Understanding the Regulatory Ratchet: Psychology and Interests

Show Notes:

In this discussion, Professor Bryan Caplan discusses the science and ethics of housing regulations and the argument for housing deregulation, which he believes benefits everyone across the political spectrum, including lower costs and more equity. 

Barriers to Radical Housing Deregulation

Bryan believes that to achieve radical housing deregulation, it would require convincing a large audience of people that it is a good idea. He explains that most people don't see the connection between letting people build and low prices, and there is a hypersensitivity to the harms a building can cause. The conversation also explores issues of environmental regulations and renewable power, and opposing forces lobbying to keep current housing regulations in place, such as community activists and the construction industry. 

Housing Developers and Zoning Laws

The discussion turns to various types of regulation and barriers faced by developers, including zoning laws, which are often used to separate industry from commercial and residential areas. He talks about the expression “the zoning tax”, used by economists. Bryan believes that abolishing these regulations would be the best solution, and that, unfortunately,  there is a slippery slope in allowing owners to preemptively stop someone from using their property as they want, it stymies action of any kind, and it can lead to laws that are overreaching and, most often, unnecessary. He talks about the law of nuisance and the burden of making a lawful complaint should be the responsibility of the complainer and not of the court to mitigate potential complaints in advance. 

Historical Preservation and Housing Regulations 

He discusses the issue of  historical preservation regulations, which may not necessarily lead to the demolition of historic buildings. Market forces play a role in preserving historic buildings, as people often value them and don't want to tear them down. However, if there is a significant difference between the value of renting office space in historic buildings and the extra value from turning them into residential spaces, the market is spoken. He mentions that every historic building was built on the rubble of a previous, more historic building. Bryan states what he believes is the best, most easy solution to this problem. He also offers an example of why the motivation to preserve many historic buildings is quite ironic. 

Environmental Building Regulations

Bryan addresses the environmental regulations that new builders face when building new buildings. He believes that current environmental protection laws are counterproductive, as they prevent developers from building in areas with favorable climates and reducing carbon emissions. Instead, he suggests making it easier to build in areas with good conditions, such as Southern California, where the weather is good and housing units can be built for millions of people. He talks about the importance of privatizing government land, particularly in the US, and suggests that developers should focus on what people want to pay for rather than environmental philosophy. He also discusses the lack of research on building codes and standards, which are often focused on land use regulations and safety regulations. He believes that the free market can ensure quality products, and explains how licensing, certification, and insurance companies play a role. 

Accessibility Requirements in Housing Regulations

The conversation turns to accessibility requirements, such as the Americans with Disabilities Act (ADA). Bryan suggests a voluntary system where developers can target specific markets for ADA accessible buildings. He also discusses the challenges of building skyscrapers and density regulations in the United States. He argues that while technology has allowed for the construction of tall buildings, getting government permissions to build them is difficult, especially in desirable areas. He suggests that if skyscrapers could be built closer to desirable locations, it would make living in these areas more affordable. Density regulations are another issue, as 80% of residential land is zoned for single-family homes. This makes it difficult for builders to build multi family homes, which is often expensive due to the paperwork involved. However, if housing is cheap enough, it is possible to have spacious apartments and entire floors of skyscrapers at a reasonable cost. Bryan also discusses the difference in cost per apartment or per square foot between single-family and multifamily housing. 

Building Costs and Economies of Scale

Building costs can be influenced by economies of scale, with skyscrapers being more expensive per square foot. Research shows that, averaging over the United States, regulations roughly doubles the cost of housing, with San Francisco and Manhattan having the worst regulation costs. Deregulating a small part of New York City could lead to skyscraper development almost immediately due to high prices in surrounding areas. However, if all the land was deregulated, then building skyscrapers of a certain height would no longer be profitable if there were many skyscrapers in the area and housing costs had been lowered. Overall, the cost of housing per square foot in a neighborhood depends on factors such as land, labor, structure, and regulation.

Community Engagement and Developers

Community engagement and public hearings are crucial for developers to build a building, as they must negotiate with the community to determine the benefits they will provide. However, many complaints are unmet, leading to delays and potential financial losses. A book called Neighborhood Defenders provides transcripts of land use meetings in Massachusetts, revealing that the complaints are often from paranoid homeowners, not wealthy homeowners, who fear disturbance or the neighborhood's character. The democratic process, while effective, puts the power to veto progress in the hands of paranoid people who don't speak for anyone but themselves.

Local Politicians and Housing Developments

Local politicians often claim to focus on increasing the tax base and lowering housing costs, but they often face criticism for their actions. The most simple-minded emotional arguments often prevail, as politicians are not there for the long term and may prioritize re-election over long-term goals. The antipathy for the housing industry is rooted in the fact that it is a big business, and housing is the second most vital necessity after food. Despite this, housing is often maligned, as it is the second most vital necessity after food. 

Affordable Housing Regulations 

Bryan discusses the concept of affordable housing requirements and their various versions. He identifies three common approaches: subsidizing demand and strangling supply, rent control, and public housing. The most common approach involves government subsidies for poor people to buy housing while restricting the supply. The least common approach is taxing the housing industry to produce different types of housing, which can make unsubsidized homes even more expensive while making affordable ones less expensive. Public housing, on the other hand, addresses the issue of not having enough housing and produces more housing. However, this approach generally faces issues such as high costs, lower quality, and poor maintenance by nonprofit sectors. 

Noise and Nuisance Regulations

When it comes to noise and nuisance regulations, Brian compares the old system to the new system. Bryan suggests that there was a better system during the period without regulation, where complainers could take recourse to the courts. He also mentions the homeowner association (HOA) as an intermediate market system for handling complaints. HOAs are flexible and limited to one area, allowing residents to be aware of the rules in place and decide whether they want to buy in or not. Bryan closes the conversation with a brief discussion on the ratcheting of regulations, economists, embedded interests, and political psychology.

Timestamps:

00:23: Housing deregulation, with insights on opposition forces. 

04:42: Regulations and their impact on development, with a focus on zoning laws, historical preservation, and the role of the government in decision-making 

12:29: Preserving historical buildings and environmental regulations

16:19: Government regulations and building codes, with a focus on the free market and insurance companies setting standards

21:05: Regulations and their impact on affordable housing

27:35: Housing costs in New York City, with a focus on Astoria

32:21: Skyscraper construction costs and community engagement challenges

37:44: Affordable housing requirements and their impact on development

43:02: Housing regulations and their impact on affordability

48:12: Regulations and their challenges in society

52:54: Housing regulation and special interests

Links:

Website: http://www.bcaplan.com/ 

Email: bcaplan@gmu.edu 

Substack: http://betonit.substack.com/

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