Housing supply and the future of our urban planet

Welcome to the LSE Events Podcast by the London School of Economics and Political Science.

Get ready to hear from some of the most influential international figures in the social sciences.

Hi, good evening. Nice to see you. Many of you here. My name is Henry Overman. I'm a

professor at LSE and one of the editors of the Economic Adjournal who are hosting this

evening's Coast Lecture. I'll be chairing. Welcome to all of you both in the room and online.

We're looking forward to an interesting discussion this evening. A couple of logistics.

We're not expecting a far alarm if there is one. Someone will tell us where to go. I hope.

Mobile phones are silent, please. Apparently we're happy for you to keep them on nowadays

so that you can social media. I will introduce Ed shortly. He'll speak for about 45 minutes,

50 minutes. I think we agreed and then there'll be 25 minutes for questions. We'll take questions

both in the theatre and online for those of you that are here in the theatre. There'll

be a mic. Please wait for the mic. Tell us who you are. For those of you who are online,

you need to ask questions via the Q&A function and someone will moderate them to me. Again,

it's helpful if we know who you are. Just to say the events are recorded and hopefully

there'll be a podcast subject to there being no technical difficulties. Hashtag, if you

care about these things, is LSE events on the screen. Let's get on with it. Ed Glaser

is the Fred and Eleanor Glimp professor of Economics at Harvard University where he has taught

economic theory and urban economics since 1992. He has read hundreds of papers on cities,

infrastructure and other topics and books like Triumph for the City and Survival of the City.

Ed, let's get on with it. Thank you. I am thrilled and honored to be here and I'm thrilled and

honored that all of you have chosen to give me an hour and 15 minutes of your time for us to

talk about cities today. I do want to note first, there is a connection of this with Ronald

Kose and I just want for those of you who haven't gone back and reread Kose, I realized as I was

thinking about this, that that was also deeply meaningful for me. As I have written a series of

papers and long economics over the last 25 years with titles like Legal Origins and Securing

Property Rights, all of which should be best seen as an extended footnote to Kose 61,

in which we think about when the world is more Kosey and when the world is less Kosey. In fact,

I've even written a paper called Kose versus the Koseans, which have some sort of differentiate

the sort of Kosean perspective, which is like everything works well with courts and all is

perfectly efficient, the actual views of Ronald Kose, which was not that at all. Okay, with that,

let's get started. I was told when I was asked to do this by Tim Bezley that I was supposed to talk

about housing supply, that that was what I was here to do and so you will get stuff on housing

supply. I think this is in some sense, one of the great issues of our day. Housing supply is why

it is so expensive to be in London. It's why it is so difficult for young people to find their

future in London. It is why so many of our urban spaces are strangled rather than growing,

less productive, less welcoming than they possibly should be. I'm going to try and give you

material from two recent papers, some of which may have a little bit of algebra, but you really

don't need that. I will try to get the ideas across. A little bit of old work and then we're going

to end on a little bit of why this really matters and why there are larger social costs for

screwing up housing. Much of this is going to be US-centered, okay, because my work is typically US-centered

and the US has certain advantages from empirical work, which is it isn't dominated by one amazing

huge city and there are lots of cities in it, but I've been told by Henry and he will tell me

when I'm screwing up that it all applies to the UK as well, so I don't need to worry about this.

Okay, so let me get started. So this is housing prices in six, let's say famous and salient

housing markets in the US over the last 45 years. And you can see the two coastal markets, New

York City and Los Angeles, which are still on top. You can see that they really have three

convulsions. So you first saw these places booming in the 80s and the 80s boom and then you see

them experiencing the mega boom of the great housing convulsion of the odds and then you see

their recent runner. And when I started working on housing supply about a quarter century ago,

my model of America was there were coastal markets that were largely constrained, that faced very

inelastic supply, but the rest of America was relatively open, it was relatively easy to build.

Now that's been changing and so the next line that you see further down missed the 1980s,

but experienced the great convulsions of the odds in like crazy and that's Phoenix, right?

Massive increase, massive decrease and it's back up again. And then of course you can see

Atlanta and Dallas, which missed both of those earlier ones, but now in our indeed experiencing

a larger gain. And in some sense the picture here is one in which it used to be about New York or

Massachusetts or California and now it's also about Miami and Phoenix and Dallas. And in some

sense all of America's metropolitan frontier is closing. And these cities which at one point in

time were superstars at producing ordinary homes for ordinary people, they've ceased doing that.

Now I'm not going to say a lot about non-US data on this, but apparently we're not the only

place in the world with high and rising housing prices. And this is just OECD data on this stuff.

The pink means it's high and it's actually higher than the US has been over the past 10 years.

Now the background of course for the high prices in London are the demand for London,

the fact that it's per capita output here is 78% higher than the rest of the UK.

And of course Dr. Johnson was right when he wrote 250 years ago that when a man is tired of London,

he is tired of life because there's all in London that life can afford. And that still remains true.

Especially I had forgotten how great your weather wasn't spring. And of course that's why you see

a massive gap between prices and incomes. So London as a classic consumer city has people from

all over the world who want to live here, even if they're not working here, because the pleasures

of London are so extreme. And so it's this combination of economic dynamism, London as a consumer

city, and also you're also an imperial city. You're also the capital of the country, all of which

contributes to robust demand for living and housing, which when it collides with restricted

supply produces extraordinarily high prices. Now it is easy to forget now about just how much

housing America once produced. And between we built, and this is a, we built between 1950 and 1980,

we delivered about 50 million new housing years in the United States, which is a staggering number.

And through the 80s, we were still doing really a fairly impressive amount of growth.

After the 2000s, it slowed down much more. And one way to see this is if America built at the same

rate between 2020, that it did between 1980 and 2000, America would have 15 million more homes.

Right? And so this is the slowing down of construction. This is another way of seeing this.

So this is just quantity of permits. This single family over here. This is five or more units,

and this is two to four category. And you can see we really did have a last burst right before

the 2006 period, especially in the Sun Belt cities like Phoenix, like Las Vegas. But since the

global financial crisis, we have never recovered from that. And it is down everywhere.

Now the first paper I'm going to talk about is a Brookings paper that's joined with my long-term

co-author on this Joe Jerko. And here we're going to start with a couple of facts about what's

changed to the US. And this is just the 50 largest metropolitan areas in the United States.

And we're looking at the growth in housing units between 1980 and 2000,

and the growth in housing units between 2020. And what you can see is there are a whole number

of sunny places, Orlando, Phoenix, Atlanta, Austin, Raleigh, Las Vegas is over there,

which built enormous amounts. That line there is the 45-degree line. So the distance between the

dot and the 45-degree line is how much less they produced over the last 20 years than they did

between 1980 and 2000. And you can see just the enormous decline. Now there are some places which

were much lower, which kind of stayed on the line. But you really went from areas that were

delivering astounding amounts of housing to places that really are not. This is the same graph

for prices. And here, you know, change in real-medium price over 80 to 2000, change in real-medium price

2020. It shouldn't surprise you. These places that are way below in terms of quantities being

delivered are way above in terms of prices going up. And again, you see many of these sunbell places,

Miami, San Diego, that are way up there in terms of price growth. And if you just take the

places that had the top half of quantity growth between 1988 and 2000 and look at what's happened

through the relationship between the change in housing units and the change in prices over the

next 20 years, you can see the places that shrunk their production most are the places that also

saw the highest level of price increases. Again, there's no repealing the laws of supply and

demand. And that's sort of a steady theme of this. There's a lot of magical thinking which can

occur in housing, which is maybe if we just do something, it'll change. And it's really about

production. And it's really about using the core things of economics 101. If you see prices going

way up and quantity going way down, what kind of problem is it? It's a supply problem. Okay,

as opposed to prices of quantity up in which case you think it's about demand. This takes six areas,

four of which are former sunbelt superstars. And we're going to go deep in these six areas and we're

going to try and understand what's happening. Is that for example, just that they've reached the

point in which they've gotten as dense as other places are. And so if there's just a density thing

or is there something else that's going on? So these are Phoenix, Dallas, Miami, and Atlanta.

