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Regulation creates concentration

Summary:
The Bay Area of California is ground zero of NIMBYism.  Daniel Herriges has a very good article on the issue: A few months ago, I wrote about San Bruno, California’s rejection of a 425-unit apartment complex, even after the developer jumped through an insane series of hoops. To get the project approved, Mike Ghielmetti’s Signature Development followed San Bruno’s own voter-approved downtown vision to the letter. The project was near mass transit. It would have had 64 affordable homes, a grocery store, community space, and Ghielmetti would also have paid million into the city’s general fund—a concession that feels like a bribe in all but name. The rejection, by a single vote and two abstentions on San Bruno’s city council, was easy to treat as a symbol of

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The Bay Area of California is ground zero of NIMBYism.  Daniel Herriges has a very good article on the issue:

A few months ago, I wrote about San Bruno, California’s rejection of a 425-unit apartment complex, even after the developer jumped through an insane series of hoops. To get the project approved, Mike Ghielmetti’s Signature Development followed San Bruno’s own voter-approved downtown vision to the letter. The project was near mass transit. It would have had 64 affordable homes, a grocery store, community space, and Ghielmetti would also have paid $10 million into the city’s general fund—a concession that feels like a bribe in all but name.

The rejection, by a single vote and two abstentions on San Bruno’s city council, was easy to treat as a symbol of California’s utter dysfunction when it comes to housing: in a county with a universally recognized housing crisis, which added 19 jobs for every one new home from 2010 to 2015, someone wanting to build housing could do everything the city asked for and still be capriciously turned down (in part due to a bizarre procedure in San Bruno in which abstaining council members’ votes were counted as “no” votes).

Well, now there’s an update on the story: predictably, the developer is taking advantage of a state law to move ahead anyway with a *larger* project with *fewer* concessions! . . .

There’s a much deeper source of dysfunction here, and that is that it’s so onerous to develop in San Bruno (or virtually anywhere in coastal California), and there are so many costly regulatory hurdles and delays involved that it’s virtually only viable to do so at an enormous scale like 425 or 600 apartments. Imagine jumping all those same hurdles just to build 20 or 30 apartments on a much smaller piece of land. Who would be crazy enough to try?

This is a system designed to turn each individual development proposal into a high-stakes battle. And when that’s the case, the only developers in the arena will be the ones big enough to throw their weight around.

A new Cato study of wealth inequality (by Chris Edwards and Ryan Bourne) also points to the role of regulation:

Section 4 looks at cronyism, which refers to insiders and businesses securing narrow tax, spending, and regulatory advantages. Cronyism is one cause of wealth inequality, and it has likely increased over time as the government has grown.

When I was young, lots of smaller developers built 4 unit apartment buildings all over the place.  I don’t see much of that anymore.  Regulation (and intellectual property laws) increasingly favors big business.

HT:  Tyler Cowen

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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