Now that we correctly understand Hsieh-Moretti’s results, let’s put them in context.
1. Immigration researchers have focused heavily on the economic effects of full deregulation of immigration. Hsieh-Moretti (henceforth HM), in contrast, focus on the economic effects of moderate housing deregulation. Their chief hypothetical is not, “What would happen if there were zero housing regulation?” but “What would happen if the Bay Area and NYC only had as much housing regulation as the rest of the U.S.?”
2. Immigration researchers find truly enormous economic benefits of full deregulation; roughly speaking, open borders would double Gross World Product. HM’s results aren’t quite as dramatic, but in absolute terms they still boggle the mind. Their conservative estimate is that moderate housing deregulation would increase US GDP by 14%. Their corresponding optimistic estimate is +36%.
3. In both cases, we’re talking trillions of dollars of annual gain, implying an astronomical present value.
4. How can the gains be so big? Because (a) the regulations have a large effect per person, and (b) affect large numbers of people. Big times big equals enormous.
5. What’s the mechanism that yields these gains? The answer in both cases is the same: Moving workers to places with higher productivity. Deregulating immigration lets workers in low-productivity countries move to high-productivity countries. Deregulating housing encourages workers in low-productivity regions to move to high-productivity regions.
6. In both cases, focusing solely on the direct victims of regulations is misleading. The direct victims of immigration restriction are would-be migrants deterred by the First World’s immigration restrictions. But the whole world loses the benefit of the extra stuff they would have created if they moved. Similarly, the direct victims of housing regulation are would-be internal migrants deterred by rich regions’ housing restrictions. But the whole country (indeed, the whole world) loses the benefit of the extra stuff they would have created if they moved.
7. How can such enormous gains be so overlooked? For immigration, I’m convinced the main answer is anti-foreign bias, but that’s barely relevant for housing deregulation.
8. So what’s the right story? I’m still weighing a few competing explanations.
(a) Housing regulation increased very gradually from the 1960s on, and its direct victims tend to be young. So the obvious victims barely know what they’re missing – and therefore rarely raise their voices in protest to alert the rest of society.
(b) The main victims of housing regulation are not people who pay high prices for real estate, but people who stay in low-productivity regions because the cost of housing in high-productivity regions is too high. Since the latter victims are barely visible, it’s hard to feel much pity for them. Indeed, since the losers rarely see the houses and jobs they could have had, they don’t even feel much self-pity.
(c) The main victims of deregulation, in contrast, are ultra-visible and ultra-relatable. New construction leads to lower real estate prices and at least temporary inconvenience for long-term residents. Remember Up?
(d) Pessimistic bias leads people to obsess over the downsides of deregulation, while ignoring enormous upsides – even for existing owners.
(e) Given populist resentment of markets and business, real estate developers inspire severe antipathy. They’re ideal instantiations of the hated “fatcat” archetype.
(f) Housing regulation is really boring for most people.
9. If the whole U.S. housing market were as regulated as the Bay Area, the benefits of liberalizing immigration would be modest. What’s the point of telling people “You’re free to come work here” if they can barely afford to rent a shack? Fortunately, housing regulation varies widely by city and state. So even though most migrants can’t afford to move to the most productive regions of the U.S., they can totally afford to migrate to the rest of the country. And the less-productive regions of the U.S. are still vastly more productive than almost anywhere in the Third World.
10. I’ve long urged libertarians to put immigration deregulation at the top of the pro-liberty agenda. Now I’m going to urge them to make housing deregulation their #2 priority. And to be the change I want to see in the world, I am now writing a second graphic novel on this topic. Working title: Build, Baby, Build: The Science and Ethics of Housing. Stay tuned for updates!
READER COMMENTS
mike
Apr 6 2021 at 9:48am
Bryan,
Mostly great piece! I am a HUGE, HUGE fan of housing deregulation (combined with a few other policies designed to build 3 million units a year for 2 decades – vs the 1.5 m or so currently scheduled).
HOWEVER, I think your piece here (and even a quick scan of your prior piece about homewoners misunderstanding or misestimating the benefits to deregulation) misses two key objections existing homeowners have. Yes price (as you mention here) is the biggest economically, and will be hard to overcome. But the #2 and 3 reasons homeowners object are:
1) increased crime
2) deterioration of the schools
Frankly, if you have talked to any people (especially suburban people, a little different issues in downtowns that are expensive) these are so glaringly huge issues i don’t know how you don’t include them. Also, its key that you have a good answer for them.
I have lived in 3 midwestern cities and its almost universally true that the poor areas are higher crime and worse schools, and the hoighty-toity (sp?) wealthy suburbs have almost no crime and great schools. It COULD be wrong that huge deregulation (or even moderate) wouldn’t cause these problems, but these are certainly objections that homewoners currently have. And frankly I think they are “correct” objections in so much as they are likely to be true (to varying degrees) just like the economics of their home price falling. I think the broader societal gains are worth the homeowners loss (of which i am one who would ‘lose’ as i am in my dream home/school/neighborhood), but you can’t ignore it.
