Housing advocates have won state policy changes and a new federal law. But can they overcome publics that still blame landlords and developers for rising prices. Christopher Elmendorf finds that housing opinions aren’t just a problem of people wanting fewer renters in their backyard. Instead, the public fundamentally misunderstands supply and demand: they don’t believe that more supply would lower prices and instead favor crackdowns on the suppliers.
Guests: Christopher Elmendorf, UC Davis
Study: The Folk Economics of Housing
Transcript
Matt Grossmann: Can housing policy overcome lousy folk economic thinking? This week on The Science of Politics. For the Niskanen Center, I’m Matt Grossman.
Housing advocates have won state policy changes and a new federal law, but can they overcome publics that still blame landlords and developers for rising prices without recognizing that it is more supply that lowers prices? Advocates have succeeded in turning the corner, moving debate from local NIMBYs to state and federal incentives, but that doesn’t mean they’ve won over the public. This week, I talked to Christopher Elmendorf of UC Davis about his co-author Journal of Economic Perspectives article, The Folk Economics of Housing. He finds that housing opinions aren’t just a problem of people wanting fewer renters in their backyard. Instead, the public fundamentally misunderstands supply and demand. They don’t believe that more supply would lower prices and instead favor crackdowns on the suppliers. We also talk about the limits of recent policy wins and the other factors that limit US housing supply. I think you’ll learn a lot from our conversation.
So tell us about The Folk Economics of Housing. What’d you find?
Christopher Elmendorf: Okay. So let me provide a little context before we dive into this paper. Probably the most longstanding and influential account of the politics of housing is due to an economist named Bill Fischel. And he argued that the politics of housing are largely driven by homeowners who are acting in the political process to protect their home values or avoid uncertainty about their future home values that could be caused by development in their area. And so this thesis, which became known as The Homevoter Hypothesis, predicts that there would be large differences in the political preferences and behavior of homeowners and renters. And there is some evidence that homeowners are overrepresented relative to renters in public meetings around proposed housing developments. But those public meetings about proposed housing developments are almost always about one specific proposal to build housing in one specific parcel of land.
And so we know less about the views of homeowners and renters on more generally applicable provisions to allow more housing in a metropolitan region or in a state. And one of the things that we’re seeing increasingly is states intervening in housing development debates, state legislatures getting involved and saying to cities, look, you need to allow more housing. So what we found over the course of several public opinion surveys is that there actually are not large differences in opinion between homeowners and renters on questions about should states allow more suburban homes to be built, say, on open lands near existing suburbs. Homeowners tend to be more supportive of that policy than renters. Or should states allow more apartment buildings to be built on in existing neighborhoods? And on that policy, homeowners and renters have pretty similar views.
So that’s a little bit of a puzzle for The Homevoter Hypothesis. We also drilled down and we asked very concretely, thinking about possible futures for the town or city where you live, would you prefer home prices and rents to be higher or lower or about the same as home prices today, assuming no change in the economy or quality of life otherwise?
No. That’s maybe a little bit of a strange counterfactual, but we wanted to try to isolate like, do people actually have concerns about home values as such? And on that question, there is actually a substantial homeowner, renter difference. About 85% of renters say they want lower home prices and rents versus only about 55% of homeowners say they want lower home prices and rents. But gosh, 55% of homeowners saying they want lower home prices and rents is not consistent with the view that homeowners are just in the business of maximizing property values. Now again, that’s not asking about your home specifically. If we asked about your home specifically, I’m sure homeowners would be much more likely to say, oh yeah, I want my home to go up in value.
But it suggests, again, as people thinking a little more generally, they’re not thinking about maximizing their home values, or at least a majority is not thinking about maximizing their home values as a priority. So what’s going on at a somewhat deeper level? What do people think about the actual effects of policy interventions that would allow more housing to be built on home prices or rents? We also dove into that question. And it turns out that people have views about the effects of an increased housing supply on the prices and rents for existing housing that are very weakly held.
If you ask people what would be the effect of a new home building technology that reduces the cost of building housing and causes a 10% increase in the number of new houses in your metropolitan region, what would be the effect of that new technology on prices for existing homes or rents for existing homes? About 40% of people say prices and rents would go up. About 30% of people say prices and rents would go down. And about 30% of people say there’d be no change. Similarly, if you ask a question about if states removed restrictions on the development of new housing and that caused a 10% increase in the number of new houses in your metropolitan region, what would be the effect on prices for existing homes? They give very similar answers.
