Only the state can house us

Towards the end of a generally excellent piece on housing, Hamilton Nolan writes

[I]f your response to that is “hey let’s just build public housing units for all 400,000 people,” that sure sounds nice, but brother I am here to tell you that there are only 177,000 total NYC public housing units right now, and that represents the sum total of all that have been produced in the city’s history, and they don’t even fund the ones that exist adequately right now. So practically speaking, saying “just build public housing” is the equivalent of saying “just give everyone magical castles.” It is a nice goal but it ain’t happening any time soon and in the meantime, everyone needs affordable housing. To reiterate: the only long term path to bringing housing prices down to an affordable level is by building enough housing supply to meet total demand. Build more. Much more.

I fully endorse that last bit. The only long term path to bringing housing prices down to an affordable level is by building enough housing supply to meet total demand. Build more. Much more.


But I disendorse Nolan's attitude regarding public housing. State-led development is the only solution to our housing catastrophe. We will figure that out, sooner or later. We will be much better off if we can figure it out sooner.

The problem with YIMBY-ness has never been that YIMBYs are wrong to focus on housing scarcity in places people want to live as perhaps the most destructive economic ill we face. They are right about that!

Their error has always been a pollyanna-ish idea that if only we would lift legal constraints we can easily understand to be unjust — exclusionary zoning whose roots are in racial segregation! — private markets would just resolve this problem and we would all be okay.

But NIMBY-ness, as Nolan perceptively describes earlier in the piece, is endogenous to prosperous density:

In cities where many people want to live, but which fail to build enough new housing every year to keep up with demand, housing prices rapidly reach levels only affordable to the rich. The middle class leaves the expensive cities. They move to less expensive cities, where they constitute an influx of new residents, and they are resented by the existing residents of those cities, who see their own housing prices rise as a result of the influx. Instead of rapidly building a lot of new housing to account for the influx, residents typically channel their resentment into a determination to keep everything as it is, which means a continuing lack of adequate new housing construction, which only serves to drive up rents and home prices further. And the cycle continues, from one city to the next to the next. People leave San Francisco because it’s too expensive and they move to Denver and then they make Denver too expensive and then those people move to Boise and make Boise too expensive and then those people move to your small town. Uh oh! You will teach them a lesson, by organizing your neighbors to fight against the damn new luxury condo building they want to build downtown. Eventually your town will become too expensive as well.

We need to build more housing. If your city is too expensive it is because there is not enough housing to meet the demand. Build more housing. Stop being selfish.

Note that your town doesn't need to already have zoning laws historically rooted in racial segregation. It will invent them, or it will invent something else, because the people who bought homes they love in neighborhoods they love, upon whose character they have based their security and lifestyle, into whose financial value they have leveraged their net worth several times over, will not stand for leaving those assets to the vicissitudes of private home developers.

And then there are basic facts of physics and geography. Infill of existing density is challenging and costly. Infrastructure must be retrofit. Even if eventually there will be room for so many more, current residents may need to be displaced (and in practice often never become part of that many more). Greenfields grow ever more distant from the drivers of demand. Together, these factors render housing supply curves "convex". (ht Tyler Cowen) In English, what that means is that price increases translate less and less to housing quantity increases as metropolitan areas grow, regardless of the regulatory regime.

When you are trying to rely upon the market to solve your problem, and then your advice is "stop being selfish", perhaps you should encounter the wisdom of Alan Greenspan

I made a mistake in presuming that...self-interests...were best capable... I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.

Private markets are based on selfishness. This idea that developers will be motivated by avarice to do just what you want, but homeowners must suspend avariciousness with respect to the asset at the very core of their lives? Good luck with that.

The YIMBY movement has succeeded, like Max Weber's proverbial strong and slow boring of hard boards, in making some real progress in some particular places. I will concede that, between liberalization of ADU construction and the astonishing "builder's remedy", California has gone farther than I ever imagined it would towards coercing localities to build even against strong opposition of local government's best enfranchised constituents. It isn't nothing. It's a quite extraordinary political achievement. And I don't doubt that it helps, at the margin, for a while.

But the core problem we face is much bigger than land-use. It is geographic inequality. We have created a country in which too few patches of geography are associated with vastly better opportunities and amenities than all the other places. As with individual inequality, some of this is "natural". Some people are taller than other people, and will have better chances in the NBA. Some places are lovelier and more temperate than other places. However, the actual inequality we are struggling with is not due primarily to these differences, but to our social arrangements. There are plenty of lovely places in the United States that could host remarkable and desirable cities. That they don't is a social outcome, not the result of any natural law.

So long as just a few places offer so much more amenity, liveliness, and economic opportunity than everywhere else, supply growth in those already built-out places will nowhere near match the tsunami of demand they face from people who would migrate there if they could. The deep flaw in YIMBY-ism is that problem they accurately highlight is orders of magnitude larger than what the solutions they identify, promote, and support can plausibly address. Yet the medicine they propose is divisive and painful to people in established, lived communities, and tend to serve the better-off in favor of the worse-off, as market-based solutions usually do. Regulatory caveats intended to counter gentrification, exhortations to upzone places that are affluent and coveted rather than communities poorer and already precarious are well and good. But they cannot overcome the basic physics of market action, to each according to his purchasing power, from each according to his desperation.

Even if YIMBYs got all the legal reform they wanted, if all residential construction was by-right and developers had free reign, it's not at all clear housing abundance would result. We've already discussed the factors that overdetermine "convex supply curves", under any regulatory regime. Then there are economic factors beyond regulation. The YIMBY dream is that, if regulatory constraints were lifted, swarms of home developers would engage in ruinous competition to build, driving down the price of the goods they produce and sell. In our contemporary, highly consolidated, economy, how many industries work like this?

