Regulation Has Made Housing Unaffordable – with economist Bryan Caplan

Duration: 12:26 2283 transcript words EN summary

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Housing regulation in the United States has significantly driven up costs, with estimates suggesting that on average across the country, these rules have doubled housing prices. This surge occurs because housing represents about 20% of a typical household's income, and its price has risen far faster than inflation for decades. The core argument presented is that this excessive cost increase is largely artificial; if supply had been allowed to respond naturally to demand, prices would not have needed to rise so dramatically. Government intervention, particularly at the city and local levels, treats developers almost like criminals by imposing strict barriers to construction, such as limiting building heights despite available technology or enforcing minimum lot sizes that prevent high-density housing. Additionally, regulations often mandate excessive parking spaces regardless of customer demand and subject multi-family housing projects to extra scrutiny, effectively strangling the industry in desirable locations while leaving remote areas largely unregulated. The persistence of these regulations stems not just from the self-interest of existing homeowners who benefit from low prices when they bought their properties, but from a widespread societal belief that builders should be treated with extreme caution. This mindset is rooted in the historical "law of nuisance," which placed the burden on neighbors to prove substantial physical harm before restricting property use, a system that has largely been replaced by modern regulations where mere complaints about aesthetics or views are enough to halt projects. While critics point to legitimate concerns like traffic and noise, the transcript argues that these issues are easily solvable through market mechanisms like electronic road pricing or simply moving away from crowded areas. However, people refuse to do so because they value the accompanying benefits of dense living, such as job opportunities, shopping, social connections, and cultural activities, which are lost in isolated regions. Consequently, society is willing to pay a premium for this "package deal" of problems and benefits, even though it results in unaffordable housing. A critical misconception identified is that many people deny the fundamental economic connection between supply and price; surveys show that roughly one-third of individuals believe increasing housing production would raise prices or make no difference, rather than lowering them. This misunderstanding leads to a lack of concern regarding restrictive regulations. Furthermore, high housing costs exacerbate inequality because housing is a necessity where poorer households spend a larger share of their income on it. When regulation doubles the price of this necessity, it disproportionately affects those with lower incomes, worsening economic disparity. The transcript concludes that the current regulatory framework represents a tragic mistake born from a global trend favoring intervention over free markets, influenced by ideological shifts against private property rights despite a century of successful economic growth under such systems. To fix the crisis, the speaker suggests returning to a system where the burden of proof lies with those claiming harm and requiring evidence of significant physical damage before construction can be stopped, thereby allowing supply to meet demand and restoring affordability.

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There's a lot of empirical work trying to estimate this, and I think a fair quick version is that averaging over the entire United States, regulation [music] has doubled the price of housing. Yeah, so two things to understand. One is housing is the very largest item in the budget, about 20% of people's income gets spent on housing. And the price of housing has risen so much more rapidly than inflation for many decades. And of course, it's naturally the main thing people think about with affordability. What the good news is that that rise in price in excess of inflation is almost totally artificial. There's no reason why it needed to do so. Supply, if it had been allowed to respond, would have taken care of it. And what government has done, government can undo. Housing is one of the most regulated industries in the United States. Really, governments, especially city and local governments, regard developers as criminals. Anytime they want to build housing, the idea is, "Well, what could go wrong? I can think of a thousand things to go wrong, and prove nothing will go wrong." The kinds of things that they are looking at, course, you can't build it too tall. So, even though we totally have the technology to build hundred-story buildings in desirable locations, getting the pieces of paper that allow you to use the technology is almost impossible in a lot of places like San Francisco. And other places, it's still pretty hard. Just easy by comparison. Another big regulation is minimum lot size. You need at least an acre of land for every house. "What's wrong with you? You're trying to cheat people by putting too many houses on a piece of land." It's like, "Well, it costs more when you put it on more land, so a lot of people would rather