So regardless of the cause of the supply shock, there’s like a really broad range of views about whether this would increase or decrease prices for existing housing. And these views don’t appear to be stable. So we have some people who we gave the same question to across multiple surveys and they change their opinions all the time. We asked variations on the same question within a survey, and people also have relatively unstable views on the price effects of housing supply shocks compared to a lot of other questions.
Matt Grossmann: And we call it the folk economics because it’s different than the real economics. So explain a little bit there. What is the economic intuition that the public doesn’t seem to get?
Christopher Elmendorf: So the real economic answer is that at least at a sufficiently large geographic scale, like the scale of entire metropolitan region, if there’s a substantial exogenous increase in the supply of housing, that is like an increase not caused by more demand for housing, but by some change in the supply curve, that will reduce the price of existing housing. Within very small geographic areas, the demand for housing is almost perfectly elastic because there’s lots of good substitutes. You can move to another neighborhood pretty easily. And so within very small geographic areas, there’s no reason to expect increases in supply to change housing prices and rents, except in so far as they change quality of life in the area. But within larger geographic areas, there’s pretty good evidence that increasing the supply of housing will put downward pressure on housing prices and rents.
Matt Grossmann: So that gets to the other potential explanation about how these decisions are made that maybe everybody would be better off if everybody provided more housing, but nobody actually wants it in their backyard, possibly because of that, the benefits wouldn’t necessarily come to them. So what can we say about that as an alternative?
Christopher Elmendorf: Yeah. I mean, I do think there are very concrete annoyances that come with development. There’s temporary road obstructions or parking blockages. There’s noise. If the new development is of a different scale than the existing housing, it may change the look and feel of a neighborhood in ways that people don’t like because they’re attached to the existing character of their neighborhood. And I think those are absolutely real phenomenon. They do affect housing approvals at the local level. But it’s not so clear that that kind of concern has a big influence over state politics. And in fact, the argument that many housing advocates have made is that we need to shift housing policy to higher levels of government so that housing policy is not quite so responsive just to the people who suffer the localized dis-amenities of new housing as opposed to the people who would benefit more broadly or the businesses that would benefit more broadly from new housing.
And there’s some evidence from municipal consolidations that when land use authority does increase in scale, and similarly from changes in the structure of local elections, like shifts between single member district and at large elections, there’s some evidence that’s very consistent with that hypothesis that increasing the scale of policymaking geographically does result in more supply favoring policies.
Matt Grossmann: But it’s not just that the public doesn’t necessarily buy the economic explanations. They have different people to blame. They blame developers and they blame landlords, they think that’s who’s responsible for the high prices.
Christopher Elmendorf: Yes.
Matt Grossmann: So why and what are the implications of that?
Christopher Elmendorf: Yeah. So the why is a hard question here, and I don’t have a great answer there. But it’s very clear in our work that housing providers, developers and landlords are the group that is most commonly blamed for high housing prices. And it’s also clear that this tendency to blame developers and landlords is stable, it’s a stable belief as opposed to the beliefs about the price effects of housing supply shocks, which seem pretty volatile or weekly held. So the same people who in one survey say developers and landlords are most to blame for high housing prices in their area will give the same answer if you survey them again in six months.
So why is this? I’m not sure. I mean, there certainly are a lot of cultural representations of developers saying Hollywood movies as the money bags guy, the greedy guy, the Grinch who stole Christmas, so to speak. And so that may contribute to it. It’s also the case that housing approvals at the municipal level are in most cases highly discretionary. And whenever you have a highly discretionary process, there’s a lot of room for corruption. We see this with tariffs at the national level and we see this with housing at the municipal level. And so from time to time, developers show up in court in handcuffs having past bribes and municipal council members show up in court in handcuffs having received bribes. And that probably doesn’t contribute to developers’ good reputation either.
So in another paper that I’ve finished recently with David Brockman and Josh Kalla, we looked at whether exposing people to short videos of a normal human being developer in which she talks about her work or her hobbies or something else changes feelings towards developers. And sure enough, it does. It also has a small effect on support for allowing buy-right permitting of developer proposed housing projects and for allowing developers to build apartments in your neighborhood.
So I think that views about developers are probably somewhat malleable, but they’re definitely not great on average. And that I think provides a line of attack for people who oppose changes to land use regulations that would allow more housing to be built.
Matt Grossmann: So on the one hand, this opens up opportunities for persuasion potentially because the views about whether new development would lead to a lower prices aren’t very stable or strong, and they’re not necessarily tied to strong self-interest among homeowners. But on the other hand, they’re up against an argument that the public already buys. So how would you evaluate opportunities for changing these views?
