The rent is too damn high

I just finished a nice, quick read of Matt Yglesias’ new e-book The Rent is too Damn High.  Following in the same vein as Ryan Avent’s The Gated City, Yglesias documents the perverse economic impacts of development regulations and restrictions on urban areas. Though not as well sourced and without the in-depth discussion of Avent’s e-book, Yglesias nonetheless offers an accessible and understandable narrative to understanding the same array of urban economic issues.

Yglesias’ self summary is available at his blog:

 It’s about the high cost of housing in America’s coastal metropolises and downtowns everywhere, but more broadly it’s about the crucial role that dense urban development and barriers to its creation matter in a service economy. If you’ve ever read me on housing and wondered “why does this guy think this is so important” or read me on manufacturing and thought “yeah, but what’s his answer” then you will find the answers herein. Andrew Chesley has been reading his copy and liked this line:

Lots of people buy RVs, but nobody “invests” in them. And what’s a house but a giant RV with no wheels?

As I said before, one of my key goals with this book was to write something that would not only be cheap to buy (just $3.99!) but also short. That means I didn’t pad it out with a lot of to-be-sures and efforts to guess what objections people will have. Better, I thought, to release a detailed-but-not-tedious version of my ideas into the world and then see what people see. So if anyone reads it and has questions, objections, thoughts, ideas, etc. please do email me about them or send links to your own blog where you’ve written about it. I’d love to continue the discussion and follow whatever points people think are interesting or flat-out wrong or in need of elaboration.

In the spirit of that discussion, I have a few thoughts.

First, a video interlude for the book’s namesake.

Perhaps the most interesting part to me is Matt’s claim in the book that the final chapter of any public policy book (the chapter that actually gets at potential solutions) is often the most disappointing.  I won’t hold that against this e-book, since the educational component about the issue (as opposed to, say, healthcare or climate change) often isn’t even regarded as a problem.

That said, who is the audience for this kind of material? Convincing the general public, one development project and one upzoning at a time isn’t a sustainable solution. Likewise, too much of the NIMBY opposition discourse is of the shotgun, everything including the kitchen sink approach: throw out all possible objections and see what works.  That kind of approach isn’t likely to buy into a reasoned argument.

Tyler Cowen assumes most of America won’t pay attention to Matt’s point – but maybe they don’t have to. Perhaps with some procedural modifications (see thoughts here and here) you could make progress, and in that case the audience in need of convincing would be elected officials – either by convincing current officials or by electing new ones who understand the issue.  Good news: as Matt points out, Mitt Romney was all over this back in 2006.

Josh Barro at Forbes looks at Chicago and wonders how that city manages to keep prices in line with construction costs:

Yet Chicago has a planning process that looks, at first, like it ought to be a nightmare. The city is divided into 50 wards, each of which elects an Alderman to the City Council. In practice, the Alderman has enormous control over what developments get approved within his ward. Yet, despite these fiefdoms, projects tend to get approved.

This is partly because Chicago also liberally uses Tax Increment Financing districts, which now cover huge swathes of the city. When a TIF district is created, the amount of property tax revenue that the district sends to the city is frozen for 23 years. Increases in property tax receipts are instead directed into a special fund that can only be used for projects within the TIF district boundaries—and new developments tend to mean significant increases in property tax collections. When you create a TIF, you create an incentive for residents and their Aldermen to approve new development, as that means more money for local goodies.

I’d expect nothing less from the City that Works. However, it’s not as if Chicago’s system (or that of Houston) produces quality results all the time. Chicago still has plenty of those subtle barriers to development that often produce unintended consequences, even if the overall price levels are reasonable. Also, Chicago isn’t seeing the same kind of intense demand as other coastal cities are, perhaps confounding the city’s apparent success in keeping costs reasonable.

David Schleicher, in an interview with Mark Bergen at Forbes (Part 1, Part 2) discusses some potential legislative solutions.

It’s great to see these issues front and center in the discourse, even if only in this small corner of the internet. I’d highly recommend Matt’s e-book for a quick, concise summary of the basic issues of over-regulation and the benefits of density and cities with a little more freedom to operate.

[EDIT: 3/9, 7:52 am – Yglesias responds here]

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