Some conservatives seem to be getting the wrong impression, and believe zoning is a progressive issue. Although this view is somewhat understandable given that many cities and states engaged in zoning reform are politically blue, the idea that zoning is a progressive issue is wrong and couldn’t be further from the truth.

The impacts of zoning reform are frequently described in terms that appeal to the left, which may be throwing some conservatives off. However, the impacts of successful zoning reform could just as easily be described in terms that appeal to the right. For example, done correctly, zoning reform can restore property rights and basic freedoms that the US Constitution promises American citizens, freedoms that have been eroding for years.

The Constitution requires that “private property [shall not] be taken for public use without just compensation,” and as the Cato Policy Handbook explains, regulation is one way governments effectively “take” property by arbitrarily limiting their development and use. Conservatives may not realize just how far American property rights have already eroded, but no doubt a quick glance at their local zoning code will remedy that. 

The zoning code often limits such small and personal freedoms as what type of tree a person can plant in his/​her yard, whether building a shed or mother-in-law apartment is allowed, whether growing a vegetable garden or changing the color of the shutters is possible, and whether it’s acceptable to use a family farm to host weddings or other events. The zoning code may forbid a person from starting a business in their own home, may limit the type of people living in a house to only relatives, and it frequently decides the number of parking spaces a business must provide to visitors. 

In fact, almost any small freedom that conservatives would expect to be entitled to by virtue of property rights can be reduced or eliminated by local bureaucrats in conjunction with busybody neighbors via the local zoning code. Most conservatives would likely be appalled by the many petty and arbitrary limits on their freedoms that their local zoning code imposes on them. 

Finally, even if conservatives aren’t motivated by limits on their freedom, they should know that zoning hurts “their people” from Republican states by limiting their economic opportunity. For instance, zoning affects low-skill workers in places like Mississippi and West Virginia by limiting their ability to move to high opportunity areas, and it impacts everyone by reducing economic growth overall.

As Danny Shoag and Peter Ganong’s work suggests, rich and poor state incomes have stopped converging as a result of restrictive zoning. In other words, Trump supporters in interior and southern states like Mississippi and West Virginia aren’t able to immigrate to high opportunity areas because the cost of housing is too high as a result of restrictive zoning, and they remain stuck in low-opportunity areas instead. 

Republished via WSJ 

These are just a few of the reasons skeptical conservatives should reconsider their position toward zoning regulations and zoning reform. It goes without saying that conservatives shouldn’t agree with misguided proposals put forward by Democrats that include more regulation, developer mandates, additional taxes, and increased spending. But Republicans would be wrong to confuse bad proposals with the issue of zoning regulation itself, or the need for reform in general. 

The Trump budget is slated for release March 11th. Although there are many decisions to make, the most challenging choices will likely be regarding what to cut.

Last year, the White House proposed a variety of cuts, as well as some spending increases. Notably, the White House proposed eliminating Community Development Block Grants (CDBG), along with a variety of other small Department of Housing and Urban Development (HUD) programs. Perhaps unsurprisingly, the mere suggestion generated spirited resistance from local policymakers and nonprofits that benefit from the program, as well as certain policy shops in D.C.

CDBG is a modern urban renewal program where HUD allocates funding and state and local politicians decide what to do with it. The program allows state and local politicians to divide federal revenues among so-called community development projects. The various businesses and politicians that benefit form an informal CDBG lobby, which has little interest in the efficacy of the program, but a lot of interest in the program enduring from year to year.

Ultimately, Congress passed on the White House’s suggestion to eliminate the program last year. If at any point Congress did consider cutting it they must have decided that the negative attention was not politically worth it.

But when it comes to CDBG, Congressional Republicans may have little to lose politically in eliminating the program. After all, CDBG spending is poorly targeted to Republican voters. And although some CDBG spending is located throughout the United States, the big dollar spends tend to be concentrated in urban, coastal areas that don’t vote Republican.

