In a current publish, Scott Alexander doubled down on his argument that constructing extra housing usually ends in increased housing costs. In his earlier publish, he pointed to the truth that housing is mostly costlier in larger cities. I offered a counterexample, citing Houston and Austin. I additionally argued that huge cities are costly for causes unrelated to their giant amount of housing, equivalent to the benefits offered by agglomeration. Exogenous provide will increase, equivalent to making it simpler to construct new housing, usually cut back housing costs.
Right here’s how Alexander responded to one among my arguments:
I began the publish with a graph of about 50 cities, exhibiting a optimistic correlation between density and worth. I’m having hassle seeing how Sumner’s level isn’t simply “when you take away 48 of these cities and cherry-pick two, the connection is damaging”.
I believe Alexander misunderstood this argument, so let me return and make the purpose extra fastidiously. It will likely be useful to make two separate arguments:
1. You’d count on huge cities to be costlier even when constructing housing reduces housing costs.
2. Austin and Houston aren’t the one counterexamples; there are various different such anomalies.
Let’s begin with a easy mannequin the place there are zero restrictions on housing development in all cities. Assume that America has 100 cities, every with industries of various productiveness. In that mannequin, the most important cities will probably be subsequent to the areas of biggest productiveness. (These areas of productiveness have been as soon as linked to pure components equivalent to ports and mineral sources, however are more and more linked to industries with community results like finance, power, leisure and tech.) Once more, assume there are not any limitations to constructing, that’s, development of housing is so unconstrained that each single metropolis makes fashionable Houston appear to be a NIMBY stronghold.
Housing costs on this hypothetical economic system will probably be increased within the bigger cities, ceteris paribus, although constructing further housing would possibly effectively depress costs. That’s as a result of in a bigger metropolis, folks pays extra for comfort (i.e., a great location). That may be true even when these larger cities weren’t extra productive. As an illustration, folks would pay further to scale back commuting prices, or to be near facilities. However the larger cities are (by assumption) additionally extra productive, which gives another excuse for housing costs to be increased in larger cities—increased wages. This thought experiment means that the empirical relationship Alexander depends upon to make his argument would apply even when his argument weren’t true.
One response is that these industries with community results solely exist in locations like New York as a result of there are many folks, and you can’t have a lot of folks with out a lot of housing. That’s true, however has no bearing on the query of how further housing impacts costs on the margin. And from the earlier thought experiment, it’s clear that taking a look at easy correlations doesn’t resolve that downside.
Alexander would possibly fairly reply that my mannequin is overly simplistic. Constructing restrictions differ from one metropolis to a different. In that case, you would possibly count on some exceptions to the iron legislation that larger cities are costlier than smaller cities. And since (he assumes) I discovered just one such anomaly, the correlation among the many remaining cities is simply too robust to elucidate by (exogenous) components apart from metropolis dimension.
Truly, I cited Austin and Houston merely as one instance, and I picked this instance as a result of they’re positioned in the identical state. In actual fact, there are various, many examples of bigger cities which can be cheaper than smaller cities. And in just about each single case the reason is that the smaller however costlier cities have extra restrictions on constructing. Within the listing beneath, the metro areas on the left are bigger and cheaper than the metro areas on the fitting:
Chicago >>> San Francisco Bay Space
Dallas/Forth Value >>> Washington DC
Houston >>> Boston or Seattle
San Antonio >>> Portland
Phoenix >>> San Diego
Colorado Springs >>> Boulder
In every case, the bigger metro space is cheaper than the smaller one. And in every case there are stricter limits on constructing within the costlier metropolis.
That doesn’t show Alexander is mistaken. It’s potential that the rationale for costlier housing within the NIMBY cities has nothing to do with restrictions on constructing. However I doubt it. I think that if Houston had adopted extreme restrictions on constructing within the Nineteen Eighties, then folks would now attribute the ensuing excessive housing costs as being as a consequence of all of the oil cash sloshing via its economic system. However Houston determined to open its doorways to anybody who wished to maneuver there. Because of this, although Houston is the worldwide power capital and is stuffed with effectively paid petroleum engineers, and although power is without doubt one of the world’s largest industries, Houston remains to be an affordable place to dwell. As a substitute, it bought a lot larger. BTW, Houston additionally has effectively paid aerospace engineers, effectively paid enterprise executives and effectively paid docs, and many others. There’s greater than sufficient cash in Houston to drive up housing costs if that they had restricted constructing.
