The Rent Really Is Too Damn High

Timothy B. Lee -- Writer with Ars Technica and the Cato Institute

The most important policy debates are often the ones no one is having. Some issues--abortion, tax policy, health care--have been debated ad nauseum for decades. The arguments on each side are well-rehearsed, and even people who aren't very politically active often have an opinion about them.

On the other hand, there are policy issues that, until recently, weren't considered "issues" at all. Until the 1980s, for example, only a small minority of gay rights activists thought marriage equality was even an issue worth debating. The rest of the electorate had barely given the topic any thought.

Over the last half-century, we've had a similar situation with housing policy. Some of our most productive cities and their surrounding suburbs have enacted comprehensive systems of zoning that make it almost impossible to increase the housing stock. This has increasingly distorted economic activity--new houses being built in more and more distant "exurbs," populations flowing toward less-productive metro areas like Phoenix and Las Vegas, wealthy New Yorkers being crammed into comically tiny apartments.

But most people don't attribute high rents to policy choices that could have been made differently. Rather, they're viewed as being akin to facts of nature. The nearly order-of-magnitude difference in housing costs between Manhattan and Little Rock, for example, is just seen as a natural consequence of the greater demand for Manhattan real estate.

But as Matt Yglesias points out in his excellent new e-book The Rent Is Too Damn High, the sky-high rents in New York aren't a fact of nature. Obviously, it makes sense that land prices are higher in Manhattan than in Little Rock. But we have technologies like steel, concrete, and elevators that make it possible to build many units of housing on a single plot of land. So differences in the prices of land shouldn't be having such a massive effect on the price of individual apartments.

Rather, the problem is that in most of the New York metro area--and a number of other American cities--building regulations make it almost impossible to expand the housing supply. Regulations governing building heights, lot sizes, building setbacks, "floor area ratios," and parking, as well as explicit bans on building multi-family housing, mean that it's almost impossible to expand the supply of housing in the core of the New York, San Francisco, Washington, Boston, Los Angeles, and other major metro areas.

While the phenomenon is made most obvious by the sky-high rents in urban downtowns, this isn't primarily about building 50-story apartment towers in Manhattan. To use an example Matt posted about last week, there's a thin strip of high-density development along the Orange Line corridor in Northern Virginia surrounded by a sea of conventional detached single-famiy homes. In a free market, developers would buy up some of the single-family homes within walking distance of metro stops and replace them with low-rise apartment buildings, row houses, or even duplexes. That would make room for thousands of new residents without transforming the Orange Line corridor into Midtown Manhattan. But developers haven't done that because Arlington County law makes it illegal to do so.

The inner-ring suburbs around a major city collectively have a much greater area than the city itself. Hence, even modest reductions in density regulations in these areas--replacing large lots with small ones, single-family homes with townhouses--would have a larger effect on the housing supply than allowing a few more 50-story apartment towers downtown.

Matt points out that housing deregulation would have a number of benefits. High-density living is better for the environment. It promotes a more diverse and efficient service sector. It makes reliable and convenient mass transit feasible. But I think the most important message of Matt's book, and others like Ryan Avent's The Gated City, is that it makes clear that astronomical rents are a result of specific regulatory decisions, not an inevitable malady of urban life. And once voters understand that current policies are responsible for the rent being too damn high, perhaps they'll start pressuring elected officials to pursue different policies that can bring rents down.

With that said, the book does have at least one weakness: it doesn't adequately explore the political factors that have made density-restricting policies so popular. I'll explore this topic in my next post.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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