Inspired by the publication this week of NYU scholar Alain Bertaud‘s critical new book Order without Design: How Markets Shape Cities (MIT press), Sandy Ikeda‘s pre-book development series Culture of Congestion over at Market Urbanism, and London YIMBY, here is a note on housing reform.
Classical liberals see the economic solution to housing as relatively simple: increase supply to better meet demand. By contrast, the political economy of housing is almost intractably complex. The reason for this is that there are endless externalities associated with new housing: access to light, picturesque landscape, open space and uncongested roads just for starters. These gripes and grievances are the bread and butter of local politics. Unlike consumer product markets, housing cannot be disentangled from these social, political and legal controversies. A successful market-based housing policy must establish institutions that not only encourage housing supply growth but navigate around these problems while doing so.
Policy reform proposals that deliberately favour increasing owner-occupied single-family homes, as tends to be the focus among market liberals in the UK (and to some extent in the US), are currently self-defeating. As justified as they were in the past to achieve a more market-friendly political settlement, they are now a barrier to achieving plentiful, affordable housing. This is because every new homeowner becomes an entrenched interest, a potential opponent to subsequent housing development in their area. They impose more political externalities than renters. I propose we cut the link between support for home ownership and housing supply policies. This would free up policymaking to focus on expanding provision by all available market-compatible means.
This should include greater encouragement of institutional landlords, especially commercial enterprises. Commercial landlords have more incentive and capability to expand supply on estates that they own, while long-term renters (unlike homeowners) have an interest in keeping rental costs low. The lack of private firms dedicated to supplying housing in England compared to much of the rest of the world is startling and yet often overlooked even by friends of free enterprise.
Two months ago, London’s iconic Fabric nightclub was shut-down by Islington Council on the dubious grounds that it had failed to adequately search club-goers for drugs. Fabric, a sprawling multi-level concrete venue, is dear to the heart of many Londoners. Its dramatic closure came as a shock. David Nutt blamed our hypocritical drug laws, while others spied conspiracies to turn the venue over to housing developers. In response to the public outcry, this month, London Mayor Sadiq Khan has appointed Amy Lamé as ‘night tzar’ (some use the even grander title Night Mayor) with the task of reviving London’s nightlife and especially trying to save venues like Fabric.
Tzars sound great in theory but tend to fail in practice. They are meant to break-up bureaucratic silos and join-up policymaking so that it conforms to a grand plan in a particular policy area. Rather than following rules regardless of outcomes, they have an outcome that the executive asks them to pursue remorselessly. However, I argue that this is precisely the opposite of what you want if your goal is a sustainable, thriving night-life culture. London night-life has suffered because of its politicization, not from a lack of it. The answer is strong rights for entrepreneurs to provide entertainment to willing consumers. This means reforming of government powers to license venues and prohibit development on arbitrary grounds. While ending drug prohibition is of deep importance, here the drug-use excuse was the face of a more pernicious power that local governments have to shut down successful businesses on arbitrary grounds.
In the United Kingdom, land development and property-use decisions have essentially been nationalized since 1947. While building still takes place, it only happens following detailed, expensive consultation with local planning authorities with significant input from local residents. As a result, the supply of building amenities has become unmoored from demand. The most noticeable impact has been rising house prices and rents in areas where the economy is growing. This is a boon to landlords lucky enough to own property in areas of high demand. But it causes those without property to suffer significantly higher living costs. It has led to bizarre developments such as it being easier to open a new golf course in the South-East than to start a new housing development.
While the majority of people feel the strain primarily through higher rents, less visible is the impact on businesses who are equally constrained by planning laws. They struggle to find suitable buildings for their commercial activities. Competitors and local residents can use the planning process to block new construction or changes to lawful uses for particular venues. Businesses lack legitimate expectations about where they will be allowed to expand. Those that do succeed need to invest heavily in lobbying and legal support. The result is that people end up travelling further to get to shops and to their places of work.
Club venues face a number of additional biases in this process. Local officials are more likely to be blamed for noise and crime associated with clubs but not praised for their fun and economic benefits. This fosters risk-aversion amongst local policymakers. At the same time, club-goers may outnumber local residents but most are not able to vote in local council elections. Residents might well have originally moved into a central London location precisely to experience fun, exciting nightlife. But once there, perhaps especially as they get a little older, their priorities change. They realize that they may want to live in an exciting city, but just so long as their particular neighborhood is a little less exciting. Rather than move to a quieter area, they express their preferences through the political process and demand that venues that have been around a lot longer than they have be closed.
Unfortunately, if too many residents in the city come to the same conclusion, you end up shutting down historic clubs on the slightest pretext. When it comes to hosting unlawful activities, businesses can be presumed guilty, with no secure way of ever proving their innocence.
In this context, having a tzar is an understandable response as a counter-balance to the call of the NIMBYs. But it doesn’t solve the core problem which is a system that cannot adequately represent revelers but augments complaints. The tzar can champion venues but will be silenced once these entrenched interests turn up the noise. Instead, we need a system that recognizes the presumptive right of businesses to market entertainment to willing consumers. Only provable nuisance should be cause to fine or eventually close venues. Once established, entertainment venues should not have to regularly prove their social worth to a licensing committee (the fact that they have willing customers is sufficient warrant for that).
Most importantly, complaints from recent arrivals against historic venues that have always hosted loud parties should be discounted. This works in a fashion in Tokyo, where mixed development is widely permitted (no one stops people from taking up residence in an otherwise commercial district) but without any assumption that those residents can then alter the make-up of their community through the political process.
That’s a headline piece from the Economist. An excerpt:
Nate Silver, a blogger for the New York Times and sports statistician, points out that only five world records in track and field were broken in Beijing out of 47 events. Even that was a decent tally: the previous four Olympics saw a total of just seven new world bests, compared with a whopping 22 world records in swimming. Mr Silver attributes this disparity to economic inequality. “An athlete with the perfect swimmer’s build,” he writes, “and a world-class work ethic would still stand little chance of competing in this year’s games if he happened to be born in a poor nation like Cameroon or Panama—he might never have gotten into a pool, let alone an Olympic-size one.”
Running, in contrast, is more democratic […]
Read the rest here. I’m not a big fan of the Olympics, just because of the nationalistic impulses it taps into. Why shouldn’t these sports become completely separated from the state?
With that obligatory libertarian statement out of the way, I can’t help but admire the feats accomplished by some of these athletes. A lot of hard work goes into training for the Olympics, and I think that pushing the state out of the way would help to reduce the obvious inequalities associated with national competitions. Did anybody see the US basketball team play Nigeria?
If sports were separated from the state we’d see more games like the NBA: very competitive, cosmopolitan and lucrative (unlike the bloodbath between the US and Nigeria).
Anyway, I like it when individuals from poor states win big in the Olympics. Nothing like seeing an underdog win, especially an underdog with a name like Usain Bolt!
Update: I spoke too soon about the level of competitive play at London’s basketball tourney. Check out this piece in Grantland about the semis between Spain v. Russia and the US v. Argentina. And ESPN has a brief recap of the Russia v. Spain game. I’ll keep my eye out for a more passionate recap, though. Spottieottiedopalicious!
Update 2: Spain’s leading daily newspaper, El Pais, reports on the game with Russia. The Russian press spilled a lot of ink on their team’s quarterfinal win over Lithuania, and not so much ink on their semifinal loss to Spain…
What? You don’t surf with Google’s Chrome browser? I hope you have fun looking for some sort of translating software instead having Chrome do it for you on the spot…