Jenny Schuetz on Land Regulation and the Housing Market

Episode Summary

Executive Summary: Russ Roberts and Jenny Schutz examine how zoning, permitting, environmental review, parking mandates, and neighborhood vetoes make housing slower, riskier, and far more expensive to build. They connect these rules to reduced competition, fewer small developers, higher rents, homelessness, segregation, and lower mobility, while discussing reforms ranging from state/federal pressure to compensation for neighbors and more permissive urban density.

Main Topics: Regulatory barriers and approval uncertainty (Priority: 5/5): Development requires multiple discretionary approvals—rezoning, environmental review, fire access, design review, and more—creating long delays, uncertainty, and major transaction costs before construction can even begin. Infill development versus suburban subdivision (Priority: 5/5): Building in already-developed urban areas is more complicated than greenfield subdivision because of neighbors, site-specific constraints, contamination, parking requirements, and higher political resistance. How regulation raises housing costs and limits supply (Priority: 5/5): The transcript argues that time, legal/consulting fees, redesigns, and prolonged vacancy risk are capitalized into rents and prices, while restrictive rules prevent abundant lower-cost housing from being built. Political economy of NIMBYism and bootlegger-Baptist coalitions (Priority: 5/5): Neighborhood opposition often blends sincere concerns about design, traffic, or environment with self-interested efforts to protect property values and exclude newcomers, giving politicians cover to resist growth. Equity, exclusion, and historical roots of zoning (Priority: 5/5): Many land-use rules are portrayed as descendants of racially restrictive covenants and exclusionary suburban zoning, which continue to price out poorer residents and reinforce segregation and inequality. Market structure and consolidation of development (Priority: 4/5): Because only large, well-capitalized firms can bear the uncertainty and carrying costs, the regulatory regime favors big developers, reduces entry, and weakens competition. Potential reforms: state/federal leverage and compensation schemes (Priority: 4/5): Possible solutions include state or federal carrots and sticks, tying infrastructure money to housing production, and compensating local residents so they have incentives to accept density rather than oppose it.

Key Arguments: Permitting is not just a delay; it is a costly, uncertain process that begins long before construction and can last years, making housing much more expensive to supply. Infill projects face stronger opposition and more technical constraints than suburban subdivisions because they affect existing neighbors, parking, light, views, and contamination cleanup. Mandatory parking, minimum unit sizes, bans on SROs/boarding houses, and limits on multifamily zoning remove the low-cost housing options that poorer residents historically relied on. The real burden of restrictive zoning falls on future residents, renters, immigrants, and lower-income households who have little political voice in neighborhood hearings. Rising housing prices are not best explained by landlord greed alone; when supply is constrained, landlords can charge high rents because tenants have few alternatives. Regulation has pushed the industry toward large firms with specialized expertise and deep capital, similar to compliance-heavy sectors like pharmaceuticals. Some of what passes for environmental or community protection is a coalition of public-spirited arguments and private property-value protection. Because housing decisions are hyper-local, they can damage regional economic growth, mobility, labor markets, and state competitiveness. State governments are better positioned than localities to address housing shortages because they can use funding and broader regional interests to counter local vetoes. A more effective pro-housing policy would focus on increasing the number and diversity of units built, especially below current median prices, rather than only imposing new tenant protections or rent controls.

Data Points: Podcast date: January 29, 2020 - Introduction to the episode and timing of the conversation. Multifamily zoning exclusion: Two-thirds to three-quarters of land - Schutz says many central cities have effectively outlawed multifamily housing on most land. Development timeline: A decade or longer - Large projects can take ten years or more, especially under prolonged approval processes. Apartment operating-cost floor: About $500 per month - Roberts cites this as a rough minimum cost to operate even low-end legal apartments in places like Detroit. San Jose bottom-rent example: About $1,200 per month at the 25th percentile - Used to illustrate how constrained supply pushes even lower-end rents upward. California property tax cap: Property taxes based on purchase value plus slight increases - Prop 13 keeps longtime owners’ taxes far below market value, reducing incentives to redevelop. Developer approval hurdle count: Over 100 meetings - Roberts references a developer describing a project requiring more than a hundred meetings. San Francisco planning objectives example: 42 separate objectives - Referenced from a planning document showing the complexity and lack of ranking among city goals. Potential resident payment idea: $2,000 to a family of four - Roberts describes Judge Glock’s proposal to compensate neighborhoods for accepting development. Underbuilding period: 30 years - Schutz says places like California, New York, D.C., and Boston have underbuilt especially multifamily housing for decades.

Pivotal Quotes: "the process of building new homes is full of uncertainty and unexpected obstacles" — Jenny Schutz: Opening description of why housing construction has become riskier and more expensive. "Most of the development that we're talking about isn't at the scale that it's really going to make that much difference to neighborhood property values." — Jenny Schutz: On the claim that new housing materially destroys existing owners’ wealth. "if you make cheap housing illegal, they will find whatever workaround they can." — Jenny Schutz: Explaining homelessness, RV living, illegal rentals, and other informal housing outcomes.

Implications: Housing reform is central to affordability, mobility, and inclusion. If cities and states keep privileging local vetoes, supply stays constrained and inequality widens; if they liberalize zoning and speed approvals, rents could soften over time and access broaden.