Free to Build
2023-02-06 · Guest: Christian Britschgi (Associate editor at Reason magazine) · 52:46
Artificial inflation of housing costs in California
Bob Zadek and Christian Britschgi discuss the artificial inflation of housing costs in California. They explore how zoning laws, environmental regulations (CEQA), and union “greenmailing” restrict supply and drive up prices, debating whether state-level intervention is a necessary evil to restore individual property rights.
Topics: Housing Policy, California, Zoning, CEQA, Unions, Property Rights, Economics, Rent Control
Speakers: Bob Zadek, Christian Britschgi
Introduction to California’s Housing Crisis [00:27]
Bob Zadek: Hello friends, I’m Bob Zadek, host of the country’s longest-running libertarian broadcast, nationally streamed at 8:00 AM Pacific Time Sundays on the 860 AM app. The archives of my Bob Zadek Show podcast hold 15 years of major issue discussion and is the ideal resource to revisit our prior missteps, since so many seem to reappear. I promise you in-depth content on social, political, and economic issues that really matter, always with the ideal guest, accessible and entertaining. Our standard: ideas, not attitude.
Today’s guest, Christian Britschgi, exceeds those standards. Christian is an associate editor at Reason magazine covering property rights, housing policy, transportation policy, and regulation. Well, that’s a lot to cover. He has written for the American Conservative, the New York Post, and the Wall Street Journal, and his work has been cited in the New York Times, Washington Post, and the Atlantic. Christian, welcome to the show.
Christian Britschgi: Hey, thanks for having me on. I have a big reputation to meet now given that introduction.
Bob Zadek: Well, my friends, it’s accepted as gospel by economists, by politicians on all ends of the political spectrum, and by everyday people who want nothing more than to stay warm and dry, that California is the poster child for the breakdown in housing policy. It’s seen that when it comes to government at its worst, California is the canary in the proverbial mineshaft, and what happens here is soon to happen elsewhere. Since Christian has written extensively on housing policy, I have invited him to join us today to examine the root causes of the—I’ll say alleged, but more about that later—of the alleged affordable housing shortage. And by the way, my selfish reason for teeing up this topic is my fear that I may have left the libertarian reservation, as it were, by my concluding that there is no housing shortage anywhere, and Christian, there never can be a housing shortage. But we will see if I’m right.
So Christian, welcome to the show. Now, let’s set the stage. You have written about California’s housing policy and, by implication, the alleged housing shortage. So big picture, because we’re going to drill down, so let’s just set the stage. What is there about California—a big state, a lot of people, a lot of land, a lot of unused land—so what do you mean exactly by a breakdown in housing policy, and then we will drill down one at a time as to the causes of a housing policy failure?
Christian Britschgi: Sure. So to describe California’s problems with housing, I would just first go by saying looking at price. You know, California, if you look at average home prices, is I think the second most expensive state in the country, followed by Hawaii. And it also has some of the most expensive—if you look at the top 10 cities for rent or home prices, most of those are California’s as well, obviously San Francisco and Los Angeles, but then areas in the Bay Area particularly too. So I mean, prices are incredibly high.
You also have a high ratio of people to individual housing units. California, after Utah, has the highest number of people per housing unit, which suggests you have a lot of housing overcrowding as well. And then also the percentage of people’s income that goes to housing is a lot higher in California than it is in a lot of the rest of the country, and particularly in California’s large cities. And then additionally, you know, if you look at other measurements of housing costs or housing affordability, you know, the price of a home in California, there’s a huge gap between the price and then the cost of construction. And normally what you’d expect in a healthy market is that the cost of the house would be a little bit more than the cost of construction so the builder can make a profit. But in California, the cost of the house is a lot larger than the cost of construction. So there’s something wrong going on here. It’s the reason that the state is bleeding a lot of people, why you see, you know, a lot of people moving to Texas and Florida where housing is more abundant, more affordable. Something about this picture isn’t right.
