Emily Hamilton on Housing Deregulation

inequality zoning urban planning land use regulation deregulation housing affordability

Emily Hamilton with Juliette Sellgren

July 28, 2023
Emily Hamilton is a senior research fellow and the director of the Urbanity Project at the Mercatus Center at George Mason University.

Today, we talk about the current housing market and the regulations that prevent the building of more affordable, diverse, and abundant types of housing. Hamilton tells us the story of DC and similar areas, where deregulation of housing has begun, explaining the effects. We talk about NIMBY arguments against deregulation, her responses to them, and what deregulation would mean for Americans.

Want to explore more?
Kevin Lavery's Great Antidote Extra on this episode.
Emily Hamilton, Zoning Out American Families, in Discourse Magazine.
Mark Calabria on Shelter from the Storm, a Great Antidote podcast.
Katherine Levine on Neighborhood Defenders, an EconTalk podcast.
Alain Bertaud on Urban Planning and Cities, a Great Antidote podcast.
Alain Bertaud on Cities, Planning, and Order Without Design, an EconTalk podcast.

Read the transcript.

Juliette Sellgren 
Science is the great antidote to the poison of enthusiasm and superstition. Hi, I'm Juliette Sellgren and this is my podcast, the Great Antidote- named for Adam Smith, brought to you by Liberty Fund. To learn more, visit www Adam Smith works.org. Welcome back. Many of you have probably heard of the NIMBY movement and the reaction to it, the YIMBY movement today on June 26th, 2023. I'm excited to invite Emily Hamilton to the podcast to talk to us about the issues that these movements deal with, housing regulation, and we're going to talk about the economics of it all, what it means for Americans, all of that. Emily's a senior research fellow and the director of the Urbanity Project at the Mercatus Center at George Mason University. I'm really excited to have her on today. Welcome to the podcast.

Emily Hamilton 
Thanks so much for having me, Juliette.

Juliette Sellgren 
So before we get started, what is the most important thing that people my age or in my generation should know that we don't?

Emily Hamilton (1.15)
Well, I'll answer that as what I came to learn when I was roughly your age that's really shaped my career and policy focus, which is that land use regulations, rules like local zoning rules that limit what can be built, where have a huge effect on what our cities and neighborhoods look like, how we get to our jobs, what our opportunities look like in terms of our choices of where to live and what type of housing to live in. I think certainly for myself, I just kind of looked around the cities and places where I lived in and assumed that that was a natural outcome of housing markets and real estate markets, but in fact, it's very much not, and these rules have a huge effect on both our budgets and lifestyles.

Juliette Sellgren 
So I guess kind of a personal question to start, how did you get into housing? I mean, it's a hot issue right now, but it hasn't always been a hot issue.

Emily Hamilton (2.25)
Yes. Yeah. I first got into housing around 2006 or so, when it was, when was talked about much differently than it is today. It's always been of course, an important economic issue because housing is the largest component of most households budgets, but at that time, the focus was on the house, price appreciation, potential bubbles, and concerns about falling house prices. Whereas today we recognize that there's actually a huge shortage of housing rather than too much of it in many, many parts of the us. I first got interested in the issue because I randomly ended up in an internship in the hometown, hometown in Grand Junction, Colorado in the city planning department. And basically I ended up there just because I needed something to do over one summer in between years of my undergraduate and found an opportunity there. But I got really interested in the work that city planners do and how their rules implement, how their rules affect, what can be built where and shape what housing looks like and what our cities look like. I started going to lots of planning commission meetings and was introduced to the work of urban theorist Jane Jacobs, and then ultimately continued staying interested in this issue and now research it full-time at the Mercatus Center.

Juliette Sellgren 
That's awesome. Okay. So as we get into this, can you first kind of paint a picture for us? What are the housing regulations that exist and how do they shape where we live currently?

Emily Hamilton 
So the most important type of zoning regulation in terms of shaping housing markets and housing outcomes in the US is single family zoning combined with minimum lot size requirements. And together these rules when they're implemented for a certain area mean that the only type of housing that can be built on land in that area is a detached single family house that sits on a yard of a mandated size. And in places where land is expensive, that means that the base price of building any type of house is that minimum lot size requirement, which will be very expensive when that land is valuable. And this really sets the US apart from the vast majority of countries in the world, with Canada being a semi exception and maybe a couple of other places in terms of mandating very low residential densities and very homogenous uses where only this type of detached single family house and very few other types of land uses are permitted in the majority of land that's allowed to be developed as a residential use in the majority of US cities.

