When will Millennials be able to afford a home & how to fix the housing crisis | Bryan Caplan

it's great to welcome back to the program Brian Kaplan professor of Economics at George Mason University and also author of the new book build baby build the science and ethics of housing regulation uh this is a great topic and one we've been talking about recently Brian so I really appreciate you coming on today I really appreciate you having me back so just to start with let's start with the question so many people ask why has housing become so expensive and seemingly decoupled from wages the quick answer which is true but misleading is supply and demand we got low supply high demand the main mistake to avoid is thinking well this means that it's just like any other Market it's not there's a special reason why Supply is so low which is government is really strangling what would otherwise be a flourishing and Progressive industry as I explained in the book we've got a pile of regulations that make it really hard to use the technology that we've been developing in the last 100 years and actually a lot of it makes it hard to use the technology we've had since the dawn of time in terms of regulations against using Technologies from the last 100 years it's really hard to build tall buildings not physically hard that's been done for over a century what's hard is getting all the permissions all the paperwork there's just many cities where putting up a new skyscrapers next to Impossible same thing goes for multif family housing and General uh this is something where governments really treat you almost like a criminal if you want to build an apartment most of the US something like 80% of residential land is set aside only for single family homes right and that that's where the craziest thing though is that with single family homes it's very normal now for the government to say that you got to have a pile of land for every home like an acre sometimes more than an acre like this would have never occurred to people in earlier times wait we can't put four homes on an acre why not and the answer is Regulators say well we just don't think that's the right kind of neighborhood to have we don't want to have one where people can see their neighbors so you can't do it and that means we wind up wasting most of our land thanks to the Draconian policies of the government and the result is that we have very low housing Supply so let's dig into a few different elements of this now just for context I don't think it will necessarily shock the audience uh or you to hear that you're you're more generally hostile to regulation than I am as a general principle while at the same time on this issue I do think regulation is part of the issue but I think it comes from both sides politically there's also a moral aspect which is that for much of the so-called American conservative movement the single family home is more than just a housing unit but it relates to cultural issues social issues there are other reasons why the single family home and the regulations around it have been supported by some on the right but let me zoom out a bit and then give you an opportunity to kind of uh weigh back in when I I know nothing right I just I research stuff and I try to figure out what's going on I found eight or 10 different areas that I think would be relevant to look at when it comes to fixing housing building more housing is part of it I think tax incentives for affordable housing development in some places is part of it streamlining the regulatory elements is part of it prefab and modular housing so like the technology element I think would be important maybe land value taxation for uh uh uh empty lots so to speak in some places maybe rent control policy would be part of it zoning laws I my old neighborhood in Brooklyn if you look at Atlantic Avenue in Brooklyn north of Atlantic Avenue you've got skyscrapers south of Atlantic Avenue I think you have nothing taller than three or four stories and it's a it's a zoning decision that's been made maybe it's good for some reasons maybe it's bad for some reasons but pricing is completely out of control so my point is I want to look at all of these different areas do you agree that we need a sort of all of the above approach here no not all the above so the rent control one is I think terrible um so that's the that that's the one where I do have a specific discussion of why rent control is a bad approach and really it's like there is just the Classic basic economics what does rent control do it means that if you're really lucky and you happen to get a rent control Department good for you at the same time you are really reducing not only incentives to build new stuff you're also reducing incentives just to maintain staff uh there is this famous line from Economist Asar lindbeck where he roughly says that rent control is the best way to destroy a city after bombing it yeah and to be clear just as a not I don't see rent control as a longterm solution I see it as in certain cases like I would call it 5% of the 100% in some targeted situations you can provide immediate relief while you do other things yeah I mean I would just say that once you put that in place your odds are getting rid of it it's just really hard and just messing messing things up so you that so that's the one that I would vehemently be against and I think almost almost all economists just think that's a bad idea okay I mean it's it's one I mean like I would just say it's like at the level of blood of leeching or something like that where there's a problem and then this is something let's do it but it is going and just creating a bunch of other problems without really addressing the key Point um again of course every now and then someone gets lucky with rank control