CUrious your thoughts, because when a smart person (such as I think you are!) so glaringly fails to address what i feel is such an obvious and major objection it raises my eyebrows. Hope to hear a detailed response article perhaps!
ABV
Apr 6 2021 at 10:28am
Read a lot of Alex Tabarrok on crime, most cities do not invest in enough policing. Higher density creates a larger tax base that can allow for more policing, reducing crime.
Auctioning school slots off through the property market is a terrible idea. Cities that have adopted other methods, like charters, have seen broad based gains in academic achievement. See New Orleans, Washington DC, NYC, Boston, among others.
Don’t be penny wise and pound foolish.
Jared
Apr 6 2021 at 1:52pm
I think Mike’s two objections are frequently raised, though I do think there’s an even simpler one that comes up often in my very restrictively-zoned community:
“I like it this way.”
That is, they do not think that they bought a house. They think that they bought a house and all surrounding areas more or less as they currently are. And they believe that those things should remain stable in perpetuity.
They do not think of their property right as ending at the edge of their yard, but at the edge of the area that affects them (as they conceive of it). So, e.g., I live on a hill. My neighbors talk about development harming “their viewshed.” No amount of discussion will convince them that they do not own the view from their yard, just their yard.
[I know there was an interesting paper looking at attitudes toward housing deregulation in San Fran, but I have not looked to see if there is more now. Would love to put that together sometime…]
anon
Apr 6 2021 at 9:41pm
To be fair, zoning laws give them a legal right to influence building via their local government. So they buy their homes in knowledge that they have this legal right. Naturally they have some reluctance for this legal right to be taken away from them. Probably things would be better if such legal rights were never created in the first place, but now it’s a hard thing to undo.
AK
Apr 8 2021 at 11:20am
I like my neighborhood as it is, but I’d also readily welcome the increased land values that come with deregulation. What I can’t stomach is the inevitable social pathologies that the new low-income residents would bring. I suspect that many suburbanites feel the same way. In other words, much of the “I like it this way” types could be easily persuaded, if only the YIMBY crowd would show a commitment to policing degeneracy.
Aaron Stewart
Apr 6 2021 at 10:39am
I just finished Open Borders. I liked the graphic novel format more than I expected to. Looking forward to the next one!
Anthony Breach
Apr 6 2021 at 2:07pm
Hi Bryan,
I work on housing and land use regs at the Centre for Cities in London. Agree with you and the Mercatus housing team that the benefits of housing/land-use reform are huge (though I think Duranton and Puga is slightly more intuitive as a paper). We’re starting to see reform though in part because of your point (f) – policymakers’ historic lack of interest in land use regs has changed in both the UK and the US and it’s a hot topic.
A second graphic novel on the science of housing/land-use policy sounds great, and if you’d like I’d be happy to have a chat with you about my research and the UK experience if you’re up for it. I’ve put my email and a link to my research above – let me know what you think.
Ant
Steve X
Apr 6 2021 at 5:46pm
Great to hear that you’re working on a book about housing deregulation. Personally I’d prefer a book but a graphic novel would also be grand.
It’s worth pointing out that through deregulation governments can actually create something worth a lot of money. Governments love to promise that they are creating jobs but often their actions subsidize some jobs at the expense of other jobs elsewhere in the economy.
Also, being ‘zoned out’ is a global problem. From Stockholm to Sydney places that don’t allow sufficient building where people want to live have caused a lot of problems. Stockholm is a very good example of a place where the government tried to limit rental construction and well, it hasn’t worked.
The US is a great place to look at how different zoning rules have resulted in places that are growing with low housing costs like Houston.
Kailer Mullet
Apr 6 2021 at 8:12pm
We should have lowest common denominator deregulation. Over regulation is often a ratchet issue. It comes time to update the building codes and some bureaucrats grab a bunch of proposed rules from other cities and run it by politicians. Bureaucrat says “oh look, Austin TX requires that all new condos with more than 4-units have a sprinkler system, we should add that.” But the Bureaucrat never says “90% of cities don’t require sprinkler systems, we should take that rule out.”
The bureaucrats don’t feel strongly about any particular change, they just need to propose some change, so it looks like they’re doing their job. The politicians are more than happy to let the “experts” make the call.
Thomas Lee Hutcheson
Apr 7 2021 at 6:53am
I agree, but urge that both be advocated in a normal “liberal” way of arguing for any other policy reform: that the costs of specific changes are positive and/or benefit low-income people disproportionately.
Comments are closed.