And they're all chosen because they're former growth superstars. We've thrown in L.A. a coastal

city and Detroit rust belt declining city for good measure. Okay, just to have two comparisons in it.

And you can see that three of them, Miami, Phoenix, and Los Angeles all experienced a big

boom during the 2006 period. But almost all of them have had a big run-up during this period.

This is what has happened to production of housing units over the last 70 years in these areas.

So in the variants has shrunk and the quantities that levels have shrunk and enormously as well.

So Phoenix is adding 15% per year in the 1950s, an astounding number.

6% they're still at 5.58% in the 80s. And of course all of these things have declined, right? It's

all, it's all closing. Now we're going to try and look at things at the neighborhood level because

you really do need to do that if you're going to ask yourself, are we just density leveling out?

And that required to do this paper properly required us to write a whole different paper

on how you measure neighborhood change in America. Because the prevailing data set for looking at

measure neighborhood change is something called the longitudinal track database, which involves

these neighborhoods tracks and they match the tracks over time. But here's the problem with the

LTDB. The track definitions are based on 2010 track definitions. And tracks are defined, tracks are

defined, so they have relatively equal population. Now if I'm going to equalize you on the population

x-post, then a coefficient which you regress the change in population on the initial population

will force that coefficient to be minus one, regardless of what the underlying relationship is.

Let me give you an easy example. Start with three areas, all of them are identical,

all of them are a population of 100. Of these three areas, one adds nothing, one adds 100,

and one adds 200. So at the end of the day you have three areas, one with 100, one with 200,

one with 300. But you're going to define the areas x-post, so you're going to put the two smaller

ones together, creating one 300 person area, and you're going to have the other one having one 300

person area. By force, the one that started with more had less growth because you're equalizing

its post. And so you need to do, we don't have anything brilliant econometric to fix this,

we just used, we did the whole data set using 1970 and 1980 boundaries, and so we just forced it.

There surely must be econometric ways to do that clever. But to show you that this matters,

if you regress change in population on initial population using the 2010 boundaries,

this is the coefficients you should get, a strong negative coefficient that looks like you get

lots of mean reversion. This is what you get if you take 1970 boundaries. Not only is

they're not mean reversion, we're actually building more where there are more people initially,

okay? And so it's completely misleading to use the 2010 boundaries. Now there are some things

for which the 2010 boundaries are fine. If you're just measuring segregation over time, that's

totally okay, where you're not trying to match the areas, but anything matched, this is a problem.

And so please, if you're interested in doing this, we're happy to give you our data set,

we're happy for people to use it as much as possible. It turns out if you use housing unit density

added, it's not quite as stark, but it's the same thing because housing units are pretty close

to being the number of people. And so if you use the 2010 boundaries, it looks like there's massive

mean reversion. If you take the 1970 boundaries, it looks like there's very little in terms of this stuff.

Okay, what we do to figure out what's happening is we sort these neighborhoods on the basis of

price and initial density levels. And so think about there being high price, low price, high density,

low density, four areas. What you see in the early period, and I want you to focus on it land,

to focus on this number of these numbers here, is that it land is building in the 70s, 80s and 90s,

in areas that are both high price and low density. And that shouldn't surprise you. High price means

that returns to building or high, right? And low density, is it easier to build where there are existing

homes or easier where there are no homes, should be where there are no homes, right? So you kind of

expect to see it, but it's kind of astounding how much they're doing. 90% of their building is in

low density, low price areas, which means they're doing, you know, 210,000 units a year, 2010 units

over the decade on this stuff. Flash forward, 50 years. And you notice this high price, low density

share is just going down and down and down, right? And what's happening is, there's building much less,

so it goes from 330,164,000 in the odds. And they're particularly building much less in high price,

low density areas. And the story when you look at it, and what, like if you want the names of U.S.

areas and places with names like Buckhead and Scottsdale, okay? They're kind of fancy places in

the suburbs of Atlanta and Phoenix. And what's happened is these places have grown, okay? There's

still low density, there's still high price, but they've added a lot of educated people who have come

from places like California or New York. And the one thing we found out is that educated people are

really good at doing when they moved from area is shutting down housing supply, okay? Because they're

really good at taking over town meetings and figuring out how to make sure nobody's building anything

that might block their view. And so as educated people have moved into these areas, they've managed

to reproduce California right there in Arizona, which means no new building. The story is different

in different areas, okay? So Miami also has had, I mean, the reduction is enormous. 600,000 units

in the 1970s to 180,000 units in the last decade. There again, a reduction in low density high price,

it's quite significant, but more of an increase in the high density high price. And so the building

that's going on in Miami is along the waterfront, look at tall buildings, look at, look at, and that's

that model. Phoenix reduction from 380,000 in the off to 188,000, that's more of a parallel reduction

everywhere. Okay, now to try to give some rigor to this, I'm going to talk about things that I'm

going to call empirical housing supply curves, which are basically just the relationship between

housing being built and both density and initial price. Now, why do I call these empirical

housing supply curves? Because I actually don't believe there's ever a possibility of estimating a

a true housing supply curve over any long frequency, okay? And let me tell you why I believe it's

an impossibility, because this is one of the claims in this paper, is that give me a variable that

increases the attractiveness of a place and has that going over time. So let's say more jobs for

skilled people in the area, or nicer amenities in the area, but that's a classic demand side thing,

right? And so in the short run, that's a valid instrument for pulling in people and pushing the

prices. But what happens over five years? What happens over 10 years when you have something nice?

What kind of people moves in? Educated people, right? People with skills, and what do they know how to

do? Shut down housing. And so because the demand side instrument changes the supply conditions over

any longer time for years, it is impossible for me to imagine that you actually have a

serious source of exogenous variation that it only gets at demand and rather than influencing

supply. And so what I want you to think about, and we're going to do the relationship between

housing unit growth and price first, is there are two reasons why housing units and growth might

be related to price. One of which is you're getting variation in demand, okay? In which case,

that should push you to have a nice positive relationship, right? If demand is different across areas,

you should expect to see this positive. The second thing is something I'm calling your zoning cost,

but how difficult it is to build, okay? And if you have variation in that, you should expect to see

the places that are more restricted, you should expect to see these places having less construction

and also higher prices, okay? And what the prediction is, the more important, the heterogeneity in

how difficult it is to build is the more you should expect to see a negative relationship between

price and building or at least a flat one. And let me show you what you see. So in the 1970s,

our estimated coefficients, they're all positive, and they're all sort of between 0 and 0.05,

something like this. And then we calculate these coefficients in each subsequent decade. And what

you can see is, in all of these cases, it's flattening out, it's flattening out. They're still kind

of positive, but they're all below the 45 degree line, which means they're all being pulled to zero,

which tells you that instead of being driven by heterogeneity and demand, it's driven by heterogeneity

and supply conditions, right? It's moving that downward. Similar thing with initial density,

the more that the relationship between density and building is driven by the straight cost

effects of density, you should expect to see less building where there's more density. The more

that it's driven by unobserved elements in how difficult it is to build, that should push things

to be positive. Why? Because if it's easier to build there, you're going to have more density

there initially, and you're going to see more building there now. Okay, so when you do that,

what do you see? It's 1970 coefficients, strong and negative, and then it gets more and more

positive over time. All of these things move in this positive direction. In fact, now it's

basically flat, and this mirrors work that I did 20 years ago, which looked across Boston areas,

which was restricted a long time ago, where you essentially see a strong positive relationship

between density and building. Okay, the places that had the least space were adding the most,

and that's not compatible with a view in which we're just naturally building where it's cheap to

build. It's compatible with the view that the places that are dense are places in which it's

relatively easy to add density because of unobserved supply conditions, and that's exactly how

