Lall, Wang and da Mata find that reducing land use regulation in Brazil would increase the formal housing supply, but not necessarily reduce slum formation

I just finished a two day visit to Sao Paolo, where officials are concerned that constrained housing supply is exacerbating the size of favelas.  This lead me to read Lall, Wang and da Mata:

In this paper, we examine the effects of land use and zoning regulations on
housing supply and slum formation across Brazilian cities between 1980 and 2000. We
find very low price elasticities of housing supply in the Brazilian formal housing market,
which limits formal housing supply adjustments in response to demand increases, and is
linked with growth of informal settlements. The imputed Brazilian formal housing supply
elasticity is similar to those in Malaysia and South Korea, which have been regarded to
have restrictive regulatory environments.

We also find that land use regulations that manage densities – in particular,
minimum lot size regulations, have important effects in terms of housing supply and slum
formation. Contrary to conventional wisdom, lowering minimum lot size regulations do
not lead to a reduction in slum formation. If city population growth were exogenous and
households did not consider local regulations in their migration and residential location
decisions, then lowering minimum lot sizes would allow cities to accommodate more
residents into formal housing developments – and unambiguously reduce slum formation.
However, when we consider that regulations are a part of household migration
and residential choice decisions, the exact effects of lowering regulatory standards are not
obvious. In fact, our model suggests that the net effect of land regulations depends on the
extent to which new formal housing supply absorbs demand, both from current informal
sector residents and population growth induced by lowering regulations. Our estimation
strategy considers both effects, and we find that cities that lowered minimum lot size
regulations from the Federal stipulation of 125 m2 experienced higher growth in the
formal housing stock. However, this was also accompanied by higher population growth
from migration, and the resulting city population growth was higher than the formal
housing supply response, exacerbating the slum formation problem.

Local innovations that increase access to land for the poor – such as flexible land
sub divisions – are welfare enhancing as they allow houses with different specifications
to be available in the market, thereby allowing low income residents to benefit from
services that meet their preferences (and affordability). However, if some cities offer
improved access to land compared to their peers, these cities are likely to
disproportionately attract (poor) migrants. If the induced population growth is higher than
formal housing supply adjustment, informality is likely to grow. Cities that absorb
migrants increase welfare – and in this context the challenge is to identify strategies that
increase formal housing supply relative to population growth. The econometric results
should not be viewed as a failure of flexible zoning to reduce slum formation. Rather, the
focus should be on identifying pre existing distortions in the land and housing market that
reduce the formal housing supply response to additional demand. 

Two important issues for future research emerge from this analysis. First, to
understand why some cities deviated from the federally stipulated minimum lot
specification of 125 m2 to favor low income housing development. And second, to
identify sources of land and housing supply distortions that reduce the elasticity of formal
housing supply.

One fact about the Sao Paulo context: according to officials, the vacancy rate in the formal sector there is about 13 percent, suggesting excess housing supply.  But the construction cost of the minimum size house allowed under Brazilian law is simply too high for many Brazilians to afford.  Allowing smaller houses to be constructed would almost certainly improve housing welfare.

While I don't like the finding, I feel compelled to report that Matt Kahn finds liberals are more likely to be housing NIMBYs

I just caught up with his JUE paper on the subject.  The abstract:

Traditional explanations for why some communities block new housing construction focus on incumbent home owner incentives to block entry. Local resident political ideology may also influence community permitting decisions. This paper uses city level panel data across California metropolitan areas from 2000 to 2008 to document that liberal cities grant fewer new housing permits than observationally similar cities located within the same metropolitan area. Cities experiencing a growth in their liberal voter share have a lower new housing permit growth rate.

The paper is quite thorough, using a wide variety of specifications, and the results are quite robust. 

My research (and that of many others) shows that impediments to homebuilding are the largest cause of expensive houses.  By impeding home construction, liberals are contributing to the rent being too damn high.  Needless to say, this hurts low income households more than anyone else.

Holmes and Watson teams--an entirely subjective judgment

Basil Rathbone and Nigel Bruce--not good
Nicol Williamson and Robert Duval--OK
Douglas Wilmer and Thorley Waters--Oy
Jeremy Brett and Edward Hardwick--great
Vincent D'Onofrio and Katherine Erbe--very good
Robert Downey and Jude Law--OK
Benedict Cumberbatch and Martin Freeman--really great
Jonny Lee Miller and Lucy Liu--kind of eager to find out

Transit Oriented Development in Thailand (h/t Hasan Ikhrata of SCAG)

Why Paul Ryan is dangerous

I was on a panel with him at the University of Wisconsin last year.  Unlike his running-mate, he comes across as well-informed, and he knows how to play to his audience.  He is actually personally quite charming...just very, very wrong.

Who should be held harmless for deficit reduction?

At some point, once the unemployment rate really starts to fall, the US needs to get on a steady-state path to deficit reduction.  A question worth asking is what part of the income distribution should contribute to this reduction.  Certainly the one percent should make the major contribution, but it is hard to see how it can close the gap by itself.

The current budget deficit is about $1.3 trillion.  According to IRS SOI data for 2009 (the most recent available), households in the top one percent paid income taxes of $318 billion in that year (see Table 5).  Because that was an anomalous year, let's go back to 2007, when the top one percent paid the most is had paid under current law, which was $451 billion. If we adjust that for five years of CPI growth, that translates to about $497 billion in current dollars.  This means that doubling taxes on the top one percent would get us less than halfway toward closing the budget gap.

Of course, lower unemployment will mean less money going to unemployment insurance, and will add to the number of taxpayers, and these will help reduce the deficit.  But the taxing the one percent alone will not be enough--so how low do we go?  I would certainly hold the bottom two quintiles harmless--whatever mix of tax and spending changes come along, that group should be left no worse off than before (because they received no net benefit from the policies of the past decade or so).  How one divides it up among the rest?  I am not sure.

I don't understand Glenn Hubbard's Arithmetic

He says he wants federal spending to be reduced to 20 percent of GDP, along with "revenue-neutral" tax reform.  (I think revenue-neutral tax reform is code for reducing the after-tax income of the bottom half of the country further, because after all, Wall Street has suffered too much at the hands of ...well, never mind that for now).

The problem is that according to OMB, current revenues are less than 16 percent of GDP (see Table 1.2).  So is Hubbard advocating a steady-state budget deficit to GDP ratio of four percent per year in perpetuity?