Welcome to Keith Knight, Don't tread on anyone in the Libertarian Institute. Today I'm doing joined by Doctor Brian Kaplan, the author of Build Baby, Build the Science and Ethics of Housing Regulation. Dr. Kaplan, where is the best place for people to buy the new book? I would buy it on Amazon but it's all over the place. Should be in Barnes and Noble two and bunch of other places. Awesome links will be in the description below. I saw this the other day here.
According to the Empire State Building website, construction was completed in a record-breaking one year and 45 days. That was in 1930. A another website discussing the Golden Gate Bridge in San Francisco says just putting up the suicide Nets on the bridge. Construction began in 2018 and was completed in early 2020 for. Can you explain to us your theory as to why it's so difficult to build things nowadays and be productive?
So the Golden Gate Bridge is going to be public sector, which probably requires a whole bunch of additional stuff to understand what's going on. But yeah, for the private sector, it's really hard to get government permission to do stuff. And some of this is inspections and safety regulation. Most of it actually is just the
level of breaking ground. Going from idea to digging your shovel into the ground for one shovel full of dirt has gotten way harder than it used to be. As far as the citations in your book, and then we'll start with chapter one, You cite Tyler Cowen in your notes section, who says a price is a signal wrapped in an incentive. What does that mean and what are
your thoughts on that? Yeah, so I feel like that's actually Alex Tabarrok, although maybe it's in their textbook so they both say it. But here's the idea, you take a look at a price, you see that it costs $1000 to go and get a particular flights from, say, I don't know, Lanzarote in the Canary Islands to Barcelona on a certain day at a certain time, right? The first thing is, well, Gee,
why is it so expensive? Probably that's showing that there's just very few seats that are available in that particular route to that particular time. But the idea that it's a signal wrapped in incentive says it's not just telling you, oh, by the way, there's not a lot of seats here.
Because if that was all that was saying, then someone might say, well, there may not be a lot, but I want it for me, me, me, me, me, me. The incentive combines the scarcity with, well, if you want it to be you, then you're going to pay $1000. That's what you have to cough up. Do you really care that much?
If so, great, pay the money. If not, then you're going to back away and leave that seat sitting around for someone who wants it more than you do. And as far as the law of supply and demand, could you briefly explain that? I think I know what it is, but I just want to make sure. All right, Well, the Law Supply says that when the price of a good goes up, sellers are more interested in selling it.
The law of demand says that when the price of a good goes up, buyers are less interested in buying it. When you combine those two things, you get the law of supply and demand, which says that at excessively high prices, then people want to produce more than people want to buy. At excessively low prices, people want to buy more than is
getting produced. And somewhere in between there is the Goldilocks price, where the quantity that people want and the quantity that people people want to buy and the quantity people want to sell is exactly equal. So when it comes to housing, I know a lot of people who want to purchase houses or even remodel their business, and yet it doesn't seem like the market is providing in the way we would like it to. You'd think there's a profit
incentive. And because we don't see a lot of building or a big decrease in the cost of housing, it's most likely the result of greedy construction companies who are not interested in providing a product for the masses. Is there anything wrong with that mindset? I mean, just back up to begin with. So you take a look and you see that price of housing really
high. And then one reaction is, all right, well, maybe that's just the intersection of supply and demand, Gilly. It's really desirable. It's really hard to build it. So end of story. Nothing too surprising there. And that's actually where I say you should start. But then there's the question, well, have we been too quick with our story here?
It may well be that we're at the intersection of supply and demand, but the supply in particular may have been artificially constricted or restrained. So imagine that you're taking a look and you see, wow, it's really expensive to go to the circus. And you find out that the government has arrested 90% of the people that work in the circus. Like, all right. Well, on the one hand, supply and demand says the price is going to be really high.
On the other hand, the government didn't have to arrest all the circus workers. And if you release them, then circus prices would once again go way down. That's a fanciful example, but it's highly relevant in the case of housing. And here's what we can say. We've got data on housing prices going back a really long time. And in earlier periods, housing markets seem to work the way that markets in general normally work.
Namely, in the short run, when there's an increase in demand, housing prices go up. But in the long run, the very fact that housing prices are high means the prices are above average cost. And prices being above average cost is a single rapid incentive, as we were saying before, to enter that market and start building a lot more housing. Think of it like this. Anytime that the price that you can sell a product for exceeds the average cost of production, that is a license to print
money. If you can just go and produce that good with the normal level of confidence and sell it to the typical consumer. In the past, housing markets worked as I described, where there'd be an increase in demand, prices would go up, but then there'd be a pile of entry pile, new construction, bring prices back down to cost. Starting in the 70s and 80s, that seemed to stop working in
housing markets. And instead the general tendency with some interruptions is for housing prices just keep going up, up, up, up. And let me remind you, this is this is adjusting for inflation. It's the easiest thing in the world to say, wow, there's been inflation. So what's the big surprise? Like the surprise is that housing prices have gone up a lot more than inflation. That's the surprise. That's what should puzzle you now is what's to going on? What's going on?
Well, anytime you see the price is permanently above average cost, like that's kind of weird. Why isn't entry happening? And then a natural thing to look for with as well. Is there some way in which entry is difficult or just not allowed? And that is where we really can go and point fingers at government and say not only is entry difficult, not allowed, but the number of different ways that government strangles housing supply, it boggles the
imagination. The ones that I talked about, most of the books, I think they are the most significant. It's really hard to build tall buildings, extraordinarily hard talking at the level of maybe decades to go and get permission. Even if you can get permission, maybe it's just one building a year, which is what was going on in San Francisco for quite a while. Before that it was 0 and now it may be going back to zero.
A little unclear there. Fairly hard to build multi family housing where you put a lot of homes into a smaller area. Furthermore, even when you're talking about single family homes, which most land, most residential land in the US is reserved for single family homes. Even there there's a lot of regulation because it's totally standard for government to go and say you have to give everybody a minimum amount of land nowadays, often it's an acre. So you can have one home per acre, right?
Well, when you do that to developer who might have been happy to build 100 homes in an area now into only building 25 homes. As a result, very strictest supply of housing, price of housing stays high relative to cost, and that means that consumers wind up losing out.
But not just consumers. You can also say the regulation winds up being bad, often even for current owners, because they're prevented from selling out to a developer who could then go and give them a pile of money to go and allow other people to make better use of their land. You talk about the benefits of cheap housing, Henry Haslett said. The art of economics consists in looking not merely at the immediate but at the longer
effects of any actor policy. It consists in tracing the consequences of that policy, not merely for one group, but for all groups. When it comes to the benefits of cheap and affordable housing, what are some of the ones you touch on and what are some other ways it would benefit current homeowners who are usually the ones protesting any building operations knowing that it will likely decrease the value of
their current home? All right, so let's just start with the obvious benefits of housing deregulation, right? Very typical estimates would conservatively say that in the modern US, the average home price is now at double its cost of production, probably more, actually. It varies by area. Yes, it's really bad in San Francisco and in the middle of nowhere.
In farm farm territory, maybe there's barely any effect at all, but still, averaging over the entire economy, looks like regulation is at least double prices. Which means that if we imagine a long run deregulated future, you can expect the price of houses would fall, or price of a square foot of housing, let's put it that way, would fall by say 50%.
And what does that mean? Well, minimum means that there is not just a large fall in housing prices, but there's a large rise in standard of living. Simple reason, housing is a large share of your budget. So if a large ticket item in your budget falls in price by large amount, that amounts to higher living standard.
People on average spend about 20% of the budget on housing the modern US. So if you have that 20%, you're basically reducing the cost of living by 10%, which means that your standard of living would rise by 11%. All right, so that's the direct, obvious part. It's big that is really important to tell people about, but if that was all I had to say, I probably wouldn't have written whole book about it just wouldn't have been enough
material. What got me excited was I realized there's just a lot of other problems that most people not only do not connect to housing, but often think of them as just hopeless and beyond solution. And what I say is not only hopeless and beyond solution, there's a one policy that can simultaneously make a big dent and a whole bunch of problems that seem unrelated to each other and unrelated housing. What am I talking about? Well, housing deregulation. That's the idea.
What kinds of problems can we make a big dent in using housing deregulation? Well, how about the problem of inequality? It's gotten worse. All right. Well, pretty simple story. Housing's a necessity. Poor people spend a larger share of their income housing. If we could just cut the price of housing by 50%, this wouldn't just benefit people on average, it would give an especially large percentage gain to the poor, smaller gain to the rich. By definition, that reduces
inequality. Another interesting perspective on this. If you've heard of the work of Thomas Piketty, capital of the 21st Century, you know this stuff, right, Keith? Unfortunately, yes. Well, he has a whole story about how there's just a general tendency of free markets to lead to more and more inequality over time, because in an economy where the rate of growth is less than the interest rate, all a rich person has to do is just not spend and let their money expand and they will get a
larger and larger share. There's been a bunch of criticisms of this, and all those criticisms are reasonable. But an additional criticism is that his measure of capital includes housing. And if you break it down by what normal people think of as capital and this housing subcategory, turns out that for a bunch of countries, the rising income share of housing does all the work.
So rather than it being the natural workings of free markets, it is the unnatural workings of a housing market where government strangles it. And then this winds up giving free markets a bad name. Some of the other benefits of housing deregulation. Also, housing regulation would
raise social mobility. In the past there was a really easy way for anyone who wanted to get a better standard living for themselves could generally do, and that's just move from wherever you are to a high wage part of the country. This used to work really well because housing prices used to not be very different in different parts of the country.
Now housing prices in high income areas are usually very high, to the point where a low income person who moves to a higher wage part of the country normally has a lower standard of living afterwards because the extra housing cost absorbs more than 100% of the gain. So that's another one. I could talk about other ones if you want. Just the last thing is you were mentioning this idea that it's generally homeowners who are resistant to any kind of
deregulation. I think that's quite misleading, actually. It's probably true. The people who show up at meetings are likely to be local homeowners. But first of all, they're a tiny share of local homeowners. They're the weirdos. They're not a random number of homeowners. Most homeowners have as little interest in local politics as the typical tenant. Furthermore, when you look at public opinion, there is very strong opposition housing
deregulation among tenants too. And if you're saying wondering, well why in the world would that be, there's a bunch of reasons. One big part is that about 2/3 of Americans just deny basic supply and demand. And when you say that allowing more building will reduce prices, about 2/3 of Americans just say no, it won't. It's just ideology. It's like, it's not ideology, it's common sense and it's
science. If you're running a lemonade stand and you can't sell your lemonade, you cut the freaking price. Obviously it's not an ideology, it's not a philosophy to say cut the price of lemonade to get more sales. Same thing goes if you do deregulate housing. More gets built and of course
prices fall. Not because builders feel grateful that you gave a pat on the head and sign their forms, but because when you build a lot more stuff, the only way to sell it or and get tenants is to cut the price. I should have specified in my experience because of what I work with in Chandler AZ basically all of the people who object to any new buildings it's just home owner after home owner saying my the value of my price is going to go down.
I should differentiate the between personal experience and empirical data. Thank you. You say like. I don't want to just totally dismiss it. I mean, but is that really what they say? So I've talked to a lot of people who, well, not talked to a a moderate number of people who actually go to meetings, they say is no one ever talks about property values. They're much more likely to talk about there's a bird nest that would have to be disturbed.
Now, you may say that's a thinly veiled attempt to protect their property values. Maybe. Then again, maybe what they say is the real reason. Here's something that's pretty striking to me. Normally any time there is NIMBY not in my backyard activity, it's based upon something that I can see with my own eyes while
standing on my property. But if it were really about protecting your financial interests, you should actually be much more concerned about someone building a pile of new housing a mile away from you then about one person going and putting in a duplex across the street. That's just going to be a very modest increase in housing supply. You should be really worried about big increases housing supply.
Seems to me it's much more about this visceral sense of I'm looking at something I don't like, which also explains why tenants are against it too. Because a tenant can also look at something and say, I don't like that. The actually economically sophisticated thing of saying, well, they're building more things, which leads to more competition, which reduce the price, reduce my price. That's something that is so far from the thoughts of most people, even though that's how markets work.
Most people are politically working from a just gut level reaction of I don't like it, it bothers me. No, must be stopped. Yeah. The other benefits you mentioned, crime, birth rates and construction jobs. Walk us through that, why we should care about those and what those have to do with housing deregulation. All right, let's. Start with the construction jobs really primarily thinking about benefits for non college males. Just to back up.
There's a lot of evidence that non college males are one of the worst fearing demographic groups in society in recent decades. Usual story is that there's been a big decline in manufacturing course. Non college males could just go and move into the expanding sectors of the economy, but overall they haven't been that successful at doing it.
The typical guy who wants who's a non college male isn't going to become a coder and isn't very comfortable with service sector work, doesn't want to go and be a waiter, doesn't want to go and give massages. So then what are they going to do? There's the whole national conservative movement, which is all about using protectionism just to turn back the clock and make the economy work the way that it used to in order to save non college males.
I have a piece called Revive Construction, Not the Rust Belt that I wrote, just walking through and saying, look, even in the most optimistic cases, this is not going to create a lot of jobs. Because the main reason why manufacturing employment is fallen is just that we've got a large increase in productivity per worker combined with we have almost reached the satiation point for manufactured goods.
Think about it this way, Keith. Suppose that five free television sets showed up on your doorstep. You can't resell them. What do you say? Thank you for five free televisions. Maybe what's more likely, it's like I don't need or want 5 televisions. I don't have the space for them. I've got all the televisions I want, maybe one or two of them. You might say it's better than my TV, I'll install it.
But the basic story is that consumers are pretty satiated for manufactured goods precisely because we've gotten so good at making them in abundance. On the other hand, there is an immense pent up demand for more housing.
If you tell the typical person, you know, a house twice as big for the same price of what you're paying now, lot of people, probably a large majority of people would say, sounds great to me, let's do it. Putting all this together, we can see that right now we've got about 10 million jobs in the construction sector, large majority of them done by non college males. So even modest deregulation would plausibly create millions of new traditionally macho non
college male jobs. And a really serious deregulation could easily double the size of the sector, which is a big boon to this group that a lot of people are concerned about that seems to be doing badly, has a lot of additional effects for working class families and so on. So that's my quick story for that. See then crime or this is one that is not obvious. I didn't really think about it till I've read more about it.
But here's the story. A shockingly high share of urban land is vacant in America. So like 15% of urban land is vacant. Vacant land routinely becomes a breeding ground for crime. So some researchers said, oh, maybe if we could get vacant lands down somehow, then we could go and reduce crime. The city of Philadelphia, they actually let them do an experiment where they took pile of vacant lots and let them randomly assign half for just
beautification. So let's clean up the trash, plant some grass, trees, benches, little picket fence, make it look nice. And they found a noticeable decline in crime and that in the surrounding neighborhoods as a result. This very paper specifies saying, look, we're not talking gentrification. We're not talking about building anything. Don't get really mad at us. We just want to plant some grass. But you read this thing, it's like. Why is so much land vacant?
Very likely the number one cause is you can't get permission from the government to do anything on the land. What if we did let people build stuff? Almost certainly that would reduce crime a lot more than grass right now, the last one, fertility. This one has been more controversial, but I'm still going to say that the argument's strong and I think the evidence is there too. Simplest way of thinking about it is this. When housing prices are high, people keep living with their parents.
When people live with their parents, they are highly unlikely to get married and they're even less likely to have kids. If we could get the price of housing down a lot, people would go and get their own place at a younger age. Raising the both, raising the the the rate of family formation, also making happy sooner, which then likely will also lead to people having more
kids. There is more to it than that, but I think that's a totally reasonable story and especially if you just think about it in terms of the price of a square foot of living space. I know there's some people like, well, people in downtown skyscrapers very rarely have many kids. And I'll say, well, that probably has a lot to do with how getting an apartment in a downtown skyscraper is very expensive for a square foot.
What if you could get 2002 thousand square foot apartment in a skyscraper for $1000 a month? Seems very plausible people to have kids in a place like that. So I say that is more than worth a try. It's totally likely that this would also get fertility up. Without denying that this is not the sole reason why fertility is down if you know the data. In the 1950s people live in small homes and had a ton of kids.
So it's not just housing. But housing is still one obvious lever to push on in order to make the problem of low fertility less bad. The book is Build Baby, Build the Science and Ethics of Housing Regulation link in the description below. You cite an economist in the book who says next to carpet bombing, rent control is the best way to destroy a neighborhood or something like that. I'm sorry, I don't have. That what? Does that? What does rent control have to do with destabilizing an
environment like that? Aren't you just helping the renters, making sure that they're not exploited? Right. Well, let's go back to that supply and demand thing. Remember, the whole idea is supply and demand. There's a price so low that you'll have an enormous number of people who want it, but hardly anyone wants to supply it. There's also a price so high, the enormous number of people who want to supply it, but hardly anyone wants to buy it.
In between, there is a Goldilocks price, where the two things are the same. The number of people who want to buy equals the number of people who want to sell, or the quantity people want to buy equals the quantity people want to sell. The standard problem with housing right now is that we got really low construction, really low supply. You got a whole lot of people, but not that much housing. Under these circumstances, what happens if government goes and pushes down the price of
housing? Well, there's two effects. One is it the lower price. People want a lot more housing. They want to go and buy a lot more housing. On the other hand, at that lower price, people want to build even less housing. Therefore, what rent control does is create housing shortages. This is the standard story that economists of almost all political persuasions will give you.
Now, this senior Lindbeck point is where you look a bit further in the future, per Haslett, and say, well, in the very short run, it's not like buildings collapse the instant you post rent control through. But two things happen when you post rent control. First of all, there's going to be a lot less new construction. Second of all, there is a greatly reduced incentive to maintain existing real estate. All right, you can have a pile of regulation, normally rent
control, Rd. control authorities do, where once they impose rent control, they also start telling you all the maintenance that you have to do. But owners are fighting you every step of the way because why should I go and provide them with really good maintenance when I can easily fill all of my buildings at the legal price without doing so, right? Which you may say, that's those evil, horrible landlords.
Are they? They invest in figuring they can make some money and then the government takes it away and then you're mad because they no longer feel very motivated. I think that's a totally reasonable and fair reaction. When it comes to homelessness, a common response is there are many homeless people but there are even more empty homes. Therefore, the state should facilitate in giving these empty homes to the homeless people in order to resolve the homeless
problem. What, if anything, is wrong about that approach? Yeah, there's one where you really have to step back and say, why is any building ever vacant ever? Why is it that the day that someone finishes an apartment unit, someone doesn't show up two seconds after it passes approval? And when you think about it, it's like, yeah, well, it takes time. It takes time to go and match people up to buildings. People are leaving places all the time. People are looking for places
all the time. People are building things. People are pulling them off the market for maintenance. And once you've seen this, you realize, OK, so it is totally normal for there to be even a positive vacancy rate. A world with no vacancy rate would be just a bizarre, crazy world. It would be a science fiction situation where people instantly pop up from teleport into new buildings. That's not the way the real world works, nor would it be a good idea for it to do so.
All right, So once you realize that it makes sense for there to be vacancy rate. And by the way, it's the same principle for unemployment, 0% unemployment. What would that be like would mean that the second job opening is announced, it's filled, right? Which also means that you don't have the time to go and try to find the right match for the job, which is crazy. It makes sense for there to be a positive vacancy rate and makes sense for there to be a positive unemployment rate, right?
Once you realize this, then saying why don't we just go and put homeless in every vacant place, you realize how crazy that is. It's almost like saying, why don't we just go and shove the unemployed into whatever job opening there is. Well, all that with all that you wind up doing there is that, well, two things.
First of all, people would be really reluctant to announce a vacancy or a job opening for fear that there would be someone that is not actually beneficial for them will be voices on them. And the second thing is it's like, well, to actually find people, we need to go and make even more vacancies, have even more of, you know, do even more hiring in order to go because they're going to go and shove a bunch of people that are useless. We really want to get somebody
good. We're going to have to go and get a step ahead of that, which is an even crazier reaction. But you can see the logic of it. It's like if the government will say that I have to go and date a bunch of people I don't want to date, if I've got any free nights in my calendar, then it's like, well, Gee, maybe I better go and free up all my nights just to have a prayer. Snowballs change in hell of finding someone I actually like, right? So there's that too. What are zoning restrictions?
Well, there's really two ways of thinking about it. So there's the very general way that a lot of economists use this, and for a lot of economists, it's just like it's whatever goes and holds back instruction. When economists talk about the zoning tax, there isn't really a zoning tax. The zoning tax just means the total burden of all the regulation that's out there that is preventing prices from being what average cost?
In a more technical legal sense, zoning refers to a subset of housing regulation, which is basically about separation of uses and similar related things. So it would also probably count like setbacks, but mainly it's the separation of residences from commercial real estate from industry. One quote from the book, you say. I know this is hard to believe, but builders try to maximize profits by cutting prices. How does that work? How do you know it's true? Well, let's.
Go back to the lemonade stand if you're having trouble selling all your lemonade. You're looking at it now. I made 10 gallons of lemonade. I've only sold one gallon. The obvious common sense thing that even a child figures out very quickly is if I cut the price, my lemonade, I will sell more cups. Now they may say, huh, well, doesn't that mean that I'll lose money? It's like, well, you do want to be careful that you don't cut it
so much that you lose money. But normally, no, normally you go and you cut your price and that's a way of making more money. And obviously you could try selling your your lemonade for $1000 a cup and see how much money you make. Same idea is going on with builders that if you build a lot of new units, you might be tempted to say, well, I want to go and get top dollar for every unit. But if you're stubborn about that, you're likely just to be sitting on a giant pile of
vacant units. The way that you fill those units is going to be by cutting the price so you can actually attract in tenants from other places. Now, by the way, Keith, so if I could just go and make one point. So this is the podcast of the Libertarian Institute. So I'd say the question I would ask myself, so why is it that this is an issue libertarian
should care about so much? And my answer is that, look, we've got a an incredible universe of government regulations that are messing the world up, but there are some regulations where you can go and say, all right, well, we could privatize the lighthouses. Wouldn't that be wonderful? And I think the honest answer is, all right, sounds like a fine idea, but I don't see how it's really going to affect the lives of too many people. I don't see how it really affect
my life. A world where we deregulate, regulate, where we deregulate lighthouses would look pretty similar to the world that I'm already familiar with. What I want to do in these books is say these are regulations that dramatically change what it is like to live in modern society. These are regulations that stop the future. I want to go and say there's a whole futuristic world that is technologically and managerially
completely feasible. It's just government that is blocking it, that is holding up production. There's a giant stranglehold on the future right now. And housing is one such area. Housing is an area where we have a far more advanced technology than they had 90 years ago, and they built the Empire State Building. And yet in practice we are way worse at building anything like that. Why?
Because the government is stopping us from using what we know, and we know a lot more than they did, to build a dramatically improve world. So a lot of what I'm doing in this book is not just to say housing. Housing is another issue where government goes. And no, I don't want to do that. I want to say we could have a world where housing was half the cost of what it currently is. A world where someone with a very modest income could live in
a mansion. This would be a normal thing that would be happening with a pile of add on benefits. Just imagine this, this greatly improved world. A world that is richer, the world that is more equal. A world with better mobility, a world with higher fertility, a world with lower crime, a world where all where the plight of the non college male is greatly alleviated. All these things imagine all happening simultaneously. We just get serious about this one crummy kind of regulation
and we take a fire. We, we, we take a flamethrower to it. That is the motivation for the book. You know, if we could just take a flamethrower to this particular kind of regulation, we can live in a futuristic world of not utopia, but a lot more utopia that we're looking at now. And why not? There really is no good reason not to do it other than people are just really stubborn about
this stuff. When it comes to empirical evidence, have you found any areas in, Let's just take America or I guess we could compare countries as well, where more heavily regulated geographical areas have much higher prices than other areas where there is much less regulation, they experience much lower cost of construction and therefore housing. Any empirical examples we can refer to? Yeah, I'd say.
It's almost all the empirical evidence you can look at San Francisco versus Texas, All right, That's it's really easy. You can see San Francisco, they strangle construction and prices are through the roof. Texas, the regulation's much lighter and tech and prices are way lower. There's, you know, there are papers that I cite in the book that go over this in a lot more detail, but really this is the single best predictor of what housing prices will be.
It's just regulation, not the the pure desirability of the location, right? They're like, there's an area that's highly desirable, but it's easier, but it's easy to build. We have the technology just make a massive amount of housing in that area. The problem is when government doesn't allow you to do it.
So yeah. So if in fact, it were possible to just go and buy up homes in San Francisco, bulldoze them and put up skyscrapers, prices would crash and a vastly larger number of people could live in style in San Francisco right now. Like, now I know there's people who are really worried about low fertility rates, who think that this is just going to crash fertility. Say, look where I'm not talking about having five times as many people live in San Francisco
under current conditions. I'm talking about five times as many people live in San Francisco in a lot more living space than they have right now. It's a totally different hypothetical that I'm talking about. I'm not trying to get people to live like people in San Francisco currently do. I'm trying to turn San Francisco into a area that has a suburban feel from the inside, even though of course it won't be suburban when you're out on the
streets. As far as good examples of deregulation in other industries do any come to mind? So deregulation, other industries, all the really famous ones are of course aviation and transportation generally. So there used to be the Civil Aeronautics Board whose job it was to strangle the supply of flights and they got rid of, we got rid of that and planned the
price of flying went way down. Similarly, there was the Interstate Commerce Commission, which used to heavily regulate the regulate the price of trucking and rail, right. That was good. That was greatly reduced. And again, prices for those things went down also. Those are two very standard examples. Absolutely. What was the Euclid decision that the Supreme Court faced? Right.
Since the 1200s, Keith, it has been possible under Anglo American law to sue your neighbor for going and putting smoke or or odors on your property for spraying water. So physical harm to your property has for almost 1000 years been a standard thing that you could take a lawsuit about and where there would also generally be some local regulation about. But for until around until like the early 1900s, the general idea was it's got to be a
physical invasion. It's got to be a sound, it's got to be a smell, it's got to be smoke, something like water. It's got to be something like that in order for the government to get involved either in the courts or the regulation. Then in the early 20th century, some local government started saying, you know, just building an apartment is like that. From the point of view of single family owners, someone building an apartment is like going and putting a pig farm next to you
that leads to choking odor. All right, initially people took this to courts and courts, well, seems really different from what's been done before, before you actually have some kind of substantial physical harm. But anyway, got all this. The Supreme Court, Supreme Court said no, no, we agree with this local government and apartment is like putting a giant pile of
smoke on somebody. This opened up the slippery slope for massive regulation of everything at the level of local real estate and gradually gave us the world that we know, and I say should hate today. What is status quo bias? It is a general psychological tendency of people to feel like the grass is browner on the other side, to think that the way things are right now is fine and any change that you can have is going to likely be worse, right?
This is a very general, normal human psychological tendency, which of course sometimes the change is worse, right? However, the one big feature of the modern economy is that change generally is an improvement. If you live long enough to remember, say, the 1980s, I know you have a teeth, but I do, right? You can see there's some things that are worse, but overall the level improvement boggles the imagination. It's just amazing how much better things have gotten.
And yet, when you do talk about change, people normally do let their mind run to very dark places. The end is nigh. When it comes to things like housing, healthcare and college, it seems like those are the big three scary things that keep growing in cost. Whereas we do see declines in price of things like computers, televisions, printers, microphones, furniture, clothing. Do you have any theory as to why some things increase in price and others decrease in price
adjusted for inflation? Right. So all those things fit a very simple model, which is government strangles supply and subsidizes demand. That's true for housing. So the housing, we've got a lot of regulations making hard to build stuff and yet government subsidizes mortgages and other. And there's also, you know, affordable incomes and affordable income stuff. So, you know, strangling supply, subsidizing demand.
The same is true, of course, for medicine where it's really hard to enter medicine, really hard to innovate, but government picks up most of the bill. Same thing with education. It is hard to go and get permission to, especially to get an accredited new Institute of Education. But government picks up most of the tab. A lot of people will be very quick to say, well, there's some
kind of cost disease here. My main story there is, look, right, that's part of the story, but a big part of the story is just that you've got heavy government funding and with heavy government funding then particularly for health and education, that just greatly messed up the market. I think what's going on here honestly is that the strangulation of supply is much worse for housing, moderate for health, and then for education. It's not that bad, actually.
On the other hand, in terms of the subsidies for the subsidies, the subsidies of government subsidies are heaviest for education, then next biggest for health, and then finally for housing. The subsidies are modest. So housing, the industry where supply is really strangled, demand is only moderately bumped up. But yeah, they're all in the same general vicinity of strangle supply. Pump up demand.
Call yourself a hero. When it comes to, let me see, what else do we have the most burdensome regulations that you came across. You touched on them earlier with reference to the height that buildings can be. But I really want you to walk through some specifics if there's any that come to mind, because I think when you talk to the average person, they go housing regulation is so you make sure these big buildings don't just collapse in on each
other. So we either have that or we have, you know, no regulation at all. What are some that are so blatantly so burdensome and so costly that it just boggles the mind? Right, so. For skyscrapers, almost none of the actual regulation is for safety, to prevent them against collapse. There's already building inspections in the 1920s and 30s, surely in New York City. That didn't stop the new The Empire State Building from being
constructed in record time. No, the real issue is not safety, it's having to go through a massive pile of oh, but I don't like this, I don't like that, I don't like the other thing. Many different levels. That's the thing that's making it take years. Was just a matter of safety. You submit your plans, they say this is standard stuff, you get approved, you build it, they inspect it, it's fine and you're done. So I was talking to one architect.
He said, well, basically the kind of stuff you're talking about, Brian, is the stuff that double S the cost and this other stuff is probably raising at another 20%. I am definitely libertarian enough to say we don't need any of the government safety regulation either because private business does not want to build build buildings that
collapse. And they will actually self monitor both because it would be terrible for the reputation of buildings collapse and they also they would get sued into oblivion for doing it. So I'm just not concerned and never mind tenants also are going to want to go and investigate a little bit and say, huh, I'll have is this is this building been inspected by inspected by who? These are all natural things, normal market forces to protect us anyway. So that's one.
Another huge one is just being unable to build multi family homes at all. So apartments, townhomes, anything where you are sharing a wall with another family. About 80% of US residential land is set aside for single family only homes. So single family detached. All right, which means that you are only allowed to put a relatively small number of homes in a given area. And probably the one that is most ridiculous and where the argument is so flimsy is just minimum lot size.
You can't put more than one house on an acre. It's a common local regulation. Why not? Will that cause buildings to collapse if you put four homes on an acre? It's ridiculous. It's just a matter of local government says, well, we just don't think that this is the right kind of neighborhood to have right now. If you're to push further, sometimes there is a actual story of we're just trying to go and reduce parking and driving problems.
This is one where there is a much more obvious solution than strangling construction. And that is how about we go and we write an app which your works on one of these things, all right? And the app goes and charges you a higher price for going and driving and parking during peak times. Unfair to the poor? Not at all. Compared to the status quo. It's a lot better to be poor and to have housing be at half its
current price. And then if you are planning on driving or parking, which you probably won't anyway, you pay a higher price just for those services. On the other hand, the current system, you charge people through the nose for housing and then make the parking driving free and also super congested during peak time.
So thanks a lot. I just went to Arizona State University today for the first time in years and they actually have QR codes where you could pay for parking which they did not have beforehand and the line was much longer. Even if it costs more, which it actually doesn't, I would pay a little more to not wait in the line and have people get out of their car and swipe the card and everything. So it is happening in some areas. So this is a. Case where it's working right.
So this is a case where they they've raised the price and made it more convenient simultaneously and then it's easier to get a spot. Is that correct? Oh yeah. It, it, it was so much easier than than than I remember. But yeah, the an app is one way, but even the QR codes that you just put your phone over, that has made it so much easier. Right, 'cause it's.
Worth pointing out that in the old days there was something that was at least potentially a problematic about toll collection, which is the back when you had to stop at a toll booth. Then at least you got to say maybe the toll booth is actually slowing up traffic. But now with modern technology that's all thing of the past. And yet we have barely moved to any greater use of tolls because of this absurd norm that it's just wrong for anyone have to
pay to park and drive. Like housing could be through the roof, but you charge me a nickel to park and that's evil. You say in the book regulation is popular because it's easy to get people angry with negatives endured than positives denied. How does this get to the heart of why so many people cheer on regulation so much? The best way to think about housing regulation is that almost all would exist because normal human beings think the world would be worse without it.
Often they can even go and correctly state some problems saying look, you built a skyscraper, it'll block my light. I don't like that. All well and good, but before you say this is a good reason to ban or just to make people wait 10 years, you should say, well, wait a second, all right? All you're doing right now is coming up with problems. You're listing complaints. All right, that's fine. But how about we also come up with a list of good things will happen if there's additional
construction. Once you do that, it is really easy to go and name a lot of good things that come from additional construction like or people live here. There are going to be more restaurants that will be able to be that will be that will stay in business and solve a better choice of restaurants. Larger population, they'll probably be more better jobs, larger population. It'll be easier for me to find kids within walking distance.
In fact, when you start thinking about this more, it's like, all right, so there's positives, there's negatives. Well, obvious question. What's the net? What is the net effect? Even if people ask that question, I think that's a big step forward from the status quo
where people only complain. But I can actually do a lot better than that and say, look, we have hard evidence that most people value the package of all the good stuff of population and all the bad stuff of population more than they value the package of very little the good stuff of population and very little of the bad stuff. Here's the simple argument. Think about your typical complaining New Yorker.
Oh, it's terrible here. There's the traffic, there's the parking, there's a noise, blah, blah, blah, blah, blah. All right, Well, guess what? There is a small town in Kansas that you can move to where you won't have any of these problems anymore and it's cheaper and you telework. All right, give me any reason why you aren't going to move there now. Because you haven't. All right, small chance. The person was like, I had no idea I can move to Kansas and solve all my problems.
But more likely they will say, Nah, I don't want to live there. That's terrible. Yeah. Why is it terrible? Because though you do avoid the negatives of population, you also lose the positives of population. You lose your restaurant, you lose your culture opportunities. You lose the opportunity to meet a lot of other people. So. And you pay a large premium to get that package.
So I'd say it is bizarre for government to go and try to reduce the number of people living in areas, reducing congestion, when on balance, it looks like people actually are willing to pay a premium for this. This is a typical thing that democracy does, which is they respond to what people say instead of their demonstrated behavior. As I say in the book that I'm writing right now, a different book, free markets do the bad. You know, free markets do the good things that sound bad.
Government does the bad do the governments do the bad things that sound good. The good thing is just to build a ton of housing, even though a lot of people complain. And the bad thing is there's what government does, which is listen to complaints and then try to go and use laws to stop it, never considering. What about the actual net effect
on human welfare? Is that you think one of the downsides of political democracy as opposed to people having power within the market, that they actually get a vote that decides something, whereas their opinions can be ignored in the voluntary sector at a lower cost? I'm looking used by the last thing you said, but but yes, I mean, I mean, honestly, like one of the main themes of my work is that markets are a lot better than democracy. Democracy has a Halo around it. Oh, it's just so great.
It's democratic. Yes. The actual lived experience of democracy, as everybody knows, is bad. Someone pointed out that professors always talk about a great democracy is except they hate every departmental meeting. It's like, oh God, departmental meeting is so dysfunctional. Yeah, well, guess what? That's how actual democracy is too. Regular democracy, it's just functional. It's a giant group therapy session where people go and scream at each other and then government acts on the basis of
the loudest complainers. What a great system. The markets, on the other hand, live by the adage of actions speak louder than words. Markets go and you don't have to give a speech in favor of what you want to do. You just do it. Markets let people do things like, oh, I'm going to go and risk my life to see a movie.
It's like, what do you mean? Well, if you, if you just stopped going to movies and stayed home instead, then you would reduce your risk of dying in an auto accident on the way to the movie theater, which always exists through people's actions. What are they're saying? They're saying I'd rather take a tiny risk of death so I could go and see Dune 2 because otherwise I'm going to be living this crummy life where I don't have any fun or get to do anything or
I'm stuck at home. I don't want to. And you know, during COVID, you might remember all this if it saves one life. Ridiculous. Human beings risk their lives all the time. They risk the lives of their children all the time. Because safety is not the only thing that matters in life, nor should it be the only thing that matters. People with their actions are trying to go and get a favorable package of safety and entertainment and joy and
variety and everything else. And what does government do? Government focuses on giving people the stuff that they are proud to say they want, instead of the stuff for their actions demonstrate that they actually care about. Last question, I know you got to go in 3 minutes. Again, the book is Build Baby, Build The Science and Ethics of Housing Regulation. You mention how something like an HOA is different from city planning, regardless of the voluntarism violence difference there.
But you say one of the big differences is the slippery slope difference between the private sector and the coercive sector. What is the slippery slope have to do with anything? Well, you specifically what I just said is that while there are some very restrictive HOA's, there is a whole range of levels of strictness. So I live in one where we pay, let's see, it's like under. So we pay I think $200.00 per year and all they do is mow and maintain a few common areas. That's it, right?
There's other people who pay thousands of dollars per year and there's a long and detailed list of what you may or may not do. The nice thing about this is that there's a range of options compared to the public sector where it's generally going to be of equal strictness for a very large area. There just isn't the same
flexibility that you get. And of course with HO as there's also fine, I want to do something weirder, I'm going to just buy a place that is not in any HOA and then I can go and do what I want. So that's part of it. The other thing is that HO as at least have a stronger motive to consider the cost, right? So if we go and do this, people might like it, but it's going to cost a lot of money, so maybe we shouldn't. Governments, on the other hand,
very rarely consider costs. So that's the other issue. Now, in terms of the slippery slope, the general idea here is that you start off with one particular thing that government does, or it could be AHOA, and then once you do that, you establish president. Why not do a little more? Why not do a little more? Why not do a little more? Again, if cost doesn't matter, then you are likely to eventually end up where we are with actual regulation, which is
just completely out of control. With an HOA, at least there is this pressure of cost and also exit. It's like people don't like that these rules, they're too strict. So people don't want to live anymore here, live here anymore. Maybe we should be a little bit more relaxed so that someone can go and have a pink door if they want. Thanks to everyone for watching Keith and I Don't Tread on Anyone and the Libertarian Institute. Doctor Kaplan, thank you for your time. Thank you very much.