Episode 38: The Housing Supply-Migration-Income Relationship with Peter Ganong

Shane Phillips 0:04
Hello, this is the UCLA Housing Voice podcast, and I'm your host, Shane Phillips. Joining us this week is Professor Peter Ganong of University of Chicago to talk about the maybe not-so-complicated relationship between land use regulations, housing supply, household migration, and the convergence of per capita incomes between poor states and rich states. Also, shark repellent, prior to about 1980, income gaps between poor states and rich states had been consistently shrinking in large part due to the migration of lower wage or lower-skilled workers toward higher paying metro areas. But as we clamped down on homebuilding over the years in our most productive cities and states, that migration dried up, and now we're at the point where low-wage workers are actually leaving high-paying places; net of housing costs, low-wage workers are often worse off when they move to places like Los Angeles and New York. And that's a fairly new phenomenon, with troubling implications for access to opportunity and income inequality, and we're going to dig into that. One thing to note, at one point, the name of Anita Summers as mentioned, and that's a reference to the Wharton School's Residential Land Use Regulatory Index which she helped create. Just know that when you hear her name, it is in reference to that index. The Housing Voice Podcast is a production of the UCLA Lewis Center for Regional Policy Studies, with production support from Claudia Bustamante, and Jason Sutedja. As always, feedback and show ideas can go to me at ShanePhillips@ucla.edu, and we would love to have your support in the form of a five-star rating, or review. Let's get to our conversation with Professor Peter. Peter Ganong is an Associate Professor of economics at the University of Chicago Harris School of Public Policy, and he's here with us today to talk about land use regulation, migration, and regional income convergence, which we'll define momentarily. Peter, welcome to the Housing Voice podcast.

Peter Ganong 2:13
Thanks, I'm so excited to be here.

Shane Phillips 2:16
And Mike Manville is my co host today. Hey, Mike. `

Michael Manville 2:18
Hey, guys, good to see both.

Shane Phillips 2:20
So as always, we will kick things off by asking our guests Peter for a quick tour of somewhere that you know, and love. So where's that place for you? What do you like to show friends and colleagues when they come visit you.

Peter Ganong 2:32
So I live in Chicago, which is where my grandmother, Ruth Ganong grew up, and actually want to tell you about what's potentially her favorite place and also my favorite place. So she grew up admiring the architecture and tall buildings in downtown Chicago, and decided when she was six that she wants to be an architect. She studied Archit architecture as an undergraduate, she finished college, was living in Boston, went to the MIT architecture school and asked if she could enroll there were no women enrolled there. And they were, couldn't really imagine taking her. So she went to the local night school, then called Boston Architectural college now called Boston Architectural Center, and was the first woman to graduate from that architecture school. Like when she was like, I don't know, 80 or something, she got an honorary degree from there, which was really amazing. And because you know that that point became like a thing to be valorized as opposed to, you know, a problem to admit women. And so she, you know, she had a career as an architect before she had kids. After she had kids, she was a homemaker for a while, and she bought an empty plot of land on Albany Hill, which is in the East. So Albany is directly North of Berkeley, Albany used to be the town dump of Berkeley, and then eventually, like, the local residents got sick of the trash and incorporated to prevent the trash from arriving. And so she bought an empty plot of land on Albany Hill, which has a view of the San Francisco Bay, and designed her own house and built her own house and gradually they sold off the other plots of land and other houses got built on Albany Hill. And when you look out from Albany hill at the East Bay, which is like a view that I remember really vividly from my childhood, the first thing you see is a park, which is built on top of all the trash. So we call it the Albany bulb. I looked up the official name for this podcast, but it's called East Shore State Park. And it was a place where as a kid, I would go walking, running, flying model planes with my dad, there used to be a ton of like really weird art down at the far end of the bulb. Some of it is still there. And I asked, my uncle told me he once found a washed up World War II survival kit with chocolate and tablets for if you'd been attacked by a shark that you're supposed to eat like on the bulb. Everything in the world washes up there, but it's also, you know, a beautiful parkland and like, I guess I'd say be beautiful and really interesting parkland. So it's both a place I have fond memories of and a place that I would encourage anyone else to go for a walk if they're in the East Bay. We'll also talk a little bit about what Albany and Chicago as different tracks teach us about housing policy in the more modern era later, but I'll just start by saying like I've really fond memories of going running and walking and flying planes on the Albany bulb growing up.

Michael Manville 5:15
That's a great answer, and I'm just so curious now as to what exactly a tablet was supposed to do for you if a shark had bit you.

Shane Phillips 5:24
Hey, like if I know anything from Batman, it's you need the repellent, you need the spray, right, but not a tablet,

Michael Manville 5:29
The shark is out of the barn once it's bit you.

Peter Ganong 5:32
So he found once there shark repellent tablets, but it wasn't clear if you were supposed to eat them before or after you were attacked by the shark. I asked him if he ever eat them, and he said that he did not eat them. He also said that the chocolate had turned to powder, and so was basically, you know, inedible as well.

Michael Manville 5:52
Alright, this is fascinating. So we do have to talk about housing but later we'll do a totally separate podcast about World War II era sharp repellent.

Shane Phillips 6:00
I do feel like, having been to Chicago a few times, it sort of has a reputation architecturqlly really, as much beloved, and I'm not surprised that it inspired your grandmother to want to become an architect. I think it's probably done that for a lot of people. So the paper we're talking about today is in the Journal of Urban Economics, and its title is a question. 'Why has Regional Income Convergence in the US Declined?' Your co author is Daniel Shoag, and while the study was published a ways back in 2017, I don't think it's any less relevant today. And so we'll start here with the very basics. What is regional income convergence, and how has the trajectory of gaps in regional income changed over the decades?