Juliette Sellgren 
So then given that, what are some of the biggest challenges that Americans face when it comes to housing? What are the problems that get in the way of your dream house or even a house?

Emily Hamilton (6.11)
Great question. There are two big problems if we zoom out. The first being that housing is more expensive than it needs to be due to these zoning roles, and we see that households in the US over time are spending a larger percentage of their income on rent. If we look at the median household, they're now spending a higher percentage of their income on housing than they did in the 1960s. And I should emphasize that most data that cited about this topic focuses on renters, and rightly so because homeowners who might stay in their house for a long time and have a fixed mortgage payment often are very housing secure and don't face these same type of affordability challenges. But for renters, the year to year increases in housing costs across much of the country really affect their household budget acutely. And the share of US households that are renting their housing has been relatively fixed since the 1960s.

So it's a relatively flat percentage of the population that we're talking about that's suffering these housing affordability problems most acutely. Then the second big problem, aside from looking at the household budget effects of high housing costs is that there isn't as much housing in some of the country's most productive places as there are people who would like to live there. So while some of the best job opportunities in terms of income and opportunities for innovation and productivity are located in places like the Bay Area or New York City, those are also places where it's really, really difficult to build more housing due to these local zoning rules and development approval processes. So people are shut out of these markets where their best career opportunities might be located due to constraints on housing construction.

Juliette Sellgren 
So Bryan Caplan, who's an economist at GMU, he's noted that housing deregulation is a policy that could go a long way to address income inequality concerns, but to also appease both sides of the political aisle. Do you agree, and if so, why?

Emily Hamilton (8.59)
I certainly agree in terms of inequality, there's compelling research showing that income convergence across states has slowed down over time due to land use restrictions. So what we were just talking about, how local zoning rules and development approval processes prevent housing from being built in high income parts of the country mean that people are stuck in lower income parts of the country, decreasing that rate of income convergence that we would expect to see as people move to where incomes are higher, putting upward pressure on wages in places where incomes are lower, but we're not seeing that as much as we have historically. In terms of the partisanship, I agree with Bryan that there are compelling reasons for both people on the left and people on the right to support liberalizing land use regulations, and we have seen that particularly at the state level in some places that have recently reformed local land use authority, but we also see plenty of people on both sides of the aisle supporting the status quo. So I think there are opportunities, but also threats across the political spectrum to achieving a world where it's easier to build less expensive housing in the places where people want to live.

Juliette Sellgren (10.41)
So I mean, on the inequality point, everything in economics, I'm almost a hundred percent sure that they don't agree amongst themselves with the impact that deregulation would have on growth and inequality. So what are the different estimates or takes on the impact of deregulation and what do you think the impact would be?

Emily Hamilton (11.08)
Well, I think the place where there has been the most done, or at least the most attention paid to putting a number on the effects of how land use reform would affect economic output is looking at what the effect of zoning liberalization would be on US GDP as a whole. So that gets to the effect of land use regulations and preventing people from living where high productivity jobs are located rather than the household budget size. And there's an interesting finding where people using very different methodologies to estimate what that effect would be. All find huge numbers. So multiple high profile macroeconomic studies have estimated that liberalizing land use regulations could increase U-S-G-D-P by over a trillion dollars, which would have an effect on the order of increasing average household wages by more than $10,000 each year. In terms of, yeah, just staggering amounts of lost output that we're talking about from rules that prevent housing from being built and people from moving to the places where some of our country's best educational and job opportunities are located.

On the side of individual's welfare, there's much more debate where among the academy, there's a lot of people who are concerned that land use liberalization could have perhaps good effects for the average household in terms of income and housing affordability, but detrimental effects to specific households who might be living in neighborhoods that would see new construction. There's a lot of, well-founded concern about gentrification, for example, and what it would mean to liberalize land use regulations in current low income neighborhoods. And one reason I really liked the relatively recent approach of states setting limits on local land use authority is that when this approach is implemented, land use regulations are liberalized across a very wide geographic area, opening up opportunities for new housing construction in high income and low income neighborhoods alike rather than what we've seen historically in some cities where local policy makers will allow for new housing construction, but only in a very limited geographic area that tends to currently house low income people.

Juliette Sellgren 
So could you give us maybe an example of a place, not necessarily DC, but I'm thinking DC where or the DC DMV region where this has happened and what has happened in the different sorts of regions like Virginia?

