Listening to: Russ Roberts and Jenny Schuetz discuss land regulation, the housing market, affordable housing and land cartels (EConTalk, 30 March 2020).

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Jenny Schuetz on Land Regulation and the Housing Market - Econli…

Jenny Schuetz of the Brookings Institution talks with EconTalk host Russ Roberts about zoning, boarding houses, real estate development, and the housi…

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Some roughly stated, sloganeering lessons you might take from the conversation. Or at least that I took. (Where I’m not quoting, these are in my own words, not Schuetz’s or Roberts’s.)

• Schuetz argues that The process of building new homes is full of uncertainty and unexpected obstacles. Regulatory barriers make it riskier, longer and more expensive, which has consequences for housing affordability.
• Unaffordable housing markets, gentrification and displacement are the result of a spiraling cost crisis in urban housing, and the cost crisis is the result of a suffocating crisis of supply in urban housing, especially in medium density in-fill building.
• A lot of the crisis of supply can be explained by explicit legal or bureaucratic barriers to entry, which burn out the supply of a large Missing Bottom and Missing Middle of affordable homes. **The Missing Bottom would be boarding houses and rented rooms, SRO flop hotels, and other entry-level means of Scratching By in the housing market. The Missing Middle would be duplexes and triplexes, row-houses, big old houses subdivided and refitted into smaller attached dwellings, and other ways of building for higher density within neighborhoods currently reserved exclusively for single-family detached housing.
• A lot more of the crisis of supply can be explained by the Fog of Regulation — where there aren’t explicit prohibitions spelled out ahead of time, in nearly every city there is a constant time-consuming and bewildering gauntlet to run with multiple regulatory bodies with overlapping jurisdictions and tremendous discretionary power to advance, delay, modify or veto new building and expansion of existing buildings.
• Many housing market regulations attempt to solve the problem of housing costs by attempting to directly control costs, without addressing the underlying problem of in-fill building or housing supply. This approach may seem logical and direct in the short-term, but addressing the symptoms (high costs) rather than the root causes (choked-off supply and deformed market structures) has profoundly damaging long-term effects. These often including the perverse unintended consequence of driving up overall housing costs for every generation after the immediate recipients of the initial benefits.

From the conversation, on industry structure and the effects of time lags imposed by the paperwork chase involved in going through multiple authorities and multiple regulatory committees:

Jenny Schuetz: The time makes it really difficult for developers to get their product on the market when it needs to be available. So, in an ideal universe, a developer would start building a couple of years before they anticipate the market really needing more units. By the time the units are finished and ready, they can rent them up and fill them and they don’t sit vacant for awhile.

One of the things that we learned in the Great Recession, many of these big projects are taking a decade or longer. So, people started working on projects in the late 1990s, early 2000s, and those projects finished just as we hit the Great Recession, and then buildings just sat empty. Had they finished four years earlier, they could have at least gotten people in there. Even if they took a hit on the price, they would at least have bodies moving into the new buildings. ? Russ Roberts: But, there’s also just the forgone rent–fhe fact you’re not earning anything over this period. All that money that’s being spent without any return, the longer that goes–so, let’s say you spent, you could spend it all up front to make it simple: you just had to pay a big fee and it would cover your architect and your lawyers and your surveyors and whatever else was needed, and then of course, the raw materials, but you can’t build for two years. Well, now let’s say but you can’t build for five. You can’t build for 10. Every extension of that downtime where nothing is coming in, only stuff is going out, is stuff that you need to be compensated for in the–and the marketplace will compensate you for that because otherwise you’re losing money.

Jenny Schuetz: That’s right. I mean, this is a risky business because the developers essentially have to front a lot of this. They take on loans once you get to, say, the construction stage, so you can get a from a bank to do the actual building; but banks don’t like to lend for, sort of, the development process, the approvals–

Russ Roberts: For maybes. They don’t like maybes.