I interpret this. As you start negative, and then you end up zero or even positive. Again,

the heterogeneity in supply conditions, even in these coastal areas, is coming to dominate,

rather than the factors that we determine, either the demand for housing or would determine how

easy it is in making it a building. Okay, one question that I had, and this is again a detour,

is when you talk to people, whether in London or elsewhere, about building in areas where

there's already building, you will hear, oh, that's already built out, we can't possibly add more

there. No matter how many houses there are, they say it's already built out. I decided to take

a look at New York between the 1880 and 1940, and try to figure out what happened in New York,

because a lot of New York had housing there in 1880, but nobody said fifth avenue, it's already

built out in 1880, right? There are like six mansions on the street going up and down,

that's really, it's got to stay there. And so to do that, we took the micro-founded census

reports, we even matched them over time, right, and we used a bunch of things involving fuzzy

matching that I don't really understand at all, and we used that to create these maps of how

New York changed. And so this is the change in units. You'll notice just as in the great work

that's been done by Daniel and his co-authors in the making of modern Metropolis on London,

right, you see this core downtown area that quantities are dropping, because offices are

replacing homes. But then you see areas up here, right, where you see a massive increase in the

amount of building. We can create a matrix that looks at transitions from very low to very high,

very low to very high, and the places that do transition from very low to very high have very

large increases in the share of the population that are foreign-born, right? They're providing

opportunity for people who are coming to New York as outsiders to live in those areas. And that's

fundamentally what housing was able to do in 1890, 1900, 1910 in London, as well as New York,

that you were providing space that enabled people who were not already existing homeowners to move

them. Okay, back to the US, and now we're going to move to a couple of other things. It's going to be

a bit of old papers and then we can get to the second paper, but you're done with a sundown. You

don't have to think about Miami anymore. We're done with this. Okay, so this is from a paper in

the Journal of Economic Perspectives about seven years, and it sort of makes the point that supply

matters. Along the X-axis, along the X-axis, is the amount of building between 2000, 2013 as measured

by permits. And so a number like 0.5, which you can see there for Las Vegas, 0.5 means the number of

permits are 50% of the housing stock in 2000. Okay, so 50%, if they had a 500,000 houses in 2000,

they permitted another 250,000 units. Along the Y-axis is the gap between how much it costs to buy

a house and how much it costs to build a house. So we have estimates of the marginal physical cost

to construction, and so that gap is what's going on. And what you can see is the places that build a

lot aren't expensive, and the places that are expensive don't build a lot. That is impossible to

reconcile with a purely demand-driven view of the world, right? There is abundant demand for

Austin, Texas, and there is abundant demand for San Francisco. In Austin, it shows up in terms of

construction. In San Francisco, it shows up in terms of price, right? And it's, you know,

now there also are low demand areas, like with names like Detroit and Rochester and Toledo,

so it's not like demand is totally relevant. But in terms of the high prices, it lines up with

supply. It's basically just an econ 101 graph, which is there are some places with the last

x-supply where increases in demand show up in terms of quantities. So like some mythical place like

Texas and some places with inelastic supply, another mythical place called Massachusetts,

where the prices just go up, where the quantities don't change.

Another sort of amazing fact on, I'm now pivoting to a little bit on this gap between how much it

cost to buy a house, and how much it cost to build a house from a paper of mine from 20 years ago,

on New York City. And one of the interesting things, which again, is compatible with the view of

uncontrolled, unregulated housing, is that New York City, at a moment that it was getting vast and

more expensive, was building shorter and shorter buildings. Okay, so the share of units in

tall buildings peaked in the 1970s, and it's been going down since then. Okay, which is sort of

at least when we wrote the paper in 2025. Now, there are a number of different ways for asking whether

or not this is actually something that's related to regulation, and versus other things that could

conceivably make housing supply difficult. What I've shown so far is incompatible with demand being

everything, but, you know, could be lots of things in principle. So, there are a couple of different

ways, right, one of which you can look across metropolitan areas, and Joe and others have used the

Wharton Land Use Index to look at this, but the index isn't random, right? And so what if wealthier

places engage in more regulation, as I've already argued they did, you can look within metropolitan areas,

and my work with it involved the Pioneer Institute Survey of Greater Boston Land Use regulations,

these regulations are also not random, and also when you look at within metropolitan area work,

like one house in one community is typically a substitute for a house in another community,

and so you can look at quantity effects of regulation, you can't really get a price effect of

regulation very well. Again, because a house in one part of London, let's say you're not going to

regulate one part as much as the other, those two houses are still substitutes from one another,

so you do not see the full impact of the regulation on prices by looking at just that local area.

And then the last is using economics, and this is still my favorite piece of evidence on this,

which is if you know how much it costs to build an extra unit, we have our core logic of economics

one-to-one, or maybe inter-me, micro, if you must, right? That price is supposed to be equal to

what? Marginal cost, okay? If I know what marginal cost is and I know what price is, and I also know

that this is a competitive market, believe me, like these industries are hyper competitive,

thousands and thousands of potential builders. If you have that gap, then there must be something

there that is stopping the market from doing what the market can do. And in much of America,

price did come pretty close to marginal cost for decades, as it did in Las Vegas prior to 2006,

or Phoenix, Arizona, or Houston, Texas. Okay, so this is the cross-metropolitan areas. This is Joe's

Wharton Land Use Index on Prices, and that shows a nice positive slope. Again, it's, you know,

it's a cross-metropolitan area regression, take it for what you want. Together with price war,

this is my work on Greater Boston, and there we see things like larger minimum lot sizes,

are associated with less building over our time period. Again, not particularly surprising. How

could a larger minimum lot size generate more housing, right? It's completely unimaginable.

But then the thing that I'm in some sense, I'm more proud of, is the work that we did to try

to figure out what the marginal cost of delivering a housing unit was in New York. Because the beauty

of building in New York or London is you don't actually require incremental land ad units. And so

you don't require incremental site preparation. All you require is adding an extra story, okay?

And any place where the housing is determined by tall buildings, the marginal cost is just the

cost of building up. And so we did a lot of work to try to get what the cost was of building up

using different ways. But like our estimates were, you know, by the 2000s, it was about twice as much

to buy as it was to build. That, you know, these units in some place were costing thousands of

dollars, and it was three or four hundred dollars elsewhere for it to build up. And so that gap

felt to me like the thing that I believe most about the role of regulation. Because economics

told it to me. I think there's a really important lesson here for us that like don't think of

yourself. If you're actually an economist and you're interested in data, don't think of yourself

as I'm just a statistician who's interested in causal inference, right? Cause inference is great.

We love causal inference. But use the economics, right? There's a reason why price theory,

microeconomics is powerful. And it's because you get things like this. You get tests that enable

you to look for stuff that would not come out of just being a, you know, being a statistician who

look for a relationship between x and y that might or might not be causal. Now outside New York,

it's harder because you've got to deal with land, okay? And the best we can do on this is price

land by asking how much is land worth when it extends an existing lot versus how much is land

worth when it sits under a new law? The difference is when it extends an existing lot meaning you have a

two acres lot instead of a one acre lot, that extra acre doesn't necessarily come with the right

to bill, okay? It just comes with a, you know, you got, you got acres you can look at, you can

presumably stop somebody else from building on it. Whereas if you've got an acre under an existing

thing, then it came with the right to have that house. Our estimates were that when you looked at

acres that extended versus acres that were under existing lots, the acres that extended were worth

one tenth of the acres that sat under a new lot. Or to put another way when you took those

values and you look at what the gap is between the price of how much it cost to buy and the price

of how much it cost to build using that the acreage that extends existing lot for your price of land,

they're about 50% of the cost of buying or in San Francisco was from, was from the zoning tax,

was from the limitations of building. Okay, now all this work presupposes that construction

technology is like an exogenous thing, okay? And I did this for, you know, we sort of took that as

given. But what if the cost of building itself is endogenous to these rules? What if these rules

and kind of a long term sense end up making it, making us worse at providing space, making it

worse at building? And I'm quite struck by how bad America is at building things. So this is a

graph of Turner and Townsend dollar per square meter. And like San Francisco, New York, LA,

and Chicago are all up here. They London's down here. I mean, you're not great, but you're,

and then of course you've got this cluster of Dubai and Riyadh and so forth. The US in terms of

