This section provides an overview of issues and questions in Housing that preceded and spurred the creation of the Center for Incentive Design.
We live amid a global housing crisis. By some estimates, 1.8 billion people lack adequate housing, and the US needs to build 6.5 million new homes. Most of us know this. What’s less clear are the root causes of the problem, and how we can address it.
Further study of the various incentives among actors that influence housing supply and demand can shine a light on misalignments and offer better ways to move forward.
The biggest problem with increasing housing supply is that it’s not in the interest of the current residents. And the existing residents are the voters who influence the politics and are on the approval committees.
The more new housing is built, the less exclusive their current one is. Plus new housing leads to more traffic, more density, obstructed views, and a host of other changes. It’s completely rational for existing residents not to want housing.
From a societal level, however, this creates stagnation. Sadly, the potential residents of a city don’t get a vote.
More forward-looking approaches to taxation could help alleviate the situation, but these unfortunately seem like non-starters politically. The most common method of taxing land creates a disincentive to development because the more one improves the land the more one pays in tax. On the other hand, the Georgian scheme of taxing the value of land, or a land-value tax, requires land owners to pay based on the value of the underlying land rather than their improvements, and thus creates incentives for growth.
Rent control is great for existing renters, a powerful voting block. It keeps rent low today – at the expense of increased prices in the future. Future renters, however, don’t get a vote.
One possible approach to breaking some of these intractable challenges around misaligned incentives is to start new cities. Many entrepreneurs are seeing this possibility and the Charter Cities Institute seeks to build this into a worldwide movement.
The opportunity is huge, both for entrepreneurial profit and human benefit. Land value grows many-fold when people move in and economies develop, showing potential for a community that keeps pro-growth policies and manages to avoid the NIMBYism that inevitably slows growth elsewhere. Shanghai and Dubai demonstrate how much pro-growth policies can move the needle. A rising economic tide has many societal and quality of life benefits.
Imagine you could own a piece of your city through shares, just like one owns a piece of a company through shares of stock. Could we grant shares to existing residents, homeowners and renters? Or make them available to future potential residents or to those who could help raise its value?
Issuing city shares might help create a growth incentive to help counteract anti-growth tendencies that tend to develop over time. They could provide a way to share the wealth that cities can create with a greater number of people and provide tangible incentives for current residents to find pro-growth solutions.
Thinking of a city like a corporation leads to some interesting questions, for instance, why not have a recruiting department to attract and retain the best talent to join your city?
Zoning is controlled to a significant degree by current residents, who have an incentive toward NIMBYism. This creates constraints on growth, which ultimately drives up housing prices and limits access.