E362 -
Hosts
Aaron Ross Powell
Director and Editor
Trevor Burrus
Research Fellow, Constitutional Studies
Guests

Emily Hamilton is a Research Fellow and Director of the Urbanity Project at the Mercatus Center at George Mason University. Her research focuses on urban economics and land‐​use policy.

Hamilton has authored numerous academic articles and policy papers. Her writing has appeared in USA Today, the Christian Science Monitor, Economic Affairs, and the Philadelphia Inquirer. She contributes to the blog Market Urbanism.

Shownotes:

When you drive through any major U.S. city you will notice that there are areas filled with shops, restaurants, and office buildings, but one block over is solely single‐​family residential housing. Zoning regulations have stopped the redevelopment process in many of the highest demand parts of the country. But cities like Houston are finding that without zoning regulations there is more affordable housing and room to grow.

What is market urbanism? Are people fleeing cities? Why did the interstate highway system grow so large? What is a commercial corridor? Why have our cities developed in the way that they have?

Further Reading:

Want More Housing? Ending Single‐​Family Zoning Won’t Do It., written by Emily Hamilton

Policies to Help Communities Recover: Housing Restrictions, written by Emily Hamilton, Salim Furth, and Matthew (Nolan) Gray

Transcript

[music]

00:07 Trevor Burrus: Welcome to Free Thoughts, I’m Trevor Burrus.

00:09 Aaron Ross Powell: And I’m Aaron Powell.

00:10 Trevor Burrus: Joining us today is Emily Hamilton, a Research Fellow and Director of the Urbanity Project at the Mercatus Center at George Mason University. Welcome to Free Thoughts.

00:18 Emily Hamilton: Thanks for having me.

00:20 Trevor Burrus: What is market urbanism?

00:23 Emily Hamilton: Well, urbanism is just the development pattern of cities or towns, and typically people who are urbanists or who like urbanism prefer a more walkable, denser development pattern that includes a wide variety of land uses and then markets, of course, refers to the market system and prices as a way of allocating resources, so market urbanism is the idea of bringing lessons from market process to the study of cities and how their built environment develops.

01:06 Trevor Burrus: It seems like nowadays, this kind of high density thing is pretty popular, think of like Brooklyn, people wanna go and live in a city where they can walk down the street to the local coffee shop and a cool bar and maybe like a brewery or something, but is that how cities have historically been? Like the suburbs have taken a bad rep for a while now, especially among hipsters, but eventually maybe they move to the suburbs or maybe are family moving into these high density places?

01:36 Emily Hamilton: Well, if we look at prices, there’s clearly a lot of demand to live and rent space in high density places, they tend to be the most expensive parts of the country so people are willing to pay a lot for them, and if we look at walkability across the country as a whole, we see that people are willing to pay more for more walkable parts of the country in general not just in New York or San Francisco but in the country as a whole. Whether or not millennials or future generations will choose to move to the suburbs as they get older, I think that likely yes, as people get older and have families, they likely want more space and somewhat of a different lifestyle, but that doesn’t change the fact that there seems to be a shortage of walkable, more urban places, given how much people are willing to pay for them.

02:40 Aaron Ross Powell: How much of that desire to be in walkable, urban, dense places is because the people who move there like dense, urban walkable environments, and how much of it is just that’s where the jobs are?

02:55 Emily Hamilton: Well, it’s certainly both. Going back to New York and San Francisco, those are two of the most productive places in the country where incomes are highest, firms are most productive, and economic opportunities are very high for many people, but even controlling for labor market opportunities, we still see that within a given metro region, people are willing to pay more to live in more walkable parts of it.

03:28 Trevor Burrus: So the question of our times therefore is, why is the rent so damn high? This has been asked ever since… What was his name, what was that guy’s name, it’ll come to me a separate… Ever since the Presidential Candidate said this, but why is the rent so damn high?