Jenny Schuetz: Exactly. So, banks don’t want to lend you money to spend the next five years paying consultants and lawyers to go through a process, and then at the end of the process they still say no and you can’t build anything.

So, developers essentially have to come up with the equity to do that themselves. You can imagine this really limits the sphere of who can be a developer and who can build. So, you have to have pretty deep pockets, or you have to be a company that has a bunch of projects going on in different stages of completion.

So, there’s actually a nice paper out by an economist at the Federal Reserve Board, who looks at how the big home-building companies essentially cross-finance different parts of their company. So, you have cash flows coming in from one project. You use that to finance the development of the next one. But, most developers work in one location, and they don’t want to take on too many of these projects simultaneously because any one of them could wind up being a bust.

Russ Roberts: And, the area itself could be a bust in a certain period of time, and you’d like to have some diversification and be in lots of cities. But, since they’re all complicated in different ways, it’s hard to be involved in lots of different cities at the same time. So, you tend to have all your eggs in that one local basket.

Russ Roberts: And, also thinking about this, you realize that the number of firms that can acquire the kind of expertise you need to deal with this regulatory thicket, it’s something akin to the pharmaceutical industry, where, you know, if you’re not big and large to spread the cost of FDA [Food and Drug Administration] compliance over lots of products, you’re done.

And so, for better, for worse, what we’ve done with the pharmaceutical industry is we’ve created a world where the large firms, they do their own research; but part of what they really are, tragically to me, is compliant experts, compliance experts. They know how to get through the FDA. A small firm can’t do that, can’t afford it, can’t acquire the expertise easily. And they are going to develop some products. They’ll sell those to the larger firm because they’re the ones who know how to shepherd it through the different trials, clinical stage of clinical trials.

Something similar is going on here, it would seem to me, where the regulatory burden can only be borne by large–a very small number of large firms. Which, of course, reduces competition and raises prices a little further probably.

— Jenny Schuetz, interviewed by Russ Roberts. Jenny Schuetz on Land Regulation and the Housing Market
EconTalk, March 30, 2020

Later on in the conversation:

Jenny Schuetz: I hear that argument a lot, that this is just landlords being greedy and trying to squeeze extra money.

It’s certainly true that landlords would rather charge a higher rent and take a profit if they can. But, landlords can only charge what the market will bear. So, in a well-functioning market, if a landlord charges $2,000 for a studio apartment, somebody else can charge $1800 for a studio apartment and they’ll take the tenants.

So, landlords can only get away with that if there’s a limited number of apartments and more people wanting to rent them than there are units available.

I will say that I’ve looked at the dispersion of rents within metropolitan areas–so not just what the median rent is, but the 75th percentile, and the 25th percentile. And, you see, when you look at the bottom end, that there’s really a floor below which rents don’t fall. Even in places like Detroit where land is basically free.

So, it’s hard to pay the minimum operating costs on an apartment for less than about $500 a month. So, if you think of just paying the mortgage on the building, the property taxes, water and sewer, common electricity and so forth, the stuff that the landlord has to pay to cover the cost of operating it, doesn’t go below about $500 a month.

Russ Roberts: As opposed to abandoning it because it’s a losing proposition.

Jenny Schuetz: That’s right. As opposed to just closing it down and taking it off the market altogether.

So, and that’s for sort of apartments that are good enough to meet our quality inspections. You probably, you’ve got some illegal rentals that are cheaper than that, but they’re cheaper than that because mostly they’re in pretty poor shape.

So, but, when you look at a place like San Jose, so the 25th percentile of rents in San Jose is about $1,200 a month, right? That’s close to the bottom. That’s not because it costs landlords $1,200 a month to run the apartment. That’s because there’s such limited supply that they can charge that. The best way to fight against greedy landlords is to flood the market with supply of new apartments and take away their market power.

— Jenny Schuetz, interviewed by Russ Roberts. Jenny Schuetz on Land Regulation and the Housing Market
EconTalk, March 30, 2020

I wrote a post a while back about GiveDirectly’s international Covid-19 emergency relief project for low-income families affected by pandemic Covid-19 and the economic effects of disease control measures. I’m a monthly contributor to GiveDirectly, but I’ve also tried to put aside at least $10 more each week to chip in for those special project funds.

