Deregulation Can Fix the Housing Crunch
by J.D. Tuccille, Reason, September 23, 2024.
Excerpt:
Building regulations reflect a wide range of government interventions, including zoning restrictions, land use regulations, energy efficiency codes, safety codes, and more. The intent behind such rules often started with public health, then expanded to encompass energy efficiency, home values, and even the aesthetic preferences of government officials. Regulations can affect construction, and require sign-off from local agencies, through the entire process—from planning, to building, to final habitation.
The evidence that regulations play a major role in choking housing availability is very strong, Bryan Caplan, a professor of economics at George Mason University, wrote in July. “Before the rise of stricter regulation in the 1970s, the textbook model worked well: When demand pushed prices above the cost of production, more construction drove prices back down.” Since then, though, red-tape-bound jurisdictions have seen prices soar relative to less heavily regulated places. “Strictly regulated urban areas like New York City and the Bay Area have high prices and low construction, while more lightly regulated areas like Houston and Dallas have much lower prices and much more construction.”
And:
Extensive regulations entail compliance costs, not just in money, but in time. In March, real estate industry publication TheRealDeal reported a developer’s year-long wait to get an appointment with an official who could resolve a conflict between one New York City agency’s requirement for a ramp that complied with the Americans with Disabilities Act, and another agency’s demand for trees in the same space.
Texas Crime Data Help Discredit Haitian Migrant Pet Eating Claims
by Alex Nowrasteh, Cato at Liberty, September 23, 2024.
Excerpt:
Conviction data in Texas for the crimes of animal cruelty are obviously not data on Haitian migrant consumption of cats and dogs in Springfield, Ohio. However, we don’t have data on criminal convictions by immigration status or country of origin in Springfield. The data from Texas are suggestive, and they may be generalizable, despite having some issues, as I explain here.
Perhaps few immigrants who are cruel toward animals aren’t prosecuted or perhaps they’re less friendly toward our furry friends in other ways that wouldn’t be captured in criminal prosecutions for animal cruelty. Still, the Texas data help answer the questions of whether immigrants are crueler to animals nationwide than native-born Americans and whether more immigrants would result in more common animal cruelty in the United States. Immigrants in Texas are much less likely to be convicted of cruelty toward animals.
See his second graph.
Are Drug Prices Abroad Too Low?
by H.E. Frech III, Mark Paul, and William S. Comanor, Regulation, Fall 2024.
There is worldwide interest in supporting the development of new therapeutically advanced medications, and this commonality of interest provides the foundation for the global public good discussed here. While the United States and some other large countries continue to support more than proportionately the burden of funding this public good, that fact does not mean it is sufficiently supplied. Indeed, there are economic factors that suggest it is undersupplied.
In Frech et al. 2022, we found that average launch prices of US branded pharmaceuticals lie well below $40,000 per Quality Adjusted Life Year (QALY) gained. But studies of consumer and labor decisions estimate that the US public’s revealed “willingness to pay” for an additional QALY well exceed $200,000. This difference of $160,000 or more per QALY suggests that even the United States is, on average, underpaying in support of global R&D, even during the life of the patent. After the end of patent protection, entry by generic pharmaceutical manufacturers typically drives prices far lower. This makes sense as a Nash equilibrium, as mentioned above. Even the largest country takes little account of external benefits. So, the United States would be a conservative model for the correct contribution. If the US contribution is too low, the ROW countries’ even lower contribution exacerbates the problem. This conclusion does not preclude the possibility that some branded pharmaceuticals are overpriced in the United States.
California Drivers May Soon Get Speed-Warning Devices as Standard
by Greg S. Fink, Car and Driver, September 21, 2024.
Now California is looking to emulate the EU with legislation that would mandate in-car speed-warning devices. The bill, SB 961, aims to make such systems standard in the Golden State by requiring just about every 2030 model-year vehicle equipped with either GPS or a front-facing camera to also have visual and audio warnings when driving more than 10 mph over the speed limit. Provisions within the bill would ensure that drivers can fully disable the systems.
Those championing the technology argue that it could save lives—consider that in 2022, 18 percent of the passenger-vehicle drivers, or 8236 people, involved in fatal crashes in the U.S. were speeding, according to NHTSA. Yet even safety advocates struggle to believe that the regulations as written can do much good. Graziella Jost, who serves as projects director at the European Transport Safety Council and managed a campaign that helped lead the charge for speed-warning technology, finds the EU’s—and, by extension, the California bill’s—minimum requirements for the systems to be lacking.
UPDATE: Governor Newsom vetoed the bill. His reasoning isn’t great but his bottom line–a veto–is.
War Is a Self-Licking Ice Cream Cone
by Matthew Petti, Reason, September 25, 2024.
Excerpt:
Lebanon isn’t the only place where Washington’s wars are a self-licking ice cream cone. From Vietnam to Iraq, hawkish politicians have sent Americans to fight in faraway countries, then used the blowback as an excuse to fight even harder. You don’t think that they’re an enemy of America? Then why are they shooting at Americans in their country?