03:43 Emily Hamilton: Well, there are many local and state regulations that have made it increasingly difficult to build houses, especially in the places where people want to live most, so single‐​family zoning restrictions and minimum lot size requirements work together to mean that in many places only one house and one household can live on a given piece of land, and a minimum land size restrictions mean that that house has to sit on a yard of a certain size, so in essence, that caps the number of people who can live in a given jurisdiction. And in places where land costs are expensive, it sets the price of a unit of housing at a very high price point. It’s become increasingly difficult to build low‐​cost housing. In the past, lots of low and even middle income households lived in very simple housing, like boarding houses or simple flats without necessarily even a kitchen and a bathroom in each unit, now living standards have increased across the board in many ways since then, so there’s no reason to think that many people necessarily want that lifestyle, but it’s become illegal across much of the country to provide that sort of bare‐​bones dense housing development.

05:15 Aaron Ross Powell: Is there an upper limit to density, because even if we get rid of all of these zoning restrictions and people keep building, it feels like there has to come a point where we simply can’t pack more people in and the prices are gonna keep going up if people wanna live there, right? So is New York City, is Manhattan as dense as a city could get or could we get even denser?

05:42 Emily Hamilton: Well, Manhattan’s population is lower than it was at its peak by quite a bit, so certainly it could be denser. There are definitely limits to how tall it makes sense to make a building for example, and we don’t necessarily need skyscrapers by any means to achieve a very high population density. Density comes with costs and benefits for both residents and for builders, so building taller and taller buildings becomes more and more expensive, and there are benefits to living in a denser environment in terms of having lots of amenities and lots of people around you but also cost in terms of traffic congestion, all of the disadvantages that come with high density urban living. So there’s no reason to think that absent land use regulations, we would see incredibly dense cities or everyone wanting to live in Manhattan, but we certainly know that land use regulations of right now are limiting density from what the market would otherwise provide.

07:01 Trevor Burrus: So in that sense, is it fair to say that we don’t really know what the city would look like in a free market, because like anything else, people’s preferences would reign supreme. So it may look more dense, it may look less dense. Is that a fair assessment?

07:20 Emily Hamilton: Well, I think we know that the places where prices are very high right now would be denser if land use regulations permitted, but certainly we don’t know what a single city, or what the country as a whole would look like in terms of development patterns, if the market were free to provide what people wanted.

07:41 Trevor Burrus: It seems like there’s a public transportation aspect to this, and maybe not even just public transportation, but roads themselves publicly built. We had, you know, suburbs grow, kind of the icon of the ‘50s, is this the growth of suburbia going into present day. And maybe it’s going back to the way a bit, but we have this growth of suburbia, but we also have a growth of the interstate highway system. So on some level, if you are told that you were going to get subsidized transportation in the sense of public roads to get to work, then you have more of an incentive to live in the suburbs. So is it maybe safe to say that to some extent maybe public roads incentivized the creation of suburbs?

08:26 Emily Hamilton: Yes, absolutely. Highways played a big part of making it feasible for people to live in a more remote location and drive into their downtown jobs each day, and that period of highway building corresponded with a lot of interventions in both transportation and housing markets. The FHA began encouraging localities to adopt single‐​family…

08:57 Trevor Burrus: The Federal Housing Administration, right? That’s what it is?

08:58 Emily Hamilton: Yes, yes, thank you. The Federal Housing Administration encouraged localities to adopt single‐​family zoning and other restrictions on density that mandated suburban development patterns as highways were making it increasingly appealing and easy for people to live in those suburbs, and at the same time, in many instances, highways were built right through city neighborhoods, eliminating neighborhoods in the process and making city neighborhoods less appealing than they had been prior to those highways coming through.

09:39 Aaron Ross Powell: What’s the drive to institute single‐​family zoning? It seems like people who wanna live in the suburbs could live in the suburbs, people who wanna live in the cities could live in the cities, and it seems unlikely that, say, you’re gonna just… If you don’t have something saying you can’t do this in the suburbs, you’re going to have someone build a Manhattan‐​style skyscraper down the street from the single‐​family homes. Why do we have to say you can only build single‐​family homes here?

