Renowned urban economist Edward L. Glaeser joins Manhattan Institute senior fellow and City Journal contributing editor James B. Meigs to discuss the American housing crisis and how—or whether—it can be fixed.
Audio Transcript
Theodore Kupfer: Welcome back to 10 Blocks. This week’s special episode features Manhattan Institute senior fellow and City Journal contributing editor Jim Meigs interviewing Edward Glaeser, professor of economics at Harvard and also an MI senior fellow and CJ contributing editor. They discuss the housing crisis and how to fix it. We hope you enjoy.
Richard Davies: Jim, you and I are together again in the same room, face to face, recording a podcast for the first time in more than two and a half years. And I must say, you have not aged one bit.
James Meigs: It's dark in here, Richard. It's great to be working face to face again. You could say we're housed in the same place.
Richard Davies: And housing is exactly what we're going to talk about. Fixing the housing affordability crisis with Harvard University Economics Professor Ed Glaeser.
James Meigs: Ed is the author of too many books to note, but his most recent was released during the pandemic, it's called Survival of the City: Living and Thriving in an Age of Isolation. Now, our interview.
Richard Davies: Ed Glaeser, welcome back to How Do We Fix It.
Edward Glaeser: Oh, it's great to be back with you.
Richard Davies: It seems that as much as any crisis facing us today, housing is really tough to fix. Can you first give us an overview of the latest challenges facing the housing market in big cities like New York, where we are right now, and beyond?
Edward Glaeser: I think the biggest shock over the past five years has been the extent to which the housing comeback has hit cities like Dallas and Atlanta, that had sat the last one out. So for me, it's the nationalization of what once had been a coastal crisis. But in fact, the whole Covid era has been a spectacular era for housing price increases, right? Partially, we understand this as frictions in selling houses. So supply has not caught up. Partially, it reflects just demand to get cozy inside your own space, and increased working from home means you want a home that's worthy of working in. And partially, of course, it reflects the longer term dysfunction of our housing markets in failing to produce enough supply in the most productive parts of America to meet demand.
Richard Davies: But just in the past few months we've had this huge increase or comparatively huge increase in mortgage rates. Do you think that, that will change everything quickly?
Edward Glaeser: I don't think it'll change things quickly, but it could compound and cause particularly sharp changes in places like Phoenix that in fact we're still building. So Phoenix to me today looks a lot like Phoenix did in 2006 and 2007. So I would expect in places like that are the areas in which you're going to see the fastest adjustment to the changes in interest rates.
Richard Davies: 2006, 2007, the beginnings of the subprime crisis.
Edward Glaeser: Indeed.
James Meigs: What are some of the common obstacles to building enough housing?
Edward Glaeser: There are places where geography actually matters. So unquestionably, greater San Francisco has a lot of water in the way, it has a lot of hills in the way. These are all things that make it difficult to build. The island of Manhattan is intrinsically constrained and those watery barriers which served so well in the early 19th century to enable access to the world via clipper ship, those water barriers are now a difficulty, are now a challenge for building. But the view that I have come to over the past 20 years of working on this topic is this is by and large a self-created problem. We have shot ourselves in the foot by allowing localities to overregulate themselves, to make it far too difficult to build new housing, which means that ordinary people find it far too difficult to buy housing that is affordable for them.
James Meigs: We're in New York City, which probably has had the most pro-tenant regulatory regime going back really to World War II. And yet, it's one of the hardest places in the country to get an apartment. What's the connection there?
Edward Glaeser: It's a great irony that the blue states that allegedly care so much about affordable housing do such a bad job of actually providing it. Whereas, red states like Texas have done a great job of providing affordable housing, primarily because they unleash the developers, primarily because they make it easier to build.
Richard Davies: Some economists argue that over the long term, rent control does great harm to cities. Why?
Edward Glaeser: In part, because rent control freezes housing markets. And so you have people who, if they owned a home, they've turned 70, they're kids are out of the house, they would sell it and move to a smaller place. But if it's a rent-controlled three-bedroom apartment on the Upper West Side, they can't sell it, they can't reallocate it, they're stuck with it. In part, because who wants to build in a world in which rent control is either active or even if we have carve-outs for new construction, you've got to be a little worried if you're a developer that they may slap rent control on you in the future, and housing is a very long-lived asset.