Defining the “Shortage” [05:18]
Bob Zadek: Well, let me interrupt. You—I’ll confess to having tricked you and manipulated you into saying what I hoped you would have said so that I can pounce on it. So get ready, get ready, my friend. You mostly said housing is too expensive here. Now, I’m going to ask you a question that seems unrelated, but you will see it’s not. Are Super Bowl tickets too expensive? Now, are they too expensive? Well, they’re expensive, I guess, but they’re not too expensive because anybody who wants to go to the Super Bowl can go; they just have to pay what the ticket is worth. So I will take issue—there’s no way to start a new relationship, Christian, that you and I are developing, but I’m going to take issue for the minute, only to have a conversation with you. I don’t even know what you mean by saying housing is too expensive. Are diamonds too expensive? They are what they are. Why do they cost that? Because that’s a relationship between the amount of diamonds available and the number of people who want them. So diamonds are not too expensive; they are exactly the right price. Supply and demand teaches us. Isn’t the price of a house in California, or housing in general—I don’t want to just say a house—isn’t the price of housing in California exactly right? And isn’t it always exactly right? Because that’s what people are willing to pay. So I’ll ask you to drill down a notch and just to explain what you mean, because I’m not yet persuaded what you mean by housing is too expensive.
Christian Britschgi: Yeah, that’s a fair point. So like, you know, California—so for the traditional like Econ 101 definition of a shortage is that there’s some sort of price cap that sets the cap below market prices and therefore the market provides less than what people are actually demanding or would buy in equilibrium. And California actually does have this problem because a lot of cities have rent control, right? So the market rates—market rate rents for units in California is probably lower than what they would be. But a lot of housing stock in California isn’t rent-controlled. And you’re right, the price rises to whatever the market level is.
I would say it’s too expensive because a large portion of that price is the product of government policy, right? If it were, you know, diamonds or Super Bowl tickets are very expensive, but because the market has produced so much and demand is very high and it’s hit a particular equilibrium, right? The prices of oranges are very low because there’s a lot of supply and, you know, even though there’s a lot of demand, the per-unit costs or costs of production versus demand leads that to be the per-unit price for oranges. It’s a relatively free market. The problem with California is that the, you know, while the market is setting the price for the homes generally, not including rent-controlled housing stock, the market is not allowed to add supply to meet demand. And so the market price ends up being—ends up reflecting the huge tax that regulation and just also taxes puts on housing there. And so, you know, some of the statistics I mentioned at the beginning of this conversation point to the fact that regulation is driving up the cost of housing higher than where it would be in a free market. Again, the difference between the cost of the home and the cost of construction is—that gap is much larger in California than you see in other states, and that’s a product, you know, of restricting supply. Again, the number of people per capita in a housing unit is much higher in California than almost anywhere else in the country. And again, that’s because people can’t necessarily afford a home of their own and so they end up living with roommates, you have multiple families living in the same unit, so on and so forth. I think all of that—and also the fact that, you know, you have people again leaving the state because they can’t necessarily afford housing there. Again, if there were no restrictions on supply and these were the price of homes, I would say, yeah, housing isn’t too expensive in California, it’s just the market has produced a very expensive place to live for whatever reason. But there’s so many restrictions on supply that I don’t think you’re getting a, you know, the market is setting the price, but you’re not getting a true free market price, I would say.
Bob Zadek: So I would say you have just found the common ground between us. And I’m going to refine, with your permission and with an invitation to respond, really the problem is not that housing is too expensive. The problem is that housing is more expensive than it would otherwise be because of government intervention. So it’s not the absolute price of housing. If California had none of the problems we’re about to discuss, but it was just the climate is to die for, it’s a very nice place to live, near an ocean, there’s a lot to be said for living here. It’s a good place to live. Therefore, a lot of people would want to live here. If I stop there, California would still have very expensive housing because it’s desirable and it would have a more expensive housing stock because it has weather and proximity to oceans, proximity to all the things that make it desirable. But I think your problem is, which is exactly the right problem, is not the cost of housing, but it’s how it got to be expensive. And therefore, that may be the perfect segue into the rest of our show. So the qualification I would make is not the cost of housing, but why it is that expensive. And if it was just market acting accordingly, we wouldn’t be talking about this today. Is that a fair summary?
Christian Britschgi: Yeah, largely I think that’s fair. I think one thing I would say is that obviously you mentioned a lot of very fine features about California that drive up demand for living there. I would say that, you know, again in a free market, that wouldn’t necessarily drive up the cost of housing per se as much as it would drive up the cost of land, but then markets would respond to that, right? For instance, it’s very desirable to live on the beach in California. And so land prices go through the roof. And so you would imagine one way of responding to that would be developers would look at these high land costs and say, hey, there’s a lot of demand for living here, I’m going to build a big apartment building right on the beach. You look at a place like Miami, you know, there’s condos right on the beach and that lowers the price of housing because the market is responding to those high land prices that you can’t really do anything about. But again, in California, because there’s so many restrictions on the supply, you don’t have markets responding as they naturally would to high land prices and therefore the cost of housing goes up. And so, yeah, I guess I would add that little bit of proviso, but generally, yeah, I agree with how you described it.