Emily Hamilton (14.59)
Yeah, DC is a super interesting case from a land use regulation perspective, so I'm glad that you brought it up. The city of DC in terms of the gentrification issue is one of the places in the country where what we were talking about has been implemented most starkly. Some of the city's historically low income black neighborhoods like Columbia Heights or the eighth Street corridor, were up zoned to allow for a lot of new multifamily construction leading to really rapid changes in those neighborhoods in terms of income and demographic makeup. But as a whole, the DC region has been more open to multifamily construction, especially in parts of the region that are well-served by transit, especially metro. And so what we see is that the phenomenon of housing markets responding to increased demand for housing works better in DC than it does in a lot of other high income regions in the country.

So if we look at what are sometimes called superstar cities in the US, and that's a group that includes Seattle, Los Angeles, San Francisco, New York, Boston and dc, these are the regions in the country that have the highest productivity rates and some of the highest paying jobs, DC is the most affordable. Among those, there's tons that the DC region could do to make it possible for housing to be more abundant. But if we're looking at relative comparisons here in DC, we are doing relatively well. And I'd argue that that's because the city of dc but more importantly, some of its suburbs like Arlington, Montgomery County and Fairfax County have zoned around their metro stations to allow for lots of multifamily housing to be built in numbers that we don't see in most of those other superstar cities.

Juliette Sellgren (17.32)
So now I'm kind of curious about your time and experience with the central plan, not central city planning people. I've always been kind of curious because of Parks and Rec, I'm not going to, well, first is it anything like that? Second, so especially in Arlington, there's been deregulation around the metro areas as you mentioned. So what does that, I don't know, what is your take on that? I mean, obviously it's better than nothing, but is that a good thing? Could it be better? Could it be done differently?

Emily Hamilton (18.16)
Yeah, a lot to unpack there. In terms of the urban planning profession, it's a really interesting one as a relatively market oriented economist to observe because it's really an area of the US economy that is highly centrally planned compared to many others, just in terms of the role of local governments in determining what can be built where and ultimately drastically shaping what our real estate market looks like. I think when you talk to planners, in my experience, there's a pretty widespread recognition that some of these roles have bad effects. For example, I think most city planners tend to be city lovers themselves, which makes sense. And they see that rules like parking requirements that mean that lots of our development is surrounded by big parking lots that make it really hard to get from place to place on foot or on a bike or by transit, have effects that might not be in line with what the market would deliver otherwise, and also might not be in line with what a lot of city planners would like to see in terms of their own preferences in terms of the, let's call it the DC region approach of allowing lots of multifamily housing to be built near transit.

I think this has some political advantages because oftentimes the land that's around these transit stations isn't developed as an existing residential neighborhood at the time that the transit opens. We can see a really clear example of that in Tysons in Fairfax County, Virginia, where a large area of land has been up zoned very substantially, and in response to four new metro stations opening there, and prior to those metro stations opening that land was primarily office parks, low density retail uses like car dealerships and big box stores. And these are the types of land uses that few people are attached to in any kind of nostalgic way as many people feel about the current neighborhood where they live. So I think the DC region's approach is relatively politically practical. We can see looking at the data on apartment construction in our region that it means that we've allowed a lot more housing to be built compared to many of our peer regions.

But one of the downsides is that in the DC region, we've allowed this transit oriented development, but also maintained tons of single family zoning with large lot size requirements. And in Arlington, for example, we can see a big jump in terms of price and in terms of lower densities when we step outside those narrow metro corridors into adjacent low density residential neighborhoods. And so from a consumer choice perspective, there's very much a missing middle in Arlington in terms of having an option to purchase something or rent something that's in between an apartment in a high rise building and a detached single family house. And there's a big jump, for example, to go from renting an apartment in Arlington to buying a house in terms of affordability.

Juliette Sellgren 
So I mean, let's get into the NIMBY-YIMBY thing, the not in my backyard versus Yes in my backyard. It seems recently that the YIMBYs are kind of winning. Tell me if I'm wrong, but can you kind of tell us maybe some other places, other projects, other ways that housing has been deregulated in other areas and what is happening because of that deregulation?

Emily Hamilton (23.30)
Yeah. Well, I think there are some clear YIMBY victories, and I hope that they are winning from the perspective of housing affordability and people being able to live in the places where their own best opportunities are located. One place that we've seen the YIMBYs being particularly effective is at the state level. And we can see an example of this in California where the YIMBY movement really got going led by Sonia TR [?] and other activists in the Bay Area. And they started off by working at the level of local governments in the Bay Area advocating on a project by project basis to make it easier to build more housing. But then they saw an opportunity to basically achieve more faster and perhaps less controversially by working in Sacramento to change state laws that define what local governments can do in terms of their land use authority.