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COVID-19 International Response

GiveDirectly is targeting households in Kenya, Uganda, Rwanda, Malawi, Liberia, and the DRC. Delivering cash transfers to families impacted by COVID-1…

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Now, GiveDirectly has also launched its international Covid-19 response, a relief fund which delivers cash through safe mobile payments directly to extremely poor informal-sector workers, starting in Nairobi, Kenya. From their site:

We're delivering cash quickly and safely using mobile money to families impacted by COVID-19 in Africa.

We're responding to this crisis by doing what we've done for a decade: delivering cash.

As governments impose lockdowns to limit the spread of COVID-19, many families will suddenly be unable to continue earning a living. Few will have the financial resources to weather this storm, let alone provide care if a family member falls ill. To make matters worse, traditional aid programs that rely on face-to-face interaction may need to scale back at the same time.

This is the moment for digital cash. To protect the safety of recipients and staff, all enrollment and payment processes will be conducted remotely from end-to-end. To begin, we're targeting low-income, informal sector workers in urban areas.

We will focus first on urban areas, where we expect the economic impacts of COVID-19 will hit first and hardest. We'll coordinate with local governments and NGOs to identify and prioritize underserved groups. To start, we're enrolling recipients in Nairobi slums — mostly youth — in partnership with SHOFCO.

We're using a basic income model as a short-term assistance solution.

Each household will receive $25-50 per month (dependent on location), initially for 3 months. We expect the main constraint on how many we can reach will be how much we can raise.

Send cash now

Send funds directly to those hardest hit by the economic effects of COVID-19.

Give now

— GiveDirectly, COVID-19 international response
World Wide Web. Accessed April 9, 2020.

This week I sent $10 each to the U.S. relief fund and to the new international response fund. So far, as of Thursday, April 9, GiveDirectly has gotten help to 2,064 families and raised $2,294,224 for the relief projects. Whatever you can afford to give in the coming days, you can help them to do even more.

Evidential note. The questions that I’m noting in this post are based on statistics of confirmed cases. The problem is that this makes any attempt at analysis, whether explicit analysis or tacit analysis presupposed by the questions, prone to a whole bunch of measurement artifacts and sampling bias. The availability and turnaround time of tests have been a substantial bottleneck on finding out anything about the disease, but the bottleneck itself has changed over time as testing procedures changed. Tests are not randomly distributed or performed. (Nor should they be, if their more acute clinical function of determining who to treat is currently more important than their epidemiological function of finding out about the spread of the disease. Which of course it is. But that’s another reason to note that it’s hard to find things out about the disease, and to exercise some caution about the possibility of being misled. In any case, this was written in the mid-morning on March 28, 2020; case numbers change rapidly, and at different rates in different places, so this very tentative set of questions may presuppose a number of things that have been true until recently, but no longer are.

It’s hard to know for sure, but such numbers as we have^[1] seem to indicate (1) that Covid-19 has spread everywhere throughout the United States, but (2) that it has spread much more in the northeast, and in New York and New Jersey, than everywhere else. There was a lot of reporting this past week when the U.S. surpassed 100,000 reported cases, and when it surpassed Italy^[2] and China^[3] There are a lot of cases everywhere, but in fact the magnitude of the U.S.’s rapidly jumping numbers of reported is currently explained almost entirely by the numbers from New York and New Jersey:

The estimated total population of the U.S. in 2018 was 327,167,434 people; New York (19,453,561) and New Jersey (8,882,190) have about 8.6% of the total population of the United States. But they account for well over half (just under 52.1%) of all the reported cases of Covid-19 in the U.S.; while reported Covid-19 cases have increased everywhere in the country, the huge increases in reported cases in New York and New Jersey over the last week explain nearly half (49.3%) of all the increased cases in the U.S. since March 21. So there’s some reason to worry that discussions heavily based on aggregated nationwide numbers are likely to be misleading about the actual patterns of the outbreak. The fact that just two contiguous states have more than half of the reported outbreaks, and account for just under half of the increase in reported outbreaks in the last week, also provides some reason to wonder, what’s going on with New York and New Jersey that have led to such a heavy regional concentration?