Zoning and Environmental Review [12:53]
Bob Zadek: See that, we’re friends again. Okay. So now we’re spending our time understanding how government, by their ignorance—not only government, we’re going to cover unions, we’re going to cover the political system and things of that nature, and we might even touch upon rent control a bit, but that’s often a whole show by itself, but we might touch upon it. So we’re going to discover if government wasn’t acting with such stupidity, housing prices by that adjustment alone would be lower. So now we are seeing government indirectly—it’s almost as if there is reverse rent control, where government’s action is causing prices to be too high as opposed to too low.
Christian Britschgi: Yeah, I really like that phrase “reverse rent control.” I’m going to have to remember that.
Bob Zadek: Thank you. You can use it as long as it’s with—just remember, Christian, attribution. You can use it, but attribution. Okay. So Christian, in any order you want, but if you can do the ones that are the most attention-getting because how pervasive they are, help us understand one at a time so our audience can recognize it when they see it in their own community. Give us an idea, show us how some of these policies, what they are and how they operate to artificially inflate the cost of the commodity called housing.
Christian Britschgi: Yeah. So I think I would describe the problem—the way government drives up the cost of housing in two basic ways in California. One is restrictions on where housing can actually be built and how much of it can be built there. That’s problem number one. And then problem number two is a very convoluted and lengthy process for approving housing that you are allowed to build.
So to the first point, there’s all sorts of rules saying that, you know, on this plot of land is zoned for—I mean, California has again recently changed these rules somewhat, but this plot of land is zoned so that you’re only allowed to build a single house on it when maybe the market demand would be that there would be a small apartment building here instead. So that restricts supply, and if supply is lower, you imagine the price goes up. Another restriction that California has is, you know, it has limits on how much new suburban subdivisions you can build. And so, you know, maybe I don’t want to—there’s not demand for an apartment building in this neighborhood, but there would be demand for a bunch of new single-family homes outside the existing city. There’s restrictions on building that kind of housing too. And so, you know, those are the two basic ways in which government restricts where housing can be built.
And then additionally, you know, if you—it is legal for you to build housing here on a piece of land, you might have to go through environmental review where basically the city requires you as a condition of building just an apartment building in a city, you have to study all the environmental impacts that this building might have and then propose ways of mitigating that. And then on top of that, we’re going to let third parties say that you haven’t studied X, Y, or Z impact enough and if the city approves your building without you going back and doing more study, we’re going to come in and sue you and hold up your project for years. And so you can see the combination of those two things.
Bob Zadek: Now, let me unpack it first of all, because you said a ton of important information. First, as to restrictive zoning—zoning is usually preceded by the word restrictive, although zoning per se is restrictive, or else they wouldn’t call it zoning.
Christian Britschgi: Fair enough. Redundant, right?
Bob Zadek: But okay, but let’s use the phrase as it is commonly used: restrictive zoning. Now, an incident of zoning that you mentioned in passing is, for example, California loves its green space and therefore California restricts destroying, their word, open space, which is kind of nice to see green and a cow and an elm tree and stuff like that. So they say, no, we’d rather see that than an apartment building or a fourplex. Now, residents in California, many people, probably everybody, enjoys having green space. It’s nice. It’s a quality of life issue. And I’m teeing up this topic because I am conflicted about how I feel about zoning. On the one hand, the pure classical liberal in me says, no, people can do with their property as they wish. On the other hand, the illogical extension of that is there’s no green, no zoning, therefore you gotta—if you want to see grass, you gotta see it on television because you’re not going to see it outside your window. And that’s a quality of life issue. So I ask myself and I’ll ask you to comment, as to zoning, where you and I have the same instinctive, automatic, reflexive negative feelings about zoning. Zoning makes my life nicer. I get to see green where I wouldn’t otherwise do so if market forces alone dictated land use. So a case can be made for zoning. So yes, the effect of zoning is a house isn’t on that land or residence because the grass is there. But who says a house is a more important social good than the grass? And so your presentation would suggest that zoning is part of the problem. Can you modify or build on that concept, or am I just so far gone you don’t even want to waste your time getting me back in the program?
Christian Britschgi: No, everyone can be saved, and you too, Bob. So a couple things I would say to that is, no, it’s of course totally—I’m this way too. I like open spaces, I like, you know, being having access to nature. That’s all well and good. A couple things I would say is that I think just A, California has gone overboard in preserving open spaces and that you’re protecting a lot of open space that isn’t necessarily beautiful or used for recreation. It’s just people are restricting it because, you know, of the problems that might come from more people living next to them or out of a misguided sense of environmental concern. So I think that there’s a lot of marginal land that isn’t open for development right now in California that could be without any real—you know, you don’t have to chop down the redwoods to build housing on this space.