but it's just a it is bad news uh going through your other list a bunch of those I would say I would just put them all under the package all under the heading of Regulation uh the one on uh regulation of prefab homes this is one where I like I'm very sympathetic I'm just not convinced that it's actually a quantitatively important issue I mean I have found like there's one notable Economist I can't I always forget his name who has a whole paper saying this is a huge issue but I can't find anyone else that backs up a story and I'm just like I don't know like how come nobody else seems to he would be paying attention to you it may be that the guy's right uh and he does have a couple of regulations on like how government is making the industry it's just making harder than the industry but his story about the magnitude of the gains compared to the details of what regulations they're actually are make me doubt that it's a big deal you know like but like any case like that where someone said say hey there's some regulations that are dumb and they're preventing big gains like okay you're right they're dumb I don't know if they're preventing big gains but sure H why not let's let's do it and just see what happen so like I'm I'm all for that well can you quantify then on on average red deregulation right I mean which which can sound scary sometimes we need regulation so so but the sorts of things you're pointing to what sort of effect could they have on home prices right so this is the main question that economists been focused on so I'd say this is the one where I've got the best answer um the kind of regulations that I'm talking about basically whether or not you're allowed to build at all or whether you're allowed to build certain kinds of stuff like skyscrapers multif family say a usual estimate is that has roughly doubled the the average price of housing in the US for the entire country it's done a lot more in some places than others so that's an average for the whole country that's including say San Francisco where maybe regulation has multiplied the cost of housing by a factor of 10 it's not even crazy to think that versus some other areas in rural places where maybe it's barely changed it at all uh but that at that rough average of if we just got rid of the regulations I'm talking about then in the long run price was would fall by about half I think that's very fair um in turn you know so normally This research doesn't consider things like or is how much is regulation just raising construction cost per se so you know normally what the research is doing is is it's saying all right look what is the value of land where you don't have permission to build stuff on it and that's usually real low for obvious reasons uh you like like you could go and play a game of volleyball on this land Rec can't build stuff great that that sounds wonderful what will you pay for that not much and then you go and combine this value of land where you don't have permission to build with just a standard manual from the estimate from the construction cost you know estimate from the construction cost manual uh which does include some regulations of course and then you go and compare that those two costs the official construction costs with the raw land price without the paperwork to build attached and compare that to market price and that's normally how Economist measure the effective regulation obviously that does ignore things like well what if government is doing things that raise the cost of construction directly so and so that's why I'd say that my estimate is actually pretty conservative now there are some maybe every homeowner I don't know 90% of homeowners who might say wait a second hold hold on if you do this and all of a sudden the price per square foot declines by 50% I'm now underwater on my home what would is there a natural incentive for every existing homeowner to be against what you're proposing yeah I'd say that it's just much more complicated first thing is no sane person would think the price would fall by 50% in a week or a year or five years even we are just so behind in construction it would take 10 20 years to get back to where we ought to be maybe 30 years for God's sake because it's just the regulation so crazy if just starting today you could go and start knocking down historic homes in San Francisco and building skyscrapers I think skyscrapers construction would start pretty quickly but there just aren't enough firms that know how to do it to go and actually build all the skyscrapers that it would take to get housing prices down and you know even a few years you'd have to be moving almost basically like every people every firm that builds skyscrapers in Dubai would need to be moving San Francisco to do it so it's going to take a while which honestly does actually alleviate what I consider more serious worry which is just that there could be major mortgage crisis problems like there were in 2008 if prices fell 50% overnight stretch out over decades I think the financial system can totally handle it uh but uh but anyway that aside um most people do think that the whole problem does come down to selfish homeowners who just don't want to their housing price go down what I say there is two things first of all we've got a lot of public opinion evidence saying that it's not just homeowners that are pro-regulation almost all humans are pro regulation whether they're owners or tenants and what's going on honestly I think that the right story is basically the same one for almost all government policies which is that policies exist because most people think they're good for society I my first book is called the myth of the rational voter one of the best known facts about public opinion is that it has almost nothing to do with objective