10:09 Emily Hamilton: Yeah, good question. So from the FHA’s perspective, when the federal government began insuring mortgages, they thought that requiring single‐​family zoning would reduce the risk that house prices would fall in suburban jurisdictions, so that it would be a safer bet for the federal government to ensure mortgages in locations with single‐​family zoning. Now, in the financial crisis, we saw that some of the more liberally zoned cities, with Houston being the prime example, experienced much less of a dip in house prices compared to more regulated cities. So the wisdom of that is certainly worth questioning, but that was their motivation. In general, home owners tend to be very averse to change in their neighborhoods, sometimes for very understandable reasons, but today that’s really the force that is keeping these regulations in place, is people want their local governments to say, “Your neighborhood will never be allowed to change.” And at the local level, those homeowner preferences are very salient, and the costs of development are weighted generally much more heavily than the benefits of development. But as you said, the land rent gradient, that means that land is more expensive in center city locations and less expensive the closer you get to farmland dictates a lot of what the built environment is going to look like. So there are very few locations in the country where it would make sense, even just from a financial perspective, to build very densely.

12:07 Trevor Burrus: Going off of Aaron’s question there though, aside from some of the market constraints, the classic fear of taking away zoning… I mean, I live in a neighborhood in Pentagon City, the single‐​family housing and let’s they take away the zoning, and over the course of, say, the next 20 years, it becomes house, McDonald’s, apartment building, factory, house, and Wendy’s. Like that’s what the street looks like. I mean, that would be a concern for someone who bought a house in 1975 here. Is that a valid concern of homeowners?

12:41 Emily Hamilton: Well, again, looking at Houston, where there is no use zoning, which means that housing can be built in any part of the city along with restaurants, or factories, or other uses, there are some instances where you get land users abutting each other that would be very unusual to see in another city in the US, but that’s very much the exception, not the norm. In general, markets tend to dictate that it makes sense for businesses to locate on commercial corridors where it’s easy for their customers to reach them. And some people might want to live in, say, an apartment building on those corridors as well, but in general, it won’t make sense for a McDonald’s to locate in a quiet street off of main thoroughfares, because that’s not where their customers are going to find it easy to get to.

13:47 Trevor Burrus: The history of zoning, you mentioned a little bit of it, let’s say the Federal Housing Administration, but was zoning a thing in New York in 1830s? I can see people definitely wanted to keep their neighborhoods in some way, that drive was not invented in the 20th century. So, has zoning been with us for quite a while?

14:10 Emily Hamilton: Yeah, New York is generally considered to have adopted the country’s first zoning ordinance in 1916. Berkeley, California had adopted some restrictions on development even prior to that, but before those zoning ordinances came into place, reading about the history of New York or Chicago development is very, very different from what we see today. So back then, wealthy families tended to build very fancy houses at what was then the outer boundary of the urban development, but quickly, as demand for housing increased, those houses that high income households had built, would become subdivided and chopped up into apartments that could put that land to better use, housing more people. And then perhaps a couple of decades later, that house that had become apartments would be knocked down and developed more densely. So cities were growing both out and up very rapidly during the height of gross rates for those cities. But zoning regulations have brought very much a stop to that redevelopment process in many of the highest demand parts of the country.

15:43 Trevor Burrus: So wherever I turn… I’m picturing this, that there’s a kind of churn that happened in New York, say in the 1880s, where things changed uses or were, as you said, subdivided into different types of housing situations. And that just doesn’t have… I guess even anecdotally, that seems to be… Just walk around New York, it doesn’t seem to change as much as maybe it did in the past?

16:09 Emily Hamilton: Absolutely, yeah. There’s an image that I like to use of the area of Manhattan around Washington Square Park from the 1920s. So this is a lower Manhattan neighborhood that had been growing and densifying very rapidly until that point. But if we look at that picture from the 1920s, the built environment is very similar today. Many of those buildings are exactly the same as they were then, even though demand for housing and office space and retail space in that location has increased majorly.