And the other thing I would add is that by restricting, you know, where you can build on some of this open space, you know, it’s not like the people who would have lived there don’t exist anymore. It’s just instead of them being able to, you know, live also in the Bay Area and then be able to enjoy the natural beauty that is still protected there, they move to the Inland Empire, they move to Nevada or Arizona where they are experiencing less green space as a result, but they still need cheap—you know, they’re getting cheaper housing because that’s the only place they can afford housing. So, you know, even if you’re trying to just maximize the number of people who can appreciate nature, I don’t know if urban growth boundaries or these kind of growth controls, that form of zoning, is necessarily what you want to do. I mean, I would say it’s not.
And you mentioned, yeah, there’s a balance between preserving open space and then the provision of housing and the social good that comes from there. Who should make that decision? You know, I would appeal to the libertarians in your audience that we should let markets kind of decide that. You know, private property owners, they have all sorts of voluntary means of protecting truly beautiful open space or protecting productive agricultural land, you know, either by just owning and operating the land agriculturally or turning it into some sort of conservation trust. There’s lots of private ways you can try to preserve beautiful parts of the landscape without just like government drawing a line on a map and saying no housing here. So that would be my direct response to you.
Bob Zadek: Let me just respond if I can, Christian. I sort of can’t control myself, so this is like impulsive. But you said, I think I’m being accurate, that some green space is nice, but you say other land isn’t that pretty. So—but that’s Christian speaking. No one has ever mistaken you for Frederick Law Olmsted. So you might not have built Central Park or Prospect Park in Brooklyn or whatever. So I say, is the conversation now not zoning per se, but in some people’s opinion, the scale has been tipped too much? It’s a question of degree towards open space and not enough towards paying attention to housing cost. And that’s a first question. And the related question, Christian, and then I would love to hear your answer, the related question is you made reference to let market forces decide. And I would say in a kind of strange way, the zoning, and let’s say California’s overuse of zoning—let’s just give you the benefit of the doubt, overuse of zoning, they went too far—that is market forces because of foot voting. So those who think California has created a situation where everything is too expensive here to preserve green space, they move. That is market forces. And people who are left are people who say, I pay a lot in taxes, but I get a benefit. So they stay. Isn’t that actually market forces at work as one state with a different zoning policy gets people to move in and other states lose people? The people who are made are those people who like it.
Christian Britschgi: Yeah, okay. So to respond to your second point first, I would say that’s definitely—I would not consider that market forces at all. In fact, I think you could justify almost any government restriction or regulation that way by saying like, hey, if you don’t like it, you can leave, right? I mean, you know, I don’t think we would say—I don’t think that’s fair.
Bob Zadek: I agree. I was just being devil’s advocate, but hedging my bets.
Christian Britschgi: Yeah, sure. So no, I mean, people’s ability to leave California if they don’t like the policies or the zoning for, you know, means it’s too expensive for them to stay there. That’s a safety valve, certainly. It means California has not slid all the way into dictatorship if there’s restrictions on them leaving. But it’s still them doing something that they wouldn’t otherwise do but for government regulation. And so, no, I would not describe that as a market force. And it’s also you have the problem of there’s a lot of people who might like to, you know, who is making these decisions, right? You know, if it’s a local government or even if it’s the state government, it’s decisions being made by people who are already here, whereas you might have people who want to participate in the land market of California who would have a preference for less restrictive rules that would produce less expensive housing, but you know, they don’t live there, they can’t afford to, and so therefore they don’t get a say. So it’s not the same measurement of preferences, it’s not the same kind of market forces as you would see with something else where there’s less restrictions. So that’s generally what I would say.
Then to your first point about, you know, who is it to decide how much open space that we have? Again, I ask no one to take my aesthetic judgments at face value or to, you know, let me say how much open space should exist. All I would say is, you know, the problem with urban growth boundaries, you know, agricultural zoning that prevents new housing is that you’re telling someone else that, hey, this property that you own, maybe you would like to build housing on it, you don’t value the open space that you own, but we’ve placed—you know, we’re putting rules on your property, you’re not allowed to decide for yourself anymore. And so, you know, it’s I guess at the end of the day, it’s like what’s going to be a more accurate representation of people’s preferences? Is it individual property owners deciding for themselves on the land that they own: do I want to keep this as housing, do I want to operate as a farm, do I want to turn it into a subdivision? Or is it going to be, you know, a few environmentalists in Sacramento deciding that no, actually, we’re going to just draw these lines on a map and say you’re not allowed to build housing here. So yeah, that would be my response to those two points.