Richard Davies: And yet we're seeing that growing numbers of town, cities and counties right now are enacting new forms of rent control to reign in the rapidly rising costs. At a time of soaring prices, that sounds like a good idea to many people. You're clearly against it. So what is wrong with putting a cap on rental costs, even when it helps people in the short term?
Edward Glaeser: If you want to help people with housing costs in the short term, we have a very clear mechanism for doing so. It is called the housing voucher. It has been part of public policy for 50 years. The beauty of it is it doesn't muck up the market, it just puts a little extra demand in it. So that will, if done sufficiently much, will actually push housing prices up further. But if done to a modest degree, will have very little impact on the overall market. It can be targeted towards poorer people. Whereas, price controls, rent controls, there are many things that are wrong about prices. Let's just go through a few of them. One of which is, it turns off the incentives to build. Secondly, it freezes housing markets. Third, landlords have no incentive to maintain the properties.
James Meigs: Ed, throughout your career, you've been a passionate advocate for cities. Do you still believe that the health and vitality of cities is vital to the future of all of us?
Edward Glaeser: Oh, absolutely. I think humanity's greatest hits have been powered by urban connections since Socrates and Plato bickered on an Athenian street corner. I think that the miracles of cities resound throughout history, and they're still happening today. They're places where people get smart by being around other smart people. They're places where people come to America and find opportunity. They serve all these functions. They also have downsides, of course. They're associated with traffic congestion. They're associated with high housing costs, they're associated with crime. And of course, most terribly, they are associated with the spread of pandemic, with contagious disease.
James Meigs: You talk about cities as being areas where disease can be easily transmitted and certainly early in Covid, it seemed like the cities were the hotspots, they were the problem areas. But how did it pan out over time? What did you discover in researching your book?
Edward Glaeser: Cities are associated with pandemic for two reasons. One of which is they're the ports of entry into a country for people, for ideas, for goods, and for viruses and bacteria. Covid entered into New York, Atlanta, Boston, Seattle. These were the ports of entry. This is where, as of April, 2020, this is where the disease hit. As you'll remember, as I'm sure all of your listeners remember, by November the hot story was the Dakotas, right? So it's an airborne pandemic. When we look at the long-term pattern across metropolitan areas, for me, the variable that leaves out is education. That in fact, the educated metropolitan areas ended up having death rates that were less than half than that of the least-educated metropolitan areas. And a lot of that reflects the way that education played out with mobility and working from home. In the early days of the pandemic in May 2020, 68.9% of Americans with advanced degrees were working from home, and 5% of high school dropouts were working from home.
Richard Davies: That's worth repeating. So two thirds of Americans with advanced degrees—
Edward Glaeser: —were working from home. And one in 20 Americans who were high school dropouts were working from home.
Richard Davies: So Covid spread much more rapidly among people with less education in jobs they had to go to.
Edward Glaeser: Absolutely. If you worked in financial services, you were working from home. If you were a management consultant, if you were a lawyer, you were working from home, you were doing it electronically. If you happened to be a nurse in a hospital, you happened to be a checkout person in a pharmacy, you were an essential worker, and you can't do that job remotely. And so they were going in, and they were getting sick, and many of them were dying.
Richard Davies: This is How Do We Fix It? I'm Richard Davies.
James Meigs: And I'm Jim Meigs.
Richard Davies: Let's move on to solutions. Clearly, you feel that there have been too many impediments to the free market. But if we simply let the free market rip in cities and suburbs without any kinds of constraints at all, doesn't that invite greater inequality and also unattractive living environments?
Edward Glaeser: So first of all, we can debate whether or not you would want a completely free market in building new homes or not. But that's not on the agenda, that's not a remote possibility in any of the metropolitan areas I'm worried about. One of the beauties of being an academic, I only need to wade into policy areas which are exactly the ones which I actually feel like I know something about and that I like. And one of the reasons why I really like this policy area is it's both libertarian and progressive. Deregulating housing is not something I believe that will promote inequality at all. I think in fact, relative to where we currently are, we're going to be making homes more affordable for lower income people. And so this is something that both moves away from regulation and also moves toward a more egalitarian, fairer America.
When it comes to sort entrepreneurship, it is an outrage in this country and should be an outrage to progressives that we regulate the entrepreneurship of the rich so much more lightly than we regulate the entrepreneurship of the poor. If you want to start your internet phenomenon in your Ivy League dormitory room, you can have basically a billion users before there's any regulator who's noticed that you exist. If you want to go five blocks away and start your grocery store that sells milk products, you've got 15 permits to get through, and it's a nightmare.