pay less and get less land, but governments generally see it as their business to prevent that from happening. Governments do not like multi-family housing. If you want to build an apartment then you or townhouses, then you're subject to extra scrutiny. Governments try to ensure that builders put in a lot of parking spaces. Rather than do the sensible thing of just charge for parking, they want to make sure that builders provide it whether the customers want it or not. Why do you think the government has taken on this role and how were things before? The most popular story is that existing homeowners really benefit from this regulation because they bought when prices were low and they're enjoying the really high prices. That's not completely wrong, but [music] it's grossly overstated. The main thing to understand is that almost all humans favor these regulations. It's not just homeowners, tenants favor them, too. It comes down to it is normal for people to just start thinking about what could go wrong in this industry and then say government ought to go and pass a bunch of laws to make sure that everything is fine. It's like, [music] well, after all these laws, the housing may be really nice, but it's so expensive that a lot of people just can't afford it. So that's, I would say, is really the main issue. It isn't the self-interest of homeowners. It is the general view that it would be terrible for society if builders were not treated like criminals. Our United States is part of the English legal tradition and about 700 years ago, the English legal tradition developed the law of nuisance which basically said if you're trying to have if you have a big bonfire on your property and it's choking your neighbors, they can take you to court and sue you. If you have a smelly pig farm and it's ruining your enjoyment of your house, you can take them to court and you can make them stop and so on. So, but the key thing about the law of nuisance, first of all, the burden is on the complainer. You you presumably you can do whatever you want unless you're actually crossing property property lines. And then if if there's odor or smoke or other harm that's coming, then it's up to you to take them to court, and then you got to prove a substantial physical harm. This is a system that's was replaced [music] you know basically regulation replaced it. What I say we have learned over the last 100 years is that the law the law of nuisance was better than what we have. And that was the previous system. Like they're not all crazy, but the they the burden of proof should be on show that your complaint is not crazy. And if you don't do that, then tough luck. Fun story in Washington D.C. There something like half of all noise complaints filed against the [music] Reagan Airport were filed by one person. One lunatic who's just trying to shut down the airport. [music] It's like look, you live near an airport. We're not going to shut down the airport. Yes, it's going to cause some noise. Too bad, tough luck, suck it up. That's a better system. How much does regulation actually increase prices? There's a lot of empirical work trying to estimate this, and I think a fair quick version is that averaging over the entire United States, regulation has doubled the price of housing. It has increased it by vastly more in the most desirable locations. So, in San Francisco, it's plausible that it's multiplied it by a factor of 10. Maybe Manhattan more like five, Los Angeles maybe more like three. Of course, since it's an average, that means there's a bunch of areas in the country where it has not been doubled. And there's even some areas where housing is still really [music] cheap. It's basically places that hardly anyone wants to live. So, if you [music] get some land out in the middle of nowhere, then government doesn't bother you. You could build a whole city out there, and until the people are there, no one is going to be reading you a bunch of rules. The problem there of course is what good is it to have the right to build a skyscraper in the middle of Alaska? No one wants to live there anyway. The best way of understanding it is anywhere that people want to be, anywhere that is a cool place to live, government is strangling the industry. What are some of the misconceptions of people to maybe be against this kind of thing? So, yeah, New York is already too densely populated. Why do we want more people there? >> The biggest misconception of all, which for anyone who studied even basic economics is hard to believe, but the data show it [music] very strongly, is that most people just deny there's any connection between supply and price. If you just go and ask people what would happen if there were to be a 10% increase the amount of housing produced in the city, if government has approved 10% more, roughly speaking, about a third of people give the right answer, which is prices would go down, but a third of people say it wouldn't make any difference, but a third of people say prices would go up. So, if that's what you believe, if you think there's just no connection at all between production and price, then it's not too surprising that people aren't worried about regulation because they don't think regulation has a downside, >> [music] >> but one that is deep, one that the more you think about it, the more inescapable it is, is that look, the complaints that people