Peter Ganong 6:46
So regional income convergence is in the context of the US poor states catching up to rich states. That's the whole thing. So if you look at from 1940 1960, the poorest states in the US, places like Mississippi, Arkansas, Alabama, were growing at about 5% a year, the richest states places like Connecticut, Nevada, the gold rush in the mining California, New Jersey, Delaware, Massachusetts, were growing at about one and a half percent per year - almost like three times as slowly. What that means if the poor states grow faster than the rich states, these incomes are converging, or we'll call it convergence. If you look, say from 1990, to 2010, or from 2000 to 2020, the poor states and the rich states are growing at similar rates, which is to say that there's no convergence going on; the poor places are not catching up to the rich places anymore. And the key fact that grabbed us when trying to understand why regional income convergence had slowed down, is there's another change that happened simultaneously in US history, which is that between 1940 and 1960, or any other 20-year window in most of the 20th century, people were moving on net from poor states to rich states. So the rich states had a lot of population growth, the poor States did not - the poor states sometimes would have even negative growth so people moving out on net. And that's a force which in an economic model can help poor places to catch up with rich places, people moving from the poor places to the rich places. From 1990 to 2010, on net, people were not moving from the poor places to the rich places so those places had equal population growth, and this is a puzzle from the perspective of a, you know, first-year Graduate student as I was when I started working on this paper, like "why won't people move from poor places to richer places?" There has to be something else or some other set of forces that are offsetting the basic economic incentive to migrate. And so that was sort of the jumping off point for this paper is that we had an engine of regional convergence in incomes, and also an engine of personal economic mobility, moving from poor places to rich places, and that engine sputtered to a stop starting around 1980, and I think that's probably a lot of what we'll talk about in the rest of our time together today.

Shane Phillips 9:15
Yeah, and we'll get to the why here in a few moments. But, you know, this might go without saying, but I think we should say it, why should we care or be concerned about this reduction in regional income convergence? Like what, what makes this a bad thing or is it a bad thing?

Peter Ganong 9:31
I think that you should care most about economic opportunity for people, and I don't think inherently that we want incomes to be equal across space or want incomes to be unequal across space; I think there's both good and bad reasons for regional inequality. I think you should be focused most on what are the consequences of not being able to move to a rich place as an engine of personal economic mobility? And then somewhat relatedly, what are the sort of The efficiency consequences or you know, like I think Enrico Moretti would call this the GDP consequences of not being able to move freely to the places that offer the most economic opportunity.

Shane Phillips 10:13
And you have a hypothesis about why income convergence started slowing down around 1980, or at least about one of the major contributing factors. And it comes down to the relationship between housing supply on one hand, and household migration between states with lower per capita income and higher per capita income on the other hand, in the paper, you explain the mechanism for declining regional income convergence using three stylized facts, which is economists speak for simplified, but broadly accurate observations about the world. So let's just start with what are those three facts.

Peter Ganong 10:50
Three facts: first, places where incomes are higher, have always had higher housing prices in the US but the strength of that relationship got quite a bit steeper from 1960 to 2010. So it used to be that a 1% increase in income was about a 1% increase in housing prices. As of 2010, a 1% increase in income is associated with a 2% increase in housing prices. So when you move from a lower income place to a richer place, you lose more of that gain by having to spend it on housing, or having to spend it on you know, interest costs on a mortgage as something that's very salient now; you'll pay a lot more in mortgage interest in a rich place than a poor place, relative to what that gradient was say in 1960. Fact number two, this increase in housing prices in high income places has particularly pernicious effects on low skilled workers. The easiest way to think about this and the economics before we do the statistics is everyone needs a place to live, and the price of land doesn't care if you are rich or poor. And so you can get a very fancy kitchen or you can get a very stripped down kitchen, and, you know, in Chicago, there's all sorts of fancy things they can install in bathrooms, you don't need those fancy things in your bathroom but at the end of the day, you need a certain number of square feet, and that set a certain amount of square feet has to sit on some land. And you know, when my grandma bought her plot of land on Albany Hill, that land was cheap. As that land gets more expensive, it gets more expensive for everyone, regardless of whether their incomes are higher, or their incomes are low. Rising housing prices hit low-skilled workers harder than they hit high-skilled workers. They erode more of the gains to migration for low-skilled workers than they do for high-skilled workers. What that means is that the incentive to migrate when housing prices go up in a place is going to be reduced more for a low-income worker or a worker who hasn't finished high school than it is for worker who has finished high school or has finished college. The final fact and third fact, is to connect these changes in housing prices and housing prices by group to changes in migration. So as I mentioned earlier, from 1940 to 1960, or around that time, people were moving on net from low-income places to high-income places. That was true in 1940 both if you did not graduate from high school, and if you did graduate from high school. That was also true in 1940 if you ignore housing costs, or if you take housing costs into account; put otherwise housing costs are not a key driver of migration decisions in 1940. It's about the income that's offered in different places. Okay, let's fast forward now to 2000, and data in particular, from the 2000 census, we found something that we thought was a bug in the code when we first saw it, which is that people who had not finished college as of 2000 were moving away from high-income places. Why on earth would you move away from high-income place if it is going to pay you more. I mean, there's got to be something else at work, and I'm not saying that people's decisions are all driven by money, I'm saying that it begs the question why. However, if you look at workers who have graduated from college, they still are moving on net to places that have high incomes. So we call this skill sorting, that in the highest income places, you have population growth among workers with BAs and you have population shrinkage among workers without BAs. To use like a crude metaphor that I think of when thinking about this paper, when housing prices go up, part of what happens is that high skilled workers are quite literally pushing out low skill workers in an accounting sense, right? There's a certain number of housing units. If you don't build more housing in a place that has opportunity, the price of housing goes up and only some people can afford that housing. And that basic idea of swapping out high school workers for low-skilled workers, I think it's really important for thinking about coastal economies in the US today.

Michael Manville 15:08
Absolutely. I think another way of thinking about this, is that it sounds like based on what you're saying that over time, these high income, they don't work as well, for low-income people as they once did right? It's still that basic idea that I mean, I think all of us who grew up in the United States, we learned about in some ways, kind of a jingoistic way in social studies, like, you know, we packed up and moved and followed opportunity whether it was immigrants to the country or going West, and all the good and bad things that entailed. I mean, the element of truth in that was that you could leave your place, wherever you were, and it was difficult, but find some more opportunities somewhere else. And, you know, with all the caveats that this was never totally equal, the idea of migration did work for the sort of high-skilled and low-skilled people to some extent, and now, it's just a lot harder for a low-income person, for instance, to say, one of the most prosperous places in the country is San Francisco or Boston, I'll move there right? But if you're a new and a college graduate, you can still say that. Was that kind of a fair summary?