16:52 Aaron Ross Powell: Why is it hard to get around these regulations or to get them set aside? So when we’re talking about the suburbs, you’ve got the homeowners and the homeowners are basically… They’re the only people who live there. And so they’re the both the base of voters and the owners of all of the property, and so it’s understandable that they’re powerful with the local government. But in the cities, it would seem like, say, these developers that would love to put a enormous building that will bring in a huge amount of revenue and create a whole lot more property taxes than that small house that’s being protected by zoning… It would seem like they could flex a lot more muscle. So what’s stopping them from flexing that muscle?

17:42 Emily Hamilton: Yeah, great question. So it’s generally said that home voters, which are homeowners who dominate suburban politics, are the driving factor out there, but until fairly recently, a different process termed the growth machine dominated urban politics. And so under the growth machine, real estate interests and business interests are very important constituents and tended to have more influence in determining urban real estate outcomes. And that’s still the case largely in some parts of the country, but we’ve seen the home voter dynamic come to become increasingly important in center city jurisdictions as well. So, there was a recent instance of the Upper West Side in New York successfully blocking or successfully leading local political officials to remove a homeless shelter that had been built in their neighborhood, very much classic suburban Nimbyism dominating in urban locations as well.

19:05 Emily Hamilton: In Washington DC, there was a notorious case of building a new grocery store and apartment building on Wisconsin Avenue up near Cathedral Heights. And the homeowners successfully delayed this project for about 10 years, even though many local officials and the developer very much wanted to see this go forward, we see suburban style politics delaying projects, and in development delaying has similar effects to not allowing something to be built at all, because it really adds to the cost of building a project and results in less development and higher prices than we would see if projects were able to move forward quickly and predictably.

19:58 Trevor Burrus: So, we’re hearing… There’s obviously a bunch of class concerns that come with zoning, but that would also kind of lead us to conclude, especially in America, that it would come with race concerns too, ’cause zoning has a pretty colored history, I guess we would put… When it comes to race too, right?

20:17 Emily Hamilton: Certainly. Early land use restrictions that even preceded zoning ordinances limited where African‐​Americans could buy or rent in their city, those types of explicitly race‐​based land use ordinances were overturned by the Supreme Court, as well as private race‐​based deed restrictions, but regulations that are pure and neutral. So, single‐​family zoning may not seem to have a different effect on white households versus black households, but because of the legacy of housing discrimination and racial discrimination generally in this country, these regulations that appear to be racially neutral actually affect minority households and limit their housing opportunities more than they do for white households.

21:22 Aaron Ross Powell: Is that still intentional? So, it sounds like in the past, limits on building and buying and selling of properties were explicitly designed to keep racial minorities out, but is that still the case today, or is it just that you have well‐​meaning people who are setting up stuff that’s in their own interest or they think is in everyone else’s interest, and it has the unintentional effect of excluding based on race and class?

21:50 Emily Hamilton: Well, I think in many cases today, it’s unintentional, particularly on race lines. I think people do still intend to segregate neighborhoods on class lines by setting a floor of how much it costs to move into a certain neighborhood or a certain jurisdiction. But we also see a lot of language that appears to be perhaps thinly veiled, or not veiled at all, language about how zoning restrictions prevent African‐​Americans and other minorities households from being able to afford suburban housing. With President Trump being a prime example of saying that single‐​family zoning is what’s preventing crime and undesirable people from being able to move into suburban neighborhoods.

22:56 Trevor Burrus: It seems like there’s not a horrible argument from the homeowner’s perspective for, even if it’s not single‐​family zoning per se, at least the way the neighborhood is zoned when they got to the neighborhood, a house is for most people the biggest thing they’ll ever purchase in their life and having certain things change in the neighborhood, whether it’s low income people coming in, or apartment coming in next door, or a factory coming in next door, it creates a negative externality in some sense to that homeowner and the price of their house. So, is that a valid argument that these people are negatively affecting the price of my house and therefore hurting my wealth and hurting my quality of living, therefore zoning?