And because educated, elite people tend to be innovators in cyberspace, they're not bearing the brunt of this. Whereas ordinary people—and it's the same phenomenon as not being able to work from home. Ordinary people who are not naturally writing code for the internet, their entrepreneurship is live and it's real and it's valuable, but it's also highly regulated. And so I want to push back on the notion that in fact, this is anything that isn't progressive in terms of this. Now, whether or not in terms of your point about the beauty of the area, sure, maybe we want a little bit around the edges. But let's talk about where that is because it's not like I'm so convinced that governments are great arbiters of what is beauty in the world. So let's be sure we know what we're doing on this.
James Meigs: We all know about NIMBY, “not in my backyard.” But now we're also seeing a YIMBY movement, “yes in my backyard.” And what's interesting about it is that it's not just conservatives and libertarians saying, "Oh, strip away the regulations and build more houses." There's a lot of progressives or centrist liberals who are also getting on board with this, especially on the West Coast, where housing is such an acute problem. Could this be an issue that becomes something of a bipartisan cause?
Edward Glaeser: I would love that. I'm not sure it's about to happen. But you certainly think there should be common ground between progressives on the left and at least those people on the right who tend to be more libertarian. The YIMBY movement is still small, but whether or not this will morph into a large national thing, I'm not at all sure.
Richard Davies: I think there are some signs of movement. News reports this week suggesting that Democratic mayor Eric Adams of New York now wants to reverse New York's expensive and time-consuming environmental reviews for many rezonings. Perhaps that's an indication that there's some movement here.
Edward Glaeser: That would be fabulous if he can pull that off. There surely will be lawsuits. It surely will be a difficult thing to get through. But this makes an important point, which is that there are two primary ideologies that are used to support nimbyism, the opposition to new building, one of which is historic preservation, which we can talk about later if you want. But the other of which is environmentalism. Very rarely, however, are land-use regulations, particularly in a place like New York or coastal California, actually good environmentalism. So in fact, if you cared about greening the planet, you really would want New York to build up as much as possible. You really want the area to grow in a place where people actually don't drive 50 miles a day, where they live in modestly sized apartments where it's not that they're super green, but in fact it's a relatively compact lifestyle. And just having people together just saves a lot in terms of energy.
Richard Davies: This reminds me of our show, Jim, with Gernot Wagner, who is quite a well-known climate economist and by almost every measure, I think his politics are left. And we asked him, we said, "Gernot, what's the biggest thing we could do to lower carbon emissions?" And his answer was, "Build more apartments in cities."
James Meigs: When you get outside of central cities or the classic dense cities, so many of these regulations are single-family zoning, and there all kinds of ways to prevent the building of that. I live next door to a three-story apartment house that probably has 40 units in it and parking underneath, and it's right above a train station that can get you right into New York City. That used to be three single family homes that were kind of decrepit. That's a good kind of development.
Edward Glaeser: Absolutely.
James Meigs: And yet, that's exactly the kind of development that supposed environmentalists are fighting in lots of the country.
Edward Glaeser: Yeah. It's just completely backwards. You want to build up wherever you're building.
Richard Davies: Apart from building more houses, are there other things that can be done?
Edward Glaeser: So mostly, it's about reducing the barriers to building. Probably, there's smart things that can be done in terms of transportation policy that compliments building. Getting around makes it easier to get to places that are more affordable. The low-hanging fruit in public transportation is always the bus, right? There's an old joke that 40 years of transportation economics at Harvard can be boiled down to four words: bus good, train bad. And that's really almost entirely about cost, but it's also about flexibility. It's about in a world that's uncertain, buses can be rerouted. We can take dedicated lanes that work for buses and then put other vehicles on them if we want. And the idea with buses that really makes them very functional is with dedicated lanes. So you really want buses that are, heck, you can run them through a tunnel if you want, and they're still going to be a lot cheaper than a train is there.
There's no reason why we can't have an entirely electric bus fleet in the US. The one thing that's sort of outrageous in Congress that we have that blocks that is the various “Buy American” provisions of things that are supported by the Department of Transportation, where we have these local bus companies building buses in the U.S. that are incomparably more costly than buying them from Kia, buying them from Hyundai, where at least a couple years ago they had a perfectly nice looking $350,000 electric bus, It seems like you want to source these things globally if you actually want to work quickly to getting low--cost transportation that can green the environment.