Peter Ganong 16:16
That was great, and I have a fact for you, Michael. We first thought that migration was driven perhaps less by economic decisions, that's not true at all. Instead, migration appears to be driven by income net of housing costs. So what I mean by that is, low skilled workers in the US are still moving to places that offer them economic opportunity. It's just that the set of places that offer low-skilled workers economic opportunity, and high-school workers economic opportunity have diverged so now it's going to be places with lower housing costs, like inland in California, so a little further away from where you are in LA, places in Texas, places in Florida, places in North Carolina, these are places with jobs where housing hasn't yet gotten expensive, although, you know if we don't change our norms ,I'm sure it'll get expensive there too. And so everyone's migrating to the places that work for them, it's just that the set of places that offer opportunity are no longer shared, and, frankly, the places that offer opportunity (to) low skilled workers are not the places with the strongest public service services as compared to prior times.

Michael Manville 17:20
Yeah, and I think that goes back to your point, you know, very clearly makes the point or reinforces the point you made earlier about sort of, you know, we should care about this in part because this regional convergence represents, in some ways, it's a byproduct of opportunity for people. And if what we're seeing is that, you know, the places that on some absolute level offer the most opportunity are now not doing that for a certain group of people, I mean you don't have to care about regional convergence per se to see that that's actually quite troubling, right? That our most prosperous areas are, you know, they're off limits, and so what really works for our lower-income residents who want to move is actually a list of places that are lower rung down.

Shane Phillips 18:06
it's really hard to see how this could all work out positively in the end too when you have some places that you know, are only really hospitable to high-income workers, and people doing the kind of jobs that go along with that. And then lower skill or less educated workers just going to completely different metro areas and sort of concentrating there. The economies are a mix of people, kind of all up and down the skill spectrum, and to have them segregated in this way is I don't know, like I don't know what the precedent is for it. You did bring up this point about how lower scale lower-wage workers, they just spend a larger share of their income on housing, and so even you know a flat 10%-30% increase in housing costs is going to necessarily affect someone more if they're already paying half of their income on rent versus someone who's paying a quarter of their income on rent. And this is something that's that seems really obvious, and it's obvious when you think about it in retrospect but I hadn't really thought about it in exactly those terms. And it does kind of just illustrate how the after-housing income is really important here, and, you know, again, if you're paying half your income on rent, and over a 10, year period, rent goes up 50%, and your wages don't, now you're paying 75% of your income on rent, right? That's a huge, huge difference, (and) a huge burden.

Michael Manville 19:32
I think the basic point, I would just say is, it's not a coincidence that a lot of these expensive cities have a lot of homelessness. You know, that's a natural outcome of a system that's designed to not produce new housing.

Shane Phillips 19:44
So as I mentioned at the top, I think one of the main contributions of the paper is not just to identify this decline in income convergence, but to ascribe some of that phenomenon to restrictive land use regulations, and more directly to the limited housing construction that results from those regulations. Before, in most places housing supply was more elastic meaning housing production was able to increase sufficiently or more sufficiently, at least in response to rising demand and rising incomes. Afterward, you know, say post 1970-1980, various restrictions made the housing supply less elastic, it was harder to build homes, and since rising demand requires some kind of outlet, it went to higher prices instead. I want to point something out here because it might seem counterintuitive, one might think that allowing lots of new housing would increase income divergence by which I mean, you know, increasing the gap between regional per capita incomes. And the reason is because new housing is generally affordable only to people earning more than the median household income, new things just generally are more expensive than old things so that's pretty much unavoidable. But that means that the people moving into these new homes are pulling up the median household income in their region, or it might seem that way, that would be the case if the residents of those new homes were all coming from some other region for example, and if the construction of this new homes did nothing to create vacancies in older less expensive units, or to stabilize housing prices generally, as we've talked about on this podcast many times. Mike might want to chime in on this too but I think it would be helpful if you could talk more about or let's get into how the responsiveness of housing supply to increasing demand and household migration and regional income convergence all come together. What are the different elements of that process, or the links in the chain that lead us from building housing that's relatively expensive, to an outcome where the income gaps are actually shrinking between these high-income and low-income states?

Peter Ganong 21:57
Great, so I think there are times in economics when things are complicated, and I think there are times when things are simple - this one is simple: build more houses, prices go up less, everyone has access to a metro area when housing supply is plentiful, and people keep moving there. Turn off the spigot of construction, so this goes back to my grandma's house on Albany Hill, I have sentimental attachment to it but it's a huge problem that house is still there, there should be like at least three or five units there to be honest. And you know, in Chicago, when an old single family comes on the market, we knock it down and build four units, and that's how housing is really cheap and consistently cheap in Chicago. My grandma's house is still there, and it's really expensive if someone wants to buy it, or it was expensive when someone sold it. And it's really expensive when someone's moved to the Bay Area, and so lots of people don't move there as a result. You know, the rest is just math, you know, but people moving into an area mutes wage growth across US states, and also in an economic model.

This is just through competition with each other basically?

Yes, so when labor is scarce, the price of labor is high, when labor is plentiful, the price of labor is lower. However, we're already talking about high-income places. The only question is, are we going to let more workers join high places that are high income or are we not. And when you make a decision as, you know, a set of communities that we're not going to build enough housing to accommodate the number of workers that we want to hire, some of those workers won't come and some of those workers will pay more in housing, and it's not neutral - set of workers who are able to afford it, or the ones who will come and the workers who are not able to afford it are the ones who will not come and that also has downstream effects on income. I guess something that your questions are making me realize in a way that is fun or good is, I think we wrote this paper primarily because we cared about migration patterns, and I almost feel like if we were to write this paper again today, we would have written a paper primarily about migration patterns for workers and housing prices, and then we would have said at the end, oh, yeah, by the way, this has implications for regional income convergence. But I think your questions are helping me to, you know, we started with a puzzle, and then in some sense, we, you end up with this path dependence where you don't rewrite the paper to the thing you care about the most but this conversation is helping me to appreciate the thing I think, I care about the most, and I think you should care about the most is really the, you know, the availability of opportunity, and the availability of opportunity particularly across regions and through housing. And so income convergence is the last step but it's like not the most important part of the chain. The most important part is housing supply, and then broad economic opportunity that is created by housing supply.