• How much is the population due to outbreaks in population centers? New York City is the megalopolis that connects New York State with New Jersey, and as of March 28, New York City alone accounts for 25,398 reported cases, over half the reported cases in all of New York State. Of course New York City is atypical compared to the rest of the United States.

• Could New York and New Jersey simply be in the later phases of an epidemic pathway that, without intervention, will also be experienced everywhere else as exponential growth continues? Well, maybe — New York has close connections and extreme, constant travel between both the Pacific Rim and Western Europe. Maybe the outbreak started earlier there and it has progressed longer, but if you give it time in other parts of the country, further out on the periphery of global social and economic graphs, you’ll get similar progress in infections. On the other hand, the cases in New York and New Jersey now dwarf those on the West Coast (California alone has more population than New York and New Jersey combined, but has less than a tenth of the reported cases), even though the West Coast contains the vast globally connected megalopolises of Los Angeles and the San Francisco Bay Area,^[4] and the earliest epidemic outbreaks in the United States were in Washington State. They plausibly ought to be at the same point or even a later point of an epidemic curve as New York and New Jersey, but they haven’t had anything like the huge spike in reporting of cases.

• Could New York and New Jersey be more severely affected than the rest of the U.S. because of population differences? Well, maybe. They’re certainly more densely populated than a lot of states; New York City has a vast population, and a number of the mid-size cities surrounding it, have a much greater population density than anywhere else in the U.S, including even other large, dense megalopolises like San Francisco or Chicago. On the other hand, it’s not ten times more dense than, say, San Francisco. You might want to look not only at densities but at other features of how those populations go about and live their lives; for example, New York is unusual within the United States not only in having a very dense population but also in having extremely high levels of transit and subway usage within the inner city, unusually low rates of car ownership per household and per capita, etc.

• Could New York and New Jersey be more severely affected because New York City is more severely affected, due to peculiar events and/or local political failures within New York? Derek Thompson at the Atlantic (warning: Twitter thread) thinks that at least some of it is down to fuck-ups and wavering by Bill de Blasio personally, or by the people around him. Maybe; although of course it will be pretty hard to measure how much regime uncertainty did or did not affect New Yorkers’ decisions; we’d have to have some other comparison point with other mayors and decision-makers elsewhere in the country; it’s easy to ridicule or to condemn politicians or policy fuck-ups, and often right to do so, but it may be hard for some time to come how much actual difference in infection rates could be attributed to any given erroneous, wrongheaded, ridiculous, or contemptible behavior. What might we do to gather more information on this? I suppose you could, for example, try to put together some timelines on a matrix of different decisions across several cities with notably different levels of reported cases (for example, when did the first reported cases show up, when were restaurants encouraged or forced to close, when were schools encouraged or forced to close, etc.; of course some questions — such as whether or not the city government decided to cancel a large public gathering like the St. Patrick’s Day Parade — depend on peculiar features that won’t be shared across all cities). Of course, differences might also have to do with differences not in local policies, but in state policies, since New York and New Jersey have state governments with very distinctive dynamics, and a large portion of the relevant decision making here is made by state departments of public health. Or it might have to do with relationships between state departments of public health and city or county authorities — in some places these relationships are fairly cooperative or plainly deferential, in other places fairly antagonistic or competitive and turf-protecting; has there been a difference in these dynamics between New York and/or New Jersey state-local politics, and state-local politics elsewhere in the country?