Christopher Elmendorf: This is a great question. And there’s been a recent line of work in economics that tries to trace out what are sometimes called moving chains or vacancy chains associated with new housing, new luxury or market rate housing specifically within a metropolitan region. So a new fancy condo building opens up, bunch of people move into that building. Where do they come from? Well, some of them may have come from out of the region, but most of them came from other houses or apartments or condos within that same metropolitan region.
And so you then look at, well, who moved into the houses or apartments or condos that were vacated by the people who moved into the fancy new building? And they mostly come from other places within the same region. So then you go to their former addresses and you say, “Well, who moved into that house?” And within about five rounds of moves, it turns out that the people who are immediately benefiting, or not quite immediately, but within a couple of years benefiting by being able to move into a new home are middle income or even to a substantial degree lower income, like bottom 20% of the income distribution of people within that metropolitan region.
So this is its work that I did with Clayton Nall and Stan Oklobdzija, same co-authors of The Folk Economics paper. We though, well, this is a pretty intuitive explanation of how different housing markets are connected. And it’s also a very empirical explanation of different housing-
… markets are connected, and it’s also a very empirical explanation of different housing markets, how different housing markets are connected, and that new housing that doesn’t seem to be housing for people like you actually increases the available stock of open units that are housing for people like you. And maybe if we present this research, that would really shift views about whether it’s good to change land use regulations to allow more market-rate housing to be built.
So we ran a study in which we gave some people a very plain vanilla summary of those economics papers with point estimates of the number of middle income and lower income by price, units that are freed up for every hundred new market-rate units within a region. We gave other people a simple analogy between the market for new and used cars and the market for new and used housing, because in some of our work, people seem to have very clear understandings about the relationship between supply chain problems and the market for new cars and the price of used cars. And still other people, we gave a short animated video from a housing advocacy organization that explains this moving chains idea in a very visual manner, doesn’t give like point estimates, doesn’t talk about economic studies, but just describes the dynamics.
And it turns out that this video had an absolutely massive effect on both people’s economic beliefs, but also their support for state policies to allow more market rate housing to be developed. So effect sizes that are roughly three times the size that one usually sees in the political persuasion literature. Now, whether those effects would hold up when they are juxtaposed against counter messaging about all the developers that are going to get rich off the new projects, I can’t say. Whether that content could be conveyed in the context of a political campaign is another question. It’s a one minute, 45 second video, which is longer than your typical campaign ad. But it certainly is suggestive evidence, pretty strongly suggestive evidence that these weakly-held views about the relationship between housing supply policies and housing prices are movable and change policy preferences when they move.
Matt Grossmann: And talk a little bit about the sort of real world implications of these misunderstandings, because we have a lot of policy around new development having to have more affordable parts of it or changing directly because people believe that it’s the new housing that should be affordable, not the kind of housing down the line. So how do you see this kind of in the real policy space?
Christopher Elmendorf: Yeah. So I think one thing that was a puzzle to me four or five years ago that is not a puzzle to me now is why do local governments and often state governments so often condition new housing development on a requirement that the developer set aside some share of the units as deed-restricted affordable housing? I mean, this deed-restricted affordable housing is housing that developers are losing money on. So the requirement operates as a supply constraint. It’s housing that’s allocated by lottery. The lotteries are cumbersome to participate in. The odds of winning the lottery are tiny. So what’s going on here? Is this like a story of interest group politics where there’s some strange collection of political insiders, powerful interest groups or something that are pushing for this? It doesn’t seem like it. Yeah, there are groups that are pushing for it, but nobody’s making money off it. So it was always a little bit of a puzzle to me.
But now it seems quite clear that people really like the idea of housing that is required to be affordable. And they like that in the form of rent control. Rent control turns out to be very popular among Republicans as well as among Democrats. They like that in requirements that new housing be mandated to be sold or rented at a price that is affordable to ordinary people in the area. Republicans are a little more supportive of middle-income affordability mandates. Democrats are a little more supportive of lower-income affordability mandates, but everybody likes the idea of affordability mandates. So I think there’s just a political constituency for that in the mass public and that it makes it much easier for a politician to support a policy that liberalizes land use restrictions if they can say this is a policy that’s going to generate affordable housing, not just market rate or luxury housing.