self-interest and almost everything to do with philosophy usually it's half-baked philosophy poorly thought out philosophy often with piles of misconceptions thrown in but it's not that people look at the world and say what's in it for me no I've done the math this is bad now uh that doesn't mean that deregulation would be good for homeowners but actually when you calm down a bit and think about it it's actually a mixed bag even for homeowners why well for one thing regulation prevents homeowners from going and profiting from doing things like subdividing their subdividing or selling out to a developer so often actually the the current homeowner would benefit would profit from deregulation because they can make a pile of money move some somewhere else and someone says well I don't want to move all right well a lot of people do or do you want to move ever do you want to die in this place and like and then it's like well what about your kids do you want them to be able to make a pile of money when you die and if someone just says never want to move don't have any kids don't care what happens after I die all right well then I guess you are one of the losers you are one of yeah so in but all the other people now but here but here is what what I consider to be the really big so two other really big things what if you want to upgrade what if you're a current homeowner but you want to move to a better place right all right well in that case the you're like like you may say well on the one hand I want housing prices to be high so I can sell at high price on the other hand I want them to be low so I can buy a new place at a low price what do I want and the answer is it's complicated right which means the deregulation might be good for you and then the last one which I think should appeal to almost you know any homeowner with kids is do you want your kids to be able to afford to live within 100 miles of you all right well in that case you don't really want housing prices to be Skyhigh if you have to go and borrow all of your home equity to give it to your kid as a down payments they can afford a house maybe it would have been better to just not have had that regulation now none of this means that there are zero homeowner homeowners whoever lose from deregulation they would but it's just a lot more complicated than people think which is good news uh in terms of like is it really like like is there like will they just be totally opposed to it although actually like I said like it is just like a wrong view of political psychology to think that the main barrier is hard-headed self-interest just think about all of the wealthy Democrats who totally favor higher income taxation they're really common and people say but they're a statistically small part of the population well depends upon how high you cut the threshold for being rich if it's like top Quin top quintile Democrats are at this point actually probably outnumber Republicans the top tile of the income distribution and you and there are people say well housing it's so obvious that you lose from deregulation is that more obvious than that people in the top quintile of income lose from higher income taxation it's just not well on that note I mean I think it's important to distinguish one type of deregulation would be hey instead of being able to build four stories you can build 10 and it costs way less to get an approval that seems different than another type of regulation in housing which comes to the spe specifics of inspections and requirements for the actual building which I think most people on the political left anyway believe are there to protect people so they don't end up in a house that 10 years down the line crumbles or whatever the case may be you you distinguish between these two types of regulations like like honestly so what I'll say is that there's barely any research on how much those costs you know things like inspections are adding I I think it I think it is modest I think so yes um you know like I don't now like I will say like I think that it's crazy to think that someone's going to go and build a skyscraper that's going to collapse and like well it happened in uh Surfside Florida not that long ago right I mean it does happen yeah yeah so like if it's the standard of Z perc probability like I'm almost sure that building that collapsed was inspected yeah I don't know the story but um you I mean like you know there is the point of getting wrist down to zero is pretty much impossible yes and the way that our media is set up is that the worst thing that happens on Earth is shown to all billion people and you make people feel like this is a serious risk that we should do a lot about uh this is like my general view about safety regulation but anyway I barely talk about that in the book it is not a big issue one way or the other absolutely uh we've been speaking about the book build baby build the science and ethics of housing regulation uh we've been speaking with the book's author Professor Brian Kaplan Brian always interesting to talk to you and a super important topic right now to be discussing fantastic right and uh just to let you know of course you can get the book almost anywhere but uh Amazon's the easiest that I know of so I'd start there yep and we're linking to it in the video description as well thanks Brian all right thank you

Channel: David Pakman Show

Views: 12,822

Keywords: housing, housing deregulation, housing regulation, housing prices, housing market, housing too expesnsive, homes too expensive, rent too expensive, interest rates, mortgage rates, can't afford a home, how to make housing more affordable, bryan caplan, bryan caplan interview, 2024 election, trump 2024

Id: QEukeA8_4xw

Length: 16min 11sec (971 seconds)

Published: Sun May 05 2024