Monday, January 11, 2016

Paul Krugman Takes on Zoning, Gets Crap From the Left

At the end of November, New York Times columnist Paul Krugman published a piece devoted to gentrification on New York City.  Krugman identifies land use regulations as the main boogeyman behind the poor getting pushing out of New York.  He writes:

As Jason Furman, the chairman of the White House Council of Economic Advisers, recently pointed out, national housing prices have risen much faster than construction costs since the 1990s, and land-use restrictions are the most likely culprit. Yes, this is an issue on which you don’t have to be a conservative to believe that we have too much regulation.

The good news is that this is an issue over which local governments have a lot of influence. New York City can’t do much if anything about soaring inequality of incomes, but it could do a lot to increase the supply of housing, and thereby ensure that the inward migration of the elite doesn’t drive out everyone else.

This column has received a good deal of push back from lefty bloggers.  Alan Mallach's take is more restrained and thoughtful than a lot of other wailing I've read:

Regulation is important, but it’s not the only thing. New York is already a fully developed city, mostly at relatively high densities, and mostly at high prices. That means that land is expensive and hard to assemble, and that the only way to significantly increase production is by building expensive high-rise buildings, which have high construction costs. This is not only true in Manhattan, where at this point it is probably impossible to build anything to sell for less than $1 million or more without subsidy, but even in the farthest reaches of the outer boroughs. Avalon Bay is building a high-rise complex in Sheepshead Bay where they plan to charge $700,000 for a one bedroom apartment. When you learn that their raw land cost was $16.2 million, and their construction costs are probably around $300/ square foot, you can do the math. They won’t be making a huge profit on that unit; a decent profit, to be sure, but not an outrageous one.

[...] I’m not arguing that regulation doesn’t matter. It does, and it matters a great deal. Easygoing regulation means that the average middle-class family in San Antonio, where the median income is about the same as in Brooklyn, can live both well and affordably, something that is increasingly impossible in New York or San Francisco. And if New York City used inclusionary zoning regulations (which Krugman doesn’t mention) to make sure that every one of those units in the pipeline either creates affordable housing or makes a meaningful contribution to a housing trust fund, that would be a good thing. But regulation is only one part of a larger picture, and to treat it as a panacea or a silver bullet, particularly in high-cost, heavily developed areas like New York or San Francisco, does everybody who cares about affordable housing a disservice.

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One explanation for the left's discomfort with Krugman's recognition that regulation is a problem is that the left's favored solution to housing affordability depends on strict regulation of market-rate housing. "Inclusionary zoning" requires builders of market-rate housing to supply a certain number of builder-subsidized "affordable" units in order to get their building permits. This is in effect an earmarked tax on market-rate housing development. But you cannot collect much of that tax unless housing is made artificially scarce in communities that adopt inclusionary zoning. The scheme won't work in places like Houston or Atlanta because market-rate housing is not especially constrained by zoning and other regulations.

Posted by: Bill Fischel | Jan 12, 2016 6:46:21 AM

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