Matt Grossmann: You mentioned that people do sometimes understand these kinds of principles in other areas, like in cars, people understand that it’s not the new cars that will potentially go down in price, but the used cars or vice-versa. But it still seems like this might just not be just about the folk economics of housing, but about folk economics in general. How much is this a story … do people understand that new grocery stores could be a possibility of reducing prices or any other new business development in an area? Yeah. How much of this do you think is specific to housing versus a more general lack of economic logic?
Christopher Elmendorf: Yeah. So I think there is evidence that to a substantial extent it is specific to housing, but there’s certainly maybe you could say a larger issue or problem of economic ignorance. So to try to get at this question of how specific it is to housing, we came up with a bunch of scenarios involving supply shocks in other markets. And so most basically we asked, “Define what a free trade agreement is.” And then we asked people, “Do free trade agreements cause the price of consumer goods to increase, decrease, or stay the same?” We gave people an example of, “A new fertilizer increases the productivity of farmers. Does that cause the price of grain to increase, to decrease, or stay the same?” We gave an example of imagining, “A citywide high school vocational program trains people to be plumbers. Does the introduction of this program increase or decrease wages for existing plumbers?” And then of course the car example I mentioned earlier, “Does a supply chain problem that reduces the supply of new cars cause the price of used cars to increase, decrease, or stay the same?”
And across all of these examples, 50% or more of people give the quote “economically correct answer” as opposed to like a third for housing. So there is an average difference there. But I think the most telling example is the used car example, because 85% of people got that one right. And we asked that question on surveys that we conducted from 2022 to 2024, which was shortly after the COVID pandemic had actually caused a supply chain problem in the market for new cars and the price of used cars shot up. And so people either in their experience of people who are participants in the market for cars or who are getting news stories or social media content about used car prices out of control, supply chain problems in the market for new cars, they assimilated that information and they remembered it, but they didn’t necessarily generalize from it.
Matt Grossmann: Would that work in housing, like in places like Austin or Seattle, which have had large booms and seen subsequent lack of rising in rents? Have people noticed that and updated views or not?
Christopher Elmendorf: So I don’t have evidence on that question specifically. I will say that housing, like cars, is a durable good, but housing is much more durable than cars. So even if you have a very large supply shock in a city like Austin or a city like Seattle, that doesn’t increase the regional housing supply, let alone the statewide housing supply, the size of the stock, very much. So I think we should expect much smaller effects in general at the level that people can observe from local or regional shocks to the housing market relative to shocks that they might experience in other markets. And I think that probably to some extent is going to limit the amount of updating that occurs based on lived experience.
Matt Grossmann: So despite the political challenges, there has been quite a lot of recent success for the sort of YIMBY movement or the changes in housing policy that you’ve been a part of. Some of that has tried to take account of some of these things, like go with lower-hanging fruit earlier, like people’s right to have another dwelling on their property or things like that. But how has it succeeded as much as it has given the lack of public understanding and how well has it incorporated this information about public beliefs?
Christopher Elmendorf: That’s a really great question. And we are seeing in state legislatures across the country now, increased interest in problems of affordability in the housing market specifically as well as now more general concerns about energy affordability. And some of that is probably driven by general inflation that occurred starting with the COVID pandemic and the federal policy response. But there’s also been a concerted effort to organize pro-housing groups and to lobby state legislatures. And I think the Elite Persuasion Project, you could call it, that targets legislators and governors and the like and journalists maybe, is going better than the Mass Persuasion Project.
So there’s a team at Boston University, Katie Einstein, Max Palmer and David Glick, who’ve been conducting a survey of mayors for a number of years. And they’re just looking at mayors of large cities, I think 75,000 population or bigger. And they have a hundred-some mayors in their sample, not a huge sample. But one of the things that they’ve observed over the last several years is that mayors have become much less supply skeptical about the effects of new market rate housing on prices and rents for existing housing. And in fact, when they asked mayors about things that they had changed their mind on, one of the things that many of them brought up unprompted was the effect of new housing supply on affordability for existing residents. And they often cited academic studies as things that had influenced them.
And then I think the YIMBY, or Yes in My Backyard, movement has been very effective in influencing journalists, probably because journalists themselves for the most part are 20 to 40-something individuals living in supply constrained markets, at least elite journalists are, and people feeling the pinch of housing costs themselves that makes them interested in the stories. So I think that has been … I mean, I don’t have strong evidence of this beyond the Einstein et al. surveys, but I think that that elite persuasion campaign has been pretty effective.