It could seem that Alexander is “Reasoning from a amount change.” In any case, it is not sensible to debate the impression of a change in amount on worth, with out realizing why amount modified. If Oakland will get extra housing as a result of it deregulates, costs will in all probability fall. If Oakland will get extra housing as a result of it turns into trendier, then costs will in all probability rise. Alexander appears to grasp this downside, and thus at the least implicitly appears to imagine that each single issue which may enhance Oakland’s housing provide would have the impact of boosting demand by greater than provide. That’s, he appears to imagine that NIMBY insurance policies make cities cheaper. That’s theoretically potential, however appears unlikely generally.
To recap my argument:
1. The correlation Alexander cites proves nothing—you’d count on larger cities to be costlier even when (on the margin) constructing extra housing didn’t increase costs.
2. Alexander is right that if his mannequin have been mistaken you then’d count on some exceptions to the commonly optimistic relationship between density and worth, as a consequence of differential restrictions on constructing. However loads of such exceptions do exist, and virtually at all times in precisely the locations predicted by YIMBY proponents of extra constructing. Elsewhere in his publish he dismisses intercity comparisons between fashionable coastal cities and heartland cities. Nonetheless, the examples I present present that I didn’t simply cherry choose one exception with my Austin/Houston comparability, there are various such anomalies. And one can discover such anomalies even inside coastal areas. The Bay Space is costlier than LA, regardless of being smaller. It has extra restrictive zoning. The Boston metro space is costlier than metro DC, regardless of being smaller. Boston has extra restrictive zoning. And you’ll’t say that LA and DC aren’t fascinating markets.
Simply to be clear, our dispute has completely no coverage implications. As an illustration, I mentioned:
If constructing extra housing raises its worth, then the argument for extra development is even stronger.
And Alexander responded:
I agree with all this.
That is essential, as a result of his earlier publish had appeared to point that he thought it was a “downside” that new development led to increased housing costs. He beforehand mentioned:
It is a coordination downside: if each metropolis upzones collectively, they will all get decrease home costs, however every metropolis can reduce its personal costs by refusing to cooperate and hoping everybody else does the laborious work.
What “laborious work”?
Within the new publish he makes it very clear that this isn’t a “downside.” He helps the YIMBY place.
Thus we each help making it simpler to construct housing in Oakland, though he thinks this could increase costs and I believe it might decrease them. If I’m mistaken, that’s, if extra housing boosted home costs in Oakland, then we each agree that this could be an particularly good end result. And I concede that I may be mistaken.
P.S. Barely off subject, it’s price recalling why new homes needs to be “unaffordable” for common People. Consider a steady-state society with solely 100 households, dwelling in 100 homes of various high quality. Assume that every home lasts 100 years. Annually, the worst home is torn down, and a brand new home is constructed. To ensure that the standard of the housing inventory to rise by 1%/yr, the brand new home have to be twice nearly as good as the common current home. Annually, the households all shift over one home, transferring progressively to raised and higher properties. The richest household lives within the newly constructed home, which is (by assumption) unaffordable to the opposite 99 households.
In a extra lifelike mannequin with inhabitants progress, not each new home is unaffordable to the underside 99%. However even with inhabitants progress, new development in an economic system with rising dwelling requirements will are usually a lot nicer than the present inventory of housing, which signifies that new development will usually be “unaffordable” to the common household. If new housing is inexpensive to the common household, then society won’t progress.
P.P.S. Alexander describes my earlier publish as follows:
Scott Sumner is an economist and blogger
I don’t see myself as a well-known individual, however I share his view that I’ve the potential to carry good opinions. So far as the query of whether or not I do really maintain good opinions, I’ll let readers determine.
