Why are you blaming free markets for your city’s high rents? Too much freedom is not the problem.
How to think about America’s housing shortage
“If you look outside the window of your home and believe you see the free market at work, you are mistaken.”
Land use reform activist Charles Marohne
What you see out your window is a twisted mess of rules and regulations put in place by the state that choke housing supply and protect property owners from competition.
Let me explain how this works by telling you a few stories.
1. Meet Guy, the suburban conservative.
He’s a Trump voter; picture a big red MAGA hat.
He lives in suburban Atlanta and drives a black Dodge Ram with a roomy cab, blasting country music on the freeway. He’s not dumb, though he dropped out of Iowa State when he realized how much money he could make in construction. He’s got a goatee and works hard. His wife likes essential oils, but not excessively, and their kids play with the African-American, Hispanic, and Asian children in their burgeoning neighborhood. This man loves his family, his guns, and his freedom, both in a literal and an ideological sense.
He hates being stuck in traffic, but he constantly is, locked in the bumper to bumper rat race every single day for hours. But what he hates more than being stuck in traffic is the thought of his tax dollars being spent to build a comprehensive mass transit system. “Trains don’t work in America,’’ he says. “We’re too spread out; they’re money pits, they’re slow, they’re dirty.”
MAGA guy lives in a leafy suburb. It’s nice, lower middle class, and dates back to the 80s. When the vinyl siding and manicured hedges were fresh, it was a fashionable place with good schools and blacktop roads. “This is where people want to live,” says MAGA guy, though the vinyl looks more and more faded these days, the blacktop has needed to be repaved for at least fifteen years, and the schools have been slowly declining since at least 1987.
Some yuppie group tried to get a bike lane installed on a busy connecting road. MAGA guy and his wife were among the hundreds of locals who showed up to shut it down. It’s not necessarily that they hate bikers; it was truly a wasteful and poorly thought out project and would certainly not have gotten enough use to justify its cost and inconvenience. Some people complain that their neighborhood is inaccessible if you don’t have a car, but MAGA points out that if you can’t get your act together enough to buy a $500 beater, maybe you’re not the kind of person locals would want in the neighborhood anyway.
MAGA guy hates cities, he just hates them. They’re overcrowded. The people there are snobs, overdressed, overformal, and self-righteous, judging the world from overpriced apartments in ivory towers. Traffic is horrendous, and there’s nowhere to park unless you pay out the wazoo. In the summer terrible heat radiates from the dirty pavement, and in the winter the cold, dead trees shape the whole thing into a concrete hellhole.
Moving him and his four kids into a city apartment is unthinkable — he’d pay twice his mortgage for half the space. And where would the kids play? There’s no yard, no playgrounds, and speeding cars in every direction. All the yuppies would judge him and his wife: she doesn’t have time for yoga and kale smoothies, she works part time and has to homeschool their autistic daughter.
Cities are dying, he says, because no one wants to live in them. “This is what people want when given the choice,” he says. “This is the free market at work.”
2. Meet Bay, the compassionate city dweller.
She lives in San Francisco; let’s call her Bay.
On her way to work this morning, she almost stepped on a pile of human feces on the sidewalk. If she’d slipped she would have caught herself on a used syringe a junkie tossed to the street last night. Two months ago, an addict overdosed and died across the street from her apartment complex.
Bay makes really good money, but her student loan payment is $1,200 a month, and she’ll be paying for at least the next decade. Her rent is $3,800 for a one bedroom apartment, and it’s almost certainly going to increase when she renews her lease.
She’s lived in San Francisco for two years now, and while she loves the climate and finds her job fulfilling, the darkness of the city’s homelessness problem is taking a toll on her and her friends, not to mention that rent increases show no signs of slowing. Two of her old classmates moved to Boise last fall, hollowing out the core of her local support network. A coworker she likes just announced he’s moving to Austin in a few months.
She doesn’t drive: renting a parking space costs as much as an apartment, and she enjoys being on her feet anyway. None of her friends ever want to live in a car dependent place; cars are such a liability. But she has far less disposable income than her parents promised when they encouraged her to pursue a medical degree. She could get a job in Austin: she’d take a pay cut, but it’s a lot cheaper to live there.
She walks past a construction site where more apartments are going up. Across the street, a new luxury highrise is nearing completion. Starting wages there will be well into the six figures, but the cost of living is so high that the company will still struggle to fill jobs.
On her lunch break, Bay searches for apartments in Austin. She finds one she likes: $1,800 for two bedrooms. But Uhaul is charging so much for a moving truck out of the Bay Area that she could practically buy her own.
She sends her mom a picture of a row of tents in the alley behind the gleaming office tower: “This is what capitalism creates. No one wants this.” Tech companies creating thousands of jobs to rake in billions, landlords and property developers building nothing but luxury housing and no affordable housing. Her Mom, a Reagan republican from Toledo, doesn’t know what to say; it’s as if somehow there are too many jobs in San Francisco.
