…continued from Part 1

 

What’s Behind NIMBYism?

A lot of it is, as I’ve suggested, a natural resistance to change combined with political power. What does that mean, exactly?

First, there is the fear that a greater supply of housing will result in lower prices for existing homes. Economics tells us that, other things equal, prices will indeed fall. So, if you’re afraid that the price of your home might fall or that it might not rise as fast as you would like it to, you might support NIMBY regulations.

There’s also a peculiar attitude that many in the United States have toward their home.

A lot of people like to say, “Housing should be affordable!” while at the same time they believe that “Our homes should be a good investment!” In general, both of these can’t be true.

We don’t think this way about other expensive assets, such as our cars. We normally don’t expect our cars to increase in value over time, even if it’s a Mercedes. Why should we expect houses to be different? In other societies, such as in much of Europe and Japan, the idea that houses should be a good long-term investment is, well, foreign.

But if we do think our home should be a good investment, and if we also think that housing should be affordable for all, well, isn’t that inconsistent? After all, affordable housing means prices stay relatively low, while we expect the price of a good investment to rise. Unfortunately, people who say these things usually mean, “Housing should be affordable to all, except in my neighbourhood.” Again, not in my backyard!

But there’s also a second, usually unspoken and insidious reason people oppose building more housing, especially multi-family housing. If building more housing, especially high-density, multi-family units, really does make it possible for lower-income people to afford to live in our neighbourhood, well, then it’s likely that people and families who earn lower incomes will indeed move into our neighbourhood. NIMBYism is often a convenient excuse to use political power to preserve a neighbourhood’s ethnic and cultural homogeneity.

But there’s also another, perhaps even worse consequence of restricting the supply of housing via government regulation, and that’s the long-term impact on the ability of a city to prosper; and a corresponding tremendous advantage of allowing flexibility in land use.

Innovation, Productivity, and People All Suffer

Now, living in a market economy has meant unprecedented prosperity for the vast majority of people around the world. Per capita incomes globally have risen on average over 30 times in the past 200 years. What’s mainly responsible for all that growing prosperity is innovation. And, of course, innovation means change.

That kind of creative change is what got the West out of the Middle Ages, when everyone pretty much knew what they would be doing from morning to night, from birth until the day they die, and where incomes per person were about $3 a day. So if we like what a market economy does for us—the comfort, creativity, convenience, and long life-expectancy—then a world of change is really what we have chosen to live in.

Now, innovation doesn’t just happen. Because the world is uncertain, no one knows just what’s needed and what’s possible. People have to experiment, and as Jane Jacobs explains, cities are ideally suited for that sort of trial-and-error. On the one hand, the connections we make offer unparalleled access to information and contacts with other people; and on the other hand the diverse opportunities and anonymity of a great city allows us to try different things without having to worry as much about the cost and risk of failure. But what does overly restrictive land-use regulation have to do with that?

It’s this: other things equal, the more homogeneous a city, along any margin, the less innovative and productive it becomes.

To over-simplify a bit: on the demand side, making real estate more expensive in a city selects for people with a certain income and cultural background and filters out people with unusual backgrounds and tastes. That results in a lack of diversity among people. If a new product or service is to succeed, you need people who are willing to take chances, to try wacky things, who are willing to try it out.

On the supply side, really high real-estate prices mean people will be less likely to afford to be entrepreneurial. That goes especially for young people with novel ideas or lifestyles who find expensive cities less congenial places to experiment. Consequently, you’ll find mostly businesses that are already successful, or art forms that are already well-established—chain stores, blockbuster movies, elite dance companies and symphonies—rather than fringe artists and businesses that may be how innovative industries get started. The high costs mean it’ll be very hard for them to get a foothold.

Instead, those people will have to try to live in other, less-expensive places that are likely less complementary to their knowledge, skills, and tastes. Sure, they may be able to make a living and do some of the things they would like to do, even become hugely successful, but history shows that it probably won’t be to the degree they would have been able to in a more productive city.

And the decline in productivity is real. Economists have estimated that easing land-use restrictions in just New York, San Francisco, and San Jose alone would increase gross domestic product by 9.5 percent!

So, sure, there’s nothing inherently wrong with resisting change that we don’t like or want. In fact, we sometimes should—peacefully. But be careful! Mix in political power and the consequences can be, and have been, tragic.

 

This article was first published by the Foundation for Economic Education (FEE).