However, a lot of the new pro-housing policies have also come with what you might call poison pills or, maybe less pejoratively, provisions that operate at cross purposes with supply liberalization provisions. So it’s we’ll liberalize supply in some respects or will streamline permitting in some respects, but we’ll also require a share of the new housing to be deed-restricted affordable housing. Or we’ll liberalize supply with one hand, but we’ll impose new price controls with another hand. And so while there may be more things you can build, you have investors who are demanding a higher rate of return because they’re more worried about price controls down the line.
Matt Grossmann: So California has been a home of some of these housing policy changes, but also of course a home of the sky-high and rising housing prices as well. How are people going to react to the time that it takes to see results from this and the idea that it might just, even if it’s completely successful, sort of slow the rate of growth in prices rather than actually get to something that people consider affordable?
Christopher Elmendorf: I think the answer may depend a little bit on whether you see that housing politics and policy being driven largely by political elites who are in dialogue with one another about what can we do about long-term problems versus politicians who are responding to electoral pressure from their constituents. And if it’s politicians responding to electoral pressure-
And if it’s politicians responding to electoral pressure from their constituents, then I think the fact that this is a hard problem to solve in the short term and particularly a hard problem to solve in the short term within small geographic areas means that the prospects for better policy aren’t great. But if on the other hand, this is an area where policy is being made by legislators who have some slack, some discretion to do things that are things that they think are in the long term interests of their state or their constituents, and they’re not feeling too much pressure one way or another from their constituents, then I think the fact that the benefits may take 10 or 20 or 30 years to materialize aren’t fatal any more than they’re fatal to policies to address, say, climate change or other problems that have manifest over longer time horizons.
Matt Grossmann: So of course, the origin of many of the local zoning restrictions and local government power over housing is in racial exclusion. And there’s a lot of remaining concern that some of housing opposition is really about the people that would live in the new housing. To cite a very close to home example for academics in college towns, it very much is often just a debate about whether to build new student housing. And then we get things, at least in my hometown, like building a 55 and over housing over the bar district, because that’s the only way you can legally exclude college students from one part of a development. So how much of this is about the kinds of people who would move into the new housing and does it matter if we change perceptions of that?
Christopher Elmendorf: So I think at a highly local level, when people are thinking about who’s going to be moving into their neighborhood to live in a particular housing development, like concerns about noisy students or maybe negative stereotypes about low income people or minorities. I don’t doubt that that has a big effect on preferences. And in the work I’ve done with Brockman and Kalla, we have measured racial attitudes and looked at how they correlate with support for upzoning or allowing more apartment buildings to be built or taller apartments, buildings to be built more generally. And there’s a correlation there, but it’s not huge.
And in fact, people’s stated aesthetic preferences seem to correlate more strongly with their views about whether new apartment buildings should be allowed than do their racial preferences. Maybe those aesthetic preferences aren’t sincere, but we have some evidence that we think suggests that they’re sincere and that people who say they don’t like new tall apartment buildings are equally offended by new tall office buildings. And new tall office buildings aren’t going to be bringing low income people or racial minorities into the neighborhood. They might be bringing traffic into the neighborhood, but that’s not about the opposition of the people.
And in fact, one of the curiosities that comes out of that paper is that people turn out to be on average, actually more opposed to new five story office buildings in their neighborhood than they are opposed to new five story apartment buildings in their neighborhood. Again, suggesting that something about the change in the neighborhood, not the people who are coming in that they’re objecting to.
Matt Grossmann: So we have a new federal law with housing, despite all of the issues that we’ve mentioned with convincing the public. And it does involve many of those potential things working at cross purposes, but it also is for Congress, at Congress’s level of activity right now, it’s a pretty major event. So tell us about what’s in that and how it kind of reflects how these debates have evolved.
Christopher Elmendorf: So the so-called Road to Housing Act passed earlier this summer, and it bundled together lots and lots and lots of different ideas and bills that have been introduced over the last several years addressing housing issues. And most of these are fairly small board ideas, but together they add up or they may add up to something. We’ll see how much they add up to. But to my mind, what’s most interesting about the road to housing package is it plants a flag for the idea that federal money that’s flowing to state and local governments for things that are somehow related to housing should be tied to whether the local governments are doing a good job as measured by housing development outcomes.
And that’s a real change from the last decade of what we could call YIMBY state legislation, which is mostly focused on trying to identify discrete local barriers to development and then to establish a state law that overrides or preempts the local barrier. And the federal government spends a lot of money. So to the extent that the federal government conditions… And it spends a lot of money often through discretionary grants or funding formulas that transfer money to the states. And to the extent that those grants come to be, or formulas come to be conditioned on housing production outcomes, that could be a really big change that affects the behavior of local governments.