Bob Zadek: Now, you raised a new issue, which we’re in total agreement, but I want to point out to our listeners this distinction. You said, and you spoke correctly, about the unfairness of buying your land and then discovering you have to keep it as a farm and you can’t make it into a subdivision. That would suggest that the zoning changed after you bought your house—or bought your land. I agree, that’s an obscenity. That’s sort of, if you will, regulatory—that’s eminent domain by regulation, where they regulate the value out of the property. But that’s a different issue, an important issue, and of course it’s wrongheaded. But when you buy some land zoned in a certain way, that’s the deal. You know that. And probably the price you paid has been adjusted for that impairment on the use of the land. So you buy the land knowing if your fantasy is to convert the farm into low-income housing, you’re not going to make it because it’s zoned against it. So you haven’t been misled. And I just want the audience to appreciate the distinction between government changing the rules on ownership after you buy in and therefore they suck away value, versus you knowing the rules when you bought the land to begin with.
Christian Britschgi: Yeah, I mean, there’s something to that distinction as far as like, you know, how much maybe someone is justified in complaining about a restriction that they had to deal with that they knew about when they bought the property. But you know, a couple things I would say to that is firstly, like at one point everyone did have zoning imposed on a property that they already own. We used to not have zoning laws in this country, and then states and cities passed zoning laws and they got more restrictive over time.
Bob Zadek: Except Houston. Except Houston.
Christian Britschgi: Except for Houston, that’s a very good point. So Houston does not have proper zoning laws. A couple other cities around Houston don’t have proper zoning laws. And then some very rural communities also don’t have zoning laws. But by and large, every city, every suburb in the country has zoning. Every state allows localities to zone. And then California has a whole ream of, you know, state restrictions on top of this. But yeah, so the first thing I would say is that at some point in history, someone has owned a piece of property and then a zoning rule has been enforced upon them that restricted what they’re allowed to do with their property. And so, you know, and I think it’s fair enough to say, like, hey, you shouldn’t be surprised you buy a piece of property and it’s zoned on it and it has zoning restrictions with it. But you’re still being restricted. And so the question is whether that restriction is right or justified or produces good or bad outcomes. And it’s again, a government—it’s not the force of nature, it’s not a contract that you necessarily agreed to. It’s a government regulation which can, you know, is subject to change.
You know, a good actually I think a good example of this is a lot of the complaints about, if you remember the early complaints about Uber, a lot of those were coming from taxi drivers who they purchased, you know, in like a place like New York, you have to buy a taxi medallion to drive a taxi and there’s only so many taxi medallions the government issues and so the prices were astronomically high, you know, it’s like half a million dollars for one of these medallions. And then Uber comes in, gets around the regulations and drives down the prices of these medallions. You know, these guys reasonably complained that, hey, I bought into this system expecting it not to change and then these guys undercut the price of this privilege I bought. I understand why they’re upset, but at the same time, the, you know, in order for them to maintain the price that high, you would just have to stick with a government-enforced cartel of taxi medallions. And it’s a similar case with zoning where in order to not ruffle the feathers of someone who, you know, bought a property that’s zoned one way, you have to enforce this government land cartel. And so I think it’s a similar issue.
Bob Zadek: As an aside, totally aside, because I lived in New York and I’ve been around for a long time, the number of taxi medallions was fixed in 1938 at 13,388 medallions. It didn’t change since then. Needless to say, the need for taxi cabs has grown since 1938. And as a postscript, New York City went in and there was actually litigation during—I think the ‘08 alleged financial meltdown, the crisis, there was—when the word bailout was in the news every day, taxi medallion owners were requesting a bailout by the city and there was litigation because they were victimized by governmental action and by making these things so expensive. So I mention that as an aside.
Actually, if I can follow up on that real quick, I think it’s actually a really good perspective because it’s almost the exact same thing with housing production, right? You know, in the ’60s or ’70s when most cities passed like big downzonings, they capped, you know, here’s how much housing we’re going to allow to be built in Los Angeles or San Francisco or wherever, and then obviously the demand for housing has grown in these cities and they’re bumping up against those caps more and more every day. And so the same thing happens: the price of a taxi ride goes up in New York, the cost of a house goes up in California. Very similar dynamic. But I’m sorry, I cut you off, Bob.