have about building, they're not totally wrong. It's true that if you build more stuff, there's going to be more traffic, more parking problems. Yes, you can go and use electronic road pricing and parking prices to get around this, but still, >> [music] >> that's not that likely to happen. So, in the real world, you go and allow more stuff, there's going to be some more problems, but what hardly anyone thinks about is yes, but there will also be some more really good things that almost everybody likes. Like, what do people like about there being more construction in their area? And it's like, well, let's just start. >> [music] >> People like there being more job opportunities. Places with more people have more job opportunities. People like the shopping opportunities. Places with more people more shopping opportunities. >> [music] >> People like the social opportunities. They like being around other people who might be friends, people they might date, people who might be their kids' friends. And then cultural opportunities. There's just more things to go and see and do in more populated areas. And here's the amazing thing to think about. If you realize that there is a simple way to avoid all problems of living around other people. Just think about everything bad about other people. The parking, the traffic, [music] the noise, the pollution. Everyone has a really easy way to solve these problems [music] single-handedly and just move to the middle of nowhere. Hardly anyone wants to do this. Why? Because you lose all those good things I was talking about. You lose the job opportunities. You lose social, shopping, cultural opportunities. When I live near people, I get a package of all the bad things that people have and all the good things. [music] And guess what? Most people are willing to pay a lot of extra money to get the package of all bad plus all good because it is a package deal. You can't just get good stuff without bad stuff. But even though almost all of the talk about housing is the negativity, it's the complaining. And yet [music] the very fact you're there shows that you don't want to be in a place where you don't have all the problems associated with people cuz when you lose the problems, [music] you lose all the benefits and the benefits are better than the problems. So, what I'm [music] hearing what you're saying is also that housing is a lot more than just housing. There's a lot of problems that seem on the >> [music] >> surface to have nothing to do with housing that have a lot to do with housing. One simple example. There's so much complaining about inequality. And it's our terrible unequal society. Everything's so awful, so unfair. And yet it's like, "Well, wait a second. Housing is what economists call a necessity. A necessity by definition is a product where the richer you are, the smaller a share of your income you spend on it. The poorer you are, the larger share. So, when the price of housing goes up, it's a problem for almost everybody cuz hardly anyone is so rich where it's just like, housing, it's not a big deal. But, it is a bigger deal for the poor because they're spending a larger share. So, you double the price of that, that really leads to a large increase in inequality. Turns what I'm proposing is like, [music] I think the best thing would just be to go and admit we've made a tragic mistake. Law of nuisance is a better [music] system where we first of all say the burden's on the complainer and second of all, you got to prove large physical harm. It's not enough to say, I don't like the style of your architecture, I don't like the color pink, or even like you're blocking my view. Like, that kind of stuff should just be considered, no, too bad, tough luck, no way. That's going to lead us to this terrible system we got right now where housing is ridiculously expensive. Why do you think this shift started? Is it part of a more general trend in the US of regulating everything? >> Yeah, it's part of a general global trend, of course. You know, 100 years ago, this is the time that socialism is on the rise over the world. Like, 100 years ago, this is the the time of the you know, the rise of the Soviet Union. And the Soviet Union, this is not in a vacuum. All over the world, you have first of all, people that are similar to the Bolsheviks who just want full-blown violent socialist revolution. But then, you have a lot of other people like, look, great idea, but let's do it democratically. Or great idea, but let's at least not have a bloodbath. All of these are just based upon [music] this idea of the problem with the world is free markets and private property. Look, an idea that is so at odds with all the experience they had at the time. Humanity had just seen the best 100 years of economic growth of all time, which was largely [music] accomplished under relatively free markets and fairly strict private property rights. And then it's like, so like why is it that you would think that after 100 years of things working really well that we should totally change the system? The Marxist actually the best answer, which is they had this crazy stage theory of history of saying, well, each part of history there's a new system that's good for it. It's like, no, maybe there's just one system that's always good and we didn't have it in the past and then we got it for a while and it worked and we should just keep it.