Figure 1. CDBG spending by location, 2013–2018

Data Source: U.S. Department of Housing and Urban Development

As evidenced by the map, CDBG spending is by far heaviest in coastal areas. In fact, nineteen of the top twenty largest-value project grants between 2013 and 2018 were targeted to politically liberal areas including New York City, Detroit, upstate New York, New York state, Eugene, Oregon, Washington D.C., Houston, Chicago, Los Angeles, and California.

This outcome is by design. HUD allocates CDBG money using formulas and rules which prioritize funding to locations with higher city, county, and state populations, older housing, and lags in population growth, among other things. These characteristics line up well with urban coastal areas that vote blue.

Given recent Republican reforms to the mortgage interest deduction and state and local tax deduction (SALT) –both policies that disproportionately benefit politically liberal areas on the coasts– it seems there would be some appetite to make similar changes to CDBG and reduce redistribution to political opponents’ districts. CDBG is also a direct spending program rather than a tax break, and Republicans have signaled opposition to direct federal spending programs on the basis of small government principles in the past.

If Republicans want to direct federal money to low-income people then there are many more direct and effective ways to do that. Federal CDBG funds could be repurposed accordingly.

Research assistance provided by Robert Orr.

Commentators are already implying Democrat Elizabeth Warren’s new universal child-care plan will be “good for the economy.”

Moody’s Analytics reckons subsidies will induce more mothers into the labor market, raising growth rates by 0.08 percent per year over a decade. Others say that cheaper out-of-pocket child-care will reduce time spent out of the labor force by working mothers, and this greater maternal labor market attachment will boost recorded productivity and women’s earning potential. Combined, it is said the universal program will raise the economy’s productive capacity and thus recorded level of GDP.

Such claims about heightened measured economic activity are not crazy. But previous research for England has found that the effects are unlikely to be as great as proponents imagine.

The roll-out of free child-care for three-year-olds there induced 12,000 extra mothers into work (coming at an extremely high cost of around $84,900 per job). This suggests government subsidies resulted in substantial crowd out of other informal or paid care, meaning overall the substitution effects (the higher effective wage inducing more labor supply) only narrowly exceeded the income effects (the higher effective wage reducing labor supply as people took more leisure with their child-care cost savings). Along the way, there was substantial “deadweight” — subsidies going to people who would work or stay attached to the labor market anyway.

But let’s suppose the proponents of Warren’s scheme are correct about their estimates of bigger effects here. Does any boost to measured GDP mean child-care subsidies are “good for the economy”? The answer is “probably not.”

GDP should not be confused with general economic welfare. Economists generally start from the view that free action in the economic sphere — people acting on their own preferences — maximizes economic welfare except in cases when there are market failures present. It is not clear what markets failures exist in relation to female labor force participation and child-care. That means subsidies to make child-care free, or nearly free, mask the opportunity cost to the parent of putting their kids in daycare in a way that harms broader economic welfare.

The idea that non-attachment to the labor market is a market failure needing correction is particularly peculiar.

Every day we freely opt not to maximize time at work or our productivity. These are choices that come with a significant opportunity cost, not least of time, after all. Some men and women obtain more “utility” from dedicating themselves to family life. Others may decide to work in vocational jobs, or part-time, or on activities that give them substantial non-pecuniary satisfaction, even if this does not maximize their productivity or wages. Some people decide not to invest in their own human capital to boost their earnings potential; others to care for an elderly relative nearing their end of life.

Why should government act to incentivize greater parental attachment to the labor market through child-care subsidies but not, say, incentivize French teachers to train to work on Wall Street or as engineers?

If failing to reach your labor market potential is a cause for intervention, then what about subsidies to other groups, such able-bodied retirees or non-working partners in single parent households with no children?

If child-care costs are too high to allow parents to be as productive as possible, then what about out-of-pocket housing, transport or training costs that prevent other people from working where they would be most productive?