This makes sense because local governments in the US aren't constitutionally recognized at the national level. They are creatures of their state, and so they get their authority to regulate land use from their state governments that typically have zoning, enabling acts that say local governments can regulate land use. So when these local government regulations that prevent more and less expensive housing from being built are causing statewide problems as they very much are in California, there's a strong argument that the state has the responsibility to step in and set some limits on that local authority. And where we've seen the largest effects of this in California so far is in accessory dwelling unit policy. Accessory dwelling units are a rental unit that a homeowner can add to their property, so they can be like a basement apartment or converting a garage to an apartment or a backyard cottage that a homeowner rents out to a tenant if they want to make this addition to their property.

And in California, policymakers have passed a series of laws making it legal and easier for homeowners to add these units, particularly in LA, but additionally, in some other parts of California, we've seen a huge surge in construction of these units. They were built in very small numbers prior to this series of state reforms. But now in LA, in a typical year, accessory dwelling unit permits make up between a quarter and a half of all of the housing that's being built in Los Angeles. So they're making a big difference to housing supply there. And they also offer a rental unit that is small and generally less expensive than anything else that might be available in that neighborhood where that accessory dwelling unit is.

Juliette Sellgren 
Let's get into critiques a little bit. You mentioned earlier that there's kind of this worry about neighborhood change and displacement and everything, but how do you respond to critics who argue and comment on the fact that housing deregulation might lead to a drastic neighborhood change or a burden on neighborhood schools, for example?

Emily Hamilton (27.40)
Sure. Well, I think critics are coming from different places. So there are certainly people who are genuinely concerned about relatively low income, relatively politically unpowerful neighborhoods and how policy changes might affect those areas. But here in Arlington County, Virginia, we recently had a debate about legalizing a little bit more housing to be built in the county's neighborhoods that were zoned for exclusively detached single family development. And we saw those same arguments being used here, concerns about gentrification and displacement of low-income people. But I think that argument rings very false in a place like Arlington where detached single family houses are very valuable, very few low income people live in detached single family houses.

And those arguments about concern about gentrification were being used to make left sounding critiques of missing middle when the concern about missing middle was really coming from more common concerns about land use change like parking or traffic or the inconvenience of construction, or as you mentioned, school crowding. And there are very real public service issues that need to be addressed when more housing is built, like building more schools. But luckily, we still have the technology to add new schools in a place like Arlington. And when more housing is built, particularly in a place where there's a lot of pent up demand for housing, that housing is very likely to increase property tax revenues even more than it increases public expenditures. So from a fiscal perspective, it's certainly possible to use that increased revenue to provide schools and other services that will be needed to serve more people.

Juliette Sellgren (30.18)
Another comment I hear a lot from these NIMBYs because they're NIMBYs is that it just isn't cute, and they say it a little nicer than that or a little more vaguely than that, but it kind of boils down to they just don't like the way it looks. And I don't know, I guess what is the best way for me, if someone says something like that to me, what is the best way for me to respond? Like, oh, well then you should, I don't know. Do you not care about affordability maybe?

Emily Hamilton (31.02)
Right. Well, yeah. To me, from a public policy perspective, the aesthetics of new housing construction shouldn't be considered as heavily as things like affordability and the ability of people to live in the place that they want to in terms of locality and region as a whole. And then I think there's also an important component of time where a lot of the housing that we currently think of as particularly beautiful today wasn't seen that way when it was built like brownstones in New York, for example, that are probably one of the most beloved types of housing that exists in the US today. Certainly one of the most expensive were widely critiqued when they were built for being dark, for being monotonous and just not being what people thought of as beautiful. And there are many examples where housing that wasn't thought of as beautiful when it was built with some time become beloved and treasures within their neighborhood.

And there's also a lot of survivorship bias so that some of the most attractive housing of the past is the type of housing that's likely to be preserved rather than torn down and redeveloped over time. But basically, I think depending on who you're talking to, there's a very clear property rights argument that people should be able to build housing on the land that they own that meets their own aesthetic preferences. Of course, factoring cost of construction into the outcomes that those preferences deliver rather than it being the job of policymakers to determine what buildings and neighborhoods look like.

Juliette Sellgren (33.20)
And what about critiques that have to do with construction quality or negative environmental impact? I know around Arlington recently there have been a lot of very identical houses being built, and people just don't like that all these houses look identical. So what is your assessment of these claims and how do you respond to those?

Emily Hamilton (33.40)
Well, I think some of the neighborhoods going back to brownstones or DC's, rowhouse, neighborhoods that have a very repetitive design actually can be really attractive, especially as homeowners or tenants over time, add a little bit of character that distinguish these houses from each other, but still maintain that repetitive rhythm of a neighborhood. But in general, again, I just don't think that it's a role of people who don't live in a house or don't own the piece of land where that house is being built to determine what it looks like. And I think it falls under our country's ideals of freedom of expression to allow people's housing to reflect their own desires and budget constraints rather than regulate that

Juliette Sellgren 
And the externalities of the environment.

