NIMBYism and Economic Ignorance

A new study presents compelling evidence that opposition to new housing construction is often caused the mistaken belief that it will increase housing prices rather than reduce them.

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Zoning restrictions on the construction of new housing inflict immense harm by cutting off millions of people from housing, educational, and job opportunities. Even current homeowners who have no desire to move can often benefit from deregulation. Nonetheless, NIMBY ("not in my backyard") sentiments  are a major obstacle to new construction and often block reform. The standard explanation for NIMBYism is that current homeowners rationally conclude that new construction is inimical to their interests, even if benefits society as a whole. But "Folk Economics and the Persistence of Political Opposition to New Housing," a new article by legal scholar Chris Elmendorf and political scientists Clayton Nall and Stan Oklobdzija finds that simple economic ignorance is a a major factor. It turns out that only a minority of Americans (about 30-40%) understand that new housing construction reduces housing prices, and a comparably large group actually believe the opposite:  that new construction increases them!

Here is the abstract summarizing their conclusions:

Political scientists commonly attribute the underproduction of housing in US metropolitan areas to unequal participation and collective action problems. Homeowners, who are organized, repeat players in local politics, mobilize against proposed projects nearby, while renters, who would benefit from more housing, benefit too diffusely to mobilize for it and may not even vote in the jurisdiction. Using data from two nationally representative surveys of urban and suburban residents, we posit a further cause of the housing shortage: public misunderstanding of housing markets. Through vignettes describing a 10% shock to regional housing supply, we find that only about 30–40% of respondents believe that additional supply would reduce prices and rents. Using a conjoint design, we find that this "Supply Skepticism" is robust to question wording, stipulated counterfactual assumptions, and the cause of the supply shock. It also appears to be specific to housing: respondents generally gave correct answers to questions about supply shocks in other markets. Finally, we find that while nearly all renters and even a majority of homeowners say they would prefer home prices and rents in their city to be lower in the future, support for state preemption of local land-use restrictions depends on beliefs about housing markets. "Supply skepticism" among renters undermines their support for home construction, while some homeowners appear to be more supportive of new development than they would be if they held conventional economic views.

As the authors point out, "supply skepticism" caused by economic ignorance helps explain why renters often oppose new construction as much as homeowners do. The former have everything to gain and nothing to lose from lowering prices. But many don't realize that new construction will lead to that result. They authors also find that many homeowners actually want to see prices go down (contrary to the stereotype that voters are motivated by narrow self-interest). But, as with renters, many don't realize that new construction will have that result. The authors also do a lot of useful work to rule out alternative explanations for supply skepticism, other than ignorance.

These findings should not be surprising. For most voters, ignorance about public policy and its effects is actually rational behavior, driven by the infinitesimally small likelihood that any one vote will make a difference. Ignorance about the economic effects of zoning and housing construction is just part of the much broader phenomenon of political ignorance, which applies to a vast range of issues. I cover many of them in my book Democracy and Political Ignorance.

But Nall, Elmendorf, and Oklobdzija show that public ignorance about the effects of housing construction is much more common than similar misunderstandings about supply increases in other markets. They offer some possible explanations for the discrepancy.

The authors also find "a very strong tendency to blame housing providers (developers) for high housing prices. Conversely, actors whose stock in trade is opposing new development (environmentalists, anti-development activists) are almost never blamed." Ironically, ignorant public opinion puts the blame on the very people whose  efforts tend to alleviate the problem, while sparing the real culprits.

Economic ignorance is not the only factor driving NIMBYism. Some people really do oppose new construction based on careful calculations of their narrow self-interest. While current homeowners can often benefit from development in various ways, if you're an owner who does not have children (or doesn't care about their housing costs), doesn't care much about promoting growth and innovation, and wants to ensure that the "character" of your neighborhood changes as little as possible, you might rationally oppose zoning reform, even if you understand its effects perfectly well. Historically, racial and ethnic prejudice has also been an important factor, though it has waned more recently, as education levels have risen and white suburbanites have become more open to integration.

But, while ignorance is not the only cause of NIMBYism, "Folk Economics and the Persistence of Political Opposition to New Housing" shows that it is likely to be a major factor. Reform efforts will need to take account of this challenge.

Economist Alex Tabarrok has additional comments on this article and its significance at the Marginal Revolution blog.