Regulatory restrictions on the construction of new housing inflict immense harm by cutting off millions of people from housing, educational, and job opportunities. They are also a major affront to property rights. The traditional explanation for such "exclusionary zoning" is that it is driven by the narrow self-interest of "NIMBY" ("not in my backyard") homeowners. Although society as a whole would benefit from deregulation, the NIMBYs oppose it because it might reduce their property values and allow less affluent people to move into their neighborhoods.
In a recent post, economist Bryan Caplan—a leading academic expert on both housing and public opinion—summarizes evidence challenging the traditional self-interest explanation of NIMBYism. He relies heavily on "Folk Economics and the Persistence of Political Opposition to New Housing," an important new article by legal scholar Chris Elmendorf and political scientists Clayton Nall and Stan Oklobdzija:
Why is housing regulation so draconian? The conventional answer is self-interested voting. Housing regulation is mostly local; local voters are mostly homeowners; homeowners want high housing prices; homeowners know low supply keeps prices high. Economists are especially staunch in their belief in this classic NIMBY (Not In My Backyard) story.
Part of the reason is that economists like self-interested stories of everything. In daily life, this is a reasonable presumption. But in politics, most economists have yet to realize that theory and empirics stand squarely against what I call the Self-Interested Voter Hypothesis. Since one voter has near-zero effect on political outcomes, there is near-zero reason to vote on the basis of material self-interest. And a mountain of public opinion research confirms that "symbolic attitudes"—especially ideology and group identity—are the main determinants of issue views, partisanship, and voting itself.
But even economists who accept these truths will still probably try to carve out an exception for housing regulation. What ideology urges us to make housing as expensive as possible?! If naked self-interest doesn't explain draconian regulation, what on Earth does?
My top explanation is sheer economic illiteracy. Much of the public flatly denies that housing deregulation would make housing more affordable. For them, supply-and-demand is the "ideology"—and popular complaints about the downsides of new construction are "common sense."
Do I have any evidence that economic illiteracy is the foundation of draconian housing regulation? Until recently (with notable exceptions), I only had base rates. Since there is overwhelming evidence of the public's economic illiteracy, of course they'll be economically illiterate on housing as well. But in 2022, Clayton Nall, Chris Elmendorf, and Stan Oklondzija (henceforth NEO) ran a large survey on the origins of NIMBY. Their recent paper, "Folk Economics and the Persistence of Political Opposition to New Housing" strongly supports my story.
The rest of Caplan's post is an insightful summary and analysis of NEO's important findings. I discussed those findings myself here. I don't think the NEO paper proves that all NIMBY opposition to housing deregulation is caused by ignorance. In my earlier post on their work, I note some other factors:
Economic ignorance is not the only factor driving NIMBYism. Some people really do oppose new construction based on careful calculations of their narrow self-interest. While current homeowners can often benefit from development in various ways, if you're an owner who does not have children (or doesn't care about their housing costs), doesn't care much about promoting growth and innovation, and wants to ensure that the "character" of your neighborhood changes as little as possible, you might rationally oppose zoning reform, even if you understand its effects perfectly well. Historically, racial and ethnic prejudice has also been an important factor, though it has waned more recently, as education levels have risen and white suburbanites have become more open to integration.
While the NEO paper doesn't prove that ignorance is the only factor here, it does demonstrate that it is extremely important, probably far more so than the traditional NIMBY story of homeowners carefully calculating their self-interest. At this point in time, I think it's also more significant than old-fashioned racist hostility to a potential influx of minorities. Among other things, NEO show there are few differences between homeowners and renters on housing deregulation issues, and that many in both groups actually believe that building more housing will increase prices rather than reduce them!
NEO also demonstrate that voters tend to (illogically) blame developers for increased prices, even though the latter are actually the ones whose activities are likely to reduce them. This is much like blaming high egg prices on farmers' efforts to increase egg production. But many people believe it, nonetheless.
As Caplan and I emphasize in our respective posts, such ignorance and economic illiteracy is far from unique to this issue. It's a widespread problem arising from the "rational ignorance" of voters. But it's especially pernicious in this instance, because of the enormous harmed caused by exclusionary zoning.
In another commentary on the NEO article, Alex Tabarrok (Caplan's colleague at the George Mason University economics department) summarized it as "look around at the housing market and declare there are idiots"—contrary to economists' usual assumption that people behave rationally. But, for most voters, being ignorant and biased about public policy is in fact rational, given the very low likelihood that your vote or other activities will have a decisive impact on policy outcomes. You don't have to be an "idiot" to hold ignorant and foolish views about zoning—just a person who would rather spend his or her time on things other than studying housing policy. That preference is often entirely rational, especially if you have many other demands on your time, you don't find housing policy interesting, and you know that you are unlikely to have much impact on it, even if you did study it carefully.
Caplan ends on a note of optimism:
Is this good news or bad news? As I've argued before, given the existence of awful policies, it's good news. If the status quo were a durable expression of self-interest, it would be nigh invulnerable. Why? Because (a) human nature won't change, and (b) the costs of bargaining are plainly too high to reconcile our conflicting self-interests. Otherwise, such bargaining would be common already, and we wouldn't find ourselves in our current predicament. If the problem is economic illiteracy, however, at least we don't have to change human nature to dramatically change policy. Perhaps we can just repeatedly hit the public over the head with a friendly sledgehammer of economic education.
I hope this optimism is justified. But I'm not sure it is. Breaking through rational ignorance and bias is possible—but often very difficult. If it were easy, more political leaders would try to combat public ignorance rather than manipulate it to their advantage. In Chapter 2 of my book Democracy and Political Ignorance, I describe why an electorate of highly knowledgeable but narrowly self-interested voters might actually be preferable to one that is altruistic, but highly ignorant and biased.
Nevertheless, there have been several successful zoning reform efforts in various states over the last few years, most recently in Montana. Strong are the forces of ignorance. But not invincible.
UPDATE: I have made some minor additions to this post.
The post Bryan Caplan on NIMBYism and Economic Ignorance appeared first on Reason.com.
