Recently at Future Perfect Bryan Walsh highlighted The housing theory of everything, by Sam Bowman, John Myers and Ben Southwood. It reminded me a lot of Lars Doucet’s series (now turned into a book) about Georgism on Astralcodexten. Like everyone else, I agree with these authors that real estate markets is economically bizarre, it is prone to financial crises (you don’t have to say “bubble” if you don’t want to, you can just say “cycle” instead), surface land is limited, owners extract rents, improving land regulation and taxing surface to fund public goods (or UBI) would be net positive, there are historic injustices in access to land and credit, etc.
But rent-seeking behaviour plagues the economy everywhere, and I don’t get close to thinking all / most economic problems depend on this one in particular (e.g., it doesn’t explain why the Central Valley is so bad – possibly it’s the other way around: the Coast is a brain drain), nor that this is an urgent priority – on a par with catastrophic risks, poverty in low-income countries, or animal suffering, or risks to democracy (did you know that President Bolsonaro had more votes yesterday than four years ago, even after his scandalous behavior during Covid-19 pandemic and his use of the Independence Day to talk about his sexual life?), etc.
Actually, whenever I read something along these lines, I wonder:
a. Parochial bias: Are the authors (or the main audience) millennials who are personally concerned with housing issues – i.e., are thinking about buying real estate, or moving to a major city (in the Bay Area, or in NY, or London…?) and finding rents unaffordable? Is it possible that this leads one to overvalue this problem? (at least from something like an EA POV)
I hate ad hominem arguments, too, but it’s fair to ask how biased one is, especially when EA has been talking about diversity. For full disclosure, I am a millennial from a LMIC thinking about how I’ll solve my own housing issues.
(I wonder if in a few years the rising costs of kids’ education will get a similar coverage)
b. Negative spillovers: Suppose that housing is really the main limitation for continued economic growth in major hubs. So by making it more affordable, more people would move to these places, and we would observe everyone’s income increasing (way more than the increase in other places), so confirming our theory. What is the problem with that?
In a nutshell, economic growth is said to start in a place A, given some luck and adequate conditions, attracting capital and people, which generates a positive feedback loop of more growth. But because of limitations of place A, and because other places (such as B) start to copy some of those conditions, marginal rates of return in A decrease in relation to place B - which begins to attract resources and people, eventually catching-up with A.
But if the “housing theory of everything is correct”, then we could delay the deceleration in A, so delaying catch-up effects for B. This wouldn’t be a problem if people followed with the flow, but it turns out people are “sticky” to places (and jobs, btw), and that’s not just because they find housing expensive – as shown by the case of No Lean Season and highlighted by Banerjee & Dufflo.
Is there any evidence for negative spillovers? Well, one of the critiques of some cash transfers programs (such as the Malawi Social Action Fund) is that they may imply negative spillovers to regions that did not receive the intervention. Also, common sense: just ask any politician if they think cities and regions compete for people and resources – or check some EA Forum posts suggesting there might be some competition for the next EA Hub outside the Bay.
Curiously, I haven't seen so many people (but maybe that's observationn bias, too) talk about work from home as a way to mitigate the effects of housing problems, even though it might decrease some urban issues (like traffic congestion) and the demand for housing in big centers – and lead high-income workers to small cities or to pleasant middle-income countries.