3. MAGA Guy and Bay: what they misunderstand.
They think their neighborhoods are an outgrowth of the free market. But they’re wrong.
For at least 70 years, the American built environment has been manipulated by a variety of forces into a shape that can’t be called strictly natural. A litany of public policies and a tortured jurisprudence have deformed America’s urban growth by holding it back in stagnant pools, diverting it into deserts where it festers and evaporates, or by holding it back with levies that eventually burst, flooding vulnerable areas with explosions of population.
A key problem is that the wrong people are given too much weight in decisions about how and where to build. In some municipalities, your distant neighbors may have greater say over what you can do with your property than you do. Betty Sue who lives over the county line has the power to stop you from building a basement apartment for your mother-in-law; Bubba McGee who lives five miles across town can stop you from building a duplex on a vacant lot you might happen to own.
Urban developers have a term for these people: NIMBY, an anagram of the words not in my back yard. NIMBYs have played positive roles in the past, and they do good work today as well: They’ve stopped neighborhoods from being bulldozed to build unneeded superhighways, protected valuable environments, and stood up to abusive speculators.
But it seems like things have changed. In the past, NIMBYs opposed building things we didn’t need. Now, they oppose building things that we desperately need. Their political power has grown since the enactment of the first comprehensive zoning laws in the U.S. in 1908. But this power shift has come at a cost, the most urgnet one being an escalating housing shortage in many of America’s first and second tier cities.
4. Meet Rich, the savvy boomer.
There are some powerful reasons why some capitalists don’t want you to build more housing.
Let me illustrate this by creating one more straw man, a guy named Rich Boomer. He lives in Boise, Idaho, a region that has grown by 100,000 people since 2010. He and his wife bought their second home thirty years ago when Boise was just a big sleepy town. Its value has tripled since then.
Rich and his wife also own a condo in San Francisco. They got it in 1977 for a steal. At the time the city’s population was plummeting and crime was out of control. Since then a historical renaissance and massive tech boom has blown up the condo’s value to nearly $3 million. They rent it out for $7,000 a month. They’re living good.
Rich and his wife are like MAGA guy: they hate cities, but their reasons are different; they’re on the opposite side of the political spectrum.
They hate high-rises. Not only are they ugly, they block views and make fat cat capitalists rich: They’re dystopian monuments to the pestilence of overpopulation. They love hiking, that’s why they’re in Idaho. The thought of San Francisco’s and Boise’s beautiful views being blocked by skyscrapers like giant tombstones makes them furious.
But there’s something else that Rich knows, something that he doesn’t talk about much, not even with his wife on their long hikes through the mountains. The truth is, if San Francisco were to build enough housing to meet demand, they wouldn’t be able to rent out their condo for $7,000 a month anymore. It wouldn’t be worth $3 million. The closer San Francisco gets to building enough housing to meet demand, the less valuable their condo will be. Conversely, the more desperately needed housing is, and the more tightly supply is controlled, the more they will get away with charging for rent. Meanwhile, Rich Boomer will keep living in affordable Boise (which is itself on the cusp of a housing shortage crisis).
While San Francisco finally meeting housing demand would be bad for Rich Boomer, it would be good for almost everyone else in the entire region. The city’s GDP and overall wealth would increase, but most importantly, its human capital would increase: as supply met demand and prices fell or at least stabilized, a far more diverse population could afford to live in the city, more than just yuppies and techies making six or seven figures.
The city could see an increase of artists and entrepreneurs, enriching the lives of the locals and giving those who’ve chosen to engage in these low-income but valuable pursuits access to a wealthy client base. More families could afford to live there, as well as more elderly, creating a richer social fabric than the wealthy monoculture that currently dominates.
And as more people could afford to live in the city, mass transit would benefit from economies of scale. This would mean more pedestrians, more bus and train users. Expanding rail systems would become more economically justifiable, resulting in a per capita reduction of carbon emissions. Tax revenue would increase as well, and costs of infrastructure would be spread across more people.
Sprawl would be slowed as well; adding 200,000 people to the 47 square miles of San Francisco’s city limits would be far less environmentally impactful than spreading them across the entire Bay Area on half-acre lots. People who prefer living in rural areas could rest assured that the city’s geographical spread would be slowed as already urbanized areas simply became denser.
But Rich Boomer and his wife would be losers in that situation, with less rental income and a smaller net worth, at least in the short term. It’s worthwhile for them to do what they can to make sure San Francisco’s housing shortage is never alleviated.