Richard Davies: Clearly affordable public transportation should be considered when building new housing in cities. What else?
Edward Glaeser: The other thing that I would do in terms of housing affordability is, I would be smarter in terms of both what public housing units we have and housing vouchers. And I would do much more in terms of targeting housing vouchers towards particularly families with young children, because where neighborhoods really matters are for kids at formative stages. And so you really want to enable families with young kids to move to better neighborhoods. And with public housing, I think having more term limits makes sense. I think it's much healthier to think about public housing as being a two- to three-year thing that you can take advantage of if you've gotten into trouble rather than something that you're going to live in for the next 50 years of your life.
James Meigs: I used to be kind of a skeptic that housing issues drove homelessness, but I just saw a statistic in the paper yesterday that it was announced that over 100,000 New York City School students were homeless at least some point during the school year. That's just a devastating number. How close is the connection between expensive housing or lack of housing and homelessness?
Edward Glaeser: Going back 30 years, there have been two primary schools of thought that have battled it out, and there's truth to both of them. One of which emphasized mental illness and the deinstitutionalization of the mentally troubled in the 1970s is surely one of the contributing factors to the rise of homelessness in the 1980s. I don't think anyone disputes that. There is a secondary view which is particularly associated with the work of Dan O'Flaherty, Brendan O'Flaherty at Columbia. And also with the work of John M. Quigley and Steven Raphael that emphasizes housing aspects, and they emphasize slightly different aspects.
So O'Flaherty has a very New York-centered view that really is focused on showing the impact of eliminating the single-room-occupancy hotels. So this is a different form of regulation, but they had these hotels that many of us thought of being unattractive. But they were cheap, and they provided space for people who were on the margins of society. And well-meaning housing regulators decided we didn't want these unattractive things, we got rid of them, and people ended up being on the street instead of being able to buy this sort of cheap space.
James Meigs: Or rent by the week in a lot of cases.
Edward Glaeser: Rent by the week, absolutely. Quigley and Raphael, by contrast, who are California based, they look at the link between housing regulations and housing prices and homelessness, particularly in California they documented, as well.
Richard Davies: Can technology help? Recently we heard from Rana Foroohar, who's an economics correspondent with the Financial Times. And in that episode, she talked about the promise of 3D printing that can build houses much more cheaply than traditional methods. Can this play a role?
Edward Glaeser: Absolutely, it can play a role. I don't know 3D printing per se, but mass-produced housing is just a lot cheaper, and you can prefab skyscrapers now. One of the reasons I'm convinced that the straight building side of housing hasn't gotten cheaper. And remember, in most industries it gets cheaper to do stuff over time, right? Housing is kind of funny in that in fact, it has not gotten cheaper to build stuff. In fact, by most measures, productivity has gone down in the housing construction side.
I am fairly convinced that this is actually a byproduct of regulation that reflects the fact that when you have more and more rules, it makes it harder and harder to do things that are mass produced in one location, and you end up doing a bespoke product that is able to fit into this community's particular rules around this one particular lot. And so all of those advantages of just unleashing the market and saying figure out how to build it fast and cheap, that becomes impossible if it's saying, "Oh, no, no, no, you've got to go through your seven years of review, and we've got to talk about exactly what your plans are, and we want to know what your window treatments are going to be before we allow anything."
Richard Davies: But there are some rules, like for instance in Florida, with hurricane codes, building codes that are very important, save lives.
Edward Glaeser: Absolutely. The hurricane stuff is tricky. We clearly almost, in some cases through the way we work, flood insurance almost subsidized due to their location in these flood plains, which is really crazy. So we really do want to think a little bit about this. It's also, a related issue is what L.A. regulation or California regulation does more generally to the issue of the wildfires. Putting lots of people next to nature can often be a bad idea. And so in fact, by limiting the growth in central L.A. and by pushing it out to the exurbs, we may well have made the wildfire problem worse.
James Meigs: You just described my next article in City Journal actually.
Edward Glaeser: Excellent.
James Meigs: I've been very interested in the way a lot of those people who live out in the Scrublands, or in the foothills of the Sierras were forced there by lack of housing in the cities and were enticed there through some subtle subsidies.