23:41 Emily Hamilton: Yeah, I think that it’s easy to understand why single‐​family homeowners like zoning, from a financial perspective to protect the value of that asset, at least they hope that’s how it will turn out. But these restrictions have huge consequences for the people who aren’t benefiting from this cartel that’s preventing increased development in the places where people want to live. So, nationally, about half of renter households are rent‐​burdened, meaning they spend 30% or more of their income on housing costs, leaving them without enough income left over to meet their other needs. And it also has macroeconomic effects. So, when people can’t afford housing in the locations where their best economic opportunities are located, they’re going to move somewhere else, and economists have found that this is reducing US aggregate output by more than a trillion dollars annually and resulting in workers earning several thousand dollars less per year than what we could expect if people were better able to afford housing in the locations where their best opportunities are. So, while the status quo oftentimes has benefits for current homeowners, it has huge costs that aren’t factored in to local land use decisions.

25:26 Trevor Burrus: Have we seen good examples of successful… ‘Cause it seems pretty intractable, we’ve already talked about that, the interests here for homeowners are very high, therefore, you have a classic concentrated benefit dispersed cost issue, where they can organize, you can put flyers on your neighbor’s doors and say, “We need to get together and stop this thing from happening,” and they’re much more likely to come out than the people who want the thing to happen. And then, of course, the people who will benefit from it, who don’t even know that they will benefit from it, are not gonna come out at all. So, it seems very intractable once zoning is in place to try and get rid of it. Have we seen any successful efforts to actually change zoning as opposed to not applying zoning to new developments? Have we seen successful efforts to change zoning in existing developments?

26:15 Emily Hamilton: Yes. I’ve actually become much more optimistic about land use reform over time. When I started studying this issue several years ago, I was very pessimistic that reform would be feasible. One pattern that we’ve seen is state legislators increasingly passing bills to set limits on the extent to which local governments in their state can restrict housing development. And there’s been the most action in this area in the places where some of the highest housing costs and biggest affordability problems are. So, California, for example, has passed a series of laws that are intended to make it easier for homeowners to build accessory dwelling units. An accessory dwelling unit is a secondary apartment that a homeowner can rent out on their property. So, it might be a backyard cottage or an apartment above their garage, or a basement apartment that homeowners can rent out or offer to a family member.

27:32 Emily Hamilton: And in some parts of California, especially in Los Angeles, accessory dwelling unit construction has really taken off, providing a relatively low‐​cost housing option for the people who live in these units and increasing homeowner’s rights to put their property to more valuable use. So, I’m pretty optimistic that state preemption may ultimately be a big piece of the puzzle of solving housing affordability challenges, as well as improving opportunities for people to live in the location of their choice.

28:19 Trevor Burrus: Do you think that COVID will have an effect on all of this? I’m thinking of, say, New York City is very expensive to live in, very dense, and has been hit very hard, and there’s lots of stories you’re seeing about people leaving New York, and I wonder how many of them, if they leave New York and are still able to do their jobs, they don’t grow, sick of Zoom, will say, “It’s too expensive, no matter what the benefits were. And even if the city is back to normal, where I’m not worried about the disease, I don’t need to pay $3,500–4,000 a month for a studio apartment anymore to live there.” So, do you think that there’ll be a shift towards like building more housing or bringing down costs because COVID will give people an excuse to get out of urban areas?

29:18 Emily Hamilton: Yeah, perhaps. People have been saying that distance is dead, that people can work from anywhere due to email and Zoom and all these other technologies that make it easier to collaborate across distance. People have been making the distance is dead argument for a couple of decades now. And so far, it has not come to pass. The returns to living in the densest parts of the US have in fact been increasing, not decreasing, as the distance is dead hypothesis would suggest, but COVID might reverse that trend as more and more people have been forced to adopt remote working tools and pay those costs that it takes to get used to working remotely and collaborating with your colleagues remotely, that might lead more people to permanently adopt that way of working. And certainly, there have been instances of Bay Area companies in particular, adopting company‐​wide policies that allow their employees to live in less expensive locations, but continue working for their Bay Area employer.

