices,” September 6, 2023). It is refreshing that the simple idea that less supply leads to higher prices ceteris paribus seems better recognized.
Speaking about the old NIMBY (Not In My Backyard) movement, the Economist story suggests:
Nowadays, people are more likely to fear that new housing will worsen traffic, or that their views will be spoiled, or that new neighbours will be annoying, or that public services will not expand to meet extra demand. This all creates strong incentives for existing residents to organise against new development. By contrast, the people who would live in homes that are not yet built do not get a say.
The NIMBYs also fear that the value of their property will decrease if the supply of housing increases. In fact, it will probably go in the other direction if property owners are allowed to build a second house or an apartment block on their lots. But I mainly want to emphasize the last sentence: “people who would live in homes that are not yet built do not get a say.”
This is a general problem in politics (that is, the institution of command and obedience). Most individuals don’t have a say in politics. An individual vote has practically no chance of changing the result of an election. On the market, on the contrary, everybody has a direct say through his demand, whether he buys at the market price or bids up the price—by making a better offer on a house he wants. This is why entrepreneurs build new housing units: because they think some unsatisfied demand is silently bidding up the price at which they will be able to sell. (Note also how a competing supplier can similarly bid down the price at which he is willing to sell.) In fact, even children and individuals not yet born have a say through their parents’ land holdings or through speculators who keep land undeveloped until a new demand appears and bids up prices.
Another paragraph in the same story is more clearly deficient:
But all rich countries regulate construction, for good reason. Whereas a car can be manufactured and then transported almost anywhere, land is an inherently scarce resource, and for the most part housing is only valuable when it is near jobs, public services and infrastructure. Few people want to live right next door to a sewage plant; lots want to live near a large park. Planning is meant to take such things into account.
The babble about “inherent” scarcity wouldn’t pass introductory economics. Scarcity is always and only the result of supply and demand. A diamond can be mined or “manufactured and then transported almost anywhere.” Cars require steel or aluminum, the inputs of which are mined in places that don’t float above the land.
But what I want to focus on are the last two sentences: the blurb about planning being necessary because “few people want to live right next door to a sewage plant” and “lots want to live near a large park.” Few people would die for flank steak while very many love tenderloin. Would planning “taking such things into account” help people who cannot afford tenderloin? Suppose you live on an expensive lot near a large park: what is the probability that a sewage plant will buy the expensive lot bordering yours? Infinitesimal—except perhaps if the buyer is a government agency. A billionaire might also do it just because he hates you and wants to make your life difficult, but that’s not the way he has become a billionaire (and perhaps it might be considered a nuisance). Some people who cannot bid up the price of the house near the large park do choose to live near pork farms, sewage plants, or airports, or on floodable lands. The reason is simple reason: demand for, and prices of, such locations are lower.
(When a nuisance does “come to you,” even without malicious intent, represents a complex legal-economic case, as suggested by the strange 1879 decision in Sturges v. Bridgman; see Ronald Coase‘s seminal 1960 article “The Problem of Social Cost.”)
What zoning does is to prevent some people from bidding up prices on pieces of land where other people don’t want them to live. Politics does not allow individuals to bid as well as they can on markets. Interestingly, the rich can often do political bidding better than the poor. And for most people, punishments for breaking laws are worse than the economic constraints on bidding up the prices of what they want. Markets and contracts are not perfect; but politics and commands are worse.
READER COMMENTS
Thomas L Hutcheson
Sep 19 2023 at 11:47am
“people who would live in homes that are not yet built do not get a say.”
A very well know problem since at least Mancur Olsen’s work. Sometimes clever political economy tweaks –this would see to be a natural role for Public Choice theorists — can give otherwise voiceless people a “say,” as in multilateral trade negotiations where we get potential exporters at the table to partially offset the weight of protectionists in crafting how much “we” can “give away” in return for “concessions” by the “other side.”
No such tweak has yet been discovered in the net CO2 emission market, leaving taxation of net emissions the least bad alternative.
Pierre Lemieux
Sep 20 2023 at 12:05pm
Thomas: I would add the following. Giving people a voice by putting on government planning committees individuals who are supposed to represent them is a poor solution. The only real way people can have a voice is that each individual be free to live his own life as he sees fit. I know it’s a bit more complicated than this in reality, but it is difficult to probe the caveat if one does not know the general idea.
Thomas L Hutcheson
Sep 21 2023 at 10:16am
We probably almost totally agree about urban land use and building codes. Even the “legitimate” NIMBY concerns about traffic and parking are themselves downstream from not pricing urban road and street use properly.
Pierre Lemieux
Sep 21 2023 at 2:51pm
Thomas: Good point!
Richard Fulmer
Sep 19 2023 at 11:49am
Politicians offer voters the prospect of replacing imperfect markets with perfect planning. What voters actually get is imperfect markets that are constantly and iteratively evolving toward (unobtainable) perfection replaced with imperfect laws and regulations that have unintended consequences and that are nearly impossible to change.