building metro lines, the NYU Transpos database says we're four times the OEC average per kilometer

of building a metro line, like covered or uncovered, however you want to do it. America spends on

average $1.05 million for an electric bus. You can buy a perfectly nice 36-foot electric bus

from Hyundai for $350,000, okay? It's astounding what we do in our country. And I started looking

we tried to put together data on construction productivity over the long run. Now this is a very

simple, this is inspired partially by Austin Goolsbee and Chad Cybersons work on the strange sad

path of a construction productivity overall. We're just focused on residential and we're focused

on a much longer time period than they are. So this is a very simple measure productivity,

which is Holmes per worker, okay? And what you see in this is from 1900 to 1940, Holmes per worker

are pretty flat. Then 40-70, it goes way up. Then 70 onward, it goes way down. So it's not as if

construction productivity has always got to go backward. And I mean the Goolsbee Cyberson story is

one of Boundless cost disease. That in a world in which like there's no technological change,

if the price of labor is going up because of other industries where there is technological change,

your industry is going to look less productive over time. So think about his class example being

barbers, technology hadn't changed, but in some sense the seeming efficiency of this is going

way down. Now one way to think about this is to compare housing with another big thing that we

purchase, which is cars. And I like this comparison because one of the complaints you get about

this is well our houses are different, our houses are better, our houses are more complicated.

But you know it's really different, our cars are totally different than what they were in 1970.

And yet this is housing units per employee and this is cars per employee. So cars per employee

relative to 1970 is up by more than 50 percent. Housing per employee is way down. So it's going

exactly the wrong direction. We also get to look at this in terms of just the cost of producing

a constant economic quality home and this comes from RS means data. And you can see there that's

rising in real dollars as well. And rising quite substantially from let's say it's peak around

the 2000s, it's up by more than 30 percent. Okay, we have a model, I don't think any of you really

want algebra right now. So let me give it to you in words. Okay, the elements of the model are this.

There is a, there are developers out there. The developers get to propose projects. The projects

may or may not be accepted by the community. When the community gets tougher, when regulation gets

tougher, then the cost of proposing a big project goes up. Meaning you're less likely to get

through. And so the developers, they propose smaller and smaller projects. Okay, but they can't just

compensate by having a gazillion small projects because we've assumed to span a control cost,

which says that you know you get worse at doing projects you've got to run around and monitor

a gazillion projects. And so as the zoning gets tougher, the projects get smaller, the companies get

smaller. And technology gets worse because what technology is in this model is it's a fixed

investment that firms make at getting smart about their production process. And if they're doing

less and less, they've got less and less to spread that technology over. Okay, and that's that's

basically the logic of this model is that sort of small small small projects mean small firms small

firms mean we don't invest in things like knowledge that get to spread across lots of different things.

I want to highlight here the difference between project and regulation and what we normally think of

as entry regulation. So normally when you think about George Stigler's regulation, you think about

regulation that like firms pay once that becomes a fixed cost that's a barrier to entry that

leads to incumbent firms that are protected against competition in different ways. This is very

different than project level regulation. We have both in our model, but whereas entry regulation

leads to big-dominant firms that will invest in cost-cutting technology, we'll have a problem

from monopoly profits of course. Project regulation ends up in tiny firms who do tiny projects and

don't invest in things. You're not getting that. You're not getting that. Okay, so the first

fact that goes along with this is the size distribution of establishments that are involved in new single

family housing versus everything else. So in all the other sectors that we have down here, the

median employee works in an establishment with more than 500 employees. These things called scale

economies that kind of work and you're dominated by big things. The median employee in new single

family housing works in an establishment with between five and nine fellow workers. And you know

what a firm of seven workers doesn't have? It doesn't have a research and development department.

And you have these things exactly what the model is doing. You have these tiny, tiny firms.

And they've shrunk in a little bit over time. The change isn't huge over the time period that we

have it. But you know this is the general building contractor which is probably the closest thing to

this. So it's the fraction with more than 15 employees has dropped from about 65% down to 50%.

But this is not exactly comparable with this. This comes from microdate in the census where we can

actually merge exactly what they're doing. This is sort of a larger thing. So what we decided to do

is to figure out was our story right? Do we see changes in project size of our time? And the

person that we have in mind is William Levitt. So William Levitt was a master builder in the United

States after World War II who figured out how to do mass production in suburban America. So we built

these Levitt towns. They're these little things and you have them you lay down a road and you go have

the carpenters go up and down and you have the plumbers go up and down and you sort of got things

like scale economies into into building. And so we're trying to figure out if these still exist.

And so what we've got to do is we use the core logic data which has you know 51% of the US

population 167 counties. And we have an algorithm for trying to figure out large scale projects.

Start with a home. Okay. Built during a two year period. Run a loop 100 year 100 yards around it.

If you find another home built in the same year that's part of a project and just keep on looping.

Okay. And then for the large ones you then go in and check whether this actually was a project

and they typically were for the small ones you know it is what it is and you may you'll have some

false positives and false negatives. So Lakewood for example you can see that here in the early 50s

Lakewood is this thing which is building 3500 units in in the early 1950s. This is that the top

1% of the top 1%. So this is really the mega projects but you really see in LA there were

these mega projects in the 1950s and there aren't they aren't there anymore and they sort of

diminished over time. For the US as a whole there's also this general pattern but but there's this

tantalizing moment of the odds where you see some really big projects going on outside of Phoenix

outside of Las Vegas and of course that's completely disappeared since the global financial crisis

and we've got the end of large scale projects over time. We also know that large firms are much

more productive they're much more capital intensive. Okay. Unsurprisingly that's true in every industry

known to known to humanity. This is what it looks like in terms of output of revenue per employee

across size bins. Like about four times more productive in those firms that are more than 500

plus employees in residential housing. Okay. So it's a massive increase in productivity

scale but that scale is not usable if every project is two houses that you have to squeeze into

some suburban law. And we can engage in some counterfactuals if you believe that some fraction of

this cross section relationship is causal. You know let's say you thought that half of it where you

get 60% increase in productivity by moving to the size distribution that you see in manufacturing

from the current size distribution. And of course regulation predicts all the stuff. So regulation

predicts smaller firms, regulation predicts less productivity, regulation predicts less output.

Okay. Last fact on this paper. And now I have to segue to the last thing which is telling you

why I think this is a problem. So patent levels by industry. The red line is construction.

The green line is manufacturing. The gray lines are everything else. And these three

series are normalized so that 1930 they all have the same dot. So it's normalized so that's

the same amount. You can see it's sort of amazing how much they track each other for the first

hundred years of this series. You see a slight widening in the 50s and 60s. And then after 1970

it's night and day. Right. Manufacturing is exploding. Construction is like blah. Okay. And it's

not as if the patents are going on the upstream firms that cater them. We've checked that as well.

Right. There's just a totally different level of innovation and productivity. But it doesn't need

to be that way. And our common our view on the boundless cost disease thing is yes every industry

that doesn't innovate face boundless cost disease. But there's no natural reason why construction

can't innovate. It did innovate like crazy between 1950 and 1970. But we stopped it because we

regulated the project. Hi. I'm interrupting this event to tell you about another awesome LSE

podcast that we think you'd enjoy. LSE IQ asks social scientists and other experts to answer

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the super rich? Come check us out. Just search for LSE IQ wherever you get your podcasts.

Now back to the event. Okay. Last bit. The cost of overregulating building. And we can talk

about whether or not this is this is true in the in the UK as well. So highly productive places

have become unaffordable. Well, I think I can't think of a better poster charge for highly

a poster child for highly productive places that become unaffordable than London. Right. You know,

it more so it's more extreme. The productivity difference between London and the rest of the UK

than it is anywhere in the US in the rest of it. And the price differences are also similarly stunning.

Two, whole countries become less productive because people can't move to cities where firms

are more productive. This is assuredly it's a non-trivial deal in the US. Our estimates are,

you know, you moved around a bunch of the growth you could get maybe eight or nine percent more GDP.