Shane Phillips 24:45
Right, the income convergence is sort of an output or a metric, a way of measuring, you know the effectiveness of offering people opportunity and so forth, but it's not the thing itself that you're really directly concerned with.

Peter Ganong 24:58
I think that the three of us should write a letter to the editor of the Journal of Economic Urban Economics asking if we could change the title of the paper and just say, you know, like, "we realized talking about podcasts that we have a better title it,can we retitle the paper?" We'll see what they say,

Michael Manville 25:14
Yeah, my strong priors is that won't really be edited.

Peter Ganong 25:18
Have you ever tried, Michael? If you haven't tried ...

Michael Manville 25:21
I never have, it's true I never have. I really have no basis for that other than my intuition, and that has led me astray more than once. Just to add on that answer which I think is great, I mean, the reason income convergence is, I mean, it sounds to me like it was, you know, it was the puzzle that got you initially interested, right? I mean, and that's legitimate puzzle because I think when you look at it, what you're saying to yourself in some ways as well, what's interfering with essentially the supply and demand of labor across these places from balancing out a little bit. And it turns out, as your grandmother's house illustrates very well, it's supply and demand of housing. And, you know, we beat this point to death on this podcast, but it's just another great example, you know, this perception people have, which I think is understandable, which is that when you do build housing, the new housing is expensive, and how can that possibly help affordability and so forth, but just that there really are, you know, we've said it 100 times, there's, there's two ways a region can produce kind of expensive housing right is: one is that it can build new housing, and because it's new, it's going to be expensive., and the other is, it can choose not if it's growing to build new housing, and then it will turn all its old housing into expensive housing. And that's a disastrous outcome because if you're going to have lower income people live in your region, they really rely on that older housing stock. And you know, what's happened in Los Angeles and San Francisco is like, housing units that are really pretty dumpy in a lot of ways now rent or sell for just astronomical prices. And I just think about my own experience moving to Los Angeles 20 years ago, I lived in a, you know, rent stabilized dingbat in Mar Vista for not much money, and out of curiosity looked up its rent recently, and it's, it's gone up like 50% in real terms. I mean, a grad student moving to Los Angeles can't live in that place anymore.

Peter Ganong 27:20
Hmm, Shane one other way to answer your question, and I bet we can, after the show (or) in the shownotes, put a quantitative version of the statement is that in Chicago, much of the housing stock is new and has been built in the last 30 years, and, you know, it's increasing, you know, both square feet per unit and number of units. Whereas, you know, if you look at somewhere like, you know, where my dad grew up, housing stocks is really old. And so even though on a one off basis, I think there's a real political challenge around new construction, which is that it's shiny, and it's selling for more than the cost of the other houses in the neighborhood. Like at the end of the day, Chicago is filled with new construction, and LA and San Francisco or not, and housing is a lot cheaper in Chicago so...

Shane Phillips 28:07
And we're talking about housing here but, you know, in the paper, you are careful to note that housing regulations and prices don't explain all or even necessarily most of the decline in income convergence between states since 1980. This may be outside your wheelhouse as an economist, I don't know exactly what you're specializing in these days, it's certainly outside of the scope of our show but I do think it's important to make that point clearly, this is not all about housing. So we don't have to dwell on this for long but what else should we know about income convergence so we don't fall into the trap of thinking this is solely a story about housing and land use?

Peter Ganong 28:45
So I would just draw a small distinction, we do find that regulation explains most of the changes, and more than half of the changes in income convergence. The way that the regressions in the paper are set up, it's not particularly transparent on this point, and so again, hopefully we can ask for revision on the paper. But there are a lot of other important forces that are shaping regional inequality. And the sort of most important one I would highlight, which was there in many papers before we wrote this one is what's called 'skill-biased technological change', which is like a kind of alphabet soup mouthful, but basically means we just have been growing for college-educated workers faster than workers who haven't gone to college, and particularly growing faster in these metros. And so that faster wage growth, we don't think of as being primarily caused by something about housing, we think about that as being something changed in terms of technology and/or the institutions in the labor market such that wages have been rising faster for college-educated workers than non-college-educated workers; that's not housing story, that's something else something else in the economy. I want to add one small detail which is that during the worst of the pandemic, this pattern actually reversed, and we saw substantial wage growth at the bottom faster than the wage growth at the top. Economists are still trying to understand where that faster wage growth at the bottom came from, I don't think we understand yet but the general pattern for the last 40 years has been that college-educated workers have had faster wage growth, and that's another thing given where college-educated workers tend to be clustered, as we talked about, that will affect the regional distribution of income as well.

Michael Manville 30:29
One of the things we've talked about on the show with a number of our guests is just that the circumstantial evidence at this point that regulation is a big culprit in our failure to build housing in our expensive cities is quite large. But then almost everyone who comes on and talks about this, one of the first things they say is "well, measuring regulation is really hard", you know, because local governments have so many different ways they can conceivably regulate housing. And so pinning it down lots of different ways that have been employed by different researchers through different indices and different measurements of housing supply (is hard). But one thing that makes your paper stand out to me is that you're able to put together not just a measurement of regulation, but a measurement of regulation that actually goes back quite a number of years. So it's quite novel, and to me, it's quite persuasive, and so I'd love to have you just talk a little bit about how you guys came up with this measure? Well, first of all, of course, what the measure is, why it seemed right to you and what exactly you did to kind of build it?

Peter Ganong 31:29
That's a great question, Mike. So the key challenge, as you mentioned, is regulation is hard to measure, and it's especially hard to measure going back in time. And the sort of best measures, the way we do it is extraordinarily crude, and I really hope a graduate student right now is working to improve on this. It's just doing word counts in court cases - so we count phrases like 'land use' or 'zoning', you can see that there's been a lot more litigation about land use and zoning in recent years than in prior years, and the way that we convinced ourselves that wasn't total garbage, is by comparing to this famous survey done at the University of Pennsylvania, at the Wharton School, where they basically asked land use and zoning officials, how hard is it to build where you live? And so what we did was we, for 2005. correlated, how much are there litigation about land use and zoning with what did the city planners tell Anita Summers. That had a strong positive correlation, and that helped us to feel maybe we can use this to learn not just about 2005, but also about earlier, going back further in time. And so these search terms are crude. I really hope someone does better soon but I do think that it captures a key idea that there's been a big change over time. We talked about this before with the sort of geography versus institutions point, and we're just counting search terms, and hopefully someone will come up with something more sophisticated soon, or already has.

