Is NIMBYism a major cause of income inequality?

The Saint Reportsaintblog, Uncategorized

Mike S 2014(1)By P. Michael Saint, Chairman and CEO, The Saint Consulting Group

In the battle over income inequality (remember those protests over the 1% versus the 99%?) French economist Thomas Piketty argued that the rich have an advantage over the poor in getting richer — They don’t depend on their paychecks to do so.

Now comes an MIT grad student, Matthew Rognlie, who points out that much of that perceived wealth advantage held by the rich comes from home ownership, not other assets, and because of NIMBYs, “Land/housing is really one of the only investments that give wealthy people a long-term leg up.” He says homes appreciate faster than other investments or income from wages. See this article from the Economist:

The solution, says Rognlie, is rather than taxing businesses and wealthy investors, “policy-makers should deal with the planning regulations and NIMBYism that inhibit house building and which allow homeowners to capture super-normal returns on their investments.”

Rognile and his followers believe NIMBY laws and regulations drive up the cost of housing, especially in markets like San Francisco, Honolulu, New York, Boston and Washington DC. In those cities, local government, pushed by NIMBY’s and others, makes it harder and harder to get permission to build new housing. (Look at huge deficits in home construction in places like Honolulu and San Francisco.) As supply is artificially limited and unconstrained demand rises, so do prices. This means a home that cost $400,000 a few years ago, can now be valued at $1 million, giving the home owner an asset that has more than doubled in a short time.

Renters, who don’t own homes in those markets, do not realize the large increases in wealth their home-owning neighbors experience. Thus: Income inequality.

A couple of observations:

First, it is not just NIMBY homeowners who are feathering their own nests by limiting housing supply. (And remember once you own a home in a tony suburb or neighborhood, its in your financial interest to limit any new homes, thus ensuring your investment will appreciate.)

NIMBY’s are often joined by preservationists and environmentalists and other special interest groups whose fights to stop development make housing more expensive.

For example, there are companies who lobby government to add building requirements that make housing more expensive. They do so because those additional requirements create government-mandated markets for their products. Think crony capitalists who then contribute to the political campaigns of the politicians who change the laws to help them make money.

Second, while NIMBY’s are often ridiculed as selfish (“yes, I am in favor of affordable housing but just not in the lot across the street from MY house.”) NIMBY”s, like preservationists and environmentalists and others who urge government controls on development, often have solid, reasonable arguments on why their changes will make life better. Most people would say that preserving open space and wetlands, keeping traffic jams to a minimum, and maintaining a high quality of life for existing residents are good things. “And so what if those changes also drive up the value of my house?”

Third, renters are far less likely to oppose new development than homeowners. (This is verified by 30 years of waging 2,000+ land use fights across 48 states and by our own polling data with The Saint Index.) No matter what good reason they give for opposing new development, homeowners are always aware that the new project might adversely affect their home property values.

Finally, NIMBY’s and other opponents to new development are often successful because they organize large groups of voters who tell elected officials how to vote. New project proponents, on the other hand, seldom invest in recruiting and organizing local voters to demonstrate there is as much or more public support than there is opposition, leaving elected officials who want to be re-elected to assume the smart course of action is to please the opponents with a no vote, even if those votes help the rich over the poor and foster income inequality.

Mike Saint is chairman and CEO of The Saint Consulting Group, email