When I started this answer, I said that the bill just plants a flag because the amount of money that’s involved is very, very small. And the formula is very, very rudimentary. It’s like 10% of the otherwise allocated community development block grant funding, which is a small funding program for housing and related activities funneled through the Federal Department of Housing and Urban Development. 10% of that will be clawed back from jurisdictions that are below average performers and reallocated to the higher performers. There’s also a discretionary grants program that’s supposed to prioritize funding to jurisdictions that are realizing improvements in the rate of housing production. So it’s small in the numbers, but it’s big as an idea.
And then beyond that, there’s kind of a smorgasbord of other provisions. Some that should allow manufactured housing to be built more cheaply, changes to the so-called HUD code for manufactured housing. It’s housing built in a factory. There are provisions to establish grants for local governments to come up with pre-approved plans for various designs. The federal government is supposed to create model codes that local governments can then adopt off the shelf very easily if they want to simplify their building codes in certain respects or change their zoning codes to allow new forms of development. So all of that you can think of as almost like a legislative subsidy to local governments. Make it just really easy for state and local governments to change their codes because they can take this federal model off the shelf and adopt it.
Matt Grossmann: The bill also though includes some provisions about the others that voters usually blame and that almost sidelined it at the last minute. So there is a sign that politicians kind of know some of this trade off that you started with. What do you make of their efforts to deal with that? And shouldn’t you, given your research, seems like they should be willing to accept some symbolic provision that attacks the people that voters think are responsible.
Christopher Elmendorf: Yeah. I think this is actually really a remarkable, maybe the most remarkable part of the story and a true story of bipartisan policy success in a very, very difficult, highly polarized context. So there’ve been various proposals mostly coming from Democrats to ban investors from purchasing single family homes and renting them out. This is often marketed under the idea that homes are for people, not for investors or homes are for people, not for Wall Street. And in particularly targets investors not who are buying apartment buildings to rent them out, but buying single family homes to rent them out. And President Trump jumped on this idea and said, “We need to ban these investors from buying single family homes. The homes are for you, not for Wall Street.” And once Trump jumped on this idea, which Elizabeth Warren had also embraced, it seemed like the writing was on the wall for a kind of populous left-right convergence on some kind of large investor ban.
But it turns out that a lot of the new single family homes that are being built are actually build-to-rent homes. So they’re built by a developer who intends either to rent them out themselves or to sell them to another large investor who will manage them as rentals. And these build-to-rent single family homes are pretty different than build-to-sell single family homes. They tend to be smaller. They tend to be built close together. It’s a different product, but it’s a significant rental product that allows lower income or middle income people to get access to a type of housing they wouldn’t otherwise have access to.
And the original investor ban that was added to the bill, it was feared, would basically decimate that market by requiring investors to divest themselves of single family homes within five or seven years of acquiring them. And the concern was because it’s a different product, there might not be much of a market for these kinds of homes, as homeownership homes as opposed to as rental homes. And over the course of negotiations, that provision was modified so that it would continue to ban large investors from acquiring more than 350 existing single family homes. But there was a carve out for new build-to-rent developments so that an investor could own and continue to own more than 350 single family homes so long as it was new supply that they’re bringing to the market as opposed to going into existing neighborhoods, buying up homes and turning around and renting them out.
So I’m not particularly keen on the investor ban in any of those forms, but the version that was adopted maintains something of the symbolic virtue, if you want to call it that, of propitiating people who are upset about investors buying homes without significantly interfering with the bill to rent market.
Matt Grossmann: And you haven’t been afraid to delve into the details here in actually recommending kind of these housing policy compromises. And in particular, you’ve been doing some work on mandates versus other kinds of remedies. So tell us what you’ve been up to and where you’re finding the, given that we have to compromise, how should we do so?
Christopher Elmendorf: So it’s a really hard question. And I don’t think anybody has all the answers. The forms of compromises that work may be different from place to place. But I am broadly encouraged by the move in the Build Now Act towards trying to measure outcomes and create fiscal incentives or conditional state or federal preemption that are tied to outcomes. So I think it’s pretty hard for a state legislature or Congress to identify ex ante, all the different ways in which a local government that doesn’t want to approve housing can block the housing or dissuade investors from building it.