Billt
Sep 19 2023 at 2:52pm
This post should be “required reading at the academy Mr. Spock,” as Captain Kirk would say.
Pierre Lemieux
Sep 21 2023 at 3:05pm
Bill: Thanks for the citation!
Mactoul
Sep 19 2023 at 9:08pm
Central planning, being another offshoot of Enlightenment rationalism, the ancien regime didn’t go in much for.
Though, in India and I suspect many other countries, the planned areas tend to be much nicer places to live in and command huge premiums.
Much more interesting is the debate within classic liberals whether there is an irreducible minimum of government, as minarchists hold, or not as anarchists hold.
Pierre Lemieux
Sep 20 2023 at 11:54am
Mactoul: Your last paragraph expresses a valid opinion, although I would not say “much more interesting” as it suggests the two issues have no interface.
Your first paragraph contradicts the brunt of 200-300 years of economic analysis and historical research. The only exception I can think of is Marxian and Marxist thought (see Lenin, The State and the Revolution). So, at the very least, you should have a few pointed citations to support the strange opinion you express. Or perhaps you are referring to Hayek’s “true and false individualism”? But then, why not explain that? And tell us what you make of Tocqueville’s The Old Regime and the Revolution (L’Ancien Régime et la Révolution) on that topic, preferably again with citations to support your opinion if you don’t agree with Tocqueville.
Mactoul
Sep 21 2023 at 2:41am
I don’t think that zoning existed in 18C. No central banking either. All kinds of regulation and planning that libertarians decry came into being in 20c particularly.
The old regime didn’t interfere with the people as much as the new regime did. I don’t think this is any contradiction with Torqueville.
Why is that so. Progress of Enlightenment went hand-in-hand with ever increasing and ramifying regulations. And a further paradox, the Enlightenment and industrial revolution occurred in precisely those countries that had quite robust state apparatus. It didn’t occur in anarchic Africa, American tribes or disunited India.
Jon Murphy
Sep 21 2023 at 8:19am
They both did.
Craig
Sep 19 2023 at 10:45pm
How do you feel about restrictive covenants that ‘run with the land’ or are otherwised transferred when you take title to a piece of property?
Pierre Lemieux
Sep 20 2023 at 11:41am
Craig: Restrictive covenants voluntarily entered into by legitimate private property owners are, of course, part of private property rights. See also my answer to Knut below.
Knut P. Heen
Sep 20 2023 at 7:59am
I favor general rules rather than discretion. The problem is not zoning laws, but the idea that those laws should be changed from time to time.
My point is that you buy a property at a price which reflects the zoning laws (including rational expectations about future changes to those laws). If those laws change unexpectedly, you either gain or lose. Some people are much better at gaming the system than others. We should aim to build a society in which gaming the system is not profitable. Otherwise, we will quickly end up in a situation where the garbage dump is in my backyard while the new street paved in gold is in the mayor’s backyard.
I don’t see this as zoning vs. markets. I see zoning as a part of the property rights and you cannot have markets without having property rights.
Pierre Lemieux
Sep 20 2023 at 11:38am
Knut: With due respect, your statements are based on a radically incorrect concept of property in a free society. For example, you write:
Oh yes, markets can exist without the collective property rights of a government owning the means of production and representing the armed proletariat! (“Property right” means “control.”) What markets require is private property rights. Some markets can exist between, say, a few totalitarian governments, but they are not free markets. Indeed, zoning was specifically created in New York City in the 1920s in order to restrict the private property rights of white individuals who wanted to rent or sell their properties to black people.
Another point: Zoning laws cannot not change: they are political creatures. (Have a look at my post “In Politics, Anything Can Happen.”) If you want something not to change in a free society, it has to be guaranteed by voluntary contracts: for example, a life insurance company paying a contractual obligation assumed 50 years before, or a restrictive covenant freely signed between two individual property owners (or one individual property owner and a group of other property owners in which no one has been forced to participate).
Whatever Rudolph Giuliani thinks, liberty is not the same as authority!
Craig
Sep 21 2023 at 9:57am
As an aside I think the Slaughterhouse cases while famous for legal reasons, also dealt with the City of New Orleans attempts to locate the smelly Slaughterhouse industry away from the city, but I digress. Not too up on the history of zoning but I do know that NYC’s zoning does have something to do with putting properties into perpetual shadows. My time in the boiler room at Chase with Vin Diesel at 4 NY Plaza (now 25 Water), that building was behind 125 Broad, 1 NY Plaza was right there, 55 Water, 85 Broad and 27 Whitehall were all relatively tall and tall enough to put 4 NY Plaza into the shadows for significant amounts of time. I can’t answer how these competing rights are recognized in zoning laws, indeed I know that some buildings have restrictive covenants as to their heights because neighboring buildings have bought air rights. However, the natural consequence of building tall is that those buildings do cast shadows onto their neighbors in ways that we can safely say nature didn’t intend. A right to sunlight?
