🏘️ My chat (+transcript) with economist Bryan Caplan on density and housing deregulation

Housing in the United States has come to be known as a panacea problem. Gone are the days when tossing the graduation cap meant picking up the keys to a front door, and the ripple effects of unaffordable housing stretch across society: poor social mobility, smaller families, worse retirement-readiness, just to name a few.

Today on Faster, Please — The Podcast, I talk to Bryan Caplan about the seemingly obvious culprit, government regulation, and the growing movement to combat it.

Caplan is a professor of economics atGeorge Mason University. His essays have been featured in the New York Times, Wall Street Journal, Washington Post, and TIME Magazine. He is editor and chief writer of theBet On It Substack, and is the author of several books, including Build, Baby, Build: The Science and Ethics of Housing Regulation.

In This Episode

* America’s evolving relationship with housing (1:31)

* The impact of regulation (3:53)

* Different regulations for different folks (8:47)

* The YIMBY movement (11:01)

* Homeowners and public opinion (13:56)

* Generating momentum (17:15)

* Building new cities (23:10)

Below is a lightly edited transcript of our conversation.

(Note: This was recorded just before the presidential election.)

America’s evolving relationship with housing (1:31)

The main thing that changed is that we've seen a long-run runup of housing prices.

Pethokoukis: What was going on with housing prices and housing affordability from the war to the 1970s? Was it kind of flattish? People were recovering from the Great Depression; what was going on then?

Caplan: Yeah, it was quite flat, so there were decades where we had rapidly expanding population, the Baby Boom, and markets were working the way that markets normally do: You get demand going up, raises prices in the short run, but then that means the prices are above the cost of production, and so you get entry, and you build more until prices come back down to the cost of production. That's the way markets are supposed to work!

I don't know how people thought about their homes in the late ’40s, ’50s, and ’60s, but did they view them as, “This is our primary investment,” or did they view them more as a place to live? Were there any expectations that this was their retirement plan?

I honestly don't know. I don't remember reading anything about that. I grew up in Los Angeles where in the ’70s and ’80s people already had some sense of, “Your home is an important retirement vessel,” but it is plausible that when you are going back to earlier decades, people did have a different view.

I've often heard Americans say that Japanese don't think about their homes as retirement vessels, but I've never talked to anyone in Japan to assure me this is so, so I don't know.

But that scenario changed.

It did.

How did it change and are we confident we know why it changed?

The main thing that changed is that we've seen a long-run runup of housing prices. Depending upon what series you're looking at, the runup might be starting in the early ’70s or the early ’80s, but in any case, there was what economists would call a structural break where a series that was generally flat over the long term started rising over the long term. There have been a few times when prices fell back down, like after the Great Recession, but now, inflation adjusted, we are higher than the peak right before the Great Recession.

Now, is that the same as affordability? Because I assume incomes could be going up, so has it outpaced median income over that period?

Probably not, although it's in the right ballpark, and maybe.

One thing you can say is, well, there's regulation before, there's regulation after, so how can you go and blame the rise on the regulation?

The impact of regulation (3:53)

I would like to blame regulation. Intuitively, that makes sense to me, but I suppose we need more than intuition here.

. . . there's a lot of regulation almost everywhere a lot of people live.

I would say that we do have very good evidence that regulation is indeed to blame. If you look at it very quickly, you might say, “Well, there was regulation before; it didn't seem to matter that much.” The answer to this really was death by a thousand cuts, where we just piled regulation on regulation, but also where regulations that have been interpreted mildly before started being interpreted strictly afterwards.

How do we know that it really is regulation? The easiest thing to do is just to look at the strictness of regulation in different parts of the country, and you can see that there are some places that are crazy strict and the prices are crazy high. There's other places where the regulation is a lot lighter and even though they're getting plenty of population increase, they nevertheless do not have these long-run rises.

So the contrast between the Bay Area and the Texas Triangle is very strong. So these are both areas that, in some sense, they are growth areas, a lot of tech there, but the Bay Area has seen very little rise in the amount of housing and massive increase in prices, whereas Texas has, in contrast, seen a large rise in the number of houses and very low rises in the price of hou