And:
Over the next few decades, Vietnamese communists learned that they enjoyed American capitalism more than they had thought. Today, Americans are free to come and go in Vietnam as guests. But first, we had to stop being invaders.
U.S. policy is delaying that outcome in the Middle East as much as possible. As long as they can, politicians will try to keep the cycle of blowback and vengeance alive. We will stay in the Middle East to avenge the Americans who died to keep America in the Middle East.
Petti’s last sentence is gold.
READER COMMENTS
Richard Fulmer
Sep 29 2024 at 4:08pm
I think that much of Americans’ self recrimination for Vietnam is based on 20-20 hindsight. At the time we got involved in the war, no modern communist country had ever failed. Instead, communism was expanding around the globe, bringing misery, poverty, and death in its wake.
Moreover, many American leaders at the time were convinced that the USSR could outcompete and out produce the United States, believing that planned economies simply had to be more efficient than “chaotic” free markets. They did not, and probably could not, have foreseen either the Soviet Union’s collapse or Vietnam’s move toward a market economy.
Today, there is far less excuse for not understanding the power of free markets and the terrible inefficiency, corruption, and economic destruction associated with planned economies.
That said, we still don’t seem to have learned the lessons. Both parties are wed to trade restrictions and top-down industrial policies.
David Henderson
Sep 29 2024 at 4:11pm
You write:
It’s hard to see, though, how communist in Vietnam was a threat to people in the United States.
Richard Fulmer
Sep 29 2024 at 6:44pm
That’s fair. On the other hand, while most people today ridicule the Domino Theory, Cambodia and Laos did fall in the wake of Vietnam, and the results were horrific.
David Henderson
Sep 29 2024 at 7:47pm
True, but two things:
They still weren’t a threat to us.
The U.S. illegal boming of Cambodia and Laos probably made things worse for those people.
Craig
Sep 30 2024 at 12:45pm
Cam Ranh Bay is a warm water port for the Red Navy and in a position to interdict the shipping between the Middle East and Japan. Major reason, among others of course, for major US naval presence in the Phillipines for many, many years. Indeed viewing Vietnam in and of itself as a threat to the US is ludicrous but as a cog in an alliance? Makes a bit more sense and no, I’m not defending it, but there is a mindset at play there, just not a good one.
Ahmed Fares
Sep 29 2024 at 5:03pm
It is generally believed that absent regulation, higher house prices will increase the supply of land for housing. In fact, the opposite is true.
Rising home prices reduces the willingness to supply homes
A housing supply absorption rate equation
Delay or Develop? What really determines the rate of new housing supply
Jon Murphy
Sep 29 2024 at 6:00pm
Why would the supply of homes be downward-sloping contra to 1) empirical evidence and 2) pretty much all experience with supply curves?
Ahmed Fares
Sep 29 2024 at 6:40pm
At the risk of repeating myself, a couple of quotes to make things clearer.
Crampton debates Crampton on the economic theory of landbanking and housing supply
To address your question more directly, this from another article by Cameron Murray:
Explainer: Markets efficiently delay building feasible new homes
Richard Fulmer
Sep 29 2024 at 6:52pm
That’s a plausible theory, but it doesn’t explain, for example, the lower housing prices in Houston, which has relatively little zoning or the significant increase in housing construction and decrease in prices that New Zealand experienced in the wake of its deregulation:
https://search.arc.net/AmuwhEQ1MSt95Ytv6Zt3
Ahmed Fares
Sep 30 2024 at 2:36pm
Empirical evidence cannot be used to falsify Hotelling’s theory. Each case is different.
If the risk-free rate of interest is 5% and oil in the ground appreciates at 7%, prudence dictates that you leave the oil in the ground. That would cause higher spot prices and lower futures prices, and this would continue until the return to oil in the ground was also 5%. In that case, it is the risk-free rate of interest that determines the extraction rate of oil. If the risk-free rate of interest changes, so will the extraction rate.
But if you are a Middle East dictator with insecure property rights, 5% in a Swiss bank account is better than 7% in the ground, so you extract oil as fast as you can.
Likewise, if you are a Western government with oil resources, your objective is not to maximize wealth but to stay in office, which means bribing voters. So you extract oil at a high rate for the same reason.
As an aside, I don’t mean that by favoring regulation I’m referring to current regulation. I mean removing current regulation and replacing it with just the regulation that overcomes the market failure. For example, a tax on vacant land. Or a tax on farmland if you wanted more land for housing instead of farming.
Jon Murphy
Sep 29 2024 at 6:55pm
Those quotes only deepen my skepticism.
Ahmed Fares
Sep 30 2024 at 2:15pm
My comments are about the supply of land for housing. Also, the fact that you introduced upward-sloping supply curves into the discussion means you’re talking about a change in the quantity supplied when in fact the discussion is about a change in supply, which is not on a supply and demand chart at all.
The fact that I mentioned Hotelling in my second comment should have alerted you to that.