If you move people more productive areas in a plausible way, I bet you could get significantly

more of that in the UK because the productivity gap is much larger. People remain trapped in

regions of economic dysfunction because more productive places are too expensive. I'll show you a

graph of that for a second. Opportunity for the children of the poor is reduced. Poor families live

in isolated neighborhoods, offset on the far edge of urban areas. Insiders become wealthier,

outsiders lose up, losing up, housing bubbles become more extreme. Building becomes less efficient.

I've already shown you that. And we harmed the environment in the US that means pushing out and

away from temperate areas. So it means building in Houston instead of building in California

in and as well as building on the urban edge instead of in the urban core. In the UK it really

just means building on the urban edge instead of building on the urban core. Okay, so let me just

show you a little bit about this. This is Ganon and Shoak. So these were two former students

far as this paper was published in the Journal of Urban Economics. They show you that there's a

strong correlation between 1940 and 1960 between higher income states and population growth.

Okay, the states that are more productive that are higher incomes are growing more quickly.

Between 1990 and 2010 that relationship is of anything reversed. And you have faster growth in

areas that are actually less wealthy. And the downside of this of not moving to productive places,

which is hard not to think that housing plays a major role of this, is that too many Americans

remain trapped in economic dysfunction. So when I was born in 1967 roughly 5% of primaged

males. Primaged is between 25 and 54. And if you can do the math based on what I'm born,

when I was born you can figure out why I find that so offensive. But for most of the last 15

years 15% of primaged males have been jobless. And just keep in mind, sort of like I know where

economists were materialists, but there's every evidence that we have that being jobless for

primaged males is vastly worse than being poor. At the sense of purpose, the sense of social

connection, all of that comes with jobs. And you see it in terms of the opioid use, you see it

in terms of deaths, you see it in terms of divorces. This is really a dysfunctional thing.

One of the reasons why you see this, and just look at the geography. There's a bunch in here,

this is very low density area along here as well. And then there's sort of a very large sector here,

which is America's dysfunctional eastern heartline, which is the epicenter of American economic

distress. And it starts down in Mississippi and Louisiana, it goes up through appellation, it ends

in the rust belt. In some of these areas 25% of primaged males are jobless. And so this is really

concentrated pain. Why do I think housing has something to do with this? Well they're jobless,

right? Someone else is providing them with homes. 35% of them, even the ones in their

40s, are living on their parents' couches, or in their parents' in their old bedrooms.

And you know, their parents may have a home in eastern Kentucky. They don't, unfortunately,

have a studio apartment for them in San Jose, California for them to work in. And so the housing

helps to stick to, to keep them in place. And assuredly, this is also an issue in the UK as well.

Okay, this is Raj Chetty's data on upward mobility, right? This is where a 25% child kid,

so his parents were poor, the three-fourths of America, richer than one-fourth, ends up as an adult.

We sort the metropolitan areas based on this. One means the lowest, least upward mobility,

five means the most. And then we just calculate the average, wort, and residential land use

in those areas. What do you see? You see that the areas that are good for people are massively

more regulated than the areas that are bad for kids, okay? So what's happening is that these areas

are doing a marvelous job of making sure that no parents with poor children can actually find

their future there. In some sense, I think of this in the framework that Manker Olsen gave us with

the Verizon decline of nation. So Olsen was writing 40 years ago and was writing with a vision in which

stable societies accrue insiders who get power over time and they figure out how to do rules so

that outsiders suffer and don't get to take their stuff away from them. He was very inspired by

England in the 1970s. And maybe, you know, when I read this in the early 1990s, I thought, you know,

insider capture, maybe that's the New York of my youth, maybe that's coastal California,

but it doesn't sound like that's much of America to me. It seems like we're still a nation for

outsiders. 40 years later, I think he's completely right. And housing policy is, you know,

ground zero for this, that insiders have taken out and outsiders have gotten paid the price of it.

You can't see these numbers. Okay, this is, and this is another way you see this, is the massive

intergenerational transfer of wealth. And all of you who are under the age of 30 should be worried

about this or should be unhappy about this in some way, although I actually want you to leave

here with much more joy rather than pain. But I have to make you angry before we'll lift you up.

Okay, so in 1983, the 50th percentile 35 to 44-year-old had $56,000 of housing wealth. The 75th

percentile had 118,000. Flash forward 30 years, the median 35 to 44-year-old has $6,000 of housing

wealth. So that's a 90% lower number. The 75th percentile is down to 58,000. Whereas all that

housing wealth gone. Well, let's look at the 99th percentile 65 to 74-year-old. They have gone from

900,000 to 2 million. Okay, and so a massive intergenerational transfer, which if you bought in

California in 1975, right, you have made an extraordinary amount of money, as you didn't

London if you bought in the right time as well on your purchase. But of course, someone who comes

in without that housing wealth doesn't, doesn't benefit. Housing bubble's more extreme. This is

from a paper from 2009, I think, with Joe and Albert Sayez. This is Atlanta, we think still

relatively uncontrolled, back then, relatively elastic. The green shows quantity. The orange shows price.

Great housing boom of the odds. Quantity's going crazy. Price is flat. You just want to think

elastic housing supply, demand shooting up and down. The prices don't move, but the quantity moves.

By contrast, this is San Francisco. What's happening to quantity? It's still green. Quantity's not

doing anything. Price is going up and price is going down. It's all about the ability to build,

getting rid of the rough edges of the sort of great housing convulsions. This is a more general

statistical fact that the more that we make housing like Rembrandts, where they're not making them

anymore, the more that you can expect to see large asset bubbles around this, the more that

housing is like buying a Toyota or a Toaster, the less likely you are to have these kind of extreme

bubbles, because they'll just make more of them. You don't get asset bubbles in Toasters,

because they'll just make more Toasters. Okay, last point on the environment.

Together with Matt Conn, in a paper called The Greenest of Cities, we estimated carbon

emissions for a standardized household living in different parts of America. By far across

metropolitan areas, by far the greenest natural parts of America are coastal California. Why?

Well, carbon emissions are explained by two things across America. They're explained by January

temperature, and they're explained by July temperature. July temperature determines electricity,

January temperature determines fuel use. Okay, and California has really mild winters and really mild

summers, right? And those things just explain this, which means that if you were a California

environmentalist who wanted to reduce America's carbon footprint, you would be out there screaming,

why aren't you building more housing right here, right near San Francisco Bay? And of course,

that's not what you saw at all historically. Now maybe a little bit of it, but instead we have a

massive amount of environmental stuff that says no to housing in California. And of course,

when you see no to housing in California, it's not like you're seeing no to housing period.

You're turning off the local faucet, and it's going on outside of Houston. It's going on outside

Oklahoma City. It's going on in some other place where it's much rougher. There's also,

of course, a gap between Central City and outside, mostly associated with larger living spaces,

which have more energy outside central cities and driving longer distances. If we make it hard

to build in the pricier areas, they're close to the city center, and we push housing to the outside,

we are also making it worse on the environment. What actually can change this? And now I'm getting

ready to stop, and I don't think you need to do this. But we know a couple of things. We know

typically bigger places like to build more. So the fact that control even within London is at a very

local level, like the power of the boroughs, the power of the local areas, that's going to make

things very hard. Because the more that a community has lots of different actors, like employers who

actually want to hire workers that aren't going to be more expensive because of what they pay,

builders want to build, bankers want to lend. You have different voices. If you shrink to the

level seen in a bedroom burrow, or bedroom suburb in the US, where you only have homeowners,

there's no way they're going to want to build anything. Because you know what, affordability isn't

their problem. You know what affordability means? Their largest asset is worth more. And the last

thing they want to do is to make it easy to build in a way that will reduce the housing prices in

that area. On top of it, the building is going to be inconvenient, and maybe it's going to be more

crowded on the streets. And so that's the general, the problem with the smaller jurisdictions.

Kemal shows when small areas in France get merged into bigger areas, you get more building.

And I want to end on just a couple of, a couple of comments about, you know, how do you end this?