• Could New York and NEw Jersey be more severely affected because of distinctive environmental factors? They’re way up north, and weather in early March is relatively chilly. Nobody knows very well whether or not infections with Covid-19 will be limited seasonally by hotter weather, although there have been some pious hopes that they might (like some other airborne infections, especially seasonal influenza). If they are, this could be a relevant difference between the northeast and the rest of the country and explain part of the difference; if they aren’t, then I suppose it wouldn’t. Or of course there might be other environmental factors.

• Could New York and New Jersey have higher numbers of reported cases because there is something different about the testing or the reporting? Every state has had different access to test kits and different approaches to testing, in particular to the implementation of third-party laboratory testing. If so, the jump in reported cases might be partly accounted for by differences in the reporting, rather than differences in the disease or in the population. If so the question would not so much be, how did so many more people get infected? but rather, how did so many more people get tested? If this does turn out to be the true explanation, of course, it might be relatively better news for New York and New Jersey (since it would indicate that there isn’t something that they’re differentially doing wrong compared to the rest of the country, or a bad circumstance that they’re differentially stuck with); on the other hand, it would be relatively worse news for the rest of the country, since it would tend to suggest that the situations elsewhere might be worse than the reported numbers indicate.^[5]

Among people who are very worried about Covid-19, the effect of the outbreak on politics has often been to call in very stark terms for huge, drastic, nationally-uniform policy responses. (For example, on March 24, the New York Times Editorial Board argued that man in the White House ought to call for a two-week shelter-in-place order, now, as part of a coherent national strategy for the coronavirus.^[6] Maybe they are right about that — if New York and New Jersey are just an early vision of the future for other states within the United States, then that would be one reason to think that what’s helpful for them now, or what would have been helpful for them if enacted a couple of weeks ago, may be helpful soon, or helpful now, for the rest of the country. Or if they have the highest reported numbers because they have done more testing and reporting than other places, then that would be another reason to think that the situation is less regionally concentrated and more uniform than the numbers would indicate. On the other hand, if there are features distinctive of New York and New Jersey that help explain the regional concentration, that would also help provide some information about how to intelligently respond in different states where the situation might differ. The question should be, how much do we know or how much do we guess about these issues now, and how good is the evidential basis for what we think or guess about it? What evidence could we gather that would help clarify the situation? Is that evidence accessible now, or could it be reasonably approximated in time for it to be useful?

1. ^[1]Evidential note: I’m using the numbers from New York Times‘s frequently updated Coronavirus in the U.S.: Latest Map and Case Count page, which are based on a published dataset maintained by New York Times reporters compiled from state, federal, and territorial public health authorities, with some editorial intervention and normalization by the Times staff; they discuss their Methodology on the Github page’s README. I cross-checked those numbers and found that they show about the same results as taking the relevant aggregate numbers from CDC’s counts of confirmed or presumptive positive cases of Covid-19 in the United States, and the ECDC’s national-level data set on global cases.↩
2. ^[2]This was a totally meaningless and uninformative statistical milestone. The United States has more than 5 times as many people as Italy; as of March 28, 2020, the prevalence of reported Covid-19 cases per 100,000 population was about 450% higher in Italy than in the United States. (Evidential note: For numbers, I used the cases and popData2018 columns helpfully provided with the ECDC’s data set, and corroborated the population estimate numbers with a Google search sanity-check.) Of course, the U.S.’s reported cases are growing rapidly; so depending on how things go over the next several days, the U.S. may overtake Italy in reported cases in the near future.↩
3. ^[3]China has a much larger population than Italy, and a much larger population than the U.S., so this is somewhat more meaningful.↩
4. ^[4]Which of course have even more intense travel, economic and population connections with China and the Pacific Rim.↩
5. ^[5]Although that’s a complicated question, too. If there are lots and lots of undetected Covid-19 cases in the country that aren’t reflected in the confirmed case numbers, that would mean both (1) Covid-19 is potentially much more contagious than the reported cases alone indicate, maybe at the higher end of ranges of estimated reproduction numbers; and (2) Covid-19 is also much harder to track and contain, since lots of cases are passing uncounted. On the other hand, if true, that would also suggested (3) Covid-19 is significantly less lethal than the reported case numbers indicate; if the denominator in the ratio of deaths to infections is actually much higher than we could measure, and there are lots and lots of hidden cases, that would mean that the risk associated with getting an infection is correspondingly lower than it is in models based on officially reported case fatality rates.↩
6. ^[6]Their Editorial does later recognize the fact that the President of the United States actually has no legal authority to issue a nation-wide shelter-in-place order; but they wish that he would use his position to emphatically cajole state authorities into doing so in the several states.↩