Once you think about it, the idea that the role of government is to maximize labor force attachment and recorded productivity is bizarre – with huge implications that justify a whole host of new interventions.

And that would only be looking at one part of the equation too. Large new subsidies would ultimately have to be financed by raising taxes, as Warren acknowledges. Raising them on incomes for some would reduce their return to work and so labor force participation and human capital investment. Raising them on wealth, as Warren suggests, will reduce the return to saving and investment – which could reduce productivity. It is not clear what the net effect of this would be overall.

So is there ever a case for child-care subsidies under a “neutral” framework that allows preferences to be realized? Perhaps.

In some cases, the provision of means-tested welfare benefits without work requirements may reduce the incentive for parents to work. Targeted assistance to rebalance this disincentive may be desirable for those on low incomes, and indeed already exists in the form of the earned income tax credit.

More broadly though, if governments want to act neutrally in relation to children they should either operate no subsidies at all or else support families with children through tax allowances or distributions available to all children.

That way, parents get to decide what is best for their child without warping the financial incentives and structure of the child-care sector itself.

Senator Elizabeth Warren is right: Child care services in America can be extremely expensive.

In certain areas, child care can be difficult to find at all. High prices have perniciously regressive effects on low-income families, causing them to miss job opportunities, use unlicensed relatives to care for their children or else forego high amounts of their hard-earned income.

So the presidential candidate’s new promise of universal child care subsidies will no doubt resonate with many families. She would have the federal government cover the costs of child-care from birth to school age entirely for any family earning below 200 percent of the federal poverty line, provided they use government-approved local providers. Federal funding would also be available above that, with a cap on out-of-pocket spending on child-care at 7% of any family’s income. According to Warren’s explanation, this would come coupled with providers being held to government educational standards and a desire to push up pay for child care workers to levels seen for public school teachers.

This would have dramatic consequences for the child-care sector. A few observations:

1. Warren’s plan will significantly reduce out-of-pocket costs for many families. It represents a huge new subsidy. Take care for 4 year-olds as one example; at the moment, data from Child Care Aware of America show just two states (Alabama and Mississippi) have average full-time care costs below 7% of median income. For infants, no state has average costs below 7% of median income. For families with 2 or more children in these care settings, the subsidy will be massive. Such a large, universal subsidy will bring significant deadweight (people using the scheme who would otherwise have paid for their own care anyway). But it is so generous that it will encourage many new users of child care too.
2. This is significant, because state-level government regulations – not least on staff:child ratios and qualification requirements for carers – currently make providing child-care more expensive. This reduces the number of child-care facilities available in low income markets and increases prices for families. Warren’s subsidy response amounts to a classic case of government restricting supply through policy, on the one hand, and then labelling the resulting high prices a “market failure” that needs to be corrected. In fact, Warren’s plan would worsen the supply problem through its promise to raise pay rates for carers substantially. This would restrict supply further while the subsidies induce demand, raising underlying market prices – higher prices now overwhelmingly paid by taxpayers.
3. In the U.K., child-care subsidies drove providers in some areas out of business. Why? The government-provided subsidy rates to deliver “free” care were often lower than market prices, meaning providers had to cross-subsidize government-guaranteed places by charging more for unsubsidized families. As “free” care expanded, the opportunity to engage in this cross-subsidization fell, and some companies found the government-funding rate uneconomic as it took over more of the sector.
4. In the U.S., the average cost of child care varies dramatically by state. For a 4 year-old, the cost of full-time center-based care ranges from $5,061 in Alabama, right through to $18,657 in D.C. Warren’s plan would cap the proportion of income any family paid on child-care. But no government would put taxpayers on the hook for a blank check for any family’s spending habits. Otherwise providers would have every incentive to provide extremely luxurious care on the basis that taxpayers would foot the bill. Instead, the federal government would either likely try to fix rates to prevent over-spending (risking big distortions in certain markets through de facto price controls, as seen in Britain), control what services child-care facilities provide very prescriptively or else cap the overall amount any family could spend while still benefiting from the subsidy.