Bob Zadek: No, okay. But you sucked me in. You mentioned taxi medallions and here’s what you sucked me in. I have to share an anecdote having nothing to do with housing. I can’t control myself, I ask your forgiveness. There was a one-term mayor in New York City in the ’50s, Vincent Impellitteri. You have never heard of him. No one’s heard of him. One-term mayor. He had—and he was—people were complaining about the traffic problems in midtown Manhattan. He had a cure. At that time, New York City had almost exclusively Checker cabs. Big, comfortable, fold-down seats, fabulous. You get in and out standing up. They were the greatest thing in the world. He concluded the reason there were traffic problems is the taxi cabs were too big and they were taking up too much space per taxi. So he forbade any new—any new medallions to be attached to a Checker. Checker went out of business, it was their biggest customer, and we ended up having Pintos and all those stupid tiny cars as taxi cabs so each cab would take up less space and no traffic problem. A little aside having nothing to do with anything, I had to share the anecdote.
The Union Influence and “Greenmailing” [33:25]
Bob Zadek: Okay, back to California and back to the housing—the expensive government-created housing crisis. You wrote quite a bit about unions and the contribution that unions have made through the clear regulatory capture of government by unions. So tell us just some of the ways, some of the tools in the union toolbox that have the direct effect of increasing the cost of housing to the detriment of all those who simply want to buy a house or other kind of residence.
Christian Britschgi: Okay, yeah, for sure. So the first way is that a lot of different types of housing, you know, particularly if it’s government-funded or receives some sort of government benefit, will come with this requirement that the developer pay prevailing wages to the labor. And prevailing wages, you know, you can imagine it’s just like whatever the carpenters in that area are getting. But if all the carpenters in that area are unionized, then the prevailing wage is the union wage, right? Or most of the carpenters are unionized and the prevailing wage is the union wage. So that’s one—and these rules are done, you know, imposed at the insistence of unions. So, you know, that’s one way that the unions drive up the cost of housing production, which is then reflected in the final, you know, price of the unit or the rent, whatever. Prevailing wage. And there’s been studies on this estimated that it drives up the cost of housing from, you know, 10% to 30%, wide variety. So that’s a very straightforward way in which unions drive up the cost of housing.
The other more really pernicious way is through this thing called—this practice called greenmailing. And so this is going to require a little bit of explanation for how you get a project approved in California. But so basically, if you’re building a big apartment building that requires some sort of discretionary approval from the city government, maybe they—
Bob Zadek: That if you’re not—if every project does, but go ahead.
Christian Britschgi: Yeah, okay, sure. So if you’re building a big, you know, yeah, you’re building a big apartment building, chances are you’re going to have to go through this thing called CEQA review. And that stands for the California Environmental Quality Act, which basically requires you, the developer, to produce a study showing the environmental effects of your development and then the city government will have to approve it as part of approving your development. But the CEQA process, it allows third parties, anyone, to, you know, while the project is going before the planning board and going before City Hall, to come in and raise objections and say, hey, you didn’t study traffic enough or you didn’t study the impact on birds enough, you know, the wildlife is going to fly into your buildings. One story I reported on, the union came in and said, you know, the developer needs to study the impact of residents—they were trying to build an apartment building and the union said you need to study the impact of the residents owning cats on the local bird population and you didn’t do that here and so this, you know, you failed the state requirements to study the environmental impacts of this building.
Bob Zadek: By the way, you must also share with the audience the issue of a shadow.
Christian Britschgi: Oh, right, yeah, sure. This is the other very common one is that you never have done enough shadow studies. So I reported on a guy trying to turn a laundromat he owned in San Francisco into an apartment building. And this wasn’t necessarily the unions giving him trouble for this particular issue, but he had to end up doing three shadow studies showing that his building would slightly shade the adjacent school park for a few hours in the afternoon part of the year. And this brought all the complaints from activists saying, you know, the kids, they’re going to be malnourished because of the lack of sun, they’re going to get rickets, you need to look into the impact of this. And so this delayed his project substantially.