Emily Hamilton (34.54)
That is a place where I think that the data is very clear that allowing denser housing to be built closer to jobs is a huge win from an environmental perspective. So allowing people to live in neighborhoods that are closer to job centers in neighborhoods where they might walk or bike or use transit to get to a lot of their destinations or even just drive shorter distances to get to lots of destinations is a huge win from a carbon emissions perspective and for the environment as a whole. And the energy needed to do climate control in multifamily housing is much less than that needed to heat and cool detached single family houses in general.

Juliette Sellgren 
I think we should bring that stuff up more often. That is super interesting and also a great selling point I think of.

Emily Hamilton (36.07)
Yeah, I think the changes in the environmental movement, whereas in the sixties and seventies, for example, the early environmental movement was very focused on hyper-local conservation. So preserving a backyard tree, for example, rather than a more holistic view of the environment has really changed, whereas now environmentalists are much more focused on the bigger picture in general and things like carbon emissions that are helping to change this debate in a YIMBY direction.

Juliette Sellgren 
What are some of the lessons that the US can learn from other countries that have more deregulated housing markets? What countries even come to mind?

Emily Hamilton (36.59)
Great question. Japan is one that urbanists often point to where there are general categories of zones established on a countrywide level, and then localities in Japan are able to map where those zones are going to go, but they don't have the authority to create hyper-specific zoning regulations that we often see in US localities. And there are a lot of factors of course that determine housing affordability beyond zoning, but we do see that housing is much more affordable for the typical house in Tokyo, for example, than it is for households in the US' biggest cities. And even the most tightly regulated zone that localities can implement in Japan is very liberal compared to a typical residential zone in the us. It allows much denser housing. There's a lot of single family housing in Japanese cities, but it's on much smaller lots than what we typically see in the US, and their residential zones are much less homogenous. So they can include small restaurants, small shops and bars and coffee shops, and the retail amenities that people often say they would like to have in their neighborhoods, but that aren't allowed in the typical US residential neighborhood.

Juliette Sellgren 
So if you could snap your fingers, make one single change to housing regulation right now, what would you change?

Emily Hamilton (39.01)
Tough question. I would expand the area where serious multifamily construction is allowed, which is a very tiny portion of land in the vast majority of US cities. We've seen a lot of focus on changing single family housing or single family zoning rather to allow for accessory dwelling units or a marginal number of increased units like duplexes, triplexes, or fourplexes. And while I think that's great, we haven't seen that delivering housing at the scale that we need. So I would recommend that the DC region's relative approach of allowing high-rise apartment buildings or at least mid-rise apartment buildings in certain parts of more cities across the country. 

Juliette Sellgren (40.08)
I wish we had more time, but I have one last question for you. Well, actually two, what do you think if this happens or even if deregulation continues on the path it's going, do you have a vision for what certain places in America would look like? What does it look for different income groups? What does it look in different regions?

Emily Hamilton (40.36)
My vision is that people at a much wider range of income levels can live in the city or the region that is their first choice relative to today. So basically much more realized freedom of location because housing will be more abundant in the places where it's currently most constrained. And then I would like to see a lot more choice in terms of housing types, so more apartments as well as more things like townhouses that use a lot less land and therefore cost a lot less to build or to own relative to the detached single family housing. That's the only thing allowed on the majority of residential land.

Juliette Sellgren (41.40)
Thank you so much for coming on the podcast and sharing your knowledge and wisdom. I have one last question for you. What is one thing that you believed at one time in your life that you later changed your position on and why?

Emily Hamilton (41.53)
Thanks so much for having me. It's been a great conversation. Like many relatively market oriented people, when I was younger, I had a pretty strict view of libertarianism in terms of policies as a whole, but over time, I have become more pluralistic and see more of a role for redistribution than I did in the past. For example, I think housing vouchers are an important part of the social safety net that works relatively well compared to alternatives for providing below market rate housing and have just come to be less concerned about those types of government policies relative to rules like zoning regulations that are more of a constraint on consumer choice.

Juliette Sellgren 
Once again, I'd like to thank my guest for their time and insight, and I'd like to thank you for listening to the Great Antidote podcast. The Great Antidote is sound engineered by Rich Goyette. If you have any questions, any guests or topic recommendations, please feel free to reach out to me at the great antidote@gmail.com. Thank you.