Michael Manville 32:58
Yeah, and I mean, your point is well taken that it's crude as you put it, I mean, it's going to be noisy because, you know, you're probably going to capture a few things that aren't directly related to regulation but I do think theoretically it makes sense in that even when you account for the fact that like idiosyncratically across states and across time, you're going to have court cases that mentioned land use (and) that mentioned zoning, that on the whole if you just have enough cases, and you guys did draw from a lot of cases, there's going to be a trend which is that you're unlikely to see someone filing suit over a regulation unless that regulation really is binding, right? I mean if a municipality passes a regulation that has no effect at all on a developer's ability to do anything, or landowners ability to do anything with their property, you know, ceteris peribus, that's just less likely to wind up in court. And so I do think that in addition to, I mean I'm sure, it's reassuring to you that it lines up well with the Wharton Index, right, but I think even if it even if there was no Wharton index at all, to me at least intuitively it makes sense in that, why do you go to court? Well, because something is stopping you from doing something you want to do. Right, you're not gonna just find yourself in court for the heck of it (because) courts are giant pain in the neck. And so when I first encountered the paper, I said, yeah it's a noisy signal but I think it is, in fact, a signal, and it does let you go back in time the way these really time intensive surveys, don't.

Peter Ganong 34:30
I also remember one other tiny thing which is just that we also, in the citations from the 2005 Wharton Survey, we found a 1975 survey from a group called the 'American Institute of Planners', went down to the stacks which are underground, dug up the original survey, coded it up, and that the court case measures also correlate with that 1975 measure. And so then that also again, made us you know, it's hard if you run two different surveys 40 years apart, it's really hard to know, what's the change over time then. But if you have a consistent measure, like how much are people suing about this, that's a way to get a measure over time.

Michael Manville 35:09
Right, and these are, just to be clear, it's like state by state analysis of court cases, is that right?

Peter Ganong 35:16
Yes, we tried to go substate and couldn't figure it out. There was a graduate student at UC Davis, who did a substate study for California, and we can put in the show notes (the) link to his paper but we couldn't figure out how to get sub state, and then this the student did, at least for California.

Michael Manville 35:38
Yeah, and I think the only thing I would say about that is that in some regards, you're probably, because of that, under estimating the stringency of some of the more stringent states because the place where the housing is most needed, where most of the demand is...

Peter Ganong 35:54
That's a cool point yeah

Michael Manville 35:54
... going to be this narrow sliver of the coast of California, but as you pointed out earlier, the interior isn't really that regulated, or go to New York, Metropolitan New York City, of course, highly regulated, not that hard to build in Syracuse and Rochester and Buffalo, and you'r kind of diluting the actual the stringency of some of these really these really restrictive places. Yeah, so it's probably a conservative estimate of stringency.

Shane Phillips 36:26
We like those. So in your analysis, you grouped states by high regulation or low regulation in terms of the restrictiveness of their land use rules, and it seems worth discussing how these two different groups interact. Income convergence is still occurring in the lower regulation states where it's easier to build housing, but it's not converting as fast as it did prior to 1980, and I imagine that's partly because half of the income convergence equation involves moving to these higher wage states, and we should clarify that the the higher wage higher income states also tend to be the higher regulation ones generally, and you can fill in all the gaps here and all the nuances in a moment. But so we've got, you know, half of the equation is these higher wage states that are also higher regulation, but those places, you know, they're not actually building a lot of homes to move to, and so people can't go there. And the ones that exist are getting less and less affordable, was this interaction between these two, something you were interested in looking at? It seems important to me, but also, you know, a particularly hard thing to measure.

Peter Ganong 37:35
It's a great question. I remember in grad school, Raj Chetty asking me the same question that you just asked, and, wow...

Shane Phillips 37:44
I feel very smart right now

Peter Ganong 37:47
You're quite literally a genius by the metrics of MacArthur Foundation, nd I remember thinking, "wow, that would be really interesting to look at but I don't know how to do it", especially with fewer even smaller sample sizes. And so even you genius Shane, and Raj couldn't figure out how to look at it, although I'd be interested to in future work.

Shane Phillips 38:13
Okay, one thing you do look at is how these land use regulations interact with geographical constraints to influence income convergence. And we'll include this paper in the show notes, but you use Albert Saiz 2010 study showing that housing supply is less elastic - again that means just less responsive to rising demand rising incomes, in places constrained by geographical or topographical limits like steep slopes, bodies of water, that kind of thing. If I'm understanding your findings correctly, you show that these geographical constraints didn't have much effect on the housing supply prior to 1980 or so, and you attribute that to the relative lack of land use regulations at that time. So in other words, land may have been limited all that time but the right to build taller buildings was not. So the geographical constraints just didn't matter all that much. But as land use rules got more restrictive, those limits became more of a binding constraint because building up was no longer as much of an option. I bring this up because I feel like sometimes sizes work can be interpreted as saying that land use regulations don't really matter that much. And what housing supply and affordability really comes down to is just this availability of undeveloped land on the fringes of the urban area. This seems to say, your paper seems to say that those geographical limits certainly matter but it's the increasing restrictiveness of land use regulations that's really made the geography and topography so relevant and so binding. Is that the right interpretation?

Peter Ganong 39:49
Yeah, that was awesome. Again, you're helping us rewrite the paper although unfortunately, it got published already but that's exactly right. You know, it's not geography, it's institutions and institutions shape how we interact with our geography. That was an awesome summary.