In some sense, it all comes back to coast, as in some sense, it all does, right? Which is, it's the

current, like homeowners stand to lose. Other people stand to win. Almost assuredly, there should be

some cozy embark in there where the winners compensate the losers, right? We have totally failed

to make that happen. And we, you know, every estimate that I've ever seen for the size of the

zoning tax relative to maximizing total property value is it's way, way too large. We made it way

too difficult relative to sort of how much value you could get by building more housing, right? And

yet, like the world isn't cozy enough. And I think there's basically no chance of persuading

homogeneous bedroom suburbs to voluntarily change their permitting processes. Bigger places are

more open to building. So in the U.S., you know, I can talk to mayors or I can do things in which

in that, that has success. In the U.S., the big battles in state houses. And the weird thing about

the U.S. is that the federal government has no direct way to actually influence localities, because

everything the federal government does has to go through the states. And so all you can do is create

bribes. And there is a bill that I've been involved in the last year called the Build Now Act,

which tries to create weak financial incentives to try to get smaller areas to build. But the beauty

of the UK is you don't have our federal system, which means that like your federal government can

change land use regulations on a dime if it has the courage to do so, right? And in some sense,

that's like, that's my final message on this, is that you can make change in the UK. And in some

sense, like the fight against nimbyism, right, the fight for change, the fight for growth, the growth

that will benefit all everyone here who is under the age of 30, right? He's a fight for hope

against fear. And I think there's an enormous amount to hope for in the future of the UK, in the

future of London, in the future of our species. But it requires us to be able to change our world,

and it requires our future not to be a prisoner to the past. And that requires having the courage

to be willing to do things which are not universally popular, right? And that means allowing

there to be the freedom to actually deliver the homes that will make England, Britain a more

equitable place, a place of more opportunity, a more productive place, a more environmentally

comfortable place, and a place with more hope. Thank you.

Thank you. Perfectly timed. So we've got about 25 minutes for questions. I'll start here in the room.

There should be some roving bikes, hands up, and I will...

Can we call on people? They don't raise their hands on me. Is that allowed?

We can do that. We'll do that in a bit. There's a person here with a green top,

and then maybe you could slowly get a mic over to the person there.

Hi, I'm Manand Singh with Agrawal. I'm a second-year undergraduate here at LSC. I'm studying

accounting and finance. Thank you so much for coming. It was wonderful to listen to your talk.

I wanted to know, like, going forward, what do you think the supply will look like for luxury

hospitalities of fine dining hotels here in London, if you had any view on that?

Unluxury hospitality? That's a question for you. That's a...

You wanted to know the future of the supply of luxury hospitality here in London.

Luxury hospitality or luxury housing? Hospitality.

No idea. I mean...

Okay, so it's going to be great. It's going to be great. Next question. No, okay.

No, no, no, no. I'll go ahead. I can't do that. So to reflect on this a little bit, because I think the

direction here is the reason tendency to be very critical of what is going on at the upper end of

the housing market for the problems that the big mega cities see. So you get this in New York,

you get this in London. I mean, what does the evidence say on the extent to which it's really

this upper end, the foreign buyers, you know, the sheets of the Russians as when they could by

housing. First is really the bog standard stuff that's going on in terms of, you know, the bulk of

the housing market. So I think we need to wait for Professor Stern to tell us about what he's

learned about empty units in London for later. And hopefully he will elucidate that.

Most of places in the US, the foreign buyers aren't a huge share of the market as a whole.

They may be a huge share of a tiny niche element in that market. It is also true that in terms of

building overall units, as you make things more difficult to build overall, you tend to move things

into luxury, into the luxury bracket. And that's somewhat unfortunate in that, you know, if what

everyone sees with new building is a pencil thin 60 story thing in which only billionaires have

units in this, that's really not like making the case for the upside of housing supply very well.

Now I'm not against allowing these things, but I'm sure I can favor a fast tracking units that are

more likely to serve ordinary people, right? And I'm sure as I can favor of doing things that

deliver more units rather than fewer units on this. And so it's, I don't think I'm against allowing

them to be fancy units when you build, but the real hope is that we get plenty of units that are

not fancy. Two more observations on this, though, which are important. One of which is the

when housing works well, so think about housing units in sort of post-war cities. In New York,

for example, the Upper East Side of Manhattan, their units that I grow up in as a kid with these

glazed brick sort of mass market housing that was built for middle income people after World War

to, they weren't typically the poorest New Yorkers that were living there, but by housing

middle income New Yorkers, they were putting reduced pressure to gentrify other areas.

And you shouldn't sort of think that all new housing for middle income or upper middle income

people is bad because the opposite of that is the gentrification that causes so much trouble

everywhere else. Second point is if you're really worried about there being some empty houses out

there, I'm telling you your property taxes aren't high enough, okay? Because someone who's

actually living in your area paying for housing should ideally be paying for more than enough

property taxes to cover any cost that they're paying for social services. And so their natural

responses, if you think there's a problem, then jack up property taxes. Not just to be clear,

not the, not the stamp duties. I mean, sort of a flow tax on, that's associated with property.

That's a helpful clarification at the end. Right, just a reminder, people online that you can

use the Q&A function, but in the meantime, there was another question up there. Hi there, thanks

for the talk. My name's Milo. My question is, do you see a role for market-based solutions to

the housing supply problem? Yeah, I think I only see a role for market-based solutions to the

housing supply problem. The thing about innovation, and I, yeah, I wonder if you can elaborate on that.

Sure, so, I mean, so the, I don't see where it took that is. So I think real affordability

comes from having, you know, an ability to rent just a normal unit, not some special affordable

unit, not some unit you've been lotteryed into at a reasonable price. I don't know how that

doesn't happen without ordinary builders doing things and without a regular, fairly simple process

for doing that. What I think sensible, like land-use regulations look like, are, as of right

plans, which say that, you know, you get relatively light review as long as you fit within some,

some box of having to do things. And the light review is done in a matter of months, not in a matter

of years. And we don't allow everyone who's within a mile to have a veto power over every project.

And the hope is that if you create it, you make it easy enough to build enough housing, right,

that people start investing in new technologies again. I mean, there's a video of mine on the,

my city's accent, let me plug my online video course, which is all free. It's on YouTube,

it's city's accent. You can look at videos. I do a bunch of videos with Mark Flesk in a pocket

living showing like these mass produced, these prefabricated high rises that he puts into London,

right, where you like, you take in the slab, one floor goes in, another floor goes in, another floor

goes in. And part of the beauty of that is the neighbor's mindless because it's not a two-year

building process. It's a month-long building process. And so like technological innovation is

easy to happen if it becomes easy enough to build. And so the regulation will allow this to,

allow this to work. And exactly what form it'll take, I don't know, but you know, that's the

beauty of technological innovations. You don't know what's coming. All right, six. And let's have

here the blue jump, another blue jumper here. Just actually, just before we go to the question there,

what about the role of the state going building? I mean, that's a very live debate here about whether

a big part of the issue is the fact that there's been such a collapse in the social housing supply.

Look, I'm not going to speak about your state. I know that our state when it built its own housing

was pretty awful at it. And I would not want to reproduce the horrors of the U.S. public housing

projects of the 50s, 60s and 70s, which also, by the way, created massive concentrations of poverty,

which were sort of fairly terrible for the poor kids that lived in them. So, you know, whether or not,

what exactly you want in terms of like a housing voucher strategy? I think that's entirely reasonable,

especially if the vouchers are targeted with parents, young children, and they have things in

place to try to get those parents with young children into neighborhoods that are good for kids.

I think we should be totally open to an aggressive housing policy of that nature. But certainly,

the U.S., I would not trust our government to build anything, and our governments build anything

in the housing space. Singapore can do it, but just because Singapore can do something doesn't

mean that like your government can. So, just do it. Right, great. Sorry, sorry. There you go.

Thanks, Ed. It's a really great speech. And my name is Moong, and I'm working on remote work

myself. So, we all see this surge of remote work during the COVID, and post COVID, the remote

work is stabilized around like 20%, 20% of work is done at home. Do you think this trend of

remote work can somehow theoretically ease up the negative effects on the economy,

employment, and maybe the environment? And do you see that in the data?