So that kind of shows you how third parties are able to kind of hijack this process with what are often cynical demands. You know, in that case, the activist didn’t actually think that, you know, the shade was going to actually impact the kids’ development; they just didn’t want the apartment building and so here’s a cynical objection we can raise that will delay its approval. Similar thing with the case of the union and the residents and their cats. I don’t think the union really cared what—how many birds were being killed by cats. What unions do with this, though, is so they say, hey, this building, you haven’t studied the environmental impacts, they say that to the city, you need to require the developer to go back and study this more. And then the union will go to the developer and say, you know, you said—you told us that hiring union labor on your project is going to be really expensive. Well, you know what’s going to be even more expensive? Us filing lawsuits for the next 10 years keeping your project in limbo. So why don’t you just go ahead and agree to hire all union labor and, you know, sometimes the agreements are more restrictive, you know, you have to hire our particular union, you have to pay into our union education fund, you have to pay our legal bills so we can go do this to other developers. This is the practice called greenmailing. If it sounds like extortion, like I understand why you get that impression. It’s something that California’s unions have used to great effect to get work on projects, but also as a result drive up the cost of housing, as you can imagine, both through the cost of delays and then the cost of the more expensive labor the developer has to use.
Bob Zadek: So and these are nothing other than wealth transfers. When the smoke clears, individuals who want nothing other than to live near where they work, they are selected by random, of course, because they want to buy into the housing, they are making a direct wealth transfer to a carpenter they have never met, but the carpenter is in the union. And if the unions didn’t have this power, both by imposing prevailing wages, which is nothing other than minimum wage for grown-ups—it’s like minimum wage on steroids, that’s all it is, it means the builder, the contractor must overpay workers. But the contractor says, oh well, I’m just a middleman, I’m not going to really overpay, I’m going to tentatively overpay until I get back my cost in the sale of the house. So as a core principle of economics, the consumer always pays. Just like taxes, the consumer always pays. There may be middlemen, in this case contractors, who tentatively pay, but when the smoke clears, the consumer always pays. Christian, you I think were going to say something.
Christian Britschgi: Yeah, so I mean, I totally agree with that. So the consumer pays both in that, you know, sometimes the price of housing is driven up by these prevailing wage requirements or, you know, the other more pernicious effect is that sometimes this drives up the cost of production of housing to a point where it just doesn’t get built, right? And so then the consumer pays that way too because you have a—you get back to this problem that you have fewer units than a free market would otherwise provide and so the price goes up as well. So yeah, it’s a real problem. And you know, it’s funny, like you’d think unions would be on the side of expanding housing production because that means more work for their members. You know, you have this weird situation in California—it’s like if you imagined auto workers in Michigan were opposed to building more cars, right? But California has set up this system where you have such a convoluted process that it pays them, you know, existing union members more to extort the little amount of—or, you know, to enforce wage premiums on the existing amount of development that does happen than just let the market function and get a lot more work that way. So I don’t even think it’s necessarily pro-worker, it’s just pro-the existing union workers. So it’s another protectionist scheme.
Local vs. State Control [41:56]
Bob Zadek: You have also written, Christian, about the issue of who controls zoning and related issues. And by who, I mean is it the locality or is it the state? And that issue itself has a profound effect upon housing. And we’re going to use this issue, Christian, to move into our last subject after we discuss local versus state control. We’ll discuss what reforms look like and why even the reforms for the most part fail. So the audience can recognize it when it happens in their community. But first, discuss if you will this important issue of local versus state control. And the reason it’s important to me is, no surprise, of course I favor local control versus state control. Obviously, as a principle of federalism writ small, just like I favor states versus feds, I favor counties versus state because the closer it by government is to me, the happier I am because I have more individual control. But I think you will find, my—speaking to my audience, I think the audience will find that my bias of local control versus state control puts me on the wrong side of this issue because state control seems to be more interested in more and lower-cost housing. So again, as a libertarian, I’m conflicted. So discuss this issue if you would, Christian.
Christian Britschgi: Sure. So I mean, the basic way is you have to think about what are the interests of the state government versus the local government. You can imagine the local government is very sensitive to the concerns of people who already live in the community, maybe about the impact a new development might have on property values or traffic or shadows or bird deaths or something like that. But what they’re probably less sensitive to is the ability of people who don’t live in the community to move into the community. And so as a result, you know, when you put those two things together, the localities tend to have more restrictive rules than if you were setting those rules at a state government level where people are moving around more and it has a more general interest in economic growth or something like that.
And so the movement in zoning reform generally has been to try to shift some decisions about how restrictive local governments can be from the local government to the state government. And you know, I would respond to—I would say, you know, I’m a federalist too. But that’s actually why I really am in favor of some states trying out shifting zoning decisions to the state level as opposed to having it at the local level. Because federalism to me is just the arrangement in the Constitution whereby states have wide control over their own policies, the federal government has very limited control, and then local governments are basically not mentioned at all. And so for me, I think it’s kind of silly that we have this system across the entire country where every state gives local governments the most control over land use, reserves a smaller—and reserves a pretty small role for the state. I’d like to see some more state-level experimentation, some more laboratories of democracy, if you will, trying out making these policy decisions at the state level. And I think the states are generally going to have a greater interest in housing affordability and be less likely to be captured by some of these interests that have really strong preferences for restricting housing production.