Michael Manville 40:07
And you know, I mean, I think, just to add on to that and make it concrete for the listeners, you mentioned, Peter, how in Chicago when a single family home comes down, and it gets replaced with a fourplex. And, you know, Los Angeles is a place that according to sizes, you know, kind of indexes has a lot of steep slopes, like there's mountain ranges running right through the middle of the city. And it is hard to build on those steep slopes although if you're rich enough, you certainly can. But I look out the window of my office., and what I should see based on the housing prices is probably a bunch of five-storey buildings, and what I see instead, there are a bunch of single-family homes, right? There really is, in a lot of these places just to drive the point home, there's plenty of land, right? It's just not vacant, it's underused. And we've sort of as well, we're about to get into, we've created rules that trap them in this underuse trapped these parcels in this under-use, and that I think is a, you know, an illustration of what you found, which is that 50 years ago that wasn't the case; like you, you knocked out a single family home, you could put up a tenpllex, and today you can't...

Peter Ganong 41:14
...in some places!

Michael Manville 41:15
Yeah, in some places, right? And so but it's interesting, like different regions have taken some have basically taken an approach of stasis - we want to stay the same, and others have taken approach of we want to embrace the growth and, you know, there's the awkwardness of the shiny building but then there's the benefits of the cheap housing, or at least cheaper, much cheaper housing. And you know, now we're getting a little bit off but I can't help but editorialize, it's just that the awkwardness of the shiny building really doesn't last that long, right? That almost any place you go, I mean, you could be walking down the street, and someone could point at a building and be like, you know, when we built that, like, everybody hated it but otherwise you'd never know, right? I mean, like places grow into themselves, and I mean, my favorite example of this is that when Brooklyn first started getting brownstones, everybody hated them. But now of course, they're iconic Brooklyn.

Shane Phillips 42:05
That's cool.

Michael Manville 42:06
So it is a legitimate political problem but one that I think that the study of urban history suggests like, yeah, like people don't like new stuff, they don't like change but, you know, give it 40 years, and when someone proposes knocking that over, everybody will lose their mind.

Peter Ganong 42:21
But there's a weird, let's just go a little deeper on this. So there's some weird change there were used to be that either people were okay with knocking stuff down to build something new, or people were unhappy but didn't have the political voice to articulate that. But either way, the old thing got knocked down in favor of the new thing. Whereas now people want things to stay the same, not an economic sense but just in a built environment sense. Somehow those arguments are winning out. And like, you know, even in my neighborhood, I'm just thinking about, like, you know, there was a grocery store closed, and, you know, we got 50 units. I was jumping up and down for joy but a bunch of people were mad that there were 50 units being put there, and it took a lot of persuasion. And, you know, I don't know, I hope that more places become like Chicago, as opposed to Chicago becomes more like the other places.

Michael Manville 43:09
Oh, me, too, and I think this is actually probably a pretty good segue into what we're about to talk about you know, with your measurement of regulation but, you know, we've had people on the podcast, and certainly there's a lot of writing and planning history about how, you know, to your point, there was a combination of both, like, you know, people not being maybe as upset, but also not having the power and a series of changes - legislative and judicial in the 70s, just gave folks who were upset by change a few more tools. And I think also, it is fair to say that there was some overreach in the 60s that really fueled that fire, right, with urban renewal and things like that. And I think a lot of the reaction was misdirected, and the pendulum swung a little too far but you look back on some of the things that happened, and you can say, okay, "yeah, like I could, I could see where you want some more restrictions on development".

Shane Phillips 44:02
It didn't just come out of nowhere, yeah.

Peter Ganong 44:03
There's a particular irony in that. So a lot of how a lot of the, like, environmental regulations came out of the Bay Area, and my grandma was one of the like original activists in 'Save the Bay', and has like, you know, told us stories about like driving up to Sacramento and waiting for such a long time to testify. And to be clear, I also want to save the day, you know, like based on our prior conversation but at the same time, it's really hard to get the balance right, and so now in in certain ways, I think that this research suggests that we might have overshot on that dimension.

Michael Manville 44:40
Yeah, and I'll just make one last comment about this, which is, you know, that your grandma's story illustrates another real curiosity that I think historians have investigated and could be studied more, which is just that this general agenda that involves a lot of great purposes - stopping pollution, you know, saving the bay and things like that, became and it didn't necessarily have to become this, but it did become sort of inextricably bound to an idea of stopping new housing. And so you do have this very strange dynamic where, you know, in San Francisco and Boston, you know, places that became sort of the bulwarks of American liberalism, you run down this list of goals, and you know, someone like me is like "yeah, check, I'm on board, I'm on board", and then it's like no infill housing, and you're like, "wait, wait a minute!". But that is what we live with, and I think it is sort of an idiosyncrasy of kind of the trajectory of American liberalism that on the coast, we now pay the price for.

Peter Ganong 45:40
Can I add one more thing? I know that we're, we're going deeper, but I hope that's good. So the legacy of George Stigler who was a University of Chicago economist who was a critic of lots of government regulation, was basically running through my mind when you were talking about how we think about in environmental regulation. And one of Stigler's point is that pretty much all regulation start out with good intentions, and sometimes they can get captured by insiders who benefit. And so you know, one way to think of it is that, "oh, it's just a mistake, we didn't know what we were doing". A different way to think about it is that current homeowners have a strong incentive to take a 'Save the Bay' bandwagon which might be about like not dumping more trash in the bay, and reappropriate it or reinterprete it as you know, what you described, Mike is like no new infill housing, you know, is that helping the bay, is that hurting the bay? Not really clear, but like, anytime that there's regulation there, there'll be incumbents who want to come in and take advantage of it. And a different way to think about this movement is that it basically saw an opportunity and ran and ran with it in ways that perhaps were never intended.

Michael Manville 46:55
Yeah, absolutely, and I mean a combination of both in the sense that it's a lot easier to say, "I'm worried about the health of the wetlands", than "I don't want any more neighbors".

Shane Phillips 47:06
Well, I think we can wrap things up but this paper was published in 2017, and so I'm curious if you've followed this data at all, have you seen any change in the trends - positive or negative? And I know that you had a question for us as well (that) you wanted to ask?

Peter Ganong 47:24
Well, I was hoping you could talk a little about California. So I mean, California is ground zero for the ME movement, and let's talk about housing supply in LA like, how's it going? What's gotten through the state legislature? What's Gavin Newsom gonna get through this year? And then what do you think is going to move the needle as a pundit time?

