Finally, a book by a New York Times reporter who understands the crucial link between restrictions on the supply of housing and the price of housing! Golden Gates, by economics reporter Conor Dougherty, is a tour de force. It’s a rare book that mixes careful, nuanced reporting, painless economics lessons, interesting history of California, and pitch-perfect humor, but Dougherty has written one.

Dougherty, who was a housing reporter for the Wall Street Journal for a decade, must have learned a lot in that job. He knows and understands the economics literature on the connection between supply and price, as evidenced by his treatment of the pathbreaking work of Harvard’s Ed Glaeser and Wharton’s Joseph Gyourko. (See “Zoning’s Steep Price,” Fall 2002.) Furthermore, Dougherty understands that when more luxury housing is built, that frees up housing that is then sold to people slightly lower on the wealth scale, and on down. He also understands the negative consequences of rent control.

That’s not to say that I agree with everything in the book. In particular, the author underplays both the bad consequences of rent control and the good that would result from massive housing deregulation. But those defects are way more than offset by his understanding of the harm done by restrictions on building.

Activists and economists/ Early in the book, Dougherty introduces a number of important players. First is a colorful character named Sonja Trauss, a teacher in the East Bay who dropped out of the doctoral economics program at Washington University in St. Louis, emerging with a master’s degree. Trauss started San Francisco Bay Area Renters’ Federation, an organization that favors allowing more housing to be built. She was an early advocate of YIMBY (Yes In My Back Yard), the opposite of NIMBY (Not In My Back Yard). As Dougherty puts it, “Sonja was for anything and everything, so long as it was built tall and fast and had people living in it.” Trauss later became a full-time activist for the cause of more housing, and Dougherty tracks her movements carefully.

Trauss has a way with words and Dougherty has a keen ear for those words. She understands 19th-century writer Frederic Bastiat’s point about the unseen consequences of government regulation. At a hearing in the East Bay city of Lafayette, she pointed out that many of the people who would be affected by a decision to allow more housing “don’t know who they are yet” and that some of them are not even born. It’s Bastiat’s seen versus unseen.

The book also discusses Harvard labor economist Lawrence Katz. Few people probably know — I didn’t — that when he graduated as Berkeley’s top economics undergrad, Katz devoted his whole 1981 commencement speech to one of the main causes of the high price of housing in the Bay Area: restriction of supply. He pointed out something that few of his classmates probably knew: just 10 years earlier, “California house prices were not much greater than the national median.”

Another important player Dougherty introduces is Glaeser. He and Gyourko computed construction costs in various areas and then subtracted those costs from the price of a house to compute the value of the land on which building permits had been granted. Although Dougherty doesn’t mention it, their clever check on their results was to compare prices of houses that were comparable, except that one sat on more land than the other. The house with a quarter-acre of additional land sold for only about $10,000-$20,000 more, while a quarter-acre lot on which building was permitted often sold for around 10 times more. The increase in housing prices, therefore, was due not to a scarcity of land, but to a scarcity of building permits.

While many academics who come up with powerful results simply move on to the next interesting area, Glaeser believes in publicizing his results. Writes Dougherty, “He started blogging about housing costs and writing op-eds about housing costs and becoming the subject of various newspaper profiles where he called the advent of strict zoning the most important shift in the U.S. housing market since the adoption of the automobile.”

Trickle-down housing supply/ As someone who, for over 40 years, has advocated cutting high marginal tax rates, I can attest that I have yet to see one of my allies advocate “trickle down” tax cuts. But one area where the term does apply is in housing. Many Californians oppose allowing people to build luxury houses because they think that won’t help people who can’t afford such luxury. They’re wrong. Dougherty quotes a software engineer and Trauss ally, Vincent Woo, who said at a 2016 San Francisco Board of Supervisors hearing:

If we don’t build units for people with money to go into, we all know what’s going to happen. They’re going to compete [for] the existing stock for middle income housing residents, and we know who’s going to win, the people with more money.

Allowing luxury units to be built, by contrast, would free up housing for people with less income. You don’t see a lot of low-income people driving new Cadillacs, but you do see some of them driving 10-year-old Cadillacs.