So they join neighborhood coalitions, who seek professional advice on their legal options, and, in an ironic twist, provide resources to fringe political groups who protest all new development on anti-capitalist grounds. They donate to politicians who will strengthen government control and increase regulatory hurdles to slow construction. If that fails, they can afford to fly from Boise to show up at San Francisco City Hall to protest new developments in person.
All this to say, San Francisco’s housing crisis is not the result of the free market; it’s a result of abusive restrictions resulting a choking, manipulated, and distorted market.
5. How Rich Boomer and his neighbors control your housing supply.
We live in a control-freak hegemony.
The reasons are complicated. Bulgarian immigrant and urban planner Sonia Hirt explored the complex issue in her book Zoned in the USA. To sum up approximately 150 years of history, an escalating creep of land use regulation began in the U.S. during the roaring 20s, when American cities were experiencing unprecedented population booms that make modern urban growth look like kid’s stuff. This control set the stage for today’s insane city hall meetings and absurdly restrictive development policies.
An un-American level of control of other people’s land through top-down legislation was enabled by a coalition of interests. Agrarian idealists thought that everyone ought to have a yard. Romanticists exaggerated the importance of single-family homes, and moralists exaggerated the perils of city life. Communists wanted the distinction between rural and urban areas erased. Racists wanted laws to keep up-and-coming ethnic groups out of their neighborhoods. In concert with these special interest groups were a host of serious urban problems: historically high pollution, bloody ethnic tensions due to unprecedented levels of immigration and racism, and the Cold War brought concerns about the security risks of concentrating population in mushroom-cloud sized areas.
All of these factors led to widespread support for dispersal of dense populations. This was accomplished by establishing mandatory lot sizes, and by forbidding any form of housing that wasn’t single-family only in vast swaths of urban, suburban, and rural land. Thus the regulatory framework for today’s modern suburbs was laid out.
Meanwhile, the Federal Housing Administration gave generous tax subsidies to developers, which went to housing and the infrastructure to serve it. The problem with subsidies is that they disguise the true cost of goods, and these artificially cheap houses appeared to be bargains.
In the midst of all this, American cities were in turmoil from escalating racial tensions and terrible pollution. The G.I. Bill gave easy home loans to returning vets (at least those who were white; the eugenicist underpinnings of the original thought leaders of American domestic policy in the mid 1900s is complex enough to warrant its own article). Consequently, the suburbs boomed and urban centers imploded. The true cost of the turmoil was disguised by Uncle Sam’s generous contributions.
This was not the free market; it was a dubious mix of top-down social engineering and private-public cronyism.
6. Where will this lead if we don’t change course?
Regulations shape our lives without us realizing.
This is the environment that MAGA guy, Bay, and Rich Boomer live in today. Rich and his wife are advantaged; they understand the structure of housing and land use regulation, and they use is to their advantage. MAGA guy is happy, and Bay is subconsciously responding to market incentives by moving to a less regulated city. Everyone in this story gets a happy ending; these are the winners in the land use regulation lottery.
But there are losers in this story. Bay passes the tents on the street; building housing is so difficult and expensive that only luxury developments are profitable enough to justify the time and money it takes to navigate the bureaucracy. MAGA guy’s kids are getting obese, because their days are spent sitting in cars and at desks. And San Francisco is losing good people like Bay because Rich and his friends don’t want the city to change.
Land use reform activist Charles Marohne once said that “If you look outside the window of your home and believe you see the free market at work, you are mistaken.” Rather, the nature of the built environment around you is a byproduct of ideas, laws, rules and regulations that often don’t reflect what’s truly best for its inhabitants, foisted upon them by powerful people with ulterior motives.
It’s strange to think that text on a piece of paper can play such a powerful role in shaping the world around you. It’s even stranger to think that this text can’t ever be changed.
Stop blaming free markets for our rising property costs. Casting blame and fury in the wrong direction is like using a sledgehammer to do the job of a scalpel. Instead, let’s focus our efforts on sorting out this twisted mess of rules and regulations into something streamlined and efficient.
More reading:
“Boom Towns: Restoring the Urban American Dream” by Stephen J. K. Walters
An easy-to-read analysis of the economic problems of American cities by the former Economic Adviser to the Baltimore Orioles
“The Embrace of Buildings: A Second Look at Walkable City Neighborhoods” by Lee Hardy
A clear, concise, and easy-to-read overview of urbanism by a Professor of Philosophy
An fascinating explanation of how well-run cities are miracles of human efficiency by a Harvard polymath.
“Strong Towns: A Bottom-Up Revolution to Rebuild American Prosperity” by Charles Marohn
A sneaky rebuttal to Keynesian economics bolstered by a colorful mosaic of anecdotes, stories, and information by an Army vet turned engineer turn New Urbanist leader.
“Zoned in the USA: The Origins and Implications of American Land-Use Regulation” by Sonia Hirt
An analysis of America’s insane land use laws from the perspective of a baffled European immigrant.