Michael Manville 47:46
Yeah, actually, let me say one last thing about Peter's paper before we jump into this because it just occurred to me. One thing that sometimes I think, it came up a little bit, too, when Meredes' paper came out - the one Peter mentioned earlier about convergence, which is that sometimes I think you can you can hear this storyline of like, "oh, it's harder for lower-income people to move to higher income places", and I think superficially, someone could say, "well, okay, but like, they can still go someplace else, or if they're better off staying in you know, Kansas or something, because they actually, when you talk about net of housing costs, that's where they should stay". And I think it's important to point out, Peter has pointed out I think very eloquently, like, no, there's, there's a lot of good and just personal mobility, right. There's positive good in that it, you know, it can help make people better off but there's just sort of some normative good too, and people being able to strike out on their own. But the other thing that I want to note is that, like all of these calculations, and Peter please correct me if I'm wrong, really are conditional also on like, you get a job, right? And one of the things about these poor places is that they just have much higher unemployment rates, and so it's one thing to say like, "oh, yeah, if you stay in a lower income place, and you get a job as a janitor, net of housing costs, you actually make more than if you move to Los Angeles or Boston get a job as a janitor" but like you have to get the job. And I think that there's you know, this uneven geography of opportunity that we have, just in terms of where jobs are, really suggest that what Peter and his co-author documented, it is really important for people's well-being. It's not just a matter of like where you happen to be, and your income after housing costs. It's also like, can you be in a place where your probability of getting a job is higher, and then that can matter a lot?

Peter Ganong 49:49
Yeah.

Michael Manville 49:49
But to to Peter's question, right, so yeah, now we're gonna predict the future based on what will happen in Sacramento so no one should hold us to any of this. But you're absolutely right, I think around the time that you published your paper was around the time that the California YIMBY movement got going, and I would say it really gathered steam. And in the last two years, we've seen some very significant advances and not necessarily where where the attention was right. And what I mean by that is that in 2018-2019, Scott Wiener, a State Senator from San Francisco, authored some bills, each of those years, he offered a version of a bill about, big upzoning bill, that really attracted most of the attention, right, just sort of like if you're a half mile from a transit stop, you can build a four-storey building, and neither of those made it out of a committee right? They were stopped pretty early, they didn't go to full votes. So I think if you're just watching that, you would say like, oh, well, this is ambitious, but it's not going anywhere. But I'm simplifying a little bit but I think what I would say is that that movement, and the legislators who are affiliated with it managed to sort of very quietly build something like those bills, piece by piece through legislation., and I'm not a political scientists but it's it seems to me like a very interesting case study on how things get done in a state legislature. And now, you know, knock on wood, I think we are...

Peter Ganong 51:22
This sounds like Madeleine Dean's CSS secret Congress...

Michael Manville 51:25
Yeah, it is sort of like that, it is sort of like that

Peter Ganong 51:27
Except at the state level instead of...

Michael Manville 51:30
Yeah except at the state level, so the very big controversial lightning rod, sort of just, it gets a lot of attention, and it famously in front of everyone...

Shane Phillips 51:39
Sound like a perfect analogy here.

Michael Manville 51:41
Yeah, but, you know, quietly, you build up something else, and so I think that the table is set to see a lot of housing production, and of course, it coincides with a dramatic surge in interest rates. So I'm not sure how much actual development we'll see. But I think you know, and Shane, of course, is deeply involved in this too, and so I'll let him weigh in but what I would say is that almost anybody who's been studying this or thinking about it has to be cheered by the progress we've made. But we're still not seeing the buildings going up yet, and so as a result, if you're walking through our city, for instance, you still see everywhere the evidence of our housing crisis.

Shane Phillips 52:24
Yeah, I think that that was going to be my main observation that I think at the state level, there's been a lot of great progress, and it's progress that maybe only could have happened at the state level. Even to this day, you know, since Scott Wiener proposed those bills to up zone, you know, and even before cities have said, "no, we don't want this, we can do it ourselves, we know our communities better". But you know, you look back now, five years later, and what have individual cities done to address the housing supply crisis? Not a whole lot other than the things like updating their housing elements that are now mandated by the state and actually have some teeth behind them and are more kind of ambitious than they used to be. But because we didn't do that sort of all at once, let's just upzone everything with the transit approach, it did go to the individual municipalities, you know, they have much more aggressive targets that are set for them by the state, but it's still up to them to create the actual housing element and the zoning maps and everything that goes along with it. And so it's gone from what would have been just kind of a snap of your fingers kind of approach to a multi-year, and really, you know, ultimately will be a multi-decade effort. And so for all the bills that have passed, not just on housing supply but on tenant protections and subsidies and other things as well, housing production in California has been pretty flat maybe even fallen a little bit over the last few years. And so we have a long way to go, and I think there is hope, though, that these bills in particular, the ones mandating these more accountable and more ambitious housing elements will actually create the framework or the context for housing to be built going forward.

Peter Ganong 54:12
One observation and one question for you - the observation is if interest rates are high, and builders aren't willing to build, that reduces perhaps some of the immediate decrease in house prices that would have usually come from relaxing regulations. And on one hand, you sort of said, well that's probably why we're not seeing an impact yet but on the other hand, that makes it easier politically to get done. Look, all we're going to do is change these rules, there'll be no immediate effects because no one's building anything anyway, and then you know, why law, interest rates come down and under, you know in 2026, and you get a bit a big burst in construction and hopefully, without a reversal in the progress that's been made. And then the question is just I'm curious whether you think there are political dividends or political costs to the advocates to the legislators, I should say, who are advancing these rules, particularly in an environment where you don't see the housing production come right away? Is this helping or is this hurting those elected officials in their sort of careers?

Shane Phillips 55:19
I wanted to jump in and say that the idea that, you know, this or that bill or whatever, would not produce a lot of housing will somehow mute opposition, I don't think has been borne out. Like SB9, which, okay, you know, allows for units on, you can split a lot into two and then build a duplex on each. So you can build four units where one previously was allowed; every analysis found that like this is not actually going to produce a ton of housing but of course, as it was moving through, the legislature was, you know, a sky is falling kind of freak out on the part of a lot of advocates , and homeowners, and in cities themselves. So I'll let Mike tackle the question, and I can fill in on it, too.

