Wednesday 15 May 2024

HOUSING: "What regulation has ruined, deregulation can repair."

"Government regulation has raised housing prices far above the physical cost of land and construction.
    "And what regulation has ruined, deregulation can repair.
    "It's tempting to look at America's [and New Zealand's!] most expensive addresses and repeat the top three principles of real estate: 'location, location, location.' But this glosses over the artificiality of today's locational scarcity. Since the dawn of the skyscraper [or even just of the Georgian terrace house or Manhattan brownstone], technology has allowed vast populations to simultaneously enjoy the world's top locations. The government response, in turn, has been to make building skyscrapers [or terrace houses] in desirable places nearly legally impossible.
    "Indeed, U.S. [and New Zealand] regulators view almost all multifamily housing with deep suspicion. That's why they zone a supermajority of residential land for single-family homes. [See Auckland council for example.] But even the single-family supply is heavily restricted, because governments routinely set high minimum lot sizes to force builders to waste most of their land. Physically fitting six mansions on an acre is easy, but legally you're lucky [in some areas] to get a green light for one.
    "Averaging over the whole U.S., a conservative estimate is that regulation has doubled the price of housing. [No reason to think it's any less here — and given the outrageous price of building materials here, is more likely much more!] It's much worse in places like the Bay Area and Manhattan, and a minor issue in the countryside. But as a recent paper by Gyourko and Krimmel shows, regulation raises prices almost everywhere that lots of people actually want to reside.... As a matter of arithmetic, then, halving the price of housing would [at minimum] cut the cost of living by 10%, raising the standard of living by 11%. (As you may recall, 1.0/.9≈1.11).

    "Even better, deregulation will deliver these gains beyond a reasonable doubt. Laissez-faire in housing is not a futurist Libertopia. A hundred years ago, U.S. housing markets were close to laissez-faire [as they were here in NZ before the first Town Planning Act in 1928], and the least-regulated regions of the U.S. are still close to laissez-faire. Furthermore, we don't have to blithely assume vigorous competition will arise, because vigorous competition in the construction industry already exists. The total number of builders is immense, and even in our regulated world, many are champing at the bit to expand.
    "Indeed, the construction industry could revolutionise our lives for the better if it simply were free to deploy the technology of a century ago! Work on the Empire State Building started in 1930, and was complete just 410 days later. [Likewise, work on Auckland's Grafton Bridge, the longest reinforced concrete-arch span in the world at the time, started in 1908 and was completed just over a year later!] Imagine what industry would accomplish if we combined the light regulation of the past with the advanced technology of the present.
    "Almost all political thinkers like to keep up with the news cycle — to talk about the latest, most salacious topics. I've indulged this temptation myself more than once. But if your worldview has merit, you can do so much better than opine on the scandal of the century of the week. Housing deregulation realistically promises to enrich humanity by trillions of dollars. And all government has to do to make this happen is stop preventing it."
~ Bryan Caplan, from his article 'Trillions' — promoting his new 'graphic novel' Build, Baby, Build

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