The Best Plan for Housing Is to Plan Less

Op-ed by Bryan Caplan / The New York Times

“I would be the first to argue that if an economist claims to know of a cure-all policy — a reliable way to relieve a long list of social ills in one fell swoop — common sense tells you to stop listening.

So it is awkward for me to declare that I know of something close to a panacea policy: one big reform that would raise living standards, reduce wealth inequality, increase productivity, raise social mobility, help struggling men without college degrees, clean the planet and raise birth rates. It’s a sweeping reform that Democrats and Republicans, progressives and conservatives could all proudly support.”

“The panacea policy I have in mind is housing deregulation. Research confirms that there are large benefits in saying yes to tall buildings, yes to multifamily structures, yes to dense single-family development and yes to speedy permitting. The growing YIMBY (Yes In My Backyard) movement already has high-profile wins in Minnesota, Oregon, California and beyond, but even YIMBY devotees rarely appreciate the scope of the merits of loosening rules on housing.”

Supply and Demand

“The case for housing deregulation starts with Econ 101: Allowing builders to significantly increase housing supply leads to much lower prices. This is hardly wishful thinking. 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. We have decent U.S. data since the 1950s, and until recent decades, there was no long-term upward trend in prices. Now, despite a downtick during the Great Recession, the upward march is unmistakable: Today’s inflation-adjusted (and quality-adjusted!) housing prices are now far above their previous peaks.”

“How do researchers know that excessive regulation is causing high housing prices? Using the process of elimination. It isn’t rising demand, as the U.S. population rose even faster back when housing prices were roughly stable. It isn’t because of higher construction costs — those, adjusted for inflation, have been almost flat for decades.

On the other hand, there is good evidence that heavy-handed housing regulation is boosting home prices by restricting supply. 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.Standard of Living

What would happen if homebuilders could once again freely build until housing prices were driven back down to cost? According to a conservative estimate, prices would ultimately fall about 50 percent on average nationally — with significant, wide-ranging implications. The most direct would be a sharp jump in the average American’s economic well-being. Since shelter is now roughly 20 percent of the average American’s budget, halving its price makes the cost of living 10 percent lower — and the standard of living 11 percent higher. This would be welcome news for those struggling to make rent or buy a first home. And while current homeowners would see their house values drop, those who sold to developers could still make a killing.”

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