Why Exactly Won’t We Build?
Key quotes from Caplan’s Build Baby Build:
Why is US housing to expensive? “Two words: government regulation … Housing prices stay high in desirable areas because most governments strictly regulate new construction. … ‘Take it from Paul Krugman, the most eminent progressive economist alive. “High housing prices in slow-growing states also owe a lot to policies that sharply limit construction. Limits on building heights in the cities, zoning that blocks denser development in the suburbs, and other policies constrict housing on both coasts.” …
Americans spend about 20% of their budget on housing … 62% of renters favor BANNING new development from their own neighborhoods. Only 40% of homeowners agreed. … Inflation-adjusted housing prices have roughly doubled since 1980 even though BUILDING costs have stayed about the same. The upshot is that deregulation could plausibly cut housing prices by 50%. …
Downtown, the zoning tax is causing: 1.6 million per acre in SF, $2.1 million per acre in NYC. …
Conservative estimate: If the Bay Area and NYC deregulated housing the level of the typical U.S. city, the whole country’s GDP would rise by 14%. Optimistic estimate: … 36%. If we add these productivity gains to the straightforward consumer gains, we’re talking about making the average American anywhere from +25% to +47% richer. Year after year.
Why then is regulation so popular? Probably because it’s a lot easier to get people upset about negatives endured than positives denied. … If economic self-interest doesn’t explain support for housing regulation, what does? Above all, I blame stubborn economic ILLITERACY. … basic economics rubs people the wrong way … innumeracy, too, locks in support for housing regulation. … Status quo bias, you may recall, is also critical. But an even bigger factor, perhaps, is there paranoia! When they hear “deregulation,” folks tend to freak out. …
The Supreme Court had the power to declare such [zoning] laws unconstitutional throughout the entire country. … State governments can invalidate local regulations. … [But re] thousands of local governments [from] 2006 [to] 2018 … overall housing regulation increased. … Zero markets that were heavily regulated in 2006 had significant deregulation by 2018.”
I’ll bet there is pretty strong consensus among economists who have considered the issue much that we in fact do over regulate housing. And yet I doubt much will happen anytime soon. And if something does happen, economist opinions won’t be much of the cause. At a CATO event on Caplan’s book, the audience was supportive, but not excitedly expecting things to happen.
So what exactly is the point of a career becoming expert in such questions, and being validated by the usual authorities as the best experts on them, if the world won’t listen to us about them? The world pays us to teach kids so they can show off their smarts to impress employers, but isn’t interested in the content of what they learn.
Note that Caplan’s favored explanations for US housing over-regulation, econ illiteracy, innumeracy, status quo bias, and paranoia, were all just as strong back in 1980, or in 1880, when this problem wasn’t nearly as bad. So they can’t be the full explanation for why things are worse. We have to wonder why we ever had better regulation long ago, if regulation naturally ends toward bad ends.
I'd say the straightforward explanation is regulation goes up, not down; the regulatory burden never gets smaller.
One reason people might publicly support 'bad' regulation without being either ignorant or irrational is because they have valid expectations of even worse outcomes in the absence of the regulation, but they cannot explicitly articulate the logic behind these expectations without suffering severe social penalties. So they have to lie about the real reasons, in the language of some "socially acceptable excuse."
The SAE is often a position that is not well-supported by logic or evidence, but no one cares, because that's not the point. The point is to exchange the currency of tacit common knowledge with other socially savvy people who "get it" that the SAE is a cover story and a "hypocritical veto of last resort" when the genuine reason fully justifying a veto on other grounds is not able to be argued.
Someone is going to ask me to give an example of this for housing, but this is exactly the problem. The examples are socially undesirable taboos and liable to trigger negative emotions and volcanic passions that will derail the discussion and lead to a lot of ad hominem and premature rejection.
So instead I'll make up an example from a lighter subject and very much removed from our contemporary context.
There are a few movies such as My Big Fat Greek Wedding and Everything Is Illuminated in which dropping an American vegetarian into an Old World culture is used as an opportunity for culture-clash comic relief. In those two movies an Eastern European country is portrayed as somewhat backward and unenlightened as well as more uniform in tastes and (simple, primitive) moral sentiments. That is, where not only does everybody eat meat, but exaggerated into a caricature where they practically don't eat anything besides meat, have never ever heard of the idea of anyone voluntarily abstaining from meat out of ethical considerations, and literally cannot wrap their heads around the idea that such a person is in their company and not completely crazy.
Now, the vegetarian in such a situation may be rudely put on the spot to explain himself, but the moment he tries to do so, he realizes that it will take extreme amounts of effort to bridge the conceptual distance and that in the process of trying he may come off at superior or smug or contemptuous of his morally inferior and unenlightened hosts or risk breaching etiquette or causing serious offence for reasons he doesn't and should not be expected to know. That's why it's rude to put him on the spot, you should know he doesn't know the local etiquette and framework of sensitivities, and so insisting that he explain himself is like insisting that he walk through a minefield. Rude!
Now, realizing all this, the vegetarian needs a socially acceptable excuse. He cannot give the real reason without it being counterproductive. They won't get it at best, and they could also get offended and kick him out or worse. But if he doesn't give some kind of reason, they will keep insisting that he try the sausages and find it weird or insulting if he keeps refusing for no apparent reason. So he has to lie and give a fake reason. But it has to be the kind of reason that they will accept as the kind of thing that settled the matter, puts an end to the conversation and insistence, and allows for changing the subject.
A good example of a great socially acceptable excuse is to claim one has a medical condition. That is hard to verify, it's rude to express skepticism, and people want to signal to others around that they are compassionate and care and say, "Oh you poor baby!"
So the vegetarian says, "Oh, I'm allergic", or "I was bitten by a lone star tick and now I have Alpha-gal syndrome" or "I am getting a medical scan next week and the doctor says I can't eat meat until then!", or "I am taking a special medication and I have to keep my protein level below Y", or whatever.
This is the vegetarian's "hypocritical veto of last resort". It's not the truth, but it's also not the case that he doesn't have a valid, justifiable truth. It's just that he can't say what it is, in part because the people he would have to say it to are predictably not going to be fair or reasonable in their reaction to what he has to say. So he has to say something else which is his fallback contingency for how to accomplish his legitimate objective when the rules of his social milieu take the more honest ways off the table.
Having to use a hypocritical veto of last resort is a low-equilibrium not just because of the dishonesty but because in the honest equilibrium one might be willing to discuss, negotiate, and come to positive-sum compromises for superior regulations that are less likely to harm legitimate interests. But you can't negotiate trades when the things you want in exchange for your agreement are deemed to deplorable and illegitimate preferences.
In such circumstances one is forced to forgo these gains from trade and accept a lower level of welfare as the only way to defend those interests, as if they were acting in accordance with a right that the social rules said they were entitled to exercise without having to provide any public explanations or justifications whatsoever. in general, not being able to have certain honest discussions without exposing oneself to substantial social risks is a big reason behind, "This is why we can't have nice things."