In short, instead of reducing the costs of providing care through much-needed supply-side reform, this new demand-side scheme will further drive up the market price of child-care, with taxpayers on the hook now for increased use of formal care.

Given the cost implications of capping the per income amount spent by any family, the federal government would inevitably have to circumscribe the nature of care, fix the rates taxpayers would finance or cap the total amount families could spend on child-care within the scheme. These would fundamentally change the types of care available or used in the sector.

The Oregon Senate has passed a rent control bill that would limit annual rent increases to 7 percent above the annual change in the consumer price index.

This sort of legislation is, in the longer term, likely to please nobody.

In markets where rents are rising faster than earnings, but slower than this cap, groups representing tenants will complain that the price restriction is not tight enough to help tenants financially.

In markets where demand for rental property is growing rapidly relative to supply, the controls will bind and bring the negative effects we’ve seen from rent control historically: reduced incentive to bring new supply to market (and so rising underlying market prices), a misallocation of properties, a lock-in of tenants reducing labor mobility, and a worsening in the quality of properties available.

So why introduce the legislation?

The stated goal of its proponents is that it’s a defense against so-called “economic eviction.” That is, to guard against instances where tenants face steep unforeseen rent hikes, that suddenly makes living in a rented property unaffordable.

To give these tenants more security and certainty, many polities around the world are experimenting with new forms of “rent regulation.” Most common is for the introduction of fixed term tenancies, say for three years, during which rent increases are linked to some inflation measures. Between tenancies, landlords can adjust rents as they wish.

Over time, these forms of regulation allow rent levels to track market fundamentals. They can still have some of the negative effects crude rent controls bring in the short-term, especially in overheating markets. They also tend to have to be coupled with other regulations that ensure security of tenure, restricting landlords’ rights to evict within tenancies. This change in who bears the risk might reduce the supply of available property, as might the perception this type of regulation was a precursor to more stringent regulation.

Overall though, these forms of rent regulation are not as damaging as first-generation price controls. By construction, they cannot improve overall affordability and will likely raise market rents. Their use really entails a trade-off: providing more time-limited security for existing tenants, at the cost of economic inefficiency and lower investment in the rentable housing stock.

The Oregon Senate’s bill — with a high but crude cap on annual rent increases – is quite different. The bill does contain some new restrictions on evictions, including prohibiting a landlord from terminating month-to-month tenancy without cause after 12 months of occupancy. But the rent control cap proposed suggests policymakers also desire to signal to renters that they are concerned about general affordability within tight city markets too.

The stark truth is this: the only policy means of ensuring that both perceived problems are minimized is to set land-use planning and zoning regulations such that housing supply is responsive to new demand. Fail to recognize that, and the rent controls advocated will either result in disappointment and demands for tighter controls, or else exacerbate the relative scarcity of supply in tight markets.

Oregon is notorious for its land-use regulations. My colleague Randal O’Toole has long explained how extensive urban growth boundaries create severe restrictions on building outside of cities. This leads to demand substitution into the restricted urban areas, driving up the price of land and, ultimately, housing. And in recent decades it has been getting worse: Vanessa Brown-Calder has noted that between the years of 2000 and 2010, Oregon added more land-use regulations per capita than 43 other states.

Little surprise then that, dividing the median house price by median income in each of Oregon’s three biggest cities, Demographia’s Median Multiple Index finds two to be severely unaffordable (Eugene with a multiple of 5.6 and Portland at 5.2) and the other merely seriously unaffordable (Salem at 5.0). For context, using these calculations there are just 13 severely unaffordable metropolitan markets in the whole of the U.S.