Pierre Lemieux
Sep 21 2023 at 2:59pm
Craig: Isn’t your last question answered by the sentence before your penultimate one? Quoting the latter:
Very Coasian!
Mactoul
Sep 21 2023 at 9:41pm
Property right cannot mean control otherwise theft would be impossible.
When I steal some item of yours, I take control of it and thus by your definition, I have the property right now.
Property right or ownership is lawful possession.
Pierre Lemieux
Sep 22 2023 at 12:09am
Mactoul: You give a legal-positivist definition, which will be challenged by any non-positivist legal tradition, including probably the one you regularly defend. The definition of property in terms of control has been the analytically-productive economic definition for quite a while.
Mactoul
Sep 22 2023 at 1:51am
I know this definition in terms of control is typical but what it has been productive of?
It has advantage, for libertarians, to avoid bringing in explicit notion of lawfulness which naturally brings in the political community.
But I believe for Hayek and Buchanan, the notion that property is inextricably tied up with laws and political community, this notion wouldn’t be any surprise to them.
Pierre Lemieux
Sep 22 2023 at 11:10am
Mactoul: “Analytically productive” or “analytically useful” refers to something that facilitates analysis of the real world (while preventing one from getting lost in a rabbit hole and saying just about anything).
Jon Murphy
Sep 22 2023 at 12:47am
Control is distinct from possession. The fact that you can be compelled to return the stolen item shows you do not have any control over it. You may have possession, but the control still belongs to the owner.
What makes property unique (and uniquely human) is that it is more than possession; it includes control and the proper acquisition. For a full treatment of this, see Bart Wilson’s excellent book The Property Species.
Mactoul
Sep 22 2023 at 1:47am
But why should I be compelled to return the stolen item?
Control remains with the owner only because possession has transferred unlawfully.
If ownership is control then ownership transfers the instant the current owner loses control. And thus no theft– the same with possession.
You can not do without the notion of something lawful about ownership. Indeed when you write “proper acquisition”– this is just smuggling in the notion of lawful possession/control
It appears that the economists avoid being explicit about “lawfulness” is they wish to disconnect ownership from the political community which makes laws and exists in state of laws.
Mactoul
Sep 22 2023 at 2:01am
I entirely agree that property is more than possession and is uniquely human. It is uniquely human because humans are uniquely rational animals.
Property is secured by arguments, the kind of arguments that are argued in the courts of law when they adjudicate property disputes,
Arguments are ultimately based upon premises, which here is the moral axiom that man must eat of sweat of his labor.
Mere possessions are secured by brute force. The nations or tribe (i.e. political community generally speaking) possesses its territory by brute force. Konigsberg was German once, now it is Russian, not because of arguments and logic but brute force.
Individuals within a territory have parcels of property within it–secured by the laws of that particular community.
Jon Murphy
Sep 22 2023 at 7:07am
Ok? I don’t see what any of this has to do with anything.
Pierre Lemieux
Sep 22 2023 at 11:03am
Jon: With due respect for Mactoul, I sometimes suspect he is a chatbot.
Mactoul
Sep 21 2023 at 9:44pm
As individuals are always found embedded in one political community or another, private parcels of land are always embedded in the territory possessed by one political community or another.
And this isn’t accidentally but can be demonstrated on quite general grounds.
Knut P. Heen
Sep 22 2023 at 10:34am
If you own a knife, you own the right to cut carrots with it, but you don’t own the right to cut people with it. You are willing to give up your right to cut people in exchange for everyone else giving up their right to cut you.
If I buy a house in a residential area, I don’t want my neighbors to build factories there. Why cannot I and my neighbors come to an agreement that no one builds factories in this area? I am giving up my right to build a factory in exchange for everyone else giving up their right to build a factory. It is the same thing we have done with the knife.
Now, if zoning is already in place, the people who want to live there can buy a property there at a price reflecting the zoning laws. People who want to live without zoning can buy a property in a different area at a price reflecting the lack of zoning there. Again, no problem.
The big problem is changing the zoning without the consent of everyone involved because zoning is part of the property you buy. I did not buy a house. I bought a house in a residential area and paid a premium for the residential area part.
Jon Murphy
Sep 22 2023 at 11:33am
You certainly can. It’d involve purchasing the land around you, but you can very easily do that (my neighborhood has such a plan. The apartment complex owns the sugarcane fields around us. This was done explicitly to prevent development of the area and provide us tenants a “luxury” experience where we do not need to be worried about getting swallowed by commercial development).
Craig
Sep 24 2023 at 2:24pm
I see Professor Murphy finally found the perfect backdrop for his tinder profile pic to substantiate his claims of being a ‘sugar daddy’ ;-0
Jon Murphy
Sep 24 2023 at 5:32pm
You misunderstand. I am looking for a sugar daddy. University professors don’t get paid enough to be sugar daddies
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