If you talk to people in the trenches in California, they will definitely point to state laws that they say are helping a lot in their negotiations with cities. But some of the state laws that seem to be helping a lot are in fact laws that not expressly, but in effect delegate to developers the question of what local restrictions on development need to be modified for a project. Again, because it’s very hard for legislatures to know ex-ante, all the things that they need to fix locally.
The laws that take the mandate form or the preemption form that have been, I think, most effective in California are laws that do three things concurrently. They say what you can build by defining a physical volume that’s allowed and where it can be placed on the lot. They say a proposal to build that thing has to be approved ministerially, meaning without any discretionary conditions of approval, if it conforms to the basic requirements in state law. And finally they say the local government can’t charge fees or impose affordability mandates on that thing.
California has done that with accessory dwelling units and it worked. Accessory dwelling units have gone from being a tiny portion of the new housing supply in California, like basically a…
… portion of the new housing supply in California, basically unmeasurable, less than 1% to 20 or 25% of the new housing in the state’s major metropolitan regions. But when Senator Scott Wiener proposed to do the same thing for lot splits and duplex developments, saying anybody who owns a parcel that’s zoned for one house can split it into two parcels and build two duplexes in total, four new units on the parcel, again, defining an allowed volume, saying no fees and affordability requirements and the proposal has to be approved ministerially, that didn’t make it out of its first committee hearing. So I think another way of putting that is the state legislatures know what would be most effective when it comes to these forms of preemptive laws, but the politics often don’t align to do it. And so you’ve got to come up with some other form of compromise and what other form of compromise will work is, we’re still in the dark about that or still figuring it out.
Matt Grossmann: So the NIMBY movement has been subsumed recently under this abundance umbrella. And the good news there is that it’s getting a lot of attention. The bad news is that it’s become part of a factional fight in the Democratic Party especially, even though there’s not a whole lot of direct difference between an anti-monopoly lefty politics and an abundance politics. What do you make of that transition? And is that a frame that might help the public understand, or at least elites understand, or has it just muddied the waters?
Christopher Elmendorf: So to be honest, I’m more worried about Democratic-Republican polarization over housing policy than I am worried about intra-party factions. I expect there to be an intra-party faction within the Republican Party between people that are more pro-businessy or free markety who would be supporting land use liberalization and people who are more nationalist, ethno-nationalist, anti-immigrant who might take the view that just as a nation it’s important to shut our borders, any community should be able to shut their borders. So the existence of that kind of cleavage in the Republican Party doesn’t necessarily foreclose secret Congress or backroom deals between the wing of the party that is more supportive of markets and business and Democrats who have overlapping concerns. And likewise, the fact that, within the Democratic Party, there’s some people who only want to support new housing. If it’s government-owned subsidized housing, there’s just a variety of views in our politics.
And while I wish everybody agreed with me more, like, “Ah, we live in a democracy, right?” That’s why persuasion is important and elections are important. And I don’t know, I don’t think one should be hoping for a benevolent dictator. So I guess I’m honestly less worried about the intra-Democratic factionalism around the abundance stuff than I am that the abundance project becoming a Democratic coded project in a way that makes Republicans hostile to it, in which case housing policy could become like climate policy where like, “Sure, everybody would benefit from new renewable energy, but if it’s green electrons, I don’t want them in my backyard.” And we haven’t gotten there with housing, but we could.
Matt Grossmann: One place where we’re seeing a lot of change recently is in the backlash to data centers. Only a few years ago, the Michigan legislature passed with big bipartisan support, a bunch of state financial incentives to get data centers. And today politicians can’t run away from them fast enough, even in places like Texas and Ohio that have been a home to big data center expansions. Some of the similar kinds of issues to housing come up here as to some of the things like aesthetic preferences and NIMBY views, but obviously this is in some ways a broad debate about the economic future. But I guess part of it, at least seeing it on the ground, does seem to me to suggest that there’s a wall here that the pro-housing folks are also likely to meet at some point with a lot of new development. What do you think?
Christopher Elmendorf: So what’s interesting to me about the data center politics is that, if it was just NIMBYism, you wouldn’t, or I wouldn’t expect to see much pressure on state legislatures to do anything beyond letting local governments choose whether to allow a data center or not. It would be very easy for state legislators to solve their problem politically by saying, “We’re delegating authority to city councils or county commissions to decide when a data center is good or bad for that community.” But instead, in states like New York on the left and Texas on the right, you’re seeing governors stepping in and saying, “We need to establish a moratorium on data centers.” And that suggests that there’s something about the data center politics that are not just about NIMBYism. There’s a larger fear about data centers. And some of that fear may be about energy costs and driven by the perception that data centers are increasing demand for energy and that’s going to drive up the price of energy for other consumers.