People who want to limit the supply of housing often try to limit a key resource in order to create a bottleneck. In the last few decades, this strategy has been applied to the supply of water. On the Monterey Peninsula, where I live, no-growthers and slow-growthers successfully pushed in the 1980s and 1990s to prevent a new dam from being built. They are now trying to prevent the local water utility, Cal-Am, from building a desalination plant. Dougherty discusses the bottleneck issue briefly, quoting a conservationist named Raymond Dasmann who advocated restricting the water supply and new housing. Although we sometimes (usually?) think of these no- and slow-growthers as left-liberals — because many of them are — Dougherty reminds us that left-liberals were not always that way. He points out that Pat Brown, the Democratic governor of California who lost to Ronald Reagan in 1966 when running for a third term, welcomed newcomers and wanted California’s population to grow. In 1960, Brown asked rhetorically: “What are we to do? Build barriers around California and say nobody else can come in because we don’t have enough water to go around?” In his 1965 book The Destruction of California, Dasmann’s answer was, in essence, “Yup.” That’s how many, many Californians would answer today. And that makes Dougherty pessimistic about the prospects for large increases in the supply of housing.

Dougherty also understands the enormous harm done by government “redevelopment” projects in the 1960s and 1970s. They “demolished black neighborhoods around the country” and “destroyed thousands of rooming houses and ‘cage hotels’ with single-occupant dwellings and shared bathrooms, removing a crucial supply of last-resort shelter.”

You don’t see a lot of low-income people driving new Cadillacs, but you do see some of them driving 10-year-old Cadillacs.

In one chapter, Dougherty discusses the heart-wrenching stories of Latinos living in San Mateo who barely managed to pay the rent and who then were faced with a huge rent increase that pushed them out of the area. One woman, Sister Christina Heltsley, who runs a Redwood, CA charity called the St. Francis Center, got creative, using some of the center’s funds and other money she raised to buy an improved apartment block and then let the apartments at a below-market rent to less-wealthy people. Dougherty comments that she “had in a sense removed [the apartments] from capitalism.” That’s false: Heltsley’s actions were a capitalist act. Capitalism allows, but does not require, people to sell or rent to the highest bidder.

Power of prices/ In discussing the harm rent control does, Dougherty shows a solid understanding of the role of rent, and prices generally, in allocating resources to their highest-valued uses. He notes that many people believe that “high prices mostly just exploit people who can’t pay them.” That’s wrong, he notes, because “prices have a big and vastly underappreciated role in society, which is to tell us what sorts of things we need more of.” He adds, “At the highest level, that’s what a market economy is.” The alternative to a market economy, he says flatly, is feudalism. He understands why economists across the spectrum tend to favor markets, writing, “Markets aren’t perfect, but they are mostly better than feudalism, which is why economists, even liberal ones, tend to look down on any policy that disrupts the message prices are trying to send.” Parenthetically, I note that I have yet to meet an economist not living in a rent-controlled dwelling who favors rent control.

Dougherty writes that “various studies, meaning pretty much all of them, show that cities with strict price caps end up with less rental housing and higher rental prices.” The reason is that rent control reduces the incentive to build housing. Dougherty also discusses a well-known Stanford study that found that rent control in San Francisco “had probably accelerated gentrification, by pushing investors to flip affordable apartments into high-priced condos and co-ops.” He also notes that “rent control encourages people who are higher-income to park themselves in fixed-rate apartments long after they can afford to move out, and in the most egregious cases use their savings to buy second homes elsewhere.”

I noted at the start of this review that Dougherty sprinkles the narrative with humor. One good example is his discussion of a hearing in Lafayette at which an anti-housing activist named Michael Griffiths of a group called Save Lafayette professed that “nobody likes to get into lawsuits.” Dougherty writes: “A council member later retorted that it wasn’t the city’s fault they were getting sued. This was presumably to remind Michael Griffiths of Save Lafayette that Michael Griffiths of Save Lafayette was currently the one suing them” (italics in original).

Middle course/ Toward the end of the book, Dougherty tries to steer a middle course. He writes:

It’s a fraught leap from “the government is responsible for redlining and redevelopment” to “therefore socialism.” It seems equally fraught to believe that a capitalism that creates a business model on eviction and homelessness would make us all better off if it were allowed to run its course.

This last statement is strange, coming from someone who spent over 200 pages showing us that that last “fraught” statement is probably true. Throughout the book, Dougherty argues that allowing huge increases in housing would bring down house prices and rents, which would reduce evictions and homelessness.

It’s true that not everyone would be better off from liberalizing housing policies. In particular, the drop in housing prices would hurt older, wealthy homeowners. And if those homeowners were childless, they wouldn’t even be able to comfort themselves with the thought that at least their adult children would find living closer to home more affordable. But those homeowners, quite rightly, are not who he’s worried about.

Sticking to his middle course, Dougherty writes, “There’s no way to rectify a housing shortage other than to build housing, and there’s no way to take care of people whom the private market won’t take care of other than subsidies or rent control, or both.” Yet his own book shows the opposite of that last clause. If governments allowed huge increases in housing, the private market would take care of almost everyone, and rent controls and subsidies would not be necessary. Many more people would then be able to enter the golden gates.