Remote work. Remote work. So, the U.S. number is about, you know,

the U.S. number that uses a dress-based interviewing as opposed to online-based interviewing.

So, online interviewing, we think almost assuredly, it gives you numbers that are too high for

remote work. U.S. number is about 10% fully remote and about 10% part-time remote. So, like 15%

on a given day, I like to be remote. I don't have any problem with going remote. I don't think

it's a solution to these problems. I don't think it's nearly enough. And the problem is that people

want to be in London as we started with, even if they're not even working, if they're working

remotely in Dubai, they may still want to be living in London. So, it's a general issue.

I will just make a comment for younger people on remote work, though, because like, you did not

get the sort of face-to-face interactions in the cities that enable those interactions or

magical things part of my talk. But that is also something that I believe very strongly.

And I'll just give you a fact, which is both in Nick Bloom's original work on remote work in China.

It's also in a more recent prize-winning paper, and I think AEJ is something by an Italian

manual and a Harrington who are our students. Both papers find the same thing for workers that

go remote, which is, like, they're just as productive if you're remote when you're, these are calls

in a worker. So, they're taking calls. You can make just as many calls if you're remote. But both

papers also find that your probability of being promoted drops by more than 50%. Okay?

And if you think about it, what are you learning when you're remote, right? To be promoted, like,

you actually have to be someone that the boss trusts to handle difficult calls. How would you learn

to handle difficult calls if you were remote? How would your boss learn that you were good at

handling difficult calls if you were remote? In some sense, this learning channel, especially learning

about stuff that you don't know you need to know, gets shut down when we're not in the same room with one

other. I'm doing this extended rant because there are a lot of people who are underneath the age of

30 here. And I think the point of your 20s is to hang around smart people and to figure out how to

be smarter and to do whatever it is that you think your vocation is, whether or not it's, and I

really hope it is trying to make the cities of the developing world more livable. So that's my hope

that that's your vocation. But whatever it is, like, you will be better at doing your vocation if

you actually surround yourself by talented people that you can learn from. And the reason that I

believe that is not like any regression, although there are regressions to show things like this.

But it's my own experience as a, you know, 22-year-olds sitting behind Gary Becker in like Chicago

seminars and learning how to be an economist from hanging around amazing people and learning things

I did had no idea that I actually needed to know. And I think the more that we have on AI, I think the

more valuable this kind of task that stuff is going to be, not the less. Great. I think there are several more

so that the flowery shirt here, then maybe you could get the mic over to the person that jumped

with it. Let's go flowery shirt, sorry, flowery shirt first. It's flourish. Hey, Emma Cashman, a PhD

student in the department. You talked about the super rich and wealthy and educated individuals moving

into neighborhoods and making it harder for people to join either through zoning regulations or

imposing pressure on politicians. I'm curious when you present this evidence on the cost of local

regulation to state governments, what their reaction is and why it's been so consistently difficult to

get any change and how much of that relates to the political economy of how zoning regulations are

done and interest groups that might be involved. So it's interesting. So when I started working on this

in 2001, there was one libertarian economist who thought I wasn't wasting my time. I remember

getting a letter from Tom Sol in 2002 saying it might be on to something this day. That was all

very exciting. And last year, maybe two years ago now on the floor of the Democratic National Convention,

Barack Obama was talking about land use regulations. And that was one level pretty amazing.

And I sort of feel like there's not a big pushback that the supply matters and supplies going to

the wrong direction that supplies going in the right direction. But in some sense, the reason why

Barack Obama is talking about it, the reason why I made absolutely no policy impact whatsoever in the

last 25 years. But it's not that I've made no policy impact. It's not that I haven't persuaded people.

The politics are just very, very hard. This is not like changing the Bank of England's monetary

policy. You just need to change the other economists. This is a big political economy area where there

are lots of people who are playing in this. And for every victory that you make in terms of

persuading a governor that, like, you know what you're talking about, you still got to face the

state legislature and doing stuff. Now, California state legislature, as I said, is the place where

it's on the front lines. There is a Yimbi movement, right, which is sort of amazing. Like,

are they winning everything yet? No, but, you know, you see a dog playing chess. You don't ask how

he do against Magnus Carlson, right? I mean, it's sort of an amazing thing. And I think we're

making progress, but it's slow because there are lots of incentives that run in the opposite

direction. And we'll see the, the, the, I'm very grateful to Eric, as Recline and Derek Thompson

for their abundance book, which is popularized a whole bunch of this stuff. I'm a little bit worried

that abundance is a very democratic book. It's a very democratic thing. And I, this issue has,

a bill now I got out of committee 11 to zero. So 11 to like, like, you know, our current

fractious world, 11 to zero, this thing came out, which means that we could have a bipartisan

thing on this. But, you know, and I'm just worried that it becomes a one party thing, which is not

what I want to happen at all. So, but thank you for your question. Hold on, just before I take

another one for the room, I'm looking at you, Andrea. Have we had any questions online that

have not logically reached me? Yes, so one question from Maddie Edwards. There's often

attention between the need to accelerate housing supply and the realities of the ability at a

project level, particularly rising cost, planning constraint. From your perspective, what are the

most effective policies to bridge that gap without compromising on quality or affordability?

Like a policy question. As, as of right zoning, you want, you want a plan that says, if you do this,

you can get started tomorrow, right? Or with some form of minimal review. The more that everything

involves six years of community meetings to discuss exactly what you're doing, the more the

community thinks they don't just get to limit the size of the thing, but they get to a pine on

window treatments, right? A pine on exactly what what paint job goes on everything, the more this

thing becomes impossible, because you get you get six year eight year processes of talking people

through. And, you know, if you haven't eaten your process, there's no way you can move anything

anything forward. Back to the person who was patiently waiting here. He put hands up, I've got

the mics to you as well. Hi, Paul Schultz. Thank you for giving the talk. I would just like to

ask, is the question of supply that vital in the medium and long term, just because of the fact

that the population growth rates are dipping below replacement rates, and therefore it will decrease

the level of demand and might even result in price deflation in you? If you take all of our

countries, we're fine. If you're not worried about like, if you're worried like, can every

Britain be housed? Yeah, every Britain can be housed, but they're not going to be housed in places

that are very productive, and not going to be housed in places that they want to live.

And that's certainly true in the US as well. And the problem is housing is in place, right? And

because because it's not necessarily in the places that people want to live, even if you aggregate

it's going down, you still can have a tremendous mismatch between where demand is and where supply is

at the local level. So that's that's sort of the fundamental reason why you don't get get out of

this at the macro in some sort of macro level just because of declining fertility rates.

All right, let's go up, and we'll see. Let's go up first and then you're off to it. So

absolutely as first. Thank you for your talk. Do you think that there are any big similarities or

do you have any general regards or remarks from your studies in the US market like regarding the

Hong Kong housing market? Because it's also one of the most constrained housing markets in the world.

So Hong Kong is deeply interesting, right? I mean, it's also like all the land is publicly owned,

right? As I as I recollect, they typically have made it fairly easy to add more density. So

you can tear down things and put things up pretty pretty easily, but the natural constraints of

the island are pretty extreme. I think Hong Kong lets you figure out sort of how much like how

much is sort of innate from production technology in a relatively pro building environment versus how

much is just costs. And I think with Hong Kong, it's sort of innate costs more than the regulation

just driving things in terms of the city. But I've never myself worked on, I have worked on China.

So I do have, I did a paper maybe seven or eight years ago where we thought that the

the great housing collapse in China was completely predictable because they were building an

enormous amount of housing in places that were relatively low demand and just the level of vacancies

were enormous. And so we think this whole thing was completely obvious in 2017 or 2018,

but I've never worked on Hong Kong percent. So we've got one down here if we can get the

mic over to the two here who look keen and then there's one up there up to it. So dance there first.

Okay, thank you for the lecture on Pedro from LED program. And my question is, you showed a map

of the House of Fort Ability in the European Union at the beginning of your presentation.