Richard Davies: Final question from me. We are facing yet another turning point for the housing market and the economy in general, with rising prices, and rising interest rates, and fears of a recession down the road. Are you hopeful that we can get some home truths about housing that perhaps have not been appreciated until now?
Edward Glaeser: So my big worry about the cycle is that whenever prices go up, we just start getting some momentum on doing something about this and then we get the crash, and then everyone says, "Why are we worried about this? The whole problem is that prices are too low, not the problem that prices are too high." So this is exactly sort of what I felt like I went through in the 2004 to 2009 period. I'm a little worried that we're going to replay this again.
Richard Davies: Ed, most of our guests, when we ask them, "Are you hopeful?" They go, "Yeah, sure." Not this guy.
Edward Glaeser: Well, hold on. You asked me a short-term question about housing markets and housing reform. Let me give a broader statement, which is I think, again where I started on this, that if you're asking about cities more generally, even about America, the long-run track record of urban creativity in cities has been tremendous. I continue to be enormously hopeful about the things that I see around me every day in terms of young people in cities and the things that they're working at, that makes me hopeful about cities. And even despite the remarkably dysfunctional things about American politics right now, I even have some hope for the larger political arena, just because I trust in the young.
James Meigs: They say economics is the dismal science, Ed, but you're showing that it can have a sunny side as well. Thank you for joining us on How Do We Fix It?
Edward Glaeser: Thank you again for having me on.
Richard Davies: Ed Glaeser speaking with us face to face. Next, our recommendation.
Jim, you have something for us. Last week I think I recommended a video. Do you have a book?
James Meigs: Yes. I'm reading the book, How the World Really Works, by the great Canadian thinker, Vaclav Smil, who himself has written dozens of books about energy and the environment.
Richard Davies: It sounds like a weighty tome.
James Meigs: It's not weighty. It's very readable. But if you're someone who was hoping that a lot of the issues we're facing in terms of climate and the environment, we're going to be solved quickly, we're going to get to zero carbon by 2040 or something, it's kind of depressing. Or, I would say it's realistic. He does a great job of showing some of the challenges in changing the way we produce, distribute, and use energy in our lives and some of the challenges of the things we think we're going to replace it with, like wind and solar. As listeners to this podcast know that I'm a skeptic that we can run our power grid totally on wind and solar. They can be an important part. Nor can we replace all our cars with electric cars in the short term.
Richard Davies: Name of the book, again?
James Meigs: How the World Really Works.
Richard Davies: Next, our conversation. Great to have Ed Glaeser back with us again to talk about something that for many people, I think seems almost hopeless, which is the housing crisis. And he did give us some sobering thoughts, but also some glimmers of light.
James Meigs: I saw this as a mostly optimistic talk because what Ed's work shows is that most of our problems in this space are self-inflicted. It's not that difficult to build houses, but it is difficult to navigate these incredibly complex, arcane zoning rules in many areas.
Richard Davies: One of the things that he said that really struck me is that we have a lot more rules to prevent small home builders and people who are further down on the economic ladder from doing things in our economy than big companies. Right now we're in Manhattan, famous for its tall skyscrapers, but I spent a good part of this week in Brooklyn and Queens, which are also New York City boroughs, but most of the housing stock is two- and three-story dwellings. And I was thinking, couldn't we have an explosion of micro developers who would add an extra floor onto their house, or maybe they convert the garage into a living space? This could be done all over the city. It would make a huge difference in reducing the soaring costs of rents and also making it more affordable for people to buy homes in multiple family dwellings.
James Meigs: More density, using the infrastructure we have more efficiently, these things are really important. And when you talk about the YIMBY movement, that's a lot of what they're talking about. Changing zoning rules, say in a lot of California cities, to allow that mother-in-law apartment, to allow that small addition with its own entrance so it can be an accessory apartment. Just little changes like that could do a lot to help us use our infrastructure more efficiently. You don't need to add more streets, you don't have to go out in the deserts or the prairies and rip up the environment. You just use what we have more efficiently. Overall I just thought that was a really great conversation and great to be back, as we said, doing this in person. We want to thank the Manhattan Institute, where both Ed Glaeser and I are senior fellows. I'm very proud of that. And we want to thank Aaron Ricks for manning the recording instruments for this podcast.
Richard Davies: And our producer, we always want to thank Miranda Shafer.
James Meigs: Thanks for listening.
Photo by Suzanne Kreiter/The Boston Globe via Getty Images