30:41 Emily Hamilton: I think it’ll be really interesting to see how long that trend lasts and whether it accelerates or ultimately goes back to what we were seeing prior to COVID. Because there are just benefits to living in large and dense locations that can’t be replicated elsewhere. For example, jumping between firms tends to be easier when you live somewhere where you can have face‐​to‐​face connections to people in lots of different firms, and learning from your co‐​workers and from others in your industry, I think has face‐​to‐​face advantages that we just really can’t replicate remotely, but you know, who knows? Maybe I’m wrong and COVID will bring about permanent changes to the way that people want to live and work.

31:49 Trevor Burrus: Well, the other thing is too, not to bring up Brooklyn again as like a class example, the other thing too is just that, as you said, Emily, that they’re… You can work… You might be able to work distance, that’s fine, but the hip new restaurants and the cool little coffee shops and concerts, for example, music scene is very hard to have remotely, and I can’t see anything replacing those except for just density. And that seems to be what at least a sizeable portion of young people demand, but that brings up an interesting point that has struck me during this conversation is that, in our political divides that are constantly discussed, especially given this election year, red versus blue states, the reality is it’s actually urban versus rural. And so, do you think that in some sense, the rise of land use regulations in cities has helped contribute to our political divides?

32:44 Emily Hamilton: I do. There’s a lot of interesting research on how population density predicts voting patterns, and it seems to be that there’s a point when suburbs reach a certain level of density, they tend to turn blue. And people who live at lower population densities tend to be very reliably red jurisdictions. And I don’t know, people who studied that issue more than I am, sure have more insights on why that is, but I think it certainly contributes to political divisions when people have a harder time even relating to the lifestyles of others who live in environments that are very different physically, but also very different politically.

33:45 Trevor Burrus: Well, on one level, there could be a contributing factor, as many people have point out that there’s a sort of anywheres versus somewheres distinction, that the desire to live in a world where live near cool restaurants, concerts, new types of businesses, indicates possibly a cosmopolitanism that then translates into some sort of political divide that… It’s just self‐​selection, but it’s interesting ’cause I don’t wanna live in Salina, Kansas, because it doesn’t have so many of the things that I enjoy in normal times when you could go to restaurants and go to concerts, so the before times, but I don’t wanna live in Salina, Kansas, but the people who choose to live there are pretty different from me in that regard, so it would seem that… But the interesting thing about zoning and land use, is that it comes in and adds an artificial constraint. So, maybe that there are people who would want to live in the cities but can’t.

34:45 Trevor Burrus: And so you have high preference people, like people who are very high preferences for cosmopolitanism to the point of paying $4,000 a month for a single bedroom or just a small flat in New York City, because that’s how much they want to go to concerts and restaurants. And so it even exacerbates it to some extent, I don’t know, that seems plausible to me.

35:08 Emily Hamilton: Yeah, yeah, I agree. And the people who really value those amenities or, for example, people who are gay, place a very high premium on being able to live in a location where there are lots of other gay people, but when land use restrictions shut off opportunities for people to live in those locations and make them very expensive, they just may not be able to, which is a very sad outcome for people who can’t live in a location that meets their dating preferences.

35:51 Trevor Burrus: Have we seen any changes in… A lot of what we’re talking about is local. We talked a little bit about federal things, but have we seen any changes in federal housing policies that have maybe helped alleviate some of this zoning problems?

36:06 Emily Hamilton: Well, during the 2020 Democratic presidential primary, many of the candidates introduced housing plans that would have created federal incentives for localities to reduce the restrictiveness of their zoning restrictions. There’s a grant program called Community Development Block Grants, that’s allocated through HUD, the Department of Housing and Urban Development, to localities. It’s one of the few grant programs that goes directly from the federal government to localities. And it’s also intended to support localities that have housing challenges, either in terms of affordability or housing quality. So, this is kind of a natural nexus where the federal government has potentially a role to incentivize deregulation at the local level in pursuit of affordability.

