We all agree that the minimum wage has not kept up with the growing cost of living. The American Left’s solution is simple….just raise the minimum wage! But this policy maneuver is a blunt instrument that has many downsides, including the potential for unemployment and inflation.
Lost in the discussion about the cost of living is….the cost of living. We tend to focus on pay and not expenses. Perhaps this is because raising salaries is simple and makes a good political soundbite. But we ought to focus our attention on the costs as well. We ought to talk about prices.
There are many areas where rising costs are eating into the salaries of working families. From education to healthcare, the latter of which I have proposed some solutions, costs are simply too high. And while many complain about the high cost of housing, most accept this as a fact of life. It doesn’t have to be. Housing costs are a significant and unnecessary burden on many households.
As Simple as Supply and Demand
The truth is, housing, like any product, is beholden to the laws of supply and demand. If there is high demand, normally, more supply would be built to meet that demand, moderating the price. But the supply of housing is limited by overzealous zoning laws that restrict land use. So while demand might be high, supply is restricted, thus artificially raising the price.
The core cause is Euclidean zoning. In America especially, Eucliedien zoning has been in use for over a century. Zoning separates land by use, preventing the mixing of commercial, residential, and industrial uses, leaving relatively little land for housing. Making matter worse, residential zoning often mandates low-density single families homes built on that limited land.
The consequence is that while throughout history, homes in America tracked closely with construction costs, this is no longer the case. Housing costs are now divorced from the physical cost of construction.
Zoning is intended to prevent negative externalities, such as a factory enveloping a neighborhood in smog, or large buildings placing smaller ones in permanent shade of the Sun. But zoning is a blunt instrument that also suppresses positive externalities. Zoning making cities unwalkable, requires residents to commute long distances to work, places strains on transportation, strain on the environment…etc.
The economic impact of zoning laws cannot be understated. Local boards and governments are staffed with homeowners who benefit from high housing prices. These boards prevent attempts to build new housing, such as apartments, that they believe might lower existing property values, fueling an ever-growing gulf between the haves and have-nots. Homeownership is one of the least discussed sources of wealth inequality.
Further, demand for housing is highest in those cities that provide the most jobs and opportunities. Zoning prevents labor from reaching the most productive parts of the economy. Indeed, easing housing regulatory constraints in places like New York City and Silicon Valley could raise the US GDP by some 9.5%. The impact is immense.
Form Based Codes
So what is the alternative to traditional zoning? One alternative that has been gaining traction since the end of the 20th Century is “Form Based Codes” (FBC). FBC attempts, as Euclidean Zoning attempts, to prevent negative externalities, but does so while also trying to maintain positive externalities. FBC de-emphasizes the use of land, focusing instead on the physical form of the structure built on the land, and its interaction with the surrounding city.
FBC-based neighborhoods are often more attractive, more inviting, and walkable than those based on Euclidean zoning. More importantly, because they do not restrict density or require a single use, it is possible to build apartments and higher density housing, frequently with businesses and shops on the ground floor. While perhaps not a perfect solution, Form Based Codes offer an attractive alternative to Euclidean zoning.
21st Century Ideas
FBC offer a compelling option to escape modern urban dystopias. They offer an opportunity to greatly increase the supply of housing, moderating the cost of housing, easing the economic burden on millions, as well as environmental damage. The economic benefits are undeniable, all that stands in the way is politics. If humanity is to continue the march of economic and technological progress through the 21st Century, we need to begin letting go of those flawed ideas that chain us to the 20th.
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