Sounds like the empirical story there is actually a lot more complicated because data centers also allow you to spread the fixed cost of a grid over a larger number of energy consumers. And so in some cases, data centers will probably drive up the price of electricity. In other cases, they may reduce it. And then part of it is probably also driven by the negative association that people have between data centers and artificial intelligence or their fears around artificial intelligence. Is it going to take all our jobs or cause some other catastrophic consequence? And obviously a data center ban isn’t going to solve that problem, but it’s the thing that is tangible in a way that, I don’t know, whatever the rules are for reviewing model development or possible international protocols for slowing the AI frontier, that’s not something that people can’t have any way of evaluating politically.
Matt Grossmann: So you don’t buy any of the analogies here because it seems to me that knowing about things like your research would have helped predict this backlash, that you have clear enemies here that are much easier for people to grasp onto and you have a more complicated set of economics to try to explain to people on the other side.
Christopher Elmendorf: So you do have the enemies, but the question is why are they enemies? There’s clearly local disamenities from data centers. They’re big, they’re ugly, they’re noisy. And that would explain why you would expect NIMBYism, right? Local opposition. But NIMBYs have been very ineffective in rallying opposition to state pro-housing policies. They’re very good at organizing to get their members to turn out. Members of a homeowner association can organize to get the homeowners to turn out at a public hearing about some proposal for an apartment building on the border of the subdivision. But there have been proposals the last three election cycles in California to pass a statewide ballot initiative that would restore local control over housing development. And the proposals have been drafted and they’ve been circulated for gathering of signatures. And the people who don’t want new housing development have not been able to organize and raise the money to even qualify… To get the signatures you need to qualify the measure for the ballot.
I don’t know, that’s a $5 million proposition or something. It’s not cheap. But in the scheme of things, it’s not a huge lift either. And these local groups are just not well organized to intervene in politics at the state level. So the fact that you’ve got these state level actors, governors who are responding to opposition to data center development suggests to me that this is not a case of NIMBYs organizing to get state overrides of local county commissions or city councils who are not answering to the NIMBY constituents. This is a case of some broader public associations, symbolic associations people have with AI development that they don’t like. And also maybe fears about the price effects of data center development for energy costs that are driving the state politics.
Matt Grossmann: Anything we didn’t get to that you wanted to include or tout about what you’re working on next?
Christopher Elmendorf: In terms of things that I am working on next or eager to see other people working on, one issue is the formation and change of opinion among policymaking elites as opposed to the mass public. I alluded to that earlier. I think some of the BU crew’s work is fantastic and I and others hope to contribute to more work in that vein. Another question that’s of great interest to me is how people respond to piecemeal rather than wholesale transformation of blocks or neighborhoods. So there’s some work that was done in the ’90s suggesting that people really, really, really don’t like even a nice, beautiful building if it’s substantially taller than the surrounding buildings and it really stands out. But they’re very happy to see all of the buildings on a block be the nice, tall, beautiful buildings. And that work was done with small samples. And I don’t know how well it will replicate, but I think seeing whether it replicates and seeing whether people would support institutions that would facilitate block-level land assembly or block-level transformations is a important frontier question for housing policy.
And then finally, I think in general, there’s a ton of work in political science that relies on survey experiments. A lot of my work relies on survey experiments because it’s easy to do and cheap. But the things that matter probably more than opinion change are behavior. And so trying to understand how exposure to different kinds of development translates into changes in people’s propensity to contact their representatives, to share information on social media, to vote. I think these kinds of behavioral outcomes are things that I’m particularly interested in and figuring out better ways of measuring a wider range of behavioral outcomes and connecting them to interventions that may change people’s beliefs in one way or another.
Matt Grossmann: There’s a lot more to learn. The Science of Politics is available biweekly from the Niskanen Center, and I’m your host, Matt Grossmann. If you liked this discussion, here are the episodes you should check out next, all linked on our website: How Not-in-my-Backyard Politics Keeps Housing Costs High; How Rich, White Residents and Interest Groups Rule Local Politics; How Public Policy Intentionally Segregated American Homeowners; Did Economists Move Democrats to the Right?; and, What Makes for a Skilled, Unconscious Mayor? Thanks to Christopher Elmendorf for joining me. Please check out The Folk Economics of Housing and then listen in next time.