One of the major bottlenecks in capacity for medical response to Covid-19 (and for any emergency healthcare, in general, during the outbreak) are critical shortages of medical supplies, especially masks, gloves, and protective gowns. The Flexport.org Fund at CAF America is raising money through GoFundMe to arrange and cover the logistical costs of transporting newly manufactured medical equipment to emergency healthcare providers.

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Frontline Responders Fund organized by Flexport.org

Currently, Flexport.org is focusing all our resources on getting critical supplies to frontli... Flexport.org needs your support for Frontline R…

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GiveDirectly has set up an emergency relief project to directly assist low-income families impacted by Covid-19 in the United States. They are also preparing to develop an international response program. If you think that emergency relief to households struggling between the disease, quarantine conditions, job losses and insecurity, then here is a well-tested way that you (we) can make that happen, now, without petitions or politicians, without politicking, without parties, without delay and without hanging it on a Christmas-tree bill of trillion-dollar corporate bailouts.

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COVID-19 emergency relief: Send cash to families in need

We're beginning by targeting the lowest income households enrolled in SNAP, living in the areas hardest hit by COVID-19. Send cash now.

givedirectly.org

We're delivering cash to families impacted by COVID-19 in the U.S.

We're responding to this crisis by doing what we've done for a decade: delivering cash. Each household will receive $1k, and we expect the main constraint on how many we can reach will be how much we can raise.

We also plan to respond internationally, and are finalizing those details. Will share shortly.

We're beginning by targeting vulnerable households enrolled in SNAP, living in the areas hardest hit by COVID-19.

In partnership with Propel, we're able to identify vulnerable households on SNAP, most of whom are single mothers. We'll begin by enrolling 200 households to receive the first payments and then expand, focusing on other populations in need who could be missed or underserved by other programs. We'll update payment size and structure as we learn more about the need.

We're doing this because we believe ...

1. Cash is the right instrument.

You won't be surprised to hear that from us, but to recap a decade of evidence and experience: it is fast, efficient, effective, and can have multiplier effects on the economy.

2. The government response will likely not be enough.

We're glad that the government is considering direct cash payments, but even if it does as we hope, we expect there will be delays and not enough money fast enough to the most vulnerable.

3. We can execute well.

We've been giving cash since 2008, and have delivered over $150M to poor people in situations as diverse as Liberia, DRC during Ebola, urban Nairobi, and Puerto Rico after Hurricane Maria. When we've responded selectively to US crises in the past, we've seen positive results both in terms of immediate impact and longer-term interest in giving internationally.

Send cash now

Send funds directly to those hardest hit by the economic effects of COVID-19.

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— GiveDirectly, COVID-19 emergency relief
World Wide Web. Accessed March 25, 2020.

GiveDirectly’s Donate link is here. They can accept Credit/Debit Cards, PayPal payments, checks, wire transfer, stock transfer, or Bitcoin.

If you’re not familiar, here’s more information about GiveDirectly and an independent, measurable-output based evaluation of their programs.^[1] Frequently Asked Questions about Covid-19 donations, operations, and Emergency Cash Response are available on the GiveDirectly page.

1. ^[1]Evidential Note: From November 2018. Of course, they just began the Covid-19 relief program, so the evaluation does not speak to that new program. However, it does discuss the operations and effectiveness of several of their existing direct cash assistance programs, which focus on relief of extreme poverty in the developing world.↩