Jon Murphy
Oct 1 2024 at 8:40am
You’re right. I had misread your initial comment. You wrote:
What I read was “…higher house prices will increase the quantity supplied of housing.”
Now, all that said, two points:
First: Higher home prices does indeed increase the supply of land for housing. That is an empirical fact. In some cases, it is dramatic (like Boston filling in Back Bay to transform water into land). In other cases, it is simply the reallocation of land from one use to another. We’re seeing that here in South Louisiana. Lots of sugar cane fields are being converted to housing land.
Second: None of this changes the fact your links provide unpersuasive models that neither explain reality nor are economically solid.
Jon Murphy
Oct 1 2024 at 2:48pm
Here are what I see are the major problems with the arguments you linked to. But first, a word: I assume you highlight through your quotes the major takeaways of each article. I have not gone in depth on all off them; no time. But if your quotes are accurate summaries, then I see these serious issues:
First: The authors do not take into account the cost of keeping land off the market.
Second: Some of the conclusions, if taken to their logical ends, lead to silly results. For example: “In this case, the best thing to do is wait and keep the property vacant for two more years. Then, in two years, the same decision will again be made, and perhaps then it will also be optimal to delay.” We take that model to its logical conclusion, it is constantly optimal to delay, and thus no housing would ever be built.
Third: The authors seem to have an implicit assumption of monopoly for housing, but there’s no particular reason to think that (especially in a major city).
Ahmed Fares
Oct 1 2024 at 8:34pm
A longer quote from the first article I quoted which should answer your first point, i.e., there is a return to holding vacant land, not a cost, and that return is higher than holding the risk-free asset (please read my comment above to Richard Fulmer where I discuss my understanding of Hotelling.)
Note especially the last line in this quote which is not looking at price at all but rather return:
As for your second point, things change over time. For example, if a government like here in Canada tries to solve the problem of housing affordability by densification, that means less demand for land and the return on land changes, which means an incentive to supply land and hold the risk-free asset instead. Not only that, just the threat of densification will have that effect.
As for your third point, it’s about a monopoly on land, not on housing. But that is different in different places. In some places, it’s almost impossible to supply land for housing because the government wants to preserve green areas.
steve
Sep 30 2024 at 10:43am
Query- Why don’t we apply the same methodology to food or water that is being applied by these people to drugs? Without food I would die. If a QALY is worth $200,000 why am I spending so much less? The whole world should be spending $200k per person per year by their logic.
We dont largely because we have markets. People sell the food they make for what people are willing and able to pay and they are willing to accept. For drugs, some people want to completely eliminate the market. Granted, markets for drugs are imperfect but eliminating all ability to negotiate is worse. Then on top of that they claim we should be happy about this because we are paying less than the value of a QAKY.
Steve
Craig
Sep 30 2024 at 11:10pm
But there’s patent monopoly pricing involved. I mean, do I have to give up the right to self-manufacture the drug? Don’t get me wrong, I never starred in Breaking Bad, but from what I hear they are cooking up all kinds of things in the woods around my home in rural TN. 8th grade education can’t perform world class research but it can apparently cook up some highly potent meth. I am being a bit glib of course, but there is no fundamental right to a patent, its a right defined by statute and as such that statute can be defined quite differently. For instance the statute could read something along the lines of, “This patent is enforceable in the United States only to the extent the price offered is the lowest price charged anywhere in the world. If a lower price is charged this patent will be declared null, void and unenforceable.”
The one case I recall of course was Gilead, a US corporation, which had purchased Pharmasset, the creator of Harvoni, an antiviral which targeted Hep-C and they were charging different prices to different countries [retail price for a round of treatment was 85k] and of course in many circumstances the highest price charged was to US based buyers of the drug. Let Bubba cook that out in the woods. (FYI the patent itself has to actually tell you how to make the patented product). Now perhaps there is something about the manufacturing process of Harvoni that makes it peculiarly difficult to manufacture, but in many case pharmaceuticals aren’t that hard to make. Indeed I recommend checking out the Advil Tablet Manufacturing Process on YT. Good for a quick perusal. Now if you need to make Advil at a low per pill cost, their process is world class, no question, but if its a $200k patented product, the per pill cost can be very high, one doesn’t need to be that efficient to deprive the patent monopolist of his monopoly price.
Jon Murphy
Oct 1 2024 at 8:43am
Ah, the Water-Diamond Paradox!
The short answer: water is extremely abundent. The marginal use of water is low-valued whereas the marginal use of the pill is high-valued. Since the price depends on the marginal value and not the total value, the price of the pill is considerably higher than the price of water even though, on some margins, water is necessary for life.
steve
Oct 2 2024 at 12:22am
Sure, so that explains why the pill will cost more, but not how much more. You are probably aware that DeBeers maintained a monopoly on diamonds for many years, increasing prices. Looks to me like drug prices are determined more akin to diamonds under the DeBeers era. They have been excluded from market competition. Generic drugs which are subject to competition are cheaper in the US that in most other first world countries.
Steve