Rent isn’t a four-letter word

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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.

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Reply: Radical Democracy

I would have written this in reply to the blog post itself, but I must admit that I’m unsure if videos can be embedded in the comment section.

Despite the seeming radicalism of Fred’s proposal for a neighborhood-based democracy, it isn’t radical at all! It’s mainstream enough that it was the subject of an episode of Yes, Prime Minister and, as Fred himself reported, there was a serious ballot proposition in California a while back to implement something similar.

None of this should be taken to mean that Fred’s proposal is bad. To the contrary, it’s a fantastic idea that improves on democracy as is. By re-aligning districts to include only a few households, an individual’s vote matters sufficiently and there is an incentive to be knowledgeable about political affairs.

My concern is how legislation that was unpopular at the district level, but popular at the regional or national level, would get through. Take for example transportation issues, which oftentimes are unpopular at the local level despite popularity at the regional level.

In my native Los Angeles, attempts to build additional roads between the San Fernando Valley and the Los Angeles basin have been repeatedly thwarted by a few small ultra-rich enclaves that fear that people might be more easily able to visit their neighborhoods if the roads were built. Similarly, in the greater Washington DC area, the expansion of the light rail system was originally opposed in richer parts that feared the poor would gain access to their neighborhoods.

On a quick aside, if you haven’t watched Yes, Minister and its sequel Yes, Prime Minister, go watch it right now. It is several decades old now, but still holds up as a great political comedy.