And then Netherlands, Spain, and I think also France, France, I think it was in white, but is there

something we could learn from those countries that they're doing good to have affordable housing?

I am sure, but I don't know what it is right now. Okay, I think in general Spain, Spain is

relatively good in terms of production, but I will say it is shocking like how much the housing

world is focused on US data and to a like and then like there are a few heroes like Henry and Paul

who also do UK stuff, but like Europe as a whole, there's way way too little. And I will say

this to all of you who are thinking about dissertations and have some interest in the real estate space,

like there's so much more that can be done in EU housing on this stuff. And that's it's like a giant

intellectual arbitrage opportunity to take advantage of. So my hope is that you will take away from

this and you'll write a great paper in two years and I'll get to see you on the job market having

written a fantastic paper teaching me the lessons of France and Spain, but what I should know about

housing supply in those areas. Right, let's hear for up three now because we've got quite a

lot, so we'll take one there and then the question, I don't know whether it was two or one there,

but one there and then here and then you can pick. I can dodge all three of them. You can dodge a lot.

Yeah, you can try dodging this. Hi there. My name's Ethan. I'm also in the local economic development

program. I'm interested coming from Bethesda, Maryland, which is probably very much like Boston

certain ways, Montgomery County. There's some tens of thousands of approved permitted housing that

have not been built. And so I find it, I struggle sometimes to, something's missing from this picture

where, you know, in theory, this housing could be built. It is not being built and the permitting

isn't the issue or it doesn't appear to be the issue. I've talked to the lobbyists in the area

about it who are like represent the developers and what not. Okay, great. So let's take these delays

in build out. We talked about, can you say who you are? I'm Oscar. Hi. I'm a local student,

and I was thinking we talked about Hong Kong and geographical constraints for London itself

in the Green Belt initiative. How would you like weigh this with ideas around your ideas around

density and environmental restrictions? I'll take the one next year as well.

I'm Ben, and I'm also a local student. I've studied a lot of Detroit's decline, and I think

its population is full into 600,000. Would making Detroit recover, help fill housing pressures elsewhere

due to the massive amounts of vacant housing? Great. Okay, let me take the last one first. So there's

always an idea. This is actually much more of a live idea in the UK than in the US of why can't

Buffalo, New York or Detroit be a reasonable substitute for housing in New York City or Miami?

And this is not all that plausible that Liverpool is going to be a great substitute for London

in terms of housing, but it's infinitely more plausible than Detroit will be a reasonable

substitute for New York. The economic distance is enormous. The climate difference is enormous.

Remember, sort of America, unlike the South of England, doesn't have, has huge climate differences,

and there is no variable that better predicts metropolitan area growth during the 20th

century in the US than January temperature. And let me tell you what Detroit is really bad on.

It's really bad on January temperature. So I think it's very unlikely that anything that's not,

you know, to a certain extent Philadelphia can provide a little bit of substitute for New York,

but that's the best that you're going to do. So second one was the first one, Montgomery County.

Okay. Montgomery County is prior to the last five years, tends to be in somewhat better case,

better shape than, say, Middlesex County, Massachusetts, and I spent a lot of time in my life in

Montgomery County, in part because the zoning is county level. So it's a county level authority,

although they still will cater to specific areas. So only will be treated differently from Sandy

Spring within Montgomery County, even though it's a level thing. All of our areas have, at this

point, time though, a stock of units that have been essentially approved, but they're not starting

to build, and that's reflecting rising interest rates. So you had a whole bunch of these areas where,

and it doesn't mean that, like, if you could actually build, if you could be a prefab housing,

they would still probably go ahead and do it, but that hasn't been what's approved.

It's been approved as kind of a fancy project that kind of penciled in 2019 or 2020,

and it doesn't pencil in anymore. And so that's, I think, the situation that you're looking at.

And so if the interest rates fall, some of them will get built, other of them, others of them will not.

And what was the third Green Belt? Green Belt. Where's Paul Cheshire when you need him?

No, he's in Japan, actually.

I think it's his apologies.

So what you want to do is figure out how to deliver as much space as possible,

where demand is high. And so you might be delivering units and areas where,

and I am sure that there are some parts of the Green Belt that no one's going to miss,

and that that's probably fine. But I tend to think that, like, you want to be focused

as much as possible on it's kind of high price areas that you think are supposed to be a sort

of substitute for, or, you know, rust belt areas within closer areas to London. But I, you know,

Paul would disown me if I didn't say there's also room to be working on the Green Belt as well.

Right, let's just, are there any more online?

No, yes.

Take one more online, and then we'll take one more upstairs.

How would a cosian payment of outsiders to insider in a property market work in practice?

Are there examples of these working in some settings?

So I know how it would work in practice. Certainly, there are things like

impact fees that the developers sometimes pay that actually go to the community and that works

to, where it's to help things. Similarly, when there used to be schemes where, in Massachusetts,

new buildings paid much higher taxes than old buildings, and that was seen as being helpful

for getting people to approve new buildings that they were going to pay more.

The way that, you know, we would typically do it is have some outside entity,

essentially compensate the community, some amount of money going to someone locally,

and some amount of money going to the region as a whole, that gets paid for by developers,

or perhaps by outside governments as well. That's the sort of way in which it works.

Right, last one I'm afraid. We might have 10 minutes afterwards before I have to

whisk it away, so you might get your chance if you come down to the stage, but I'd

love it. I am Miguel from the Masters of Public Policy from Colombia. So we're just studying

case in Mumbai, India, where the supply concentration of housing is mostly in the

high income level. Then we have the middle income level that can not afford housing,

and then we have a huge amount of population living in the slums. So I just wonder if you

can share any considerations to overcome this problem. There we go. Affordable housing,

the supply of affordable housing. Well, you know, I want to sort of like urban inequality,

and I want to sort of say, you know, I want to make my usual point on urban inequality,

which is cities should never apologize for their inequality. Cities have rich people because

they're fun places to be rich, and they're poor people because they're less intolerable places

to be poor. And they attract poor people with the ability to find a brighter future, with the

ability to get around without having a fleet of cars, with the ability to, you know, get better

social safety services. You know, Plato wrote in the Republic that every city of whatever size is

in reality, two cities want to city that rich, the other city that poor, and they're perpetually

more with one another. The key element is the key question is whether or not, you know, cities

are turning poor children to rich adults. And that's the thing to think about wherever you see it.

And certainly in the U.S., we've seen too many cities that are failed to do that. And so,

that to me is the agenda. And when I think about Mumbai, right, when I think about Dharavi,

which is an amazingly vibrant place, right, it's just a place that is sort of enormously in terms

of the energy of the average citizens, I don't necessarily think that my first order thing is

to improve the housing stock. I'm going to think about public health-related investments. I want to

think about clean water. And remember, you know, a Newt Milani's work finds that 50% of Dharavi

residents had gotten COVID by July 2020, right? So the public health thing is real.

I want to think about clean water. I want to think about other health-related things. And I want

to think about skills and schooling for the kids. Before I do anything else, it's going to be really

expensive in terms of housing. And so, like, at a macro level, housing is really important.

But if we think about a population like that, focus on human capital, focus on health, right? Those

are the most important investments. Do not think you have to build some incredibly fancy area.

And by all means, don't start the engagement, a bunch of regulation that says,

unless you have this nice high-end house, you can't live in Dharavi. Because they're moving

for Dharavi for good reason. Too often, you see areas come in and they say, oh, we've got to tear

down all this cheap housing. What we've created that replaces it is much more expensive housing

that doesn't provide space for poor people to find a future. And so just be focused on the best

way we have for making sure that poor kids get turned into rich kids. And I think I have to end here.

Yeah, yeah, yeah, yeah. So, a brilliant moment on when you went, did you want one final thing?

I do want one final thing. I am again so glad that all of you come here. And I see so many

young faces and it makes me very, very happy. And I just want you to remember that, like,

you can change the world on this. You can change the world in many different ways. And just

don't forget that, right? We live in a world in which hope should dominate and hope will dominate. Thank you.

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