The best way to make housing more affordable and to lessen the prospect of abrupt rent hikes is to reform these cost-inflating rules on land use. In the absence of that, rent control amounts to little more than trying to muffle the message that rental and house prices are screaming about the relative scarcity of land developable for housing.

A new study circulated by National Bureau of Economic Research suggests government-supported paid leave and other policies may not improve working women’s labor market outcomes relative to men, afterall. This is an important finding because advocates frequently suggest that government-supported paid leave would help close the gender gap in labor market outcomes.

The authors estimate the cost of childbearing on men’s and women’s earnings (known as “child penalties”) in the U.S. and five other countries including Denmark, Sweden, Germany, Austria, and the United Kingdom. The study builds on previous research that finds men and women’s labor market outcomes in egalitarian Denmark are roughly equal in terms of earnings, hours worked, and employment until men and women become parents. At that point mother’s earnings, hours worked, and employment diverge and do not recover, in spite of expansive government-funded social welfare programs including 50 weeks of paid leave and public child care.

The latest study finds the trajectory of women in the U.S. and other countries follow the same pattern. Notably, U.S. women fare better than women in three of the five other countries the study measures including the United Kingdom, Germany, and Austria.

In fact, the U.S. has a significantly smaller child penalty (31 versus 44 percent) for women than the United Kingdom, a country with generous social welfare programs including 39 weeks of government sponsored paid maternity leave. The U.S. also has a smaller child earnings penalty than Germany or Austria, countries where the state provides over a year of paid leave for mothers.

What explains the difference in child penalties, if not policies or programs? The study’s authors suggest gender norms and family culture likely play a key role in women’s labor market outcomes and cite previous work that finds women incur larger child penalties following childbearing if they grow up in households with a traditional division of labor. As the authors put it “The countries that feature larger child penalties are also characterized by much more gender conservative views.”

What does this mean for policy? Advocates have been quick to posit that a more expansive social welfare state would reduce gender disparities in the labor market, but recent research suggests that paid leave and related policies are unlikely to close the gap. 

In the State of the Union address last week, President Trump said he was “proud to be the first President to include in my budget a plan for nationwide paid family leave — so that every new parent has the chance to bond with their newborn child.”

Indeed, Trump’s budget last year did include a provision for paid parental leave. The proposal was thin on details but suggested the paid leave program would build on the existing unemployment insurance program, and the White House budget projected it would cost taxpayers around $2 billion annually. 

Based on the applause, Trump’s national paid leave idea has some support. But sympathetic Republicans should temper their enthusiasm and recall their professed support for federalism. Afterall, it wasn’t long ago that federalism was an animating issue of the Republican party, and it’s still just as relevant to economic policy questions today.

How does federalism apply to paid leave? Federalism can’t eliminate government-supported paid leave’s costs or unintended side effects. Still, allowing localities to experiment with different lengths, types, and features of government-supported paid leave –or no government-supported leave at all– is superior to a one-size-fits-all nationalized approach because different constituents have different policy preferences that can be honored more easily under this approach. Also, the variation generated by a diversity of state and local approaches can clarify the policy debate by providing useful information on outcomes.

Moreover, advocates of government-supported paid leave can rest assured that states have been successful at adopting paid leave programs without federal help; California, New Jersey, Rhode Island, New York, Washington, Massachusetts, and D.C. have all enacted paid leave policies which are in effect or will be soon, and legislators in Vermont, Colorado, New Hampshire and many other states have proposed or are actively pursuing paid leave policies.

Even cities have passed paid leave policies. For example, San Francisco passed mandated paid leave, unfortunately one of the worst possible formulations of government-supported leave. And last week two Los Angeles city council members proposed businesses top-up California’s state paid leave benefits and provide up to 100 percent of employee wages for 18 weeks of leave. 

Republicans eager to implement national paid leave should know that government-supported paid leave is likely to appear in a state or city near them soon. It would be wise to let local knowledge drive policy decisions in this realm, rather than Washington.