Abundance Jumps the Shark
Vancouver, BC, skyline. Photo: David Zhang. CC BY-SA 2.0
For folks who might have missed it, abundance is the cool trend in politics these days. It got started with the book Abundance, which was co-authored by New York Times columnist Ezra Klein and Atlantic writer Derek Thompson. The gist of the book is that excessive government regulation is slowing growth and keeping us from enjoying the good things in life.
The clearest case is with housing, where NIMBY activists block efforts to increase housing density, which would lower prices. However, they make the case more generally that a wide range of regulations make it difficult to do even simple things, like set up EV charging stations or extend broadband to rural communities.
There is clearly something to the abundance story. It is easy to find cases where seemingly pointless regulations blocked projects that most of us would consider good. The problem is figuring out which regulations are pointless.
The abundance authors also show little interest in widely abused regulations that benefit the rich. At the top of this list would be the government-granted patent monopolies that make prescription drugs and medical equipment expensive. In almost all cases, drugs and medical equipment would be cheap if sold in a free market, but for whatever reason, “abundance” apparently doesn’t mean cheap drugs.
There is a similar story with bankruptcy laws that benefit private equity companies. Under current law, a private equity company can buy a restaurant, retail, or hospital chain, sell off all their assets and then have the chain declare bankruptcy. This leaves the creditors, such as landlords, suppliers, and often workers, out of luck. Meanwhile, the private equity partners can walk away with their money. The bankruptcy law doesn’t hold them liable for the debts they impose on the companies they purchase.
These sorts of bankruptcies are a total waste from an economic perspective. And they can redistribute an enormous amount of money to private equity partners, many of whom are very rich. But eliminating this waste, along with other waste in the financial sector, plays no role in abundance.
While measures that would eliminate some of the boondoggles that benefit the wealthy are not part of the abundance agenda, it seems some rich Silicon Valley types are anxious to embrace the idea of reducing regulations that hamper their businesses under the guise of promoting abundance. They have formed a funders network to support candidates who target bad (in their view) government regulation.
Residential housing is where the abundance claim of bad regulation creating scarcity is probably clearest. But even here, their case is vastly overstated.
House prices and rents have considerably outpaced inflation over the last decade, but blaming this on overly restrictive zoning is seriously misleading. The country was building plenty of housing from 2000 to 2006, prior to the collapse of the housing bubble. That collapse badly disrupted the housing market and caused construction to plummet.
Construction had largely recovered to more normal levels by the time of the pandemic. However, the pandemic led to a huge surge in demand due to a massive increase in the number of people who worked from home. This caused a big jump in house sale prices and rents in the United States and around the world. That had little to do with zoning, although there are clearly some places, like San Francisco and New York, where restrictive zoning contributes to the problem.
This history needs to be kept in mind when reading Binyamin Appelbaum’s New York Times column “One City Might Have Just Cracked the Housing Crisis.” Appelbaum, usually an astute columnist, tells readers that Vancouver’s secret is that it reached a settlement with an Indian tribe, giving them 10 acres of land in the city. As part of the settlement, the buildings on the land will not be subject to the zoning restrictions applied elsewhere in the city. This is allowing it to build badly needed housing.
The problem is that it’s not clear how badly the city needs more housing right now. The city is actually considering a program to buy up vacant condo units to prop up their price. The city apparently views its problem as too much housing, not too little. Over the last year house prices in Vancouver have fallen 5.7 percent, somewhat more rapidly than the 4.3 percent average decline across Canada. Perhaps Appelbaum thinks prices should drop more rapidly, but they are clearly headed in the right direction for people who think housing costs too much.
If Vancouver has a problem with high housing costs, it’s that it is an incredibly desirable place to live, and people keep moving there. The population of the city itself grew more than 40 percent from 1991 to 2021. The metro area grew even more rapidly, with growth topping 60 percent. That sort of rapid growth will put upward pressure on housing costs even with very liberal zoning rules.
Perhaps if the city had no zoning restrictions, it could make it a less pleasant place to live, and then housing costs would fall. But it seems hard to contend that a city that accommodated a 40 percent increase in its population over three decades has excessively restrictive zoning.
This can be a good lesson for people who want to jump on an abundance bandwagon and get rid of all government regulations. Look before you jump. Now let’s talk about drug patents!
This first appeared on Dean Baker’s Beat the Press blog.