Michael Manville 56:04
Yeah, I would add to the what, to Shane's comment, which is response to your observation, which is just that, you know, among the people who have really staked out a position as being against or suspicious of development, one hallmark, in my opinion of their worldview, is that they vastly overestimate the amount of development that's happening anyways, right? I mean, you talk to some people in Los Angeles and San Francisco, and they're like, "Oh, my God, all the development", and so even if not much gets built, like they'll probably see that one building and be like, "Oh, my God, we're under siege". And you know, and I do think in part, this is an artifact of, especially in Los Angeles, but even in San Francisco, to some extent, in so much of the city is so hard to build in that when you do build, you build very intensively where you build. And so of course, it is noticeable that now you have a 16 storey building in Los Angeles, and most of the city is two or three storeys but I think that biases people that, you know. There's some people who just think a lot of developments happening no matter what, you know, if we could be so lucky. The question of, of whether people pay the price, and again, like, the right person to ask about this would be some, you know, legislative whip up in Sacramento. But my observation is that much as much as is the case in the National Congress, like, some members will be vulnerable on some issues, and the ones who are kind of leading the charge on this are people who are safe. You know, they wouldn't do it otherwise, and so, you know, and we just read at an event not too long ago, where a woman who had been, she's no longer, a legislative aide to Scott Weiner, sort of said that the way he spoke to legislators in Southern California was like, you know, he's like, "I don't care if you blame me for this, right, because your voters can't vote me out of office." Like, as long as I'm safe in my little area of San Francisco, I can get out there and push for housing and all of California, and it's I think, you know, this is one of the challenges that any legislative leader, whether it's the pro tem of California senator, the Speaker of the Assembly, this is what they have to do. Once they decide that an issue is important. It's like well, who's, who's on the vulnerable flags, and who can really stick their neck out? So I guess what I would say is we have not seen any of the champions even come close to losing election but we've also seen...

Shane Phillips 58:33
I think it is pretty remarkable because, you know, at the local level, there's no question, people get voted out of office for taking a hard vote maybe even doing the thing that was legally required of them, to approve a development that is compliant with the zoning code. And they will lose their seat, you know, and especially in the smaller cities, and towns, but you go to the state level, and I mean, I think this is part of why I'm very bullish on state reform, and not so much on local reform, is I just haven't seen much evidence of people taking hard votes on housing, and land use at the state level and being punished for it which is, you know, a little bit surprising but for whatever reason, people maybe just don't really connect their state officials to that issue, and so it's just not really salient for how they vote perhaps but that's purely speculation just on the observation that it doesn't really seem to harm people taking these votes.

Michael Manville 59:28
And also when push comes to shove, the state representatives who might pay a price do get protected in a way that the locals can't. So if you look at SB9 for instance, the Democrats in Southern California in the state legislature werenowhere on that. They voted no or they abstained and things like that, and on the one hand, like you live here, and you're disappointed in them, and on the other hand, you're like, well, maybe this is just savvy on the part of the leader ship up there who say, "you know what we can get this bill through without having these people risk their seats", and that's something that is very hard to do in a city council.

Peter Ganong 1:00:10
I mean, it's also sounds like a good exercise of political leadership, like, you know, we usually want like the President to worry about the national interest, and it sounds like you're saying that some of the state leadership is worried about the state interest as opposed to, you know, so that's, that's inspiring. That's profound courage potentially, I guess it is, but...

Michael Manville 1:00:30
Right, and it is, you know, that state preemption is not appropriate for everything but this is like the Hallmark case for why a state might preempt, which is that the local governments acting on their own and, and it's not because they're evil or anything, it's because the incentives that face local officials, lead them to act in ways that diminish the welfare of Californians, right? So like, just a federalism textbook would just say, well, now is the time for that higher level of government to step in and say no, like, we have a essentially a collective action problem here where all these local governments pursuing their own interests are giving us an outcome none of us wanted, and so we have we have an intervention. And we are getting that but I do think that one of the thing that really has allowed it to happen is that you are able to have these legislators in very safe seats basically inflict housing on the rest of the state, and we can't do that at the local level. I mean, I think just the way it's structured is very hard, and then also just empirically, as Shane pointed out, it just hasn't happened.

Peter Ganong 1:01:44
And it's also interesting, because, in some sense, what I think you're seeing is that voters views might not have changed that much - that is still unpopular. You might have thought that people's views would change once the rent got damn high enough, and essentially, what you're saying is that, you know, the rent is too damn high, but voters views haven't changed but we're nevertheless seeing some political leadership. I think that's interesting.

Shane Phillips 1:02:05
I'll say one more thing here, and then then we got to go but that is a really good observation and important one, and I think, maybe part of the reason that is happening, well I guess I should first say, housing is actually a lot more popular than is sometimes appreciated when people have been surveyed about building more housing in their neighborhoods even if it's bigger in California - it's, you know, 60-65% support, pretty significant, and to, you know, to talk about the politics on this a little bit again, I think part of this probably comes down to the fact that state legislators are being elected during the presidential cycle, and the midterms, and so they have a lot higher turnout, a larger share of the population probably a younger share, (and) more renters are turning out to elect them than the people who are electing city council members - most of those elections being held, and this is changing fortunately, but they're often held in off-year elections, you know, in odd years, and so the turnout, you know, we've had elections in Los Angeles, where the mayor was elected with like, 11 or 15% turnout, and so, you know, that kind of thing. And so, that's changing, and I think that dynamic itself is probably part of why you have a little more openness to these issues at the state level, and they're a little more protected because they have a little bit of a different electorate.

Peter Ganong 1:03:33
Neat.

Shane Phillips 1:03:34
Okay, Peter Ganong, thank you for coming on the Housing Voice podcast. Thank you for giving us the opportunity to be political commentators. This was great, thank you again.

Michael Manville 1:03:46
That's what I've always dreamed up, thanks Peter.

Peter Ganong 1:03:47
Thanks this was really fun.

Shane Phillips 1:03:52
You can read more about Peters research on our website lewis.ucla.edu. Show notes and a transcript of the interview are there too. The UCLA Lewis Center is on Facebook and Twitter. I'm on Twitter at shanedphillips, and Mike is there at MichaelManville6. Thank you again for listening. We will see you next time.