Let's hear from Logan Mohtashami of HousingWire, whom I think it is fair to characterize as a perpetual bull on the US private sector:

Unless the government steps in to build when new home sales demand gets soft, we will not add homes to the builders’ demand algorithm. Builders have learned to tightly control inventory by retreating from construction when demand becomes slack. Building more homes is bad business during weaker times... We won’t see the construction boom that people want because the builders are here to make money; they’re not here to fix the low inventory issues of the existing home sales market, which is their main rival for demand.

This is why I have stressed before if you want a construction boom, the federal government will need to step in with deficit financing.

In general, firms prefer to produce small quantities at high prices, rather than large quantities at low prices, if they can get away with it. For now, for the most part, they get away with it. If you want to be a YIMBY optimist, you have to hope not only for ixnaying exclusionary zoning and environmental reviews and all of that malarky. You will need Lina Khan's very devoted attention to your municipality, in a domain which by its nature is unusually prone to consolidation. Urban construction always requires locality-specific capabilities and connections, and the people who have those are susceptible to being bought out. (I know. Don't be selfish.)

What YIMBYs get wrong is the actual nature of the scarcity they need to overcome. You cannot, will not, overcome the scarcity of San Francisco. What you can overcome is the scarcity of San Franciscoes. If you create more demand drivers, more places where it becomes desirable to live, where important agglomeration effects take hold, you reset the picture. All of a sudden, there are greenfields very near your demand driver, which you can develop at efficient density without colonizing established neighborhoods. Eventually, established neighborhoods in older desirable places will redevelop themselves, in ways their own selfish residents determine, as desirable alternatives elsewhere become competitive threats.

California Forever notwithstanding, the private sector is not going to throw around capital in sufficient quantity to invest in places where there's not already a good business case to build — that is, where there's not already an obvious, preexisting demand driver.

One of my favorite paragraphs I ever wrote is this one:

It’s a cliché that the government builds “bridges to nowhere” that the private sector never would build. That’s true. And it’s a credit to the public sector. Bridges to nowhere are what turn nowheres into somewheres. We need many, many more bridges to nowhere.

Turning nowheres into somewheres is a role of the state. It is not an easy role, by any measure. Of course there have been, and will be, failures, boondoggles. You could have tens of billions of dollars worth of boondoggle annually and it wouldn't measure anywhere near the social cost of housing dysfunction in the contemporary United States. All successful enterprises involve failures along the way, and until we develop public sector institutions more tolerant of that, we'll continue to impoverish ourselves and fall behind in geopolitical competition.

If you want to know how I propose we build, read Microcities.

But of course there are a wide variety of possible approaches, and people much, much smarter than I am thinking about this. Before you come at me with your pessimism, yes, Milton Keynes was tragically conceived at the height of automotive exuberance and there are things we should regret about it. But it is a broadly successful metropolis now. Ordos, China's most famous "ghost city", is booming after the Chinese state intervened with the "artificial" demand driver of placing competitive schools there.

States can do these things.

Neither Milton Keynes nor Ordos strike me as good models to emulate. But in their imperfection they remind us, cities can be made. Even when made not so well, they can thrive. Next time, we'll make them better.

New cities can house people. And they will, sooner or later.

In 2018, Saoirse Gowan and Ryan Cooper wrote A Plan to Solve the Housing Crisis Through Social Housing:

Sweden, which undertook perhaps the most aggressive public housing plan of any country relative to its size, provides one high-water mark. The Swedish government set a goal of building 1 million new units in the mid-1960s when the population was only 8 million (or about the same size as New York City). Despite a few setbacks and problems, this goal was achieved in less than a decade – indeed it was so successful that Sweden had an oversupply of affordable housing for decades afterward.

We suggest that 10 million new municipal housing units would be a viable 10-year goal. That is well short of a scaled-up version of the Swedish program, but still quite aggressive. We do not anticipate a U.S. affordable housing oversupply being a significant risk in the medium term.

I know, right? Laugh. In America, we know social housing as public housing, as the projects and we know how that goes. We have not built 10M new units.

The problem of housing scarcity has only grown worse. As Nolan reminds us, what was once a pathology of San Francisco, Los Angeles, New York, has metastasized. Boise has become aspirational too. I'd argue that this is the main reason why younger people (some older ones too!) are pessimistic about the US economy. Housing in the places people want to live is impossibly expensive. The dream of a chill, secure middle-class life in a safe and lively place with good schools is out of reach.

So far, the housing apocalypse has been a boiling-frog game of musical chairs. The housing situation has worsened in increments, and the losers each round have been the least well-off. That is precisely the sort of problem the American political system is built to ignore. We blame the losers, and segregate ourselves from them. (Until, of course, we find it is our turn to lose.)

But climate shocks are already beginning to change this. Well enfranchised, safely middle-class Americans are going to find themselves uprooted from homes they purchased as the foundation of their security, some directly by catastrophe, most by burgeoning insurance costs. We are already in a phase of socialized denial, which we have institutionalized into state-backed insurers of last resort. Very soon, we will see one of those insurers outmatched by nature. Bailouts will be arranged.

From that moment on, the fiscal calculus will have turned. State-led housing development will no longer be a matter of handouts to losers, supported out of self-regarding pity by liberals, subject to criticism and derision by conservatives. State-led development will be the only means we have of rehousing millions of hard-working families over a limited period of time. Our ability to do it well — to construct new, safer, places where people will genuinely want to live — will go a long way to deciding whether our collective future is dark or bright.

"Social housing" is not a pie-in-the-sky project. It's an inevitability. We already face a deep and terrible housing crisis. The time to get good at building new communities, to exercise state capacity we will desperately need, to experiment and endure failures we must learn from, is right now.