Bob Zadek: As a libertarian, I’m so—as you are. By the way, you’re not a federalist, at least in 1787 you would be an anti-federalist. Not a Hamiltonian. Okay, I just wanted to correct that lest the audience touch their dial—remember dials on radios—touch their dial because they didn’t tune in to listen to a federalist. But okay, but I had to clarify that so the audience continues their love for you. Now, as to the issue of state versus local, of course your point has profound merit and great appeal from the standpoint we are talking about, which is housing. On the other hand, the danger is if those who would favor a stronger, as the founders said, a stronger general government, the federal government, your very words could be quoted in support of their position. So my problem is it seems I was speaking only about myself, my internal conflict. For me to favor state control makes me worry about maybe I really don’t favor more control to the citizen, because the difference is you’re moving control away from the voter. And that to me is pretty gosh darn important. Now, I’m not doing it to contradict you because I’m conflicted myself. So in this program, I have found myself—I struggle with my position on zoning, I’m conflicted with my own libertarian views, and my position on state versus county, I’m conflicted in my own views. So I’m doing that because I’m begging for you to be my support group. Help me through this. I fear that I’m losing my creds. So that’s why I asked you to discuss the issue.
Christian Britschgi: Yeah, sure. So you know, in one sense, I maybe mispoke because I said, you know, if I said state control versus local control, that’s certainly not my aim either for state control or local control. It would be for individual control, right? And so then you just have to ask—it’s a question of judgment and prudence: which, you know, if I move these decisions to one particular layer of government, are they going to produce decisions that give individuals more control or less control? And to make that decision, I think we just have to look at the evidence, right? And the evidence is largely that local governments have been very restrictive, states are a little less so. But there’s still plenty of reason to worry about what states are going to do with their powers when it comes to land use. You know, all the environmental review rules that I was talking about, those are all set at the state level. So you know, there’s still lots of problems for putting this at the state level. But I think when it just comes to the very issue of like, are you allowed to build an apartment building on this piece of residentially zoned land, the state government is going to be a little bit better about letting you do that than your local government.
Conclusion [49:01]
Bob Zadek: Now, we are running out of time. I’ll just mention because I promised our listeners we would analyze the reforms, but we kind of have because the reforms, at least in California, have not been at the local level. It’s been at the state passing legislation that to some, as you have pointed out, limited degree removes what is traditional local control zoning and things of that nature. And the state both offers a carrot and a stick. And the states have been offering economic incentives. And indeed, Biden in his obscene $1.7 trillion whatever it was called Inflation Reduction Act had a little bit of funds to localities which induce legislation or create legislation to provide for more housing. So I think those are the reforms that are on the way. Of course, on the other side of the spectrum, the Wall Street Journal reported, I think just the other day, about the early stages of a national rent control statute. I wonder if that caught your eye. So that’s the scary other way to go.
So Christian, how can our friends follow the work of course of Reason? And by the way, the Reason magazine, which I’ve been reading for 25 years, is a must-read. I don’t care where you are on the political spectrum, the Reason is just plain fun besides being chock-full of thoughtful, readable, non-lecturing commentary. It’s the way issues are supposed to be presented. It is the gold standard for a for print and digital media. So Christian, how can our friends follow Reason and follow your work?
Christian Britschgi: Yeah, thank you for the kind words. So I’d recommend anyone check out reason.com where you can find all our articles, videos, all sorts of great content about, you know, that’s where I write about these housing issues and I have colleagues writing about all sorts of other stuff too that you’ll maybe find more interesting. We have a print magazine too you can subscribe to. If you want to hear my own thoughts, you can go to find my work via Twitter. I’m at on Twitter at @christianbrits. So yeah, that’s where you can find my work. And I just wrote about the federal rent control proposals today that you mentioned.
Bob Zadek: Oh, did you? You’re on top of your game, Christian. My compliments. So Christian, thank you so much. I know how valuable your time is and I sure appreciate your giving myself and my audience an hour of it. That was quite generous of you. And thank you to my listeners out there and my friends for also giving me an hour of your equally valuable time. I hope you’ve found it to be worthwhile and hope you’ve found the content to be exactly at the level that you wish. Thank you so much, Christian. Thank you so much to my friends. And sure as anything, I’ll be back again next week for another hour of ideas, not attitude. Thank you so much.