37:16 Emily Hamilton: There have been proposals that go a bit further, suggesting that surface transportation grants should be tied to local Zoning Reform. And given the history of federal involvement in shaping urban infrastructure and urban housing policy, I think it makes sense for the federal government to potentially play a role in attempting to reverse these patterns. But land use regulation is very much a power that belongs to the states, that states tend to delegate to their localities. So, I think that big reform that really tackles the housing access and housing affordability challenges will likely come from state governments or local governments themselves, rather than from the federal level.

38:15 Aaron Ross Powell: We’ve talked, it seems, mostly about this divide between urban and rural, and then using zoning to either intentionally or unintentionally reinforce that divide. But is there competition between urban areas on these issues? ‘Cause you can imagine, like a city like… So, you got the Bay Area, which is crippled by housing regulations and anti‐​growth mindset, but another city could say, “Look, it’s not that we wanna keep out the urban stuff, and so we don’t care about attracting the people who want urban amenities, but we actually we want them, and so what we can do is we can say, “Look, we’re not gonna have these restrictions, which is gonna make housing more affordable. There’s gonna be more dynamism, there’s gonna be more of the stuff that you want, and we’re gonna try to attract those people to come here, leave, flee the Bay Area and come to our city.” And that seems like something like a city could just choose to do. Does that happen much?

39:20 Emily Hamilton: Well, it certainly happens across large distances. So, Texas, for example, has seen several major California employers move there, where housing is more affordable and employers don’t have to pay their employees as much to attract them to their firm, and in general not just Houston, but Texas cities as a whole are receptive of population growth and economic growth and neighborhoods changing and accommodating more people over time. But when we’re looking at smaller regions like the Bay Area, for example, you get to a point where there is no option that provides a place where low or even middle income households can comfortably afford housing without accepting horrendous commutes and still work in the center of that Bay Area housing market.

40:28 Emily Hamilton: Both individuals and policymakers have gotten to this point where the bottom first several rungs of the housing ladder are just not an option really anywhere in the region. So policymakers are not incentivized to allow increased housing development and job growth in their jurisdictions, because their homeowner constituents support the status quo, and individuals don’t have an opportunity to choose a location that’s receptive of growth and yet still lets them live somewhere where they can access that Bay Area job market comfortably.

41:17 Trevor Burrus: It seems like in a place like the Bay Area and other sort of hubs of innovation and business development, you would see businesses themselves, like Google and Apple and Microsoft carry a lot of weight in the Bay Area, and you’d think you’d see them throwing their weight around and saying, “We literally cannot bring people to live here to hire without… ‘Cause you’re making us subsidize them, essentially paying them $160,000 a year just so they can have a studio apartment in San Francisco. You guys need to change the zoning regulations because it’s hurting our business model.”

41:54 Emily Hamilton: Right. And some tech companies have thrown financial support behind the YIMBY movement, so that’s the, “Yes, in my backyard,” kind of counter‐​NIMBY movement that’s really taken off in California. So tech companies are trying to change things at the political level by supporting these organizations that are looking for ways to allow more housing at lower prices. And additionally, some large tech companies are directly supporting housing affordability by funding housing construction of subsidized units to try to improve the housing market for their employees and the region as a whole.

42:47 Emily Hamilton: But without reform to land use restrictions, subsidies are really not going to allow more people to live in a jurisdiction. They might allow the people who are already there to live there more affordably, but it’s really the supply side that has got to be addressed to allow the region and localities within the Bay Area to accommodate more people.

43:15 Trevor Burrus: Sometimes you hear as a solution or a possible amelioration of this problem, you hear the phrase “inclusionary zoning”. What is inclusionary zoning, and does it work?

43:27 Emily Hamilton: Yeah, so all these restrictions that limit how much housing can be built and how expensive housing has to be to be permitted, are called exclusionary zoning rules. So single‐​family zoning, minimum lot size requirements, rules that shape how much it costs to build a new house are exclusionary zoning. So inclusionary zoning sounds like it should be eliminating those rules, but it’s not. What inclusionary zoning means, is that new housing developments, typically of a certain size, have to include some percentage of units that are affordable to households making some percentage of that areas’ median income.

44:18 Emily Hamilton: So for example, a new 100‐​unit apartment building might be required to include 15 units that are affordable to households making 80% of the area median income. And generally inclusionary zoning programs also come with a density bonus that allows home builders to build more housing units than they otherwise would be allowed to. So in that example, perhaps the 100‐​unit apartment building would have only been allowed to be 90 units without that density bonus.

45:00 Emily Hamilton: So that bonus is intended to offset some or all of the cost of home builders participating in that inclusionary zoning program. But I’ve studied inclusionary zoning in the Baltimore, Washington region, and what I’ve found, is that localities that adopt mandatory inclusionary zoning programs have experienced faster rising median house prices than they could have expected without that inclusionary zoning program, so it does appear to be a tax on new housing construction on average.

45:38 Aaron Ross Powell: Would the ideal zoning regime be one of no zoning at all? Or is there any place for zoning of any kind?

45:46 Emily Hamilton: I don’t think that there is a place for restrictions on residential density. I think that the costs of these restrictions are very large, and the police powers that allow states and localities are intended to benefit the health, safety and welfare of states residents as a whole, and I don’t think that that residential density restrictions achieve that goal. In terms of things like industrial uses, perhaps it makes sense to set limits on the types of externalities that individuals or businesses can cause within urban locations and designate parts of a city where more externalities are permitted than others. That’s kind of the Japanese model of land use regulation. Low‐​impact uses are permitted in general across all or most of urban localities, but high impact, high externality uses are limited in where they are allowed to…

47:05 Trevor Burrus: If you take us aback during this conversation and just zoning seems like a small policy issue, to some extent, we talked about these big policy issues like the national debt, and healthcare, and foreign policy. And then we’d talk about single‐​family zoning, and that that might be important, but it’s not the biggest thing on the agenda, but the more you think about it, its effects are profound and underappreciated, if you start drawing the tendrils to different things they affect. I mentioned political schisms; public schools are greatly affected by this. I assume you probably agree with this, Emily, ’cause you work in the area, but this might be one of the more consequential but underappreciated policies in the country right now.

47:56 Emily Hamilton: Yeah, I agree, it has huge impacts on the opportunities that are open to a household in terms of being able to live where they want to locate, being able to access their preferred jobs or schools, as you mentioned, and then ultimately they make us poor by preventing people from being able to live where they can be most productive. Zoning regulations make the US and the world as a whole better off because we see people who could make, for example, huge contributions in the tech industry, not being able to live in the Bay Area. So they move to a second best location. Denver, for example, which is a great city with lots of opportunities that many people love, but just simply doesn’t provide the same opportunities for people to be as productive in tech as if they lived in the center of where their industry is based.

49:05 Trevor Burrus: You called Denver second best, and that’s not acceptable. No, [laughter] I’m just kidding. As a Denver native, but I understand your point. How does your city look, if you would talk, whether or not zoning is allowed. But I keep getting the sense that in Emily’s world, you know, you’ve been to my house, I live in Pentagon City, it’s about 10 minutes from a metro in a single‐​family zoning area. This probably shouldn’t exist, maybe in your world, or so things will pretty radically different if you just let the city develop, correct?

49:37 Emily Hamilton: Certainly, yeah, I think it’s very likely that your single‐​family neighborhood, close to a metro and within easy access of lots of DC area jobs, would be redeveloped if it were allowed. And I think that would make sense economically for more people to be able to take advantage of that very desirable location then can at present. On the other hand, if urban areas and inner ring suburbs were allowed to become denser over time, I think we would see much less demand for suburban development at the outer fringe of cities where commutes are longest, housing costs are lower than they are in more central locations, but ultimately, house prices are currently propped up in those locations due to restrictions on building elsewhere.

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50:57 Aaron Ross Powell: Thank you for listening. If you enjoy Free Thoughts, make sure to rate and review us in Apple Podcasts or in your favorite podcast app. Free Thoughts is produced by Landry Ayres. If you’d like to learn more about Libertarianism, visit us on the web at www​.lib​er​tar​i​an​ism​.org.