A response to Interfluidity

Steve Randy Waldman posted some criticisms of the market urbanist position on Interfluidity. The post was interesting, though I took issue with a few specific points. The following are my responses.

Regulatory Authority as a Property Right

The customary property rights surrounding homeownership in many cities and suburbs include much more than the use of a square of earth and whatever is built on it. Existing homeowners bought into particular neighborhoods in large part because of their “character”, which includes nice-sounding things like walkability or “charm”, as well as not-so-nice-sounding things like access to exclusionary education.

I don’t buy the idea that local control of zoning is a customary property right. A property right implies someone owns something in a definitive way and can make decisions as to the disposition of said something within whatever bounds are prescribed by law. Land use regulations don’t work that way. The relative influence over land use between two homeowners comes down to arbitrary factors like who’s more charismatic in the homeowner’s association or who shows up most frequently at planning meetings.

However, if we were to make authority over land use more like a property right, I might actually like that. Ideas like Tax Increment Local Transfers, state taxes on the municipal use of zoning authority, and municipal corporations with residual claimants move us to a world where authority over land use actually looks like something that can be bought, sold, and taxed. I’m partial to the idea of deregulation, but if reform means creating a market in which we can pay off NIMBYs, I can get behind that too. 

The Normative Case Against Deregulation

“Zoning reform” is an anodyne way to describe an expropriation of those customary rights. It amounts to diminishing residents’ ability to preserve or control the evolution of their neighborhoods, in order to challenge the exclusivity on which the value of existing neighborhood amenities may be based.

I find this normatively unappealing. Honoring land use regulations on behalf of homeowners because that’s what they expected going in doesn’t seem to make for a strong ethical argument. Losses to aggregate productivity aside, we should consider the negative impacts upon the economically disadvantaged. I’ll be more than a little Rawlsian here and suggest the welfare of the least well off should disproportionately inform our motivations when setting public policy.

Rent Control

The Econ 101 case against rent controls only holds if the threat of controls prevents the market value of newly produced rentable properties from substantially exceeding the cost of development after regulatory hurdles have been overcome. [1] This is not what we observe in real life. Impaired prices are simply not the binding constraint on new development.

This is a valid. But it’s only refuting a part of the argument against rent control. The other parts include a disincentive to maintain rental properties and, more importantly, problems in the political economy of land use. Rent control is often seen as a way to combat high prices by people who think something can be made less dear by fiat alone. If price fixing is seen as a way to address affordability you eventually paint yourself into a corner along with Stockholm. 

Capitalization of Rents

Surprisingly from an Econ 101 perspective, the best way to encourage housing supply might be to cap home prices, at a level sufficiently above physical construction cost to keep development profitable when consumption demand is strong, but no higher than that, to discourage the use of homes as speculative financial investments and to prevent scarcity rents from getting capitalized into prices.

Mr. Waldman does go on to clarify that he doesn’t support this as policy, but even on theoretical grounds I have to disagree. If we wanted to prevent economic rents–which I’m assuming is what he means by scarcity rents–from being capitalized into prices, a high land value tax would be our best bet.

Looking Abroad

Singapore never solved the problem we are banging our head against, how to take existing prosperous neighborhoods and make them more dense. It never tried. Instead, Singapore expanded its housing supply, at remarkable speed and scale, by building out extremely dense but nevertheless green, livable, and attractive “new towns“. Rather than restricting our attention to putting more housing in existing desirable neighborhoods, why not follow Singapore and build new neighborhoods, and when we run out of space for those, new ring cities?

Stephen Smith already left a great response to this on the Interfluidity blog, but one of his points bears repeating: Singapore has two housing markets; a subsidized one for Singaporeans and a market rate one with insanely high prices for foreigners. Singapore’s ability to limit demand via immigration policy and transfer land rents via its direct ownership of real estate might make it sui generis as far as urban housing policy goes.

Overall, this was an interesting post that definitely made me stop and think. If I’ve misinterpreted anything Mr. Waldman wrote, I hope he’ll take me to task in the comments below.