Restrictions on Housing Are Worse than Tariffs
My latest article for the Hoover Institution is out. It’s “Housing Restrictions Hit Harder than Tariffs,” Defining Ideas, June, 5, 2025.
Here’s the intro:
If the free market had been invented rather than simply coming about, the inventor would have deserved every Nobel Prize in economics and every Nobel Peace Prize. The free market has made well over one quarter of the world’s population fabulously wealthy and elements of the free market have reduced the number of people in extreme poverty to a record low.
Relatively free trade is one of the factors in this growth of wealth. It has led to an increasingly extensive international division of labor that causes people in each country to produce goods and services for which they have a cost advantage and buy goods and services for which they have a cost disadvantage. But, especially for large, highly populated countries like the United States, free trade is not as important as other components of economic freedom such as protection of property rights, absence of price controls, relatively free labor markets, restraints on government spending, and relatively low marginal tax rates.
I have been gratified by the large number of economists across the political spectrum who have come out strongly against higher US tariffs. But it’s disappointing that too few have been as forthright on other components of economic freedom that, as a whole, are more important for US growth than free trade. One US restriction that’s particularly destructive is on housing construction.
And later:
Are there other government policies that cause huge losses to the economy? Yes, there are, and they have to do with violations of property rights. Exhibit A is the state and local government restrictions on building housing. Here’s what I wrote in my review of Bryan Caplan’s graphic novel Build, Baby, Build:
A conservative estimate, states Caplan, again backing it up with data in the footnotes, is that housing deregulation would reduce the cost of housing by approximately 50 percent. Because housing costs are about 20 percent of the average American household’s budget, the cost of living would be 90 percent of what it is now, which means that the standard of living would increase by 11 percent (100 divided by 90 = 1.11.)
Notice that their 11 percent increase in the standard of living is more than 14 times Krugman’s estimated loss from stiff 50 percent tariffs.
Read the whole thing.
Every time I mention that I hate zoning for its destruction of property rights, people pile on with two variations of the same theme:
* You want Walmart and Home Depot to move into residential neighborhoods. (or pig farms, which is funnier but less common)
* You want to destroy neighborhoods. I moved into my neighborhood because I liked its big lots and no apartments or stores.
My answer to the first is, why would any business move into a neighborhood whose streets, utilities, and other infrastructure make their business unprofitable?
My answer to the second is not as easy. I understand the sentiment; I live on my 20 acre one house lot because I don't want neighbors 5 feet away. The price I pay is a dirt road, sometimes being snowed in for a week, all-too-frequent power outages, and sky-high insurance.
But nothing is permanent. The big lot suburban neighborhood was probably farmland or forest before it was subdivided and built up. Residents will grow old and their children will move out. Is their only choice to live in a too-big house or to move? Why shouldn't they be able to rent a room or two and help their retirement finances?
Houses get old. Do people have to keep their houses in original condition? Can they add dormers, a deck, a swimming pool?
What if someone wants to add a garage for their RV or boat, or a workshop to make furniture? Are they forbidden from selling that furniture?
What if someone is good at baking and has enough time once retired to make a little money selling bread and cakes? What if someone is a retired barber, sold his shop, but neighbors want to pay him for haircuts?
If a family's grandfather dies and they want to provide a granny flat for their grandmother, what is so wrong about that? And when she dies, what is so wrong about renting it out to some college student who knows to not party all night?
Property rights mean nothing when you can't control your property. If you want wide setbacks, buy a bigger lot; don't use government to prevent your neighbor from building a bigger house. If a neighbor wants to convert his house to a duplex to help with his mortgage, why is that any of your business? If the street is too narrow for on-street parking, why is it any of your business if the tenant parks on the grass? If you think it's ugly and reduces your property value, then I hope you reimburse your other neighbor for his award-winning garden which increases your property value. I hope you don't mind when he sics the government on you for failure to match his 20-hour a week efforts. What! You can't spare the time and you can't afford to hire a gardener? Move, buddy, you're a blight on the neighborhood.
The home owners in Palo Alto love the restrictions. They will, more often than not, vote in zoning restrictions at city council meetings. Palo Alto Median home price for about 2800 sq ft is $3.4million. Median home price in my hometown in Georgia is $630,000 for the same square footage. Zoning restrictions are far less draconian. Seems like geo-arbitrage has brought net increase in new residents here. BTW. We have Walmart, Costco and Home Depot within a 